<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
REGISTRATION NO. 333-04561
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT
NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
OREGON 7373 93-1004490
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
1600 N.W. Compton Drive, Suite 210
Beaverton, Oregon 97006
(503) 690-4000
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Paul J. Cosgrave, President
Claremont Technology Group, Inc.
1600 N.W. Compton Drive, Suite 210
Beaverton, Oregon 97006
(503) 690-4000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
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<TABLE>
<CAPTION>
COPIES TO:
<S> <C>
WILLIAM C. CAMPBELL, ESQ. THOMAS A. BEVILACQUA, ESQ.
Ater Wynne Hewitt Dodson & Skerritt, Brobeck, Phleger & Harrison LLP
LLP One Market, Spear Street Tower
222 S.W. Columbia, Suite 1800 San Francisco, California 94105
Portland, Oregon 97201 (415) 442-0900
(503) 226-1191
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
Common Stock, no par value.... 3,220,000 $19.00 $61,180,000 $21,096.55
</TABLE>
(1) Includes 420,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Includes $20,343.10 paid May 24, 1996 upon the initial filing of Form S-1.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY FORM S-1
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<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Forepart of the Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Principal and Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to Be Registered........... Outside Front Cover Page of Prospectus; Dividend
Policy; Description of Capital Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Summary; Risk
Factors; Dividend Policy; Selected Consolidated
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Shareholders; Description of
Capital Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1996
[LOGO]
2,800,000 SHARES
COMMON STOCK
Of the 2,800,000 shares of Common Stock offered hereby, 1,750,000 shares are
being sold by Claremont Technology Group, Inc. ("Claremont" or the "Company")
and 1,050,000 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$17.00 and $19.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY (1) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (2)............... $ $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $800,000.
(2) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an additional 420,000 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $ , $ , $ and $ , respectively.
------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN & CO.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[INSIDE COVER GRAPHICS--Graphical Depiction in color of the three phases of the
Company's TISE methodology]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Summary.................................................................................................... 4
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 12
Dividend Policy............................................................................................ 12
Capitalization............................................................................................. 13
Dilution................................................................................................... 14
Selected Consolidated Financial Data....................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 16
Business................................................................................................... 23
Management................................................................................................. 31
Certain Transactions....................................................................................... 38
Principal and Selling Shareholders......................................................................... 40
Description of Capital Stock............................................................................... 42
Shares Eligible for Future Sale............................................................................ 44
Underwriting............................................................................................... 45
Legal Matters.............................................................................................. 46
Experts.................................................................................................... 46
Additional Information..................................................................................... 46
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
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The Company intends to furnish to its shareholders annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
its independent public accountants, and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
The Company was incorporated in Oregon in 1989 under the name Claremont
Consulting Group, Inc. The Company's name was changed to Claremont Technology
Group, Inc. in 1993. The Company's executive offices are located at 1600 N.W.
Compton Drive, Suite 210, Beaverton, Oregon 97006, and its telephone number is
503-690-4000.
Clarety-TM-, HWIMSy-TM-, The Node Connection-TM-, Northern Diamond-TM-,
Premost-TM-, Spibox-TM-, TISE-TM-, Value Server-TM- and Value Software-TM- are
United States trademarks of the Company. Tradenames and trademarks of other
companies appearing in this Prospectus are the property of their respective
holders.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
Claremont Technology Group, Inc. ("Claremont" or the "Company"), provides
enterprise-wide information technology ("IT") solutions that re-engineer
mission-critical business processes such as customer service, order processing,
billing and logistics. Claremont delivers its services, including IT planning,
systems integration and development and outsourcing, through a project
management methodology that can employ reusable object oriented software modules
and transferable design frameworks on a fixed-price, fixed-delivery-schedule
basis or a time and materials basis. Claremont provides solutions to large
organizations in select IT intensive, vertical markets including communications,
financial services and pension/retirement services. Claremont's clients consist
of large corporations and government organizations in the United States and
certain foreign markets including Canada, the United Kingdom, Saudi Arabia and
New Zealand.
Claremont provides its services to organizations within industries where
technology-enabled change and re-engineering of business processes can have a
significant competitive impact. The Company's focus on select vertical markets
is complemented by its expertise with the particular customer interface within
these markets and its dedication to partner with clients to co-develop large
scale business solutions. Claremont believes its industry specific expertise and
its partnership approach to client relationships gives it a competitive
advantage in marketing additional services to its clients and results in high
client retention levels. Clients representing 94% of Claremont's fiscal 1995
revenue continue as clients today. The Company's clients include: AT&T and its
subsidiaries, Fred Meyer, Inc., Lucent Technologies, Ohio State Teachers
Retirement System and PacifiCorp.
Claremont's Total Information Systems Engagement ("TISE") three-phase
methodology provides a structure through which the Company's skills and
knowledge can be effectively deployed. TISE begins with an intensive design
phase in which Claremont works with its clients to define their business problem
and to develop a high level system design. In the systems development and
integration phase, Claremont's consultants can draw from its previously
developed reusable object oriented software modules and transferable design
frameworks to cost-effectively co-develop and quickly deploy applications
solutions. Claremont's approach emphasizes the replacement of outdated and
inflexible legacy code as part of the re-engineering process rather than the
mere addition of new interfaces. In the final phase of TISE, the Company can
provide outsourcing services for ongoing system maintenance and enhancement.
To achieve its objective of becoming a leading provider of enterprise-wide
solutions, the Company intends to expand its client base by leveraging its
vertical market expertise, increasing penetration of its existing clients,
capitalizing on the benefits of its TISE methodology and providing expertise in
high demand, leading edge technologies. Further, Claremont's strategy is to
attract and retain superior, highly innovative IT professionals. The Company
also plans to expand its geographic presence, industry expertise and technical
scope through strategic acquisitions. To facilitate its delivery of
technological expertise, Claremont has developed working relationships with
companies such as Arbor Software Corporation, Forte Software, Inc., Hewlett
Packard Company, International Business Machines Corp. ("IBM"), Microsoft
Corporation, Netscape Communications Corporation, Oracle Technology, Inc.,
Silicon Graphics, Inc. and Sybase, Inc.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.................. 1,750,000 shares
Common Stock Offered by the Selling Shareholders..... 1,050,000 shares
Common Stock Outstanding after the Offering.......... 6,855,611 shares (1)
Use of Proceeds...................................... For repayment of principal and
interest on revolving line of
credit; working capital and general
corporate purposes.
Proposed Nasdaq National Market Symbol............... CLMT
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................. $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
Income (loss) from operations.............. (185) 125 2,774 2,393 3,432 2,790 3,879
Net income (loss).......................... (135) 102 1,591 1,452 2,147 1,743 2,205
Net income (loss) per common share (2)..... $ (0.03) $ 0.02 $ 0.28 $ 0.24 $ 0.31 $ 0.25 $ 0.29
Weighted average number of common and
common equivalent shares outstanding (2).. 4,532 4,544 5,796 6,269 7,319 7,215 7,662
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 80 $ 28,575
Working capital........................................................................ 3,066 31,561
Total assets........................................................................... 18,278 46,773
Long-term debt, excluding current installments......................................... 1,756 1,756
Shareholders' equity................................................................... 8,129 36,624
</TABLE>
- ------------
(1) Includes 273,913 shares of Common Stock to be issued upon the exercise of
currently outstanding options upon completion of this offering. Excludes
2,853,397 shares of Common Stock reserved for issuance upon exercise of
currently outstanding options at a weighted average exercise price of $1.87
per share, of which 1,124,830 are currently exercisable. Also excludes
400,000 shares of Common Stock issuable upon exercise of an outstanding
warrant at an exercise price of $10.33 per share. See "Management -- Stock
Option Plans" and "Certain Transactions."
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common share.
(3) Adjusted to give effect to the sale by the Company of 1,750,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$18.00 per share and the application of the estimated net proceeds therefrom
as set forth in "Use of Proceeds."
------------------
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING." AS USED IN THIS PROSPECTUS, THE TERM FISCAL YEAR SHALL REFER TO
THE TWELVE-MONTH PERIOD ENDED OR ENDING JUNE 30 OF THE YEAR GIVEN.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
CLIENT AND INDUSTRY CONCENTRATION; DEPENDENCE ON LARGE PROJECTS
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenue from a limited number of large client
projects and in a limited number of industries. The Company's five largest
clients accounted for approximately 76% and 63% of its revenue in fiscal 1995
and the first nine months of fiscal 1996, respectively. The Ohio State Teachers'
Retirement System and AT&T Network Systems (now Lucent Technologies) accounted
for 38% and 19%, respectively, of the Company's revenue in fiscal 1995. Lucent
Technologies, Ohio State Teachers' Retirement System, Mississippi Public
Employees Retirement System, Fred Meyer, Inc. and PacifiCorp accounted for 24%,
14%, 12%, 8% and 5%, respectively, of the Company's revenue in the nine months
ended March 31, 1996. The volume of work performed for specific clients is
likely to vary from year to year, and a major client in one year may not use the
Company's services in a subsequent year. The loss of any large client could have
a material adverse effect on the Company's business, financial condition and
results of operations. Most of the Company's contracts are terminable by the
client following limited notice and without significant penalty to the client.
The cancellation of a large project or a significant reduction in the scope of
such a project could have a material adverse effect on the Company's business,
financial condition and results of operations, and in the past the cancellation
of a large project has had such an effect. Furthermore, a decision by any large
client not to proceed with a project to the stage anticipated by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. As a result of the Company's focus in
specific industries the Company's business, financial condition and results of
operations are influenced by economic and other conditions affecting these
industries, such as economic downturns in the communications or financial
services industries, which could lead to a reduction in capital spending on IT
projects, governmental spending cuts or general budgetary constraints in the
pension/retirement and other government services practice area, which could lead
to fewer new projects being undertaken, or changes in government regulations,
which could obsolete or require substantial changes to Claremont's existing pre-
developed proprietary software products. Any such factors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy," and "Business -- Markets and Clients."
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
The Company's business is labor intensive and depends upon the delivery of
professional services. Professional fees represented 100%, 100% and 94% of the
Company's revenue in fiscal 1994, fiscal 1995 and the nine months ended March
31, 1996, respectively. The Company's success will depend in large part upon its
ability to attract, train, retain and motivate highly-skilled employees,
particularly project managers and other senior technical personnel. There is
significant competition for employees with the skills required to perform the
services offered by the Company. Qualified project managers and senior technical
and professional staff are in great demand and are likely to remain a limited
resource for the foreseeable future. There can be no assurance that the Company
will be successful in attracting a sufficient number of highly-skilled employees
in the future, or that it will be successful in training, retaining and
motivating employees. The Company's inability to attract, train and retain
skilled employees or the Company's employees' inability to achieve expected
levels of performance could impair the Company's ability to adequately manage
and complete its existing projects and to bid for or obtain new projects. This
in turn could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Claremont
Personnel."
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's revenue and operating results may fluctuate from quarter to
quarter based on a number of factors including the number, size and scope of
projects in which the Company is engaged, the contractual terms and degree of
completion of such projects, any delays incurred in connection with a project,
employee hiring
6
<PAGE>
and utilization rates, the adequacy of provisions for losses, the accuracy of
estimates of resources required to complete ongoing projects and general
economic conditions. In addition, the timing of revenue is difficult to forecast
because the Company's sales cycle is relatively long. A high percentage of the
Company's operating expenses, particularly personnel and rent, are relatively
fixed in advance of any particular quarter. For example, while the number of
professional staff the Company employs may be adjusted to reflect active
projects, such adjustments take time and the Company must maintain a sufficient
number of senior professionals to oversee existing clients and to focus on
securing new client engagements. As a result, unanticipated variations in the
number or progress toward completion of the Company's projects or in employee
utilization rates may cause significant variations in operating results in any
particular quarter and could result in adverse changes to the Company's
business, financial condition and results of operation. Seasonal factors such as
weather related shut-downs in major markets, vacation days, total business days
in a quarter, or the business practices of clients such as deferring commitments
on new projects until after the end of the calendar or the client's fiscal year
could require the Company to maintain under-utilized employees and could
therefore have a material adverse effect on the Company's business, financial
condition and results of operations. Any shortfall in revenue or earnings from
expected levels or other failure to meet expectations of securities analysts or
the market in general regarding results of operations could have an immediate
and significant adverse effect on the market price of the Company's Common
Stock. Given the possibility of such fluctuations, the Company believes that
comparisons of its results of operations for preceding quarters are not
necessarily meaningful and that such results for one quarter should not be
relied upon as an indication of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Selected
Quarterly Results of Operations."
MANAGEMENT OF GROWTH
The Company's growth has placed significant demands on its management and
other resources. The Company's professional fees increased 67% to $31.7 million
for the nine months ended March 31, 1996, from $19.0 million for the comparable
period of fiscal 1995. During the same period, the Company's staff increased
from 267 to 480 full-time employees and further significant increases are
expected. The Company has also expanded geographically by opening new offices
and may open additional offices in the future. The Company's ability to manage
its growth effectively will require it to continue to develop and improve its
operational, financial and other internal systems, as well as its business
development capabilities and to attract, train, retain, motivate and manage its
employees. In addition, the Company's success will depend in large part on its
ability to continue to maintain high rates of employee utilization, set
fixed-price fees accurately, maintain project quality and meet delivery dates
particularly if the average size of the Company's projects increases. If the
Company is unable to manage its growth and projects effectively, such inability
would have a material adverse effect on the quality of the Company's services
and products, its ability to retain key personnel and its business, financial
condition and results of operations. No assurance can be given that the
Company's growth rate will continue to be achieved, or if achieved, be
maintained or that the Company will be successful in managing its growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS.
Through the ten-month period ended April 30, 1996, approximately 37% of the
Company's professional fees were generated on a fixed-price,
fixed-delivery-schedule ("fixed-price") basis, rather than on a time and
materials basis. The Company's failure to accurately estimate the resources
required for a fixed-price project or its failure to complete its contractual
obligations in a manner consistent with the project plan upon which its
fixed-price contract was based could have a material adverse effect on the
Company's business, financial condition and results of operations. In the past,
the Company has been required to commit unanticipated additional resources to
complete certain projects, which negatively affected the profitability of such
projects and has found it necessary to revise project plans during the project,
and to change project managers to insure projects are completed on schedule. The
Company may experience similar situations in the future. Failure to anticipate
such needs could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company may
establish a price before the design specifications are finalized, which could
result in a fixed price that turns out to be too low and therefore adversely
affects the Company's business, financial condition and results of operations.
Furthermore, many of the Company's engagements involve projects which are
critical to the operations of its clients' businesses and which provide
7
<PAGE>
benefits that may be difficult to quantify. The Company's failure to meet a
client's expectations in the performance of its services could damage the
Company's reputation and adversely affect its ability to attract new business,
and may have a material adverse effect upon its business, financial condition
and results of operations. The Company has undertaken and may in the future
undertake projects in which the Company guarantees performance based upon
defined operating specifications or guaranteed delivery dates. Unsatisfactory
performance or unanticipated difficulties in completing such projects may result
in client dissatisfaction and a reduction in payment to, or payment of damages
by, Claremont, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
EMERGING MARKET; TECHNOLOGICAL ADVANCES
The Company has derived, and will continue to derive, a substantial portion
of its revenue from projects based on open computing systems. The open computing
systems market is continuing to develop and is subject to rapid change. The
Company's success will also depend in part on its ability to develop IT
solutions which keep pace with continuing changes in information processing
technology, evolving industry standards and changing client preferences. There
can be no assurance that the Company will be successful in addressing these
developments in a timely manner or that if addressed the Company will be
successful in the marketplace. The Company's delay or failure to address these
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that products or technologies developed by third parties will not
render the Company's services noncompetitive or obsolete. See "Business --
Industry Background."
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
ISSC (an affiliate of IBM), Computer Sciences Corporation, and with other
hardware and application software vendors. In addition there are a number of
systems integrators who serve similar markets or provide similar services, such
as Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse
(a subsidiary of MCI), Sapient Corporation and Technology Solutions Company,
with whom the Company competes or may compete in the future. Many of these
companies have significantly greater financial, technical and marketing
resources than the Company, generate greater revenues and have greater name
recognition than the Company. In addition, there are relatively low barriers to
entry into the Company's markets and the Company has faced and expects to
continue to face additional competition from new entrants into its markets.
The Company believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. The Company believes that its
ability to compete also depends in part on a number of competitive factors
outside its control, including the ability of its competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership by
competitors of software used by potential clients; the development by others of
products and services that are competitive with the Company's products and
services; the price at which others offer comparable services and the extent of
its competitors' responsiveness to client needs. There can be no assurance that
the Company will be able to compete effectively on pricing or other requirements
with current and future competitors or that competitive pressures faced by the
Company will not cause the Company's revenue or gross margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations. See "Business -- Competition."
GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION
The Company intends to continue to seek opportunities to expand by acquiring
systems integration and professional consulting businesses in attractive markets
or with desirable client relationships, as well as by acquiring businesses with
complementary software. The Company continuously evaluates potential business
combinations in the ordinary course of business and aggressively pursues
attractive transactions. From January 1995 through January 1996, the Company
completed the acquisition of Tony Martins & Associes, Inc. and
8
<PAGE>
The Node Connection. The success of this strategy depends not only upon the
Company's ability to identify and acquire businesses on a cost-effective basis,
but also upon its ability to integrate acquired operations into its organization
effectively, to retain and motivate key personnel and to retain clients of
acquired firms. Additionally, the Company experiences competition for such
acquisitions. The Company may start new branch offices or new industry practice
areas with its own personnel. Many of the Company's branch offices were
originally start-up operations, and not all branch offices and practice areas,
whether start-up or acquired, have been successful. There can be no assurance
that the Company will be able to identify, acquire or integrate other
businesses, or that it will be able successfully to start-up branch operations
or industry practice areas. Such efforts, if unsuccessful, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon the continued services of a
number of key employees. The loss of the services of the Company's key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, if one or more of the
Company's key employees resigns from the Company to join a competitor or to form
a competing company, the loss of such personnel and any resulting loss of
existing or potential clients to any such competitor could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its technical knowledge, practices or procedures by such personnel.
See "Management -- Employment Agreements."
CONCENTRATION OF CONTROL
Upon completion of this offering, the officers, directors and 5%
shareholders of the Company will beneficially own approximately 53.2% of the
Company's outstanding Common Stock (approximately 51.2% if the Underwriters'
over-allotment option is exercised in full). As a result, these shareholders, if
acting together, will have the ability to influence the election of the
Company's directors and the outcome of other corporate actions requiring
shareholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. Inasmuch as the
Company does not have cumulative voting in the election of directors,
shareholders with a minority interest are not assured of the ability to elect a
representative to the Board of Directors. See "Principal and Selling
Shareholders."
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon maintenance and protection of its
intellectual property rights. The Company relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. The Company has
applications pending at the United States Patent and Trademark Office with
respect to the Company's CLARETY, NORTHERN DIAMOND, PREMOST and TISE trademarks.
The Company's practice has been to enter into confidentiality agreements with
its employees and signed agreements that include nondisclosure provisions with
clients. Despite these activities, no assurance can be given that the steps
taken by the Company will provide adequate protection of its intellectual
property rights or that competitors will not be able to develop similar or
functionally equivalent methodologies or products. Additionally, no assurance
can be given that foreign copyright and trade secret laws will protect the
Company's intellectual property rights. Furthermore, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. In addition, litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the intellectual property rights of others
or to defend against claims of infringement. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
No assurance can be given that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims against third parties, such
as clients) will not be asserted against the Company or that any such assertions
would not have a material adverse effect on the Company's business, financial
condition or results of operations. If infringement or invalidity claims are
asserted against the Company, litigation may be necessary to defend the Company
against such claims, and in certain circumstances the Company may choose to
9
<PAGE>
seek to obtain a license under the third-party's intellectual property rights.
There can be no assurance that such licenses will be available on terms
acceptable to the Company, if at all. See "Business -- Intellectual Property
Rights."
FOREIGN OPERATIONS
The Company derived approximately 2% and 5% of its total revenue from
clients outside of the United States in fiscal 1995 and in the first nine months
of fiscal 1996, respectively. The Company's international business operations
are subject to a number of risks, including difficulties in building and
managing foreign operation, in translating its methodologies into foreign
languages, in enforcing agreements and collecting receivables through foreign
legal systems; longer payment cycles; fluctuations in the value of foreign
currencies and unexpected regulatory, economic or political changes in foreign
markets. There can be no assurance that these factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DISCRETION AS TO USE OF PROCEEDS
The Company has not yet identified specific uses of a significant portion of
the net proceeds from this offering. The Company's management will retain broad
discretion to allocate the net proceeds from this offering to uses that the
shareholders may not deem desirable, and there can be no assurance that the
proceeds can or will yield a significant return. It is currently anticipated
that net proceeds will be used for repayment of indebtedness, general corporate
purposes and expansion of the Company's business, including acquisitions, as
opportunities arise. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock. No assurance can be given that an active public market for the
Common Stock will develop or be sustained after the offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price will be determined by negotiation among
the Company and the representatives of the Underwriters. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price.
The market for securities of early stage, small market capitalization
companies has been highly volatile in recent years as a result of factors often
unrelated to a company's operations. In addition, the Company believes factors
such as quarterly variations in operating results, announcements of
technological innovations or new products or services by the Company or its
competitors, general conditions in the IT industry or the industries in which
Claremont's clients compete and changes in earnings estimates by securities
analysts, could contribute to the volatility of the price of the Company's
Common Stock and could cause significant fluctuations in its price. These
factors, as well as general economic conditions such as recessions or high
interest rates, could adversely affect the market price of the Common Stock.
Furthermore, in the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has occurred against
the issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Any adverse determination in such
litigation could also subject the Company to significant liabilities.
POTENTIAL ISSUANCE OF PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares of
undesignated Preferred Stock and to determine the preferences, limitations and
relative rights of shares of Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the Company's shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The potential issuance of Preferred Stock may delay
or prevent a change in control of the Company, discourage bids for the Common
Stock at a premium over the market price, and adversely affect the market price
and the voting and other rights of the holders of the Common Stock. See
"Description of Capital Stock -- Preferred Stock."
10
<PAGE>
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Second Restated Articles of
Incorporation ("Restated Articles"), Second Amended and Restated Bylaws
("Restated Bylaws") and the Oregon Business Corporation Act will effectively
make it more difficult for a party to acquire control of the Company through
either a tender offer or a proxy contest for the election of directors. The
Oregon Control Share Act and the Oregon Business Combination Act limit the
ability of parties who acquire a significant amount of voting stock to exercise
control of the Company. In addition, the Company's Restated Articles contain
provisions which (i) when the Company has six or more directors, classify the
Board of Directors into three classes, with one class being elected each year,
(ii) provide that directors may be removed by shareholders only for cause and
only upon the vote of 75% of the votes then entitled to be cast for the election
of directors and (iii) require the approval of holders of 67% of the outstanding
shares of the Company entitled to vote to effect a merger or consolidation of
the Company, the sale, lease or exchange of all or substantially all of the
Company's assets or the dissolution or liquidation of the Company. These
provisions may have the effect of lengthening the time required for a person to
acquire control of the Company through a proxy contest for the election of a
majority of the Board of Directors, may discourage bids for the Common Stock at
a premium over the market price and may deter efforts to obtain control of the
Company. See "Description of Capital Stock -- Oregon Control Share and Business
Combination Statutes; Certain Provisions of Restated Articles."
DILUTION; NO DIVIDENDS
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors participating in this
offering will therefore incur immediate, substantial dilution of $13.84 per
share. To the extent outstanding options or warrants to purchase the Company's
Common Stock are exercised, there will be further dilution. The Company has
never declared or paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. See "Dilution"
and "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Company's Common Stock in the public market following this
offering could adversely affect the market price of the Company's Common Stock.
Of the 6,855,611 shares of Common Stock to be outstanding after the offering
(7,159,198 shares if the Underwriters' over-allotment option is exercised in
full), the 2,800,000 shares sold in this offering (3,220,000 if the
Underwriters' over-allotment option is exercised in full) will be available for
resale without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are held by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act. In addition,
approximately 459,000 shares will be eligible for immediate sale in the public
market without restriction pursuant to Rule 144(k) under the Securities Act.
Approximately 1,656,184 additional shares outstanding upon completion of this
offering will be eligible for sale pursuant to Rule 144, and approximately
667,643 shares will be eligible for sale under Rule 701, in each case after the
expiration of the 90-day period after the date of this Prospectus. The holders
of 3,558,388 shares of Common Stock and the holders of a warrant and options to
purchase 2,280,470 shares of Common Stock, have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any of their shares for a period
of 180 days after the effective date of the Registration Statement. Robertson,
Stephens & Company LLC may, in its sole discretion, at any time without notice,
release all or any portion of the shares subject to lock-up agreements. Sales of
Common Stock in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock. As soon as
practicable following 180 days after the effective date of the Registration
Statement, the Company intends to file a registration statement under the
Securities Act to register approximately 5,200,000 shares of Common Stock
reserved for issuance under the Company's stock option plans. Following the
closing of the offering, the holders of 1,932,263 shares of Common Stock
(including shares issuable upon exercise of a warrant) will be entitled to
certain demand and piggyback registration rights with respect to such shares.
See "Certain Transactions," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$28.5 million, assuming an initial public offering price of $18.00 per share and
after deducting estimated underwriting commissions and offering expenses ($32.9
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use a portion of the net proceeds of this offering to repay
all indebtedness owed under its $4.0 million revolving line of credit with Bank
of America Oregon, a subsidiary of BankAmerica Corporation, outstanding
borrowings under which bear interest at Bank of America's NT&SA Reference Rate,
plus one quarter of one percent (a rate of 8.5% on June 10, 1996.) As of June
10, 1996 the Company had borrowed approximately $3.0 million under that line of
credit. The balance of the net proceeds will be used for working capital and
other general corporate purposes. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. A portion of the net proceeds
may be used for one or more such transactions, although the Company has no
present commitments or agreements with respect to any such transactions. The
Company will not receive any of the proceeds from the sale of Common Stock by
Selling Shareholders. See "Principal and Selling Shareholders."
Pending application of the proceeds as described above, the Company intends
to invest the net proceeds of this offering in investment-grade obligations,
including short-term, interest-bearing money market funds. Returns on such
investments may be less than those that might otherwise result if the Company
were able to use such funds immediately in its operations.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain future earnings, if any, to finance
operations and expansion of its business and does not expect to pay any
dividends on its Common Stock in the foreseeable future. Future cash dividends,
if any, will be determined by the Board of Directors and will be based upon the
Company's earnings, capital, financial condition and other factors deemed
relevant by the Board of Directors.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company; and (ii) the as adjusted capitalization of the
Company after giving effect to certain amendments to the Company's Articles of
Incorporation increasing the number of shares of authorized Common Stock to
25,000,000 and Preferred Stock to 10,000,000 and the sale of the 1,750,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $18.00 per share. See "Use of Proceeds." The
information set forth below 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" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term debt, excluding current installments (1)......................................... $ 1,756 $ 1,756
Shareholders' equity:
Preferred stock, no par value per share, 2,000,000 shares authorized, actual; 10,000,000
shares authorized, as adjusted; none outstanding, actual; none outstanding, as
adjusted................................................................................ -- --
Common stock, no par value per share, 10,000,000 shares authorized, actual 25,000,000
shares authorized, as adjusted; 4,767,182 shares issued and outstanding, actual;
6,517,182 shares issued and outstanding, as adjusted (2)................................ 1,303 29,798
Retained earnings........................................................................ 6,831 6,831
Cumulative translation adjustment........................................................ (5) (5)
--------- -----------
Total shareholders' equity............................................................. 8,129 36,624
--------- -----------
Total capitalization................................................................. $ 9,885 $ 38,380
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) See Notes 5 and 6 of Notes to Consolidated Financial Statements for
description of the Company's long-term debt, excluding current installments.
(2) Excludes 3,189,096 shares of Common Stock issuable upon exercise of options
outstanding on March 31, 1996 at a weighted average exercise price of $1.68
per share, of which 1,419,080 were then exercisable. Also excludes 400,000
shares of Common Stock issuable upon exercise of an outstanding warrant
issued May 20, 1996 at an exercise price of $10.33 per share. See
"Management -- Stock Option Plans," and "Certain Transactions."
13
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was $5.4
million, or $1.14 per share. Net tangible book value per share is determined by
dividing the Company's tangible net worth (tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. Assuming that
the 1,750,000 shares of Common Stock offered by the Company hereby had been sold
as of March 31, 1996 at an assumed initial public offering price of $18.00 per
share, the Company's pro forma net tangible book value at that date (after
deducting estimated underwriting discounts and commissions and estimated
offering expenses) would have been $27.1 million, or $4.16 per share as of March
31, 1996. This represents an immediate increase in net tangible book value of
$3.02 per share to existing shareholders and an immediate dilution of $13.84 per
share to purchasers of Common Stock in this offering. Dilution to new investors
is determined by subtracting the pro forma net tangible book value per share
after this offering from the initial public offering price per share. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 18.00
Pro forma net tangible book value per share as of March 31,
1996............................................................. $ 1.14
Increase per share attributable to new investors.................. 3.02
---------
Pro forma net tangible book value per share after this offering..... 4.16
---------
Dilution per share to new investors................................. $ 13.84
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1996,
the difference between existing shareholders and the purchasers of Common Stock
in this offering with respect to the number of shares of Common Stock purchased
from the Company, the approximate total consideration paid and the average price
per share based on an assumed initial public offering price of $18.00 per share
and before deducting estimated underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------ ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................................... 4,767,182 73% $ 1,303 4% $ .27
New investors........................................... 1,750,000 27 31,500 96 18.00
-- --
---------- ---------
Total............................................... 6,517,182 100% $ 32,803 100%
-- --
-- --
---------- ---------
---------- ---------
</TABLE>
- ------------
(1) Does not reflect the sale of Common Stock by the Selling Shareholders. The
sale of Common Stock by the Selling Shareholders in this offering will
reduce the pro forma number of shares held by existing shareholders as of
March 31, 1996 to 3,717,182, or approximately 57% of the total number of
shares of Common Stock outstanding and will increase the number of shares to
be purchased by new investors to 2,800,000, or approximately 43% of the
total number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Shareholders."
The foregoing calculations assume no exercise of outstanding stock options.
The Company has reserved 5,200,000 shares of Common Stock for issuance pursuant
to the Company's stock option plans. Options to purchase 3,189,096 shares of
Common Stock were outstanding at March 31, 1996 at a weighted average exercise
price of $1.68 per share, of which options to purchase 1,419,080 shares were
then exercisable. The foregoing calculations also assume no exercise of the
warrant issued May 20, 1996, for 400,000 shares of Common Stock at $10.33 per
share. To the extent any of these options or the warrant are exercised, there
will be further dilution to new investors. See "Management -- Stock Option
Plans," "Certain Transactions," "Description of Capital Stock" and Note 8 of
Notes to Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the three-year period ended June 30, 1995 and for the nine-month period
ended March 31, 1996 and the balance sheet data as of June 30, 1994 and 1995 and
March 31, 1996 are derived from the Consolidated Financial Statements of the
Company, which are included elsewhere in this Prospectus and have been audited
by KPMG Peat Marwick LLP, independent certified public accountants, whose report
thereon also is included herein. The selected consolidated financial data as of
June 30, 1992 and 1993, and for the year ended June 30, 1992 has been derived
from the consolidated financial statements audited by KPMG Peat Marwick LLP, and
not included herein. The statement of operations data for the year ended June
30, 1991 and the nine months ended March 31, 1995 and the balance sheet data as
of June 30, 1991 have been derived from the Company's unaudited consolidated
financial statements. Such unaudited financial data has been prepared on the
same basis as the audited financial data and reflects all normally recurring
adjustments which are, in the opinion of management of the Company, necessary
for a fair presentation in accordance with generally accepted accounting
principles. The selected consolidated financial data should be read in
conjunction with, and are qualified by reference to "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto and other financial information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees..................... $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 31,711
Resold products and services.......... -- -- -- -- -- -- 1,964
--------- --------- --------- --------- --------- --------- ---------
Total revenue....................... $ 4,057 $ 9,368 $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
Costs and expenses:
Project costs and expenses............ 2,836 6,275 9,112 9,106 13,704 9,267 16,791
Resold products and services.......... -- -- -- -- -- -- 1,874
Selling, general and administrative... 1,406 2,968 3,781 4,214 10,156 6,931 11,131
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses............ 4,242 9,243 12,893 13,320 23,860 16,198 29,796
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations....... (185) 125 2,774 2,393 3,432 2,790 3,879
Other income (expense), net............. (55) 45 21 12 67 50 (58)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes.......... (240) 170 2,795 2,405 3,499 2,840 3,821
Income tax expense...................... (105) 68 1,204 953 1,352 1,097 1,616
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ (135) $ 102 $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share
(1)................................ $ (.03) $ .02 $ .28 $ .24 $ .31 $ .25 $ .29
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding
(1).................................... 4,532 4,544 5,796 6,269 7,319 7,215 7,662
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------
1991 1992 1993 1994 1995 MARCH 31, 1996
--------- --------- --------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 364 $ 513 $ 1,818 $ 1,870 $ 340 $ 80
Working capital (deficit)........................ (349) (434) 1,014 2,045 2,453 3,066
Total assets..................................... 1,074 2,798 4,620 5,492 9,578 18,278
Long-term debt, excluding current installments... -- 178 120 8 334 1,756
Total shareholders' equity (deficit)............. (88) 7 1,583 2,883 5,101 8,129
</TABLE>
- ------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
common share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Claremont was organized in June 1989 and secured its first systems
consulting and implementation project in July 1989. Claremont provides
enterprise-wide IT solutions that re-engineer mission-critical business
processes such as customer service, order processing, billing and logistics.
Claremont delivers its services, including IT planning, systems integration and
development and outsourcing, through a project management methodology that can
employ reusable object oriented software modules and transferable design
frameworks on a fixed-price, fixed-delivery-schedule basis or a time and
materials basis. Claremont provides solutions to large organizations in select
high demand, vertical markets including communications, financial services and
pension/ retirement services. Claremont's clients consist of large corporations
and government organizations in the United States and certain foreign markets
including Canada, the United Kingdom, Saudi Arabia and New Zealand.
Claremont's revenue is derived primarily from professional fees billed to
clients on either a time and materials or a fixed-price basis. Time and
materials revenue is recognized as services are performed. Fixed-price revenue
is recognized using the percentage-of-completion method, based on the ratio of
costs incurred to total estimated project costs. Where these revenue recognition
policies result in recognition of revenue before invoices are sent, the revenue
in excess of billings is recorded as a current asset on the Company's balance
sheet. The cumulative impact of any revisions to the estimate of the
percentage-of-completion of any fixed-price contract is reflected in the quarter
in which such impact becomes known. Substantially all of Claremont's contracts
are terminable by the client following limited notice and without significant
penalty to the client. To date, the Company generally has been able to obtain an
adjustment in its fees in the event of any significant change in the assumptions
upon which the original estimate was made, but no assurances can be given that
Claremont will be successful in obtaining such adjustments in the future. See
"Risk Factors -- Fixed-Price Contracts and Other Project Risks."
Project costs consist primarily of salaries paid to Claremont's consultants.
Client project margins and personnel utilization percentages are important
components in determining Claremont's income from operations. Claremont manages
its personnel utilization rates by carefully monitoring its personnel needs and
basing most personnel increases on specific project requirements. Utilization
reports are produced and reviewed weekly by operating management and monthly by
senior management. The number of staff assigned to Claremont's projects may vary
widely depending on the size, duration, degree of completion and complexity of
each engagement. In addition, project completions and implementation delays may
result in periods when personnel are not assigned to active systems projects.
The Company must maintain appropriate numbers of senior professionals to both
oversee all aspects of existing engagements and participate in business
development activities.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees.......................................... 100% 100% 100% 100% 94%
Resold products and services............................... -- -- -- -- 6
-- -- -- -- --
Total revenue............................................ 100 100 100 100 100
Costs and expenses:
Project costs and expenses................................. 58 58 50 49 50
Resold products and services............................... -- -- -- -- 5
Selling, general and administrative........................ 24 27 37 36 33
-- -- -- -- --
Total costs and expenses................................. 82 85 87 85 88
-- -- -- -- --
Income from operations................................... 18 15 13 15 12
Other income (expense), net.................................. -- -- -- -- --
Income before income taxes............................... 18 15 13 15 12
Income tax expense........................................... 8 6 5 6 5
-- -- -- -- --
Net income............................................... 10% 9% 8% 9% 7%
-- -- -- -- --
-- -- -- -- --
</TABLE>
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUE. The Company's revenue consists primarily of professional fees
(including license fees for Claremont's reusable software modules), and to a
lesser extent resold hardware and software products and resold contract
services. The Company's professional fees increased 67% from $19.0 million in
the nine months ended March 31, 1995 to $31.7 million in the nine months ended
March 31, 1996. Professional fees increased primarily due to an increase in the
number of projects performed, both for new and existing clients. In the nine
months ended March 31, 1996, $2.0 million, or 6% of revenue, resulted from
resold products and services; there was no similar revenue of a material nature
in the nine months ended March 31, 1995. Resold products and services are
offered to clients on an as needed project basis and are resold with little or
no mark-up. The Company does not expect resold products and services to
contribute materially to its income from operations, and generally expects to
make little or no profit on such products and services. The Company expects to
provide such products and services only as an accommodation to the Company's
clients as requested for particular projects. Revenue from foreign operations
increased from $197,000 in the nine months ended March 31, 1995 to $1.7 million
in the nine months ended March 31, 1996. The increase resulted primarily from
operations at the Company's Montreal, Canada software factory, which commenced
operations during the third quarter of fiscal 1995, largely in support of U.S.
domestic clients.
Claremont's revenue has become decreasingly dependent upon its largest
clients, though such concentration remains a characteristic of Claremont's
business. The top five clients accounted for 63% of revenue for the nine months
ended March 31, 1996, down from 82% of revenue for the nine months ended March
31, 1995. In the nine months ended March 31, 1996 and March 31, 1995 the largest
client accounted for 24% and 46% of revenue, respectively. During the nine
months ended March 31, 1996, eight clients generated revenue in excess of $1.0
million, compared to six clients during the nine months ended March 31, 1995. No
assurance can be given that such a reduction in concentration will continue or
that client concentration will not leave the Company vulnerable to loss of
projects or clients, or that such a loss would not have a material adverse
impact upon the Company's business, financial condition and results of
operations. See "Risk Factors -- Client and Industry Concentration; Dependence
on Large Projects."
17
<PAGE>
PROJECT COSTS AND EXPENSES. Project costs and expenses consist primarily of
salaries and employee benefits for personnel dedicated to client projects and
associated overhead costs including equipment depreciation and amortization.
Project costs and expenses increased 81% from $9.3 million in the nine months
ended March 31, 1995 to $16.8 million in the nine months ended March 31, 1996,
representing 49% of professional fees in the nine months ended March 31, 1995,
and 53% of professional fees in the nine months ended March 31, 1996. The
increase in project costs and expenses was due primarily to the addition of
project personnel necessary to perform the larger number of client projects.
Project personnel increased 85% from 245 at the end of the nine months ended
March 31, 1995 to 453 at the end of the nine months ended March 31, 1996 and
further increases are expected.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses consist of costs associated with the Company's executive
staff, finance, facilities and human resources departments (collectively,
"Administrative Personnel") and travel and business development costs. Selling,
general and administrative costs and expenses increased 61% from $6.9 million in
the nine months ended March 31, 1995 to $11.1 million in the nine months ended
March 31, 1996. The increase is primarily due to a $1.5 million increase in
professional development and recruiting expenses associated with the increased
professional personnel, $1.6 million in increased facility expenses associated
with increased space needs resulting from increased software development efforts
performed in-house rather than at client locations and increased numbers of
Administrative Personnel. In addition, the Company incurred approximately
$300,000 in non-recurring charges attributable to separation agreements with two
terminated executives and expansion into international markets during the
quarter ended March 31, 1996. See "Certain Transactions." Selling, general and
administrative costs and expenses declined from 36% of professional fees in the
nine months ended March 31, 1995, to 35% of professional fees in the nine months
ended March 31, 1996, due to revenue growth outpacing selling, general and
administrative costs and expenses increases on a percentage basis in the period.
Administrative Personnel increased 23% from 22 at the end of the nine months
ended March 31, 1995 to 27 at the end of the nine months ended March 31, 1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily
of interest expense associated with short term borrowings and interest income on
cash and cash equivalents. Other income (expense), net changed from a net income
of $50,000 for the nine months ended March 31, 1995 to a net expense of $58,000
for the nine months ended March 31, 1996. The change is primarily attributable
to interest expense associated with bank borrowings incurred to finance the
Company's acquisition of computer equipment.
INCOME TAX EXPENSE. Income tax expense represents combined federal, state
and foreign taxes at an effective rate of 42% for the nine months ended March
31, 1996 and 39% for the nine months ended March 31, 1995. The increase in the
effective tax rate is due to a change in the mix of jurisdictions in which the
Company does business, as well as changes in certain federal tax laws.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUE. The Company's revenue, all of which was attributable to
professional fees, increased 74% from $15.7 million in fiscal 1994 to $27.3
million in fiscal 1995. Revenue increased primarily due to an increase in the
number of major projects performed, both for new clients in new markets and
industries and for existing clients. In addition, in fiscal 1995 the Company
received performance bonuses under a client contract of approximately $1.0
million. In fiscal 1995 the top five clients accounted for 76% of revenue; in
fiscal 1994 the top five clients accounted for 92% of revenue. In fiscal 1995
the largest client accounted for 38% of revenue, compared to 72% of revenue in
fiscal 1994. In fiscal 1995 seven clients generated revenue of $1.0 million or
more; in fiscal 1994 two clients generated revenue of $1.0 million or more.
PROJECT COSTS AND EXPENSES. Project costs and expenses increased 51% from
$9.1 million in fiscal 1994 to $13.7 million in fiscal 1995, but decreased as a
percentage of revenue, representing 58% of revenue in fiscal 1994 and declining
to 50% of revenue in fiscal 1995. The increase in project costs and expenses was
attributable to additional project personnel necessary to perform additional
client projects. Project personnel increased 62% from 175 at the end of fiscal
1994 to 283 at the end of fiscal 1995. The decrease in project costs and
expenses as a percentage of revenue was due to increased revenue and stronger
utilization levels for project personnel.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses increased 141% from $4.2 million in fiscal 1994 to $10.2
million in fiscal 1995, and increased from 27% of revenue in fiscal 1994 to 37%
of revenue in fiscal 1995. This increase resulted from the Company's investments
during 1995 in its global infrastructure to sell and service new clients, to
enter new industries and markets and its investment in the continued development
of its professional staff, and growth in Administrative Personnel. In fiscal
1994 the Company had active practices in two domestic locations: Portland,
Oregon and Columbus, Ohio; in fiscal 1995 the Company developed active practices
in four additional domestic locations -- Basking Ridge, New Jersey; Cleveland,
Ohio; Sacramento, California; Seattle, Washington; and two international sites
- -- Montreal, Canada and London, United Kingdom. Additionally, the Company
developed and implemented career path programs for its consulting staff and
initiated associated training programs. Administrative Personnel increased 127%
from 11 at the end of fiscal 1994 to 25 at the end of fiscal 1995.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased
primarily due to increased interest income associated with higher cash balances.
INCOME TAX EXPENSE. Income tax expense increased from $1.0 million in
fiscal 1994 to $1.4 million in fiscal 1995 representing an approximate effective
tax rate of 40% in both years. The Company changed its method of recognizing
income and expenses for income tax purposes from a cash basis to an accrual
basis effective July 1, 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUE. The Company's revenue, all of which was attributable to
professional fees, was unchanged at $15.7 million for both fiscal 1993 and
fiscal 1994, as the Company began development of its vertical market focus and
expansion of business developments efforts which encompass a long sales cycle.
In fiscal 1994 the largest client accounted for 72% of revenue, compared to 78%
in fiscal 1993. In fiscal 1994 two clients generated revenues of $1.0 million or
more; in fiscal 1993 three clients generated revenues of $1.0 million or more.
PROJECT COSTS AND EXPENSES. Project costs and expenses remained unchanged
from fiscal 1993 to fiscal 1994 at $9.1 million, representing 58% of revenue in
fiscal 1993 and fiscal 1994. Project personnel increased 51% from 116 at the end
of fiscal 1993 to 175 at the end of fiscal 1994. The majority of the increase in
project personnel occurred in the fourth quarter of fiscal 1994 as the Company
positioned itself for anticipated growth.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs and expenses increased 12% from $3.8 million in fiscal 1993 to $4.2
million in fiscal 1994, representing 24% and 27% of revenue, respectively. This
increase was primarily due to costs associated with increased business
development efforts. Administrative Personnel decreased 39% from 18 at the end
of fiscal 1993 to 11 at the end of fiscal 1994.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased
primarily due to a decline in interest income associated with lower cash
balances.
INCOME TAX EXPENSE. The Company's effective tax rate declined from 43% in
fiscal 1993 to 40% in fiscal 1994 due to a change in accounting for incomes
taxes as described in Note 7 of Notes to the Consolidated Financial Statements.
19
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the seven quarters in the period ended
March 31, 1996 and the percentage of the Company's total revenue represented by
each item in the respective quarter. In the opinion of management, this
information has been presented on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the unaudited quarterly results
when read in conjunction with the Consolidated Financial Statements of the
Company and related Notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
---------------------------------------------- ----------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Professional fees..................... $ 6,044 $ 6,431 $ 6,513 $ 8,304 $ 8,874 $ 10,813 $ 12,024
Resold products and services.......... -- -- -- -- 9 1,094 861
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue....................... 6,044 6,431 6,513 8,304 8,883 11,907 12,885
Costs and expenses:
Project costs and expenses............ 2,803 3,069 3,395 4,437 4,709 5,463 6,619
Resold products and services.......... -- -- -- -- 8 1,049 817
Selling, general and administrative... 1,953 2,004 2,974 3,225 3,230 3,328 4,573
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses............ 4,756 5,073 6,369 7,662 7,947 9,840 12,009
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.............. 1,288 1,358 144 642 936 2,067 876
Other income (expense), net............. 8 10 32 17 (5) (36) (17)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 1,296 1,368 176 659 931 2,031 859
Income tax expense...................... 501 529 68 254 393 859 364
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... $ 795 $ 839 $ 108 $ 405 $ 538 $ 1,172 $ 495
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
AS A PERCENTAGE OF REVENUE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Professional fees..................... 100% 100% 100% 100% 100% 91% 93%
Resold products and services.......... -- -- -- -- -- 9 7
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue....................... 100 100 100 100 100 100 100
Costs and expenses:
Project costs and expenses............ 47 48 52 53 53 46 51
Resold products and services.......... -- -- -- -- -- 9 6
Selling, general and administrative... 32 31 46 39 37 28 36
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses............ 79 79 98 92 90 83 93
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.............. 21 21 2 8 10 17 7
Other income (expense), net............. -- -- 1 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 21 21 3 8 10 17 7
Income tax expense...................... 8 8 1 3 4 7 3
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......................... 13% 13% 2% 5% 6% 10% 4%
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The Company's quarterly revenue and results of operations have fluctuated
significantly in the past and will likely fluctuate in the future. Factors
causing such fluctuations have included and may include, among other factors,
the number, size and scope of projects in which the Company is engaged, the
contractual terms and degree of completion of such projects, any delays incurred
in connection with a project, employee hiring and
20
<PAGE>
utilization rates, the adequacy of provisions for losses, the accuracy of
estimates of resources required to complete ongoing projects, general economic
conditions, weather-related shut-downs in major markets, vacation days, total
business days in a quarter and the business practices of clients such as
deferring commitments on new projects until after the end of the calendar or the
client's fiscal year.
The Company's revenue has increased in each of the quarters presented above.
These increases have resulted primarily from an increase in professional fees
generated from an increase in the number of projects performed, both for new and
existing clients.
Project costs and expenses have increased in each quarter due to an
increased number of project personnel employed to support an increased number of
projects. Variability in utilization rates for project personnel has resulted in
some quarterly fluctuations in project costs and expenses as a percentage of
revenue. Utilization rates may vary based on training schedules, vacation and
holiday schedules, severe weather conditions, recruiting requirements, client
start-up of new projects and other administrative requirements of project
personnel. In the last two quarters presented, resold products and services
passed through to clients with less than 5% margin caused a fluctuation in the
quarterly results. Without the revenue from resold products and services,
project costs and expenses as a percentage of professional fees was 51% and 55%,
respectively, in the quarters ended December 31, 1995 and March 31, 1996.
Selling, general and administrative expenses have increased in each quarter
presented as these activities have grown in support of increased revenue. In the
quarter ended March 31, 1995 these expenses increased substantially as selling
efforts expanded and internal infrastructure investments were made in training,
career development and recruiting. In the subsequent quarters these expenses
declined as a percentage of sales with the exception of the last quarter
presented. Without the revenue from resold products and services, selling,
general and administrative expenses as a percentage of professional fees only
was 31% and 38% in the quarters ended December 31, 1995 and March 31, 1996. In
the last quarter presented, non-recurring charges associated with changes of
personnel and expansion into international markets amounted to 3% of
professional fees.
Due to the foregoing factors, among others, it is possible that in some
future quarter the Company's results of operations will be below the
expectations of the securities analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected. See
"Risk Factors -- Variability of Quarterly Operating Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and investments in
property and equipment primarily through cash generated from operations, bank
borrowings and capital lease financing.
Net cash provided from operations was $1.2 million for the nine months ended
March 31, 1996, $231,000 for fiscal 1995, $730,000 for fiscal 1994 and $1.6
million for fiscal 1993. The increase in cash from operations in the most recent
nine-month period reported was due primarily to an increase in deferred revenue.
The decline in cash provided from operations in earlier periods reflects the
Company's investment in growth and fluctuations in deferred revenue.
The Company has a revolving line of credit with Bank of America Oregon, a
subsidiary of BankAmerica Corporation, providing for borrowings of up to $4.0
million. As of March 31, 1996 there were no borrowings against this line, though
$125,000 has been used for purposes of a standby letter of credit. As of June
10, 1996, there were $3.0 million in borrowings against this line, all of which
the Company expects to repay with a portion of the net proceeds of this
offering. Advances under the line of credit bear interest at Bank of America's
NT&SA Reference Rate, plus one quarter of one percent; the effective rate at
June 10, 1996 was 8.5%. This revolving line of credit expires on August 1, 1997,
and borrowings thereunder are secured by all of the assets of the Company.
The Company has certain non-revolving lines of credit with Bank of America
Oregon providing for borrowings of up to $3.0 million, primarily to finance
equipment purchases. As of March 31, 1996 there was $2.8 million of related debt
outstanding against these lines. Debt service under these lines is payable over
36 months, including principal and interest. There are three separate borrowings
under this facility at interest rates ranging from 7.59% to 8.05%, and all such
borrowings are secured by all of the assets of the Company.
21
<PAGE>
The Company is a guarantor on a non-revolving line of credit with Bank of
America Oregon which provided for borrowings of up to $2.0 million, for purposes
of facilitating the purchase of Claremont's Common Stock by Company executives
in July 1995. As of March 31, 1996 there was $1.7 million of related debt
outstanding against the line. Advances under the line of credit were made
directly to the Company executive with full recourse and bear interest at Bank
of America's NT&SA Reference Rate, plus one percentage point. Claremont's
guaranty is secured by a pledge of each borrower's shares of the Company's
Common Stock. Advances under the line of credit are for 36 months and include
monthly interest payments, made by each Company executive, with principal
repayment by each Company executive due on or before July 31, 1998. See "Certain
Transactions."
The various lines of credit with Bank of America Oregon are contained in a
master Business Loan Agreement which includes covenants relating to the
maintenance of certain financial ratios and minimum net worth.
For fiscal 1995, 1994 and 1993 the Company had capital expenditures of $1.5
million, $247,000 and $207,000, respectively. These expenditures were primarily
for workstations, personal computers and furniture. For the nine month period
ended on March 31, 1996 the Company had $3.0 million in capital expenditures
primarily related to furniture and personal computers, and $1.2 million
associated with the capitalization of software development costs.
At March 31, 1996 the Company had working capital of approximately $3.0
million. The Company believes that the cash provided from operations, borrowings
available under its revolving line of credit and expected net proceeds of this
offering will be sufficient to meet the Company's working capital and capital
expenditure requirements for at least the next 24 months.
NEW ACCOUNTING PRONOUNCEMENTS
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. While the Company is studying the
impact of the pronouncement, it continues to account for employee stock options
under APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS 123
will be effective for fiscal years beginning after December 15, 1995.
22
<PAGE>
BUSINESS
Claremont Technology Group, Inc. ("Claremont" or the "Company"), provides
enterprise-wide information technology ("IT") solutions that re-engineer
mission-critical business processes such as customer service, order processing,
billing and logistics. Claremont delivers its services, including IT planning,
systems integration and development and outsourcing, through a project
management methodology that can employ reusable object oriented software modules
and transferable design frameworks on a fixed-price basis or a time and
materials basis. Claremont provides solutions to large organizations in select
IT intensive, vertical markets, including communications, financial services and
pension/retirement services. Claremont's clients consist of large corporations
and government organizations in the United States and certain foreign markets
including Canada, the United Kingdom, Saudi Arabia and New Zealand.
Claremont provides its services to organizations within industries where
technology-enabled change and re-engineering of business processes can have a
significant competitive impact. The Company's focus on opportunities within
select vertical markets is facilitated by its expertise with the particular
customer interface within these markets and its dedication to partner with
clients to co-develop large scale business solutions. Claremont's industry
specific expertise and its partnership approach to its client relationships
gives Claremont a competitive advantage in marketing additional services to its
clients and results in high customer retention levels. Clients representing 94%
of Claremont's fiscal 1995 revenue continue as clients today. The Company's
clients include: AT&T and its subsidiaries, Fred Meyer, Inc., Lucent
Technologies, Ohio State Teachers Retirement System and PacifiCorp.
INDUSTRY BACKGROUND
Organizations today face constant pressure to improve the quality of
products and services, reduce cost and time to market and improve operating
efficiency while strengthening customer relationships. To compete effectively,
organizations must improve business processes to empower the end user and must
develop internal decision-making processes and methods of exchanging information
that are more efficient and effective. Such changes mean that IT deployment
decisions are increasingly made at the senior executive level rather than at the
departmental level and are implemented across the entire organization.
Information systems and their rapid development and deployment have become a
source of strategic advantage and are increasingly mission-critical.
As IT systems have evolved to a value-added component of an organization's
strategy, the need has grown to design, develop and deploy business applications
solutions rapidly, flexibly and in a technological framework that supports
today's geographically distributed business environment. Consequently, there has
been a shift in the past few years in the computing platforms favored by large
organizations, from single-vendor legacy mainframe-based systems to open,
multi-vendor client/server computing systems, and most recently to corporate
intranets. However, the benefits of client/server and other advanced
technologies can be difficult to obtain, because designing, developing,
deploying and managing client/server systems is complex, time consuming and
costly. In addition, organizations often lack the range and depth of skills
necessary to develop these systems internally and often cannot effectively
attract and retain personnel with the required technological expertise.
Organizations increasingly wish to use their information systems to address
these mission-critical business processes faster and more effectively at a lower
cost. Computer information systems now often serve as the primary information
resource through which organizations serve their customers, and increasingly
serve as the organization's primary interface to its customers. Many
organizations have found that among the most compelling applications that employ
client/server technology are solutions that effectively distribute information
directly to the business end user who services customers, or directly to the
customers themselves. Applications such as customer service, order processing,
billing, distribution and logistics directly influence an organization's ability
to generate customer satisfaction and revenue, and therefore tend to be
priorities for allocation of any organization's capital budgets in both strong
and slow economic climates.
The complexity of current technologies, the lack of sufficient in-house
resources, and the competitive pressures requiring rapid implementation of new
mission-critical systems in client/server and distributed technologies, have led
to increasing demand for third-party solution providers. To meet that demand
effectively,
23
<PAGE>
providers of applications and systems solutions require global reach, a full
range of technical skill, ability to provide the best available technologies,
in-depth knowledge of the customer interface in particular industries and the
ability to manage complex technological projects to completion on time and
within budget.
THE CLAREMONT SOLUTION
Claremont combines its expertise in IT consulting and large scale systems
integration to provide its clients business solutions that allow them to better
serve their customers. The following are key attributes of the Claremont
solution:
MISSION-CRITICAL BUSINESS SOLUTIONS. The Company focuses on providing
enterprise-wide IT solutions that re-engineer core business processes such as
customer service, order processing, billing and logistics. Claremont's approach
minimizes project risk through use of a methodology that emphasizes problem
definition and solution design and can employ proven software modules and design
frameworks, and through use of experienced personnel with applicable project
management and industry expertise.
VERTICAL MARKET EXPERTISE AND CLIENT PARTNERSHIP. Claremont's vertical
market orientation offers applications solutions that are based on in-depth
knowledge of particular industries and a detailed understanding of the client's
business. By targeting specific industries and developing long-term client
relationships, the Company is able to provide enterprise-wide business solutions
based on a detailed and thorough understanding of the industry in which the
client operates as well as the client's own business processes.
TISE DEVELOPMENT METHODOLOGY -- REUSABLE SOFTWARE MODULES AND TRANSFERABLE
DESIGN FRAMEWORKS. Claremont's Total Information Systems Engagement (TISE)
development methodology provides a structure through which the Company's skills
and knowledge can be effectively deployed. Claremont's approach emphasizes the
replacement of outdated and inflexible legacy code as part of the re-engineering
processs rather than the mere addition of new interfaces. The ability to employ
previously constructed software modules and design frameworks provides Claremont
leverage during the design and integration phases, minimizes business risk and
reduces both time to solution and project costs.
STRATEGY
Claremont's objective is to be a leader in providing enterprise-wide
business solutions using the best available technologies that deliver
significant performance improvements in a focused group of industries. The
Company's strategy to achieve this objective includes the following critical
elements:
EXPAND CLIENT BASE BY LEVERAGING VERTICAL MARKET EXPERTISE. The Company
seeks to increase its domestic and international client base by further
penetrating the markets it currently serves. The Company believes that its
vertical industry organization results in a more thorough understanding of each
of its clients' businesses. In addition, the ability to employ reusable software
modules and transferable design frameworks reduces the time and cost required to
implement solutions. Proven software solutions and industry expertise give the
Company a competitive advantage as it pursues larger and more complex projects
with new clients.
INCREASE PENETRATION AND RETENTION OF EXISTING CLIENTS. Claremont seeks to
expand the nature and scope of existing relationships by strengthening its
relationships with those clients. Combining the Company's industry expertise
with an in-depth knowledge of the client's systems and business processes
provides the Company with a competitive advantage when marketing additional
services and solutions to existing clients. The effectiveness of this strategy
is evidenced by the fact that clients representing 94% of Claremont's fiscal
1995 revenue continue as clients today.
CAPITALIZE ON BENEFITS FROM TISE METHODOLOGY. Claremont's TISE methodology
is designed to allow the Company's consultants to efficiently develop custom
applications solutions. The Company plans to continue to apply and refine the
TISE methodology in order to provide margin enhancement through the application
of previously developed, reusable software modules and transferable design
frameworks, VALUE SERVERS, that are transferable within and across Claremont's
target industries. The Company can often leverage the existence of VALUE SERVER
solutions when pursuing new business opportunities.
PROVIDE EXPERTISE IN HIGH DEMAND LEADING EDGE TECHNOLOGIES. Claremont
maintains and continues to build expertise in high demand advanced technologies
expected to be the most useful and well-supported in the
24
<PAGE>
future, such as internet/intranet applications, open computing systems, object
oriented solutions and relational database management systems. In support of
this strategy, Claremont works with companies such as Arbor Software
Corporation, Forte Software, Inc., Hewlett Packard Company, Microsoft
Corporation, Netscape Communications Corporation, Oracle Technology, Inc.,
Silicon Graphics, Inc. and Sybase, Inc. These relationships enable the Company
to stay on the leading edge of technological development and also help to
attract business opportunities, while still allowing Claremont the freedom to
provide technologies to its clients that best suit the client's business needs
without bias towards any single vendor.
ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES. Attracting and retaining
superior, highly innovative IT professionals is a critical element in
Claremont's ability to deliver high quality services to its clients. Claremont
seeks to achieve this goal by providing a motivational and interactive work
environment that features continuous and extensive professional development
opportunities, balanced perspective and employee ownership incentives, as well
as frequent and open communication at all levels of the organization.
PURSUE STRATEGIC ACQUISITIONS. The Company expects to expand its geographic
presence, industry expertise and technical scope through strategic acquisitions
that provide complementary software services or skills, have strategic client
relationships or bring specific expertise in target industries.
CLAREMONT SERVICES
Claremont provides IT applications solutions encompassing IT planning, IT
systems integration and development, and IT outsourcing of IT
maintenance/enhancement services for large corporations and government
organizations in the United States and certain foreign markets including Canada,
the United Kingdom, Saudi Arabia and New Zealand. Through its TISE methodology,
the Company seeks to deliver, in a timely fashion, cost effective systems that
meet the clients' needs and provide the flexiblity to meet future application
processing requirements. The Company's TISE methodology for delivering its
services is typically divided into the three phases illustrated below:
[THE CHART WILL GRAPHICALLY DEPICT THE THREE PHASES
OF THE TISE METHODOLOGY DESCRIBED BELOW.]
25
<PAGE>
The following is a brief description of each phase and task of the TISE
methodology:
PHASE I: IT CONSULTING. Generally, IT Consulting precedes the actual
systems integration project and is completed in a timeframe of one to two
months. IT Consulting typically concludes with a return-on-investment analysis
and a proposal including budgets and anticipated timeframe for implementation of
the proposed solution. The purpose of this phase is to allow executives,
managers and end users from the client work in partnership with Claremont
consultants to develop recommendations for strategic business process changes.
Claremont's preference is to also develop a high-level architectural
infrastructure design in this phase which provides Claremont and the client with
a structural roadmap for approaching Phase II, the Systems
Development/Integration phase.
PHASE II: SYSTEMS DEVELOPMENT/INTEGRATION. Systems Development/Integration
generally results in delivery of a fully implemented solution in three to 12
months. Appropriate application of the TISE methodology during this phase
results in the development of the IT solution, as well as the effective
implementation of that solution and meaningful change in the client's business
processes. Systems Development/Integration involves these stages:
PROCESS DESIGN. A key to Phase II of the TISE methodology is an
assessment of the operational impact of a new system, and designing
re-engineered business processes for the client to insure that the solution
developed will provide the desired results. This process begins at the
earliest stages of the design of the application itself, and continues
throughout the Systems Development/Integration process. These processes lead
to the generation of a high-level object oriented business model and the
development of an architected system infrastructure, and can often draw on
VALUE SERVER design frameworks already developed by Claremont as central
design elements.
SYSTEM DEVELOPMENT. Once the high-level system infrastructure is in
place, the TISE methodology places an emphasis on solving detail-level
system logic and design problems before coding begins, and results in
sufficiently detailed specifications that enable Claremont to complete the
actual coding and testing of the application's software objects in a highly
controlled, factory-like manufacturing process. In this process, where
appropriate, Claremont can incorporate previously developed and reusable
software modules. Because Claremont's solutions replace, rather than simply
surround, the client's old and often inflexible legacy code, system
development also includes the development of a significant number of
interfaces to other client systems. Claremont assembles all the code from
the previously completed tasks and conducts a functional test of the new
system.
SYSTEM DEPLOYMENT. Complete implementation of the solution requires two
final steps. The first is developing the new job descriptions and
operational procedures and training people in how to take maximum advantage
of the new system. The second step is to put the entire system through a
complete test from the user's perspective, including testing the software,
as well as the new procedures and the interfaces with existing systems.
PHASE III: OUTSOURCING. Outsourcing of the ongoing support and enhancement
for the client's new system and/or total system environment is an area of
services that has been growing for Claremont over the past few years. The
outsourcing phase of the TISE methodology provides opportunities for the Company
to enhance client partnerships and broaden the scope of its engagements.
While individual Phase I projects are small, typically $25,000 to $100,000,
total client engagements regularly involve multiple projects over several years
and can generate revenue in excess of $20 million. Claremont has been successful
in negotiating resale rights for several of its software solutions.
Claremont provides its services on both a time and materials and fixed-price
basis. Invoices for time and materials work are presented on a bi-weekly or
monthly basis. Invoices for fixed-price engagements are presented in accordance
with achievement of negotiated milestones or dates during the development
process.
26
<PAGE>
TECHNOLOGICAL EXPERTISE
Claremont's Advanced Technology/Internet Practice provides technological
resources across all of Claremont's industry practice areas and seeks to build
and maintain the Company's expertise in leading edge technologies. Advanced
Technology/Internet Practice personnel are located in Montreal, Canada; Basking
Ridge, New Jersey; Columbus and Cleveland, Ohio; Beaverton, Oregon; Sacramento,
California; Seattle, Washington and North Sydney, Australia. The Advanced
Technology/Internet Practice is managed on a world-wide basis so that clients,
regardless of location, have access to Claremont's technical expertise.
At present, Claremont focuses its advanced technology skills in four main
areas: object oriented systems development; electronic commerce
(internet/intranet and groupware solutions); client/server enterprise
architectures (complex network management); and on-line analytical processing
(executive support systems/data warehousing). Claremont uses its relationships
with hardware and software providers such as Arbor Software Corporation, Forte
Software, Inc., Hewlett Packard Company, IBM, Netscape Communications
Corporation, Oracle Technology, Inc., Silicon Graphics, Inc., and SyBase, Inc.
to help ensure that it remains current with the latest technology and to serve
as a source of new business opportunities for the Company's industry practice
areas.
MARKETS AND CLIENTS
Claremont focuses its marketing efforts on clients in information-intensive
businesses, including communications, financial services, government services
and retail/commercial services. Within these vertical markets, the Company
targets clients for whom enterprise-wide IT solutions can provide a competitive
advantage. The Company intends to continue to pursue opportunities to provide
its services in other industry sectors with similar needs.
Claremont's most significant clients, in terms of revenue earned in the nine
months ended March 31, 1996, within its industry practice areas are listed
below:
<TABLE>
<CAPTION>
COMMUNICATIONS FINANCIAL SERVICES
- ------------------------------------ ------------------------------------
<S> <C>
AT&T Bank One
Lucent Technologies Colonial Pacific Leasing
Sprint Lloyds Bank
<CAPTION>
PENSION/RETIREMENT AND
OTHER GOVERNMENT SERVICE RETAIL/COMMERCIAL SERVICES
- ------------------------------------ ------------------------------------
<S> <C>
California Public Employees Blue Cross/Blue Shield Oregon
Retirement Fred Meyer, Inc.
System ("CalPERS") PacifiCorp
Mississippi Public Employee Wacker Siltronic Corporation
Retirement
System ("Mississippi PERS")
Ohio State Teachers Retirement
System ("Ohio STRS")
State of Oregon, Department of
Environmental Quality
</TABLE>
The Company has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively small number of clients.
During the fiscal year ended June 30, 1995, the Company had two clients which
each represented in excess of 10% of the Company's revenues: Ohio STRS, 38%, and
AT&T Network Systems Group (now Lucent Technologies), 19%. In the nine months
ended March 31, 1996, the Company had three clients each of whom represented at
least 10% of the Company's revenue: Lucent Technologies, 24%; Ohio STRS, 14%;
and Mississippi PERS, 12%. See "Risk Factors -- Client and Industry
Concentration; Dependence on Large Projects."
27
<PAGE>
The Company's IT consulting services focus on four key industry sectors:
communications, financial services, pension/retirement and other government
services and retail/commercial services which represented approximately 30%, 4%,
34% and 32%, respectively, of the Company's revenue for the nine months ended
March 31, 1996.
COMMUNICATIONS. The Company has rapidly expanded its presence in a variety
of communications clients. During fiscal 1995, the Company performed a number of
engagements, including assisting in developing the business architecture models
for the Saudi Arabian telephone expansion project. AT&T and Lucent Technology
are among the Company's clients and the Company has recently added Sprint and
the New Zealand Telephone Company to its client list. The communications
practice area has developed a VALUE SERVER consisting of a reusable set of
object oriented software modules constructed to support communications clients
in their billing and customer care functions. Collectively, these modules
represent a highly flexible VALUE SERVER to support these critical billing and
customer care business functions. The Company believes that in suitable
applications the reusable software modules will enable Claremont to offer its
clients reduced development time and cost.
FINANCIAL SERVICES. As with the communications practice, the Company has
committed substantial resources to growing its financial services practice on a
global scale. Lloyd's Bank is the anchor account for the practice area, and is
served out of Claremont's London and Montreal offices. Substantial efforts in
this practice area are also underway in Ohio, where BancOne, Limited Credit
Services and Fifth Third Bank are clients of the Company, and in the Pacific
Northwest where Frank Russell and Colonial Pacific Leasing are clients of the
Company.
PENSION/RETIREMENT AND OTHER GOVERNMENT SERVICES. Claremont began its
pension/retirement systems practice as a result of a strategic partnership with
the Ohio STRS. The relationship has produced a VALUE SERVER consisting of
reusable software modules for the pension/retirement systems industry, which is
being marketed under the name CLARETY. The CLARETY product was created using the
Forte software development client/server tool set. Claremont is currently
implementing CLARETY software for Mississippi PERS, and CLARETY has just been
selected for implementation by the State of New Hampshire. The Company believes
that CLARETY software is the only object oriented client/server product of its
kind being marketed to the pension/retirement systems market.
Claremont is a leading provider of IT consulting and custom software
development services to the State of Oregon, Department of Environmental Quality
and the State of Washington, Department of Ecology. For the Oregon Department of
Environmental Quality, Claremont developed a software product called HWIMSY for
tracking hazardous waste. Claremont now has marketing rights for this software.
Claremont established the health and human services practice area in fiscal 1995
after the recruitment of a team of individuals with in-depth knowledge of the
business processes associated with administering the enforcement of child
support judgments. Claremont has begun work in the health and human services
area for the state governments of Missouri, Oregon and Ohio. The Company has
focused its pension/retirement and other government services practice on state
and local governments. The Company does not currently provide services to the
federal government.
RETAIL/COMMERCIAL SERVICES. The retail/commercial services practice area
consists of services to the manufacturing, retail, public utility and health
insurance industries. Claremont provides IT consulting, custom software
development and application maintenance/enhancement services to clients in all
four industries. Projects in these industries include such applications as
systems support for new food distribution systems; an inventory management
system for a retail chain; an order processing system for a national wood
products company and a customer service system encompassing such functions as
meter management, work tracking and accounts receivable for a major utility.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon maintenance and protection of its
intellectual property rights. The Company relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. The Company has
applications pending at the United States Patent and Trademark Office with
respect to the
28
<PAGE>
Company's CLARETY, NORTHERN DIAMOND, PREMOST and TISE trademarks. The Company's
practice has been to enter into confidentiality agreements with its employees
and signed agreements that include nondisclosure provisions with its clients.
See "Risk Factors -- Intellectual Property Rights."
BUSINESS DEVELOPMENT
Claremont's business development efforts are based primarily upon personal
contacts, the reputations of its senior personnel, industry marketing programs
and attendance at appropriate industry forums. Claremont believes that business
development is an integral part of the responsibility of practice area leaders
and other senior project managers. Claremont also follows a practice of
marketing its services through strategic alliances with a select list of
hardware and software providers.
The Company employs an established selling methodology, the Miller-Heiman
process. The Miller-Heiman process is focused on sales that involve multiple
decisionmakers at different levels in large organizations. The process provides
an analytical approach to identifying the key decisionmakers, determining with
the client the value to be provided to the client and managing the sales process
through completion. Claremont maintains a corporate information database
referred to as the Opportunity Center to manage the selling process. The sale of
a new project generally involves a three to six month effort. At any given time
numerous Claremont professionals are active in the development of new business.
The coordination of their efforts and the tracking of their results is critical
to Claremont's ability to forecast and adequately staff future work. Claremont's
Opportunity Center is a critical management tool to assist the Company's senior
executives in managing this process.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
ISSC (an affiliate of IBM), Computer Sciences Corporation and with other
hardware and applications software vendors. In addition there are a number of
systems integrators who serve similar markets or provide similar services, such
as Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse
(a subsidiary of MCI), Sapient Corporation and Technology Solutions Company,
with whom the Company competes or may compete in the future. Many of these
companies have significantly greater financial, technical and marketing
resources than the Company, generate greater revenue and have greater name
recognition than the Company. In addition, there are relatively low barriers to
entry into the Company's markets and the Company has faced and expects to
continue to face additional competition from new entrants into its markets.
The Company believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. The Company believes it
competes favorably with respect to these factors and that the depth of
experience with its clients, their industries, and the technologies they
implement; the Company's TISE development methodology incorporating object
oriented techniques; its focus on the client's core business processes, and its
ability to offer fixed-price contracting practices distinguish it from its
competitors. There can be no assurance that the Company will be able to compete
effectively on pricing or other requirements with current and future competitors
or that competitive pressures faced by the Company will not cause the Company's
revenue or gross margins to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See "Risk Factors --
Competition."
CLAREMONT PERSONNEL
The success of the Company is based on attracting and retaining talented,
creative and experienced people at all levels. The Company dedicates significant
senior resources to its recruiting effort, primarily recruiting professionals
with both IT consulting and industry experience. All of Claremont's managers and
senior managers have substantial expertise in designing and implementing
large-scale applications solutions, and many of them have relevant industry
experience. As a result, the Company's consultants provide industry knowledge
and line management expertise, in addition to technical expertise, to the
Company's clients.
29
<PAGE>
As of May 1, 1996, the Company had a total of 495 employees of whom there
were 467 individuals in the professional staff and 28 in administrative roles.
The following table summarizes the experience, as of May 1, 1996, of the
Company's professional staff.
<TABLE>
<CAPTION>
AVERAGE RELEVANT YEARS OF
EXPERIENCE
--------------------------------
TITLE NUMBER AVERAGE AGE CONSULTING INDUSTRY
- ----------------------------------------------------------------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Officers and Practice Directors.................................. 40 40 11 6
Managers and Senior Managers..................................... 112 38 6 6
Senior Consultants............................................... 161 34 3 5
Consultants...................................................... 154 29 1 2
<CAPTION>
TITLE TOTAL
- ----------------------------------------------------------------- -----
<S> <C>
Officers and Practice Directors.................................. 17
Managers and Senior Managers..................................... 12
Senior Consultants............................................... 8
Consultants...................................................... 3
</TABLE>
The Company believes that its success in attracting and retaining
experienced, highly- qualified personnel is in part attributable to the
Company's stock incentive and employee stock ownership plans. These plans are
designed to motivate and encourage the loyalty and dedication of the Company's
employees, and include vesting provisions designed to encourage long-term
employee perspectives and retention of employees.
In order to accommodate typical project development lead time, the Company
has found that it must recruit and hire additional personnel on the basis of
anticipated demand for their services. Although this practice has contributed to
the Company's growth to date, there can be no assurance that demand for the
Company's services will materialize as anticipated, and this practice could
result in under-utilized employees and consequently have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company's employees maintain and continue to build expertise in advanced
technologies by regular in-house training programs, which may include vendor
demonstrations. Claremont also keeps abreast of such advances and developments
by hiring professionals with expertise in technologies that are needed or can be
used by the Company and its clients. See "Risk Factors -- Need to Attract and
Retain Professional Staff."
FACILITIES
The Company's headquarters and principle administrative offices are located
in approximately 11,011 square feet of leased space located in Beaverton,
Oregon. In addition, Claremont has invested in three software development
centers, which Claremont refers to as "software factories." These centers are
located in Beaverton, Oregon; Montreal, Canada; and Columbus, Ohio.
The Company's west coast business development and technical development
personnel operate from the Beaverton, Oregon location. The Company occupies
these premises under a lease expiring in April 1999. In addition, the Company
leases 14,517 square feet in Columbus, Ohio for its retirement system national
practice, central region business development and technical lab. The lease
relating to these premises expires in November 2000. The Company also leases
office space in 11 other locations, including Basking Ridge, New Jersey;
Bellevue, Washington; Cleveland, Ohio; Jackson, Mississippi; Morristown, New
Jersey; Sacramento, California; New York, New York; White Plains, New York;
Montreal, Canada; London, United Kingdom; and North Sydney, Australia, from
which regional project management and business development is conducted. Leases
for these premises range from 2,050 to 4,395 square feet. The Company
anticipates that additional space may be required as the Company's business
operations expand and believes it will be able to obtain suitable space as
needed.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of May
20, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul J. Cosgrave..................................... 45 President and Chief Executive Officer, Director
Dennis M. Goett...................................... 47 Chief Financial Officer, Director
Stephen D. Hawley.................................... 47 Senior Vice President, Pension and Retirement
Edward A. Fullman.................................... 34 Senior Vice President, Communications
Karen Fast........................................... 45 Senior Vice President, Market Development
Ross C. Kayuha....................................... 38 Senior Vice President, Advanced Technology
Jerry L. Stone (1)................................... 53 Director
Neil E. Goldschmidt (2).............................. 55 Director
Phillip W. Seeley (1)(2)............................. 49 Director
</TABLE>
- ------------
(1) Member, Compensation Committee of the Board of Directors.
(2) Member, Audit Committee of the Board of Directors.
PAUL J. COSGRAVE has served as Chairman of the Board of Directors of the
Company since January 1996, and as President, Chief Executive Officer and a
member of the Board of Directors of the Company since July 1994. From January
1993 through June 1994, he served as Executive Vice President of Technology
Solutions Company. From February 1992 to December 1992, Mr. Cosgrave served as
President and Chief Executive Officer of AGS Computers, a subsidiary of NYNEX
Corporation. Prior to January 1992, he served as a Partner in Andersen
Consulting, the Management Information Systems Consulting Practice of Arthur
Andersen LLP.
DENNIS M. GOETT has served as Chief Financial Officer and Senior Vice
President, Finance of the Company since February 1996 and as a member of the
Board of Directors of the Company since April 1996. Since January 1988 he has
served as President of Gabriel Partners, Inc., a financial consulting firm. In
connection with his financial consulting activities for Gabriel Partners, Mr.
Goett was elected an executive officer of a private confectionary company that
sought bankruptcy protection under Chapter 11 of the United States Bankruptcy
Code in June 1994. The Bankruptcy Court dismissed the company's bankruptcy
petition.
STEPHEN D. HAWLEY has served as Senior Vice President, Pension and
Retirement of the Company since February 1993. From September 1988 through
February 1993 he served as a Partner in Andersen Consulting, the Management
Information Systems Consulting Practice of Arthur Andersen LLP.
EDWARD A. FULLMAN has served as Senior Vice President, Communications of the
Company since July 1994. From April 1992 through July 1994, he served as a Vice
President of NYNEX/DPI Company, a division of NYNEX Corporation. From June 1989,
through April 1992, he served as Vice President of AGS Information Services, a
division of NYNEX Corporation.
KAREN FAST has served as Senior Vice President, Market Development of the
Company since April 1994. From April 1993 through April 1994, she served as Vice
President, Portland Practice of the Company. From January 1991 through April
1993, she served as the Portland, Oregon Manager of the Open Systems Consulting
Group, the Systems Integration Practice of IBM.
ROSS C. KAYUHA has served as Senior Vice President, Advanced Technology of
the Company since January 1996. From January 1994 through January 1996, he
served as Senior Vice President, Central Region of the Company. From January
1993 through January 1994, he served as Vice President, Central Region of the
Company and from April 1992 through January 1993, he served as a Director of
Project Management of the Company. From September 1985 through April 1992, he
served as a Senior Manager in Andersen Consulting, the Management Information
Systems Consulting Practice of Arthur Andersen LLP.
JERRY L. STONE has served as a member of the Board of Directors of the
Company since November 1989. Mr. Stone has been active as a private investor
since 1989. From 1986 through January 1989, he served as Chairman and Chief
Executive Officer of Marketing One, Inc.
NEIL E. GOLDSCHMIDT has served as a member of the Board of Directors of the
Company since November 1993. Since January 1991, Mr. Goldschmidt has conducted a
private law practice focused primarily on
31
<PAGE>
strategic planning for national and international business clients. From January
1987 to January 1991, Mr. Goldschmidt served as Governor of the State of Oregon.
Prior to his 1986 gubernatorial campaign, Mr. Goldschmidt was an executive of
Nike, Inc., serving as International Vice President from 1981 to 1985 and as
President of Nike Canada from 1986 to 1987. Furthermore, Mr. Goldschmidt served
as Secretary of Transportation in the Carter Administration from 1979 to 1981.
Mr. Goldschmidt also serves as a director of Analogy, Inc. and BDM
International, Inc.
PHILLIP W. SEELEY has served as a member of the Board of Directors of the
Company since April 1994. Mr. Seeley has served as Executive Vice President of
Sales and Marketing of CF Motor Freight, Inc. since July 1994. From January 1990
through July 1994, he served as Vice President of Administration and Technology
of Consolidated Freightways, Inc.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. All directors hold office until the
next annual meeting of the Company, or until their successors have been duly
elected and qualified. There are no family relationships between any of the
executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors maintains an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. Goldschmidt and Seeley,
oversees actions taken by the Company's independent auditors and reviews the
Company's internal audit controls. The Compensation Committee, consisting of
Messrs. Stone and Seeley, reviews the compensation levels of the Company's
employees and makes recommendations to the Board regarding changes in
compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Stone and Seeley, none of whom has been or is an officer or an employee of the
Company.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for
out-of-pocket and travel expenses incurred in attending Board meetings. In
addition, non-employee members of the Board of Directors receive stock options
under the Company's 1996 Stock Option Plan for Nonemployee Directors. See "Stock
Option Plans."
EMPLOYMENT AGREEMENTS
On July 1, 1994, the Company entered into a three-year employment agreement
with Paul J. Cosgrave, its President and Chief Executive Officer, which provides
for a minimum salary of $400,000 per year and includes among other things
provisions for a $150,000 loan, for which Mr. Cosgrave has signed a promissory
note due July 1, 1997, or if bonuses are earned earlier, $60,000 out of fiscal
1995 bonus and $90,000 out of fiscal 1996 bonus, and if Mr. Cosgrave leaves the
Company, out of termination pay due. The fiscal 1995 bonus was earned and the
$60,000 payment made. On February 1, 1996, the Company entered into an
employment agreement with Dennis M. Goett, its Chief Financial Officer, which
provides for a minimum salary of $295,000 per year. Each agreement provides that
the executive is entitled to a car allowance of $650 per month and certain
medical benefits. Each agreement further provides that if the executive's
employment is terminated at Claremont's election for reasons other than cause,
the executive's base salary will continue for the longer of three years from the
start date or six months from the termination date; provided, however, that Mr.
Goett's salary continuation shall cease if he competes with Claremont or
solicits Claremont customers. If termination is for cause or at the executive's
choice, each agreement also contains covenants of noncompetition and
nonsolicitation of clients. Regardless of the reason for termination, each
agreement contains commitments of nonsolicitation of Claremont personnel. In
each agreement, the noncompetition and nonsolicitation of clients and employees
covenants continue until the later of 18 months after termination of employment,
or termination of base salary payments. All other Named Executive Officers and
all other Company personnel have executed at-will employment agreements
providing for protection of proprietary information and assignment of
intellectual property. In addition, these agreements prohibit competition with
the Company with respect to its clients or active prospects for varying periods
following termination.
32
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth certain information
concerning compensation earned by the Company's President and Chief Executive
Officer and each of the four other most highly compensated executive officers
for the year ended June 30, 1995 (collectively, the "Named Executive Officers")
(**):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- -------------------------------------------------------- ------------- ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Paul J. Cosgrave ....................................... 415,000 100,000 650,000 8,724(1)
President and Chief Executive Officer
Steven L. Darrow(2) .................................... 300,000 -- -- 9,791(3)
Former Chairman of the Board
Stephen D. Hawley ...................................... 270,000 -- -- 2,145(4)
Senior Vice President,
Pension and Retirement
Edward A. Fullman ...................................... 207,500 -- 30,000 1,030(5)
Senior Vice President,
Communications
Ross C. Kayuha ......................................... 187,500 250,000 -- 1,374(6)
Senior Vice President,
Advanced Technology
</TABLE>
- ------------
(1) Includes $7,800 attributable to automobile allowance paid to Named Executive
Officer and 401(k) matching payments of $924.
(2) Mr. Darrow resigned from the Company effective March 15, 1996, and resigned
from the Board of Directors effective April 29, 1996. See "Certain
Transactions" for a description of Mr. Darrow's severance agreement.
(3) Includes $5,652 attributable to use by Named Executive Officer of automobile
leased by the Company, $3,215 attributable to golf club membership dues paid
by the Company on behalf of the Named Executive Officer and 401(k) matching
payments of $924.
(4) Includes $1,586 attributable to golf club membership dues paid by the
Company on behalf of the Named Executive Officer and 401(k) matching
payments of $559.
(5) Represents 401(k) matching payments of $1,030.
(6) Includes $450 attributable to golf club membership dues paid by the Company
on behalf of the Named Executive Officer and 401(k) matching payments of
$924.
** Mr. Dennis Goett, the Company's Chief Financial Officer and a member of its
Board of Directors, joined the Company during fiscal 1996. During February
1996, the Company granted Mr. Goett options to purchase 100,000 shares of
the Company's Common Stock. See "Business -- Employment Agreements" for a
description of Mr. Goett's employment agreement.
33
<PAGE>
OPTION GRANTS
The following table sets forth information concerning options granted to the
Named Executive Officers during the fiscal year ended June 30, 1995 under the
Company's 1992 Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR SHARE ($) DATE 5% 10%
- ----------------------------------------- ----------- ------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave......................... 650,000 49.4% 1.73 (3) 707,192 1,792,163
Steven L. Darrow......................... -- -- -- -- -- --
Stephen D. Hawley........................ -- -- -- -- -- --
Edward A. Fullman........................ 30,000 2.3 2.21 1/27/05 41,696 105,665
Ross C. Kayuha........................... -- -- -- -- -- --
</TABLE>
- ------------
(1) Options granted in the fiscal year ended June 30, 1995 become exercisable
commencing at the end of the 11th month after the grant date, with two
percent of the options becoming exercisable at that time and with an
additional two percent of the options vesting at the end of each month
thereafter for 49 additional months.
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock compounded annually for a ten-year
period. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the Common Stock will appreciate at any
particular rate or at all in future years.
(3) Options representing 346,818 shares will expire on June 30, 2004, and
options representing 303,182 shares will expire on July 2, 2004.
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding option
exercises during the fiscal year ended June 30, 1995 and the value of
unexercised options held as of June 30, 1995 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR END ($)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Cosgrave............... -- -- 217,792 432,208 396,381 786,619
Steven L. Darrow............... -- -- 46,300 63,700 116,676 160,524
Stephen D. Hawley.............. -- -- 139,708 121,766 341,508 348,875
Edward A. Fullman.............. -- -- 4,200 95,800 7,644 159,956
Ross C. Kayuha................. 46,609 59,348 81,702 106,689 263,021 324,724
</TABLE>
- ------------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is calculated based on an
estimated fair market value at June 30, 1995 of $3.55 per share. Amounts
reflected are based on such estimated fair market value minus the aggregate
exercise price and do not necessarily reflect that the optionee sold such
stock.
34
<PAGE>
STOCK OPTION PLANS
1992 STOCK INCENTIVE PLAN. The Company's 1992 Stock Incentive Plan (the
"1992 Plan") provides for grants of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and "non-qualified stock options" which are not qualified for treatment
under Section 422 of the Code, and for direct stock grants and sales to
employees or consultants of the Company. The purposes of the 1992 Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to the employees and
consultants of the Company and to promote business. The 1992 Plan is
administered by the Compensation Committee of the Board of Directors.
The term of each option granted under the 1992 Plan will be ten years from
the date of grant, or such shorter period as may be established at the time of
the grant. An option granted under the 1992 Plan may be exercised at such times
and under such conditions as determined by the Compensation Committee. If a
person who has been granted an option ceases to be an employee or consultant of
the Company, such person may exercise that option only during the three month
period after the date of termination, and only to the extent that the option was
exercisable on the date of termination. If a person who has been granted an
option ceases to be an employee or consultant as a result of such person's total
and permanent disability, such person may exercise that option at any time
within twelve months after the date of termination, but only to the extent that
the option was exercisable on the date of termination. No option granted under
the 1992 Plan is transferable other than at death, and each option is
exercisable during the life of the optionee only by the optionee. In the event
of the death of a person who has received an option, the option generally may be
exercised by a person who acquired the option by bequest or inheritance during
the twelve month period after the date of death to the extent that such option
was exercisable at the date of death.
The exercise price of incentive stock options granted under the 1992 Plan
may not be less than the fair market value of a share of Common Stock on the
date of grant of the option. The exercise price of non-qualified stock options
may not be less than 85% of the fair market value of a share of Common Stock on
the date of grant. The consideration to be paid upon exercise of an option,
including the method of payment, will be determined by the Compensation
Committee and may consist entirely of cash, check, shares of Common Stock or any
combination of such methods of payment as permitted by the Compensation
Committee.
The 1992 Plan will continue in effect until April 27, 2002, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may amend,
terminate or suspend the 1992 Plan at any time, provided that no amendment
regarding amount, price or timing of the grants may be made more than once every
six months other than to conform with changes in certain Securities Exchange Act
and Internal Revenue Code requirements. Amendments that would materially
increase the number of shares that may be issued, materially modify the
requirements as to eligibility for Plan participation, or materially increase
the benefits to Plan participants must be approved by shareholders.
At May 1, 1996, options to purchase 924,904 shares of the Company's Common
Stock were available for future grants under the 1992 Plan. During the first
nine months of fiscal 1996, the number of options granted under the 1992 Plan to
the Named Executive Officers, and all officers and directors as a group, was as
follows: Paul J. Cosgrave -- 0; Steven L. Darrow -- 0; Stephen D. Hawley -- 0;
Edward A. Fullman -- 0; Ross C. Kayuha -- 0; and all officers and directors as a
group -- 100,000 (all of which were granted in February 1996 to Dennis M.
Goett).
1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS. Nonemployee members of
the Board of Directors participate in the Company's 1996 Stock Option Plan for
Nonemployee Directors (the "1996 Nonemployee Director Plan"), which was adopted
to promote the interests of the Company and its shareholders by strengthening
the Company's ability to attract and retain experienced and knowledgeable
nonemployee directors and to encourage them to acquire an increased proprietary
interest in the Company. All options granted under the Plan are non-qualified --
not intended to qualify as incentive stock options under Section 422 of the
Code. Set forth below is a summary of the material terms of the 1996 Nonemployee
Director Plan.
Each option expires ten years from the date of its grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the ten year term. If an optionee terminates service as
35
<PAGE>
a director for any reason other than retirement, total disability or death, the
option will automatically expire 90 days after the date of termination. If an
optionee dies or terminates service due to retirement or disability, the options
then outstanding will expire one year after the date of death or termination or
on the stated expiration date, whichever is earlier. Options are not assignable
during the lifetime of the optionee except by a qualified domestic relations
order.
The exercise price of options granted under the 1996 Nonemployee Director
Plan may not be less than the fair market value of a share of Common Stock on
the date of grant of the option. Payment of the option exercise price may be in
cash or promissory note or, to the extent permitted by the Compensation
Committee, by delivery of previously owned Company stock having a fair market
value equal to the option exercise or a combination of cash and stock. The
Compensation Committee may also permit "cashless" option exercises by allowing
optionees to surrender portions of their options in payment for the stock to be
received.
The Plan continues in effect until terminated by the Board of Directors or
by shareholders but such termination will not affect the terms of any options
outstanding at that time. The Board of Directors may amend, terminate or suspend
the 1996 Nonemployee Director Plan at any time, provided that no amendment
regarding amount, price or timing of the grants may be made more than once every
six months other than to comport with changes in certain Securities Exchange Act
and Internal Revenue Code requirements. Amendments that would materially
increase the number of shares that may be issued, materially modify the
requirements as to eligibility of Plan participation, or materially increase the
benefits to Plan participants must be approved by shareholders.
A total of 200,000 shares of Common Stock have been reserved for issuance
upon exercise of stock options granted under the 1996 Nonemployee Director Plan.
Upon election to the board of directors, each director is granted an option to
purchase 20,000 shares, which option will vest over a three-year period (each a
"Recruitment Grant"). Following the first annual meeting of shareholders after a
Recruitment Grant is fully-vested, the nonemployee director holding such
fully-vested Recruitment Grant will receive an option to purchase an additional
15,000 shares of Common Stock, which option will vest over a three-year period
(a "First Renewal Grant"). Furthermore, following the first annual meeting of
shareholders after a nonemployee director's First Renewal Grant is fully-vested,
and following every third annual meeting of shareholders thereafter, such
nonemployee director will be granted an option to purchase an additional 15,000
shares of Common Stock, which option will vest over a three-year period.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employee Stock Ownership Plan (the "ESOP") is an employee
stock ownership plan qualified under Section 401(a) of the Code and defined
under Section 4975(e)(7) of the Code. The ESOP is designed to invest primarily
in Common Stock of the Company. Each nonunion employee of the Company or any
affiliated company automatically participates in the ESOP on the January 1 or
July 1 following such employee's date of hire. As of May 20, 1996, the ESOP had
382 participants and 25 former participants whose benefits have not been
distributed to them. All eligible employees participate in the ESOP and no
employee contributions are permitted to be made to the ESOP.
The general assets of the ESOP are held in trust under a Trust Agreement.
The Company has appointed the Hawaiian Trust Company, Ltd. as trustee of the
trust (the "Trustee"). The Trustee holds legal title to all assets of the ESOP
and, subject to applicable law and the terms of the ESOP, has the discretionary
power to buy Common Stock and to sell Common Stock held by the ESOP.
The ESOP is administered by a committee (the "ESOP Committee") appointed by
the Board of Directors. Currently the members of the ESOP Committee are Paul J.
Cosgrave, President and Chief Executive Officer of the Company and a member of
the Board of Directors and Terry D. Murphy, Vice President, Finance and
Secretary of the Company.
The voting rights with respect to Common Stock held by the ESOP are
exercised by the Trustee, as directed by the ESOP Committee. In the case of a
transaction such as a reorganization, recapitalization, merger, sale of
substantially all assets, liquidation, dissolution or similar transaction which
must be approved by the shareholders, the participants may direct the Trustee
how to vote the Common Stock allocated to their Company Stock Accounts.
36
<PAGE>
Two separate accounts are maintained for each participant: (i) a "Company
Stock Account" kept in number of shares of Common Stock, and (ii) an "Other
Investments Account" kept in dollars. Allocations to such accounts are made once
each year on June 30. Each participant's Company Stock Account is credited with
shares of the Common Stock purchased by or contributed to the ESOP during the
year and allocated to such participant, as well as with any stock dividends on
the Common Stock declared during the year. Each participant's Other Investments
Account is credited with the ESOP's net income (or loss) for the year, as well
as with any cash dividends on the Common Stock declared during the year and with
contributions and forfeitures in cash, all as allocated to such participant.
Each allocation of the Company's contribution for a plan year is determined by
multiplying the total amount contributed by a fraction the numerator of which is
such participant's Covered Compensation (the aggregate cash compensation
received from the Company during the plan year up to a maximum of $150,000, as
adjusted for cost of living increases), and the denominator of which is the
aggregate Covered Compensation of all participants. A participant's account
becomes fully-vested and nonforfeitable after seven years of service with the
Company, or earlier if the participant attains age 65, becomes totally disabled
or dies. The participant's account vests at the rate of 10% per year for the
first four years of employment, and at the rate of 20% per year for each year
thereafter, until fully vested. The Company pays all administrative costs of the
ESOP.
When a participant's employment with the Company is terminated, the ESOP
Committee determines such participant's plan benefit as soon as possible after
participation in the ESOP terminates. At the discretion of the ESOP Committee, a
plan benefit may be distributed in cash, shares of Common Stock or a combination
of cash and shares of Common Stock. Distribution of a plan benefit will commence
not later than the sixth year after the plan year in which employment
terminates, and will be made, in the discretion of the ESOP Committee in a lump
sum or in substantially equal installments over a period not to exceed five
years. The participant's consent is generally required for any distribution if
such participant's aggregate plan benefit exceeds $3,500. In all events,
distribution of a terminated participant's plan benefit must begin no later than
April 1 of the calendar year immediately following the calendar year in which
such terminated participant attains age 70 1/2. Any nonvested amounts in a
terminated participant's accounts are forfeited and reallocated to the remaining
participants in the same manner as the Company's contributions to the ESOP.
Each participant who attains age 55 and who has completed ten years of
participation in the ESOP has the right to elect to diversify a portion of the
shares in his Company Stock Account. Upon receipt of a participant's election to
diversify, the ESOP Committee must either (i) offer such participant three
alternative investment options in accordance with regulations issued pursuant to
Section 401(a)(28)(B) of the Code, (ii) distribute to such participant that
portion of his Common Stock Account that he elected to diversify, or (iii)
transfer that portion of such participant's Common Stock Account that he elected
to diversify to another qualified employee benefit plan of the Company or an
affiliated company. Such election to diversify may be made over a six year
period, with diversification of up to 25% of the shares in the Company Stock
Account for the first five years of such election, and up to 50% of the shares
in the Company Stock Account during the sixth year.
The Company makes all contributions to the ESOP, which may be made in either
cash or shares of Common Stock. All contributions are made at the sole
discretion of the Board of Directors. Cash contributions to the ESOP expensed by
the Company during fiscal 1995 and the nine month period ended March 31, 1996,
totalled $300,000 and $318,000, respectively. Future contributions to the ESOP
will be made in the Company's discretion in light of a number of factors,
including return on equity. Future Common Stock contributions to the ESOP will
dilute the investment interests and voting rights of existing shareholders and
purchasers of Common Stock in this offering.
37
<PAGE>
CERTAIN TRANSACTIONS
The Company retained board member Jerry L. Stone as a consultant through his
consulting firm, Marketing Exchange Corporation, and also directly as a
part-time employee, for payments aggregating $113,000 in fiscal 1993, $113,000
in fiscal 1994, $113,000 in fiscal 1995, and $39,114 in the nine months ended
March 31, 1996. The consulting and employment arrangement with Mr. Stone
terminated effective April 26, 1996.
In July 1993, the Company entered into a severance agreement with Pamela
Jones, then an officer of the Company. Ms. Jones was paid a total of $101,250,
consisting of three months salary ($26,250), a bonus of $15,000, and a six month
consulting agreement totalling $60,000, for which she subsequently performed all
contracted-for work.
In January 1994, the Company entered into a separation agreement with Martin
Wright, then a Senior Vice President, under which the vesting of remaining
unvested options held by Mr. Wright were accelerated, Mr. Wright received a loan
for $85,000 at 4% interest per year, due originally in June 1994, and Mr. Wright
entered into a two year noncompetition agreement with the Company. The loan was
subsequently extended to July 1995, and repaid in that month. Mr. Wright
subsequently exercised all of his options.
In April 1994, the Company loaned Stephen D. Hawley $35,000 at 4% interest
per year, interest is payable quarterly and the principal balance is due on or
before April 15, 1997. In March 1995, the Company loaned Mr. Hawley an
additional $40,000 at 7.01% interest per year. The principal balance is due on
or before April 15, 1997, and interest is payable quarterly. Both loans are
secured by a pledge of Mr. Hawley's rights to exercise certain of his options.
Interest payments on both loans are current.
In July 1994, the Company loaned then board member Brian Caldwell $75,000 at
5% interest per year. This loan was repaid on July 11, 1995, and while
outstanding was secured by Mr. Caldwell's shares of the Company's Common Stock.
In July 1995, in pursuit of its policy of encouraging employee stock
ownership, the Company guaranteed loans from the Bank of America to 34 of its
management employees to assist them with the purchase of shares of the Company's
Common Stock from Martin Wright, a former officer and employee of the Company,
Brian Caldwell, a director and 10% shareholder of the Company, and Steven
Darrow, an officer, director and 10% shareholder of the Company, at a purchase
price of $3.55 per share, and to exercise stock options that had become vested.
Claremont's guarantee of these loans can not be called before August 1998.
Claremont's guarantee is secured by a pledge of the purchased stock to
Claremont. The employees participating in this program include Joel D. Bucklen,
17,373 shares and a $61,674 loan guaranteed; Paul J. Cosgrave, 49,804 shares and
a $176,804 loan guaranteed; Karen Fast, 23,164 shares and a $82,232 loan
guaranteed; Edward A. Fullman, 24,901 shares and a $88,399 loan guaranteed;
Stephen D. Hawley, 34,781 shares (including 10,000 options) and a $93,073 loan
guaranteed; Ross C. Kayuha, 23,164 shares and an $82,232 loan guaranteed; Colin
B. McKiernan, 24,001 shares and an $85,204 loan guaranteed; and Peter Moe,
28,955 shares and a $102,790 loan guaranteed. In February 1996, Mr. Moe repaid
all outstanding indebtedness under his loan from Bank of America.
In January 1996, the Company entered into a severance agreement with Peter
Moe, then an officer of the Company. Mr. Moe was paid six months salary plus
medical benefits totalling $141,865.
In March 1996, the Company entered into a Retirement and Severance Agreement
with its founder and largest shareholder, Steven L. Darrow. Under that
agreement, in exchange for his commitment not to compete with the Company for
five years, the Company agreed to pay an amount equal to one year's salary
($325,000), provide a continuation of medical benefits during his lifetime,
forgive certain loans by the Company to Mr. Darrow in the aggregate amount of
$410,000 and pay resulting withholding taxes in the amount of $159,444,
accelerate the vesting of stock options for 35,800 shares of the Company's
Common Stock with an exercise price of $1.03 per share, and grant him and
certain trusts and individuals to whom he had transferred stock certain
"piggyback" registration rights. The Company also agreed to guarantee a loan to
Mr. Darrow if the guarantee was required by the lender, provided that the
Company's guarantee was secured by a pledge of the shares of the Company's
Common Stock belonging to Mr. Darrow, and to provide good faith cooperation if
he wished to sell shares of the Company's Common Stock in a transaction prior to
the date of the Company's initial public offering. In addition, in June 1994 the
Company loaned Mr. Darrow $250,000 at 5% interest per year, and in
38
<PAGE>
February 1995, another $160,000 at 6.5% interest per year, both in exchange for
his promissory notes. Mr. Darrow paid interest on these notes through October
1995. The principal balance of these notes was cancelled under the terms of the
Retirement and Severance Agreement.
In March 1996, Paul J. Cosgrave exercised certain options with an aggregate
exercise price of $337,350 (options for 190,000 shares at $1.73 per share) In
connection with such exercise, Mr. Cosgrave paid the Company an aggregate of
$502,230, including amounts for tax withholding payments the Company was
required to make on nonqualified options, by delivery of a promissory note. The
note bore interest at 5% per year, and was payable on demand and in any event on
or before June 30, 1996. Mr. Cosgrave repaid this note on May 22, 1996.
In May 1996, Paul G. Mardesich, then a Senior Vice President, entered into a
separation agreement with the Company to be effective mid-June 1996, which
includes a three-year covenant not to compete in consideration of payment of
$85,000, and a twenty-seven month consulting agreement providing payment in the
aggregate amount of $13,500. Mr. Mardesich also intends to exercise options to
purchase up to 315,000 shares of the Company's Common Stock and to sell those
shares in this offering. See "Principal and Selling Shareholders."
On May 17, 1996, the Company entered into a Stock Purchase Agreement with
certain holders of the Company's Common Stock (including Steven L. Darrow, the
Company's largest shareholder) and certain investors (the "Investors"), pursuant
to which the Investors purchased an aggregate of 910,000 shares of the Company's
Common Stock at an average purchase price of $10.33. Under the terms of the
Stock Purchase Agreement, the Company granted the Investors "piggyback" and
demand registration rights.
On May 20, 1996, the Company issued to DLJ Capital Corporation a five-year
warrant to purchase 400,000 shares of the Company's Common Stock at an exercise
price of $10.33 per share, to settle a dispute between the Company and the
Sprout Group regarding a "Summary Term Sheet" executed by the Company and the
Sprout Group on December 5, 1995. The Summary Term Sheet contemplated the
issuance and sale of 812,500 shares of a newly created series of preferred stock
and other securities. The warrant provides for certain demand and "piggyback"
registration rights.
The Company has entered into employment agreements with Paul J. Cosgrave,
its President and Chief Executive Officer, and Dennis M. Goett, its Chief
Financial Officer. See "Management -- Employment Agreements."
Any future transactions between the Company and its officers, directors and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Such transactions, with such persons,
will be subject to approval by a majority of the Company's outside directors or
will be consistent with policies adopted by such outside directors.
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of May 15, 1996, and as adjusted to
reflect the sale of Common Stock offered hereby, certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers, (iv) all officers and directors of the
Company as a group and (v) each of the Selling Shareholders. Unless otherwise
indicated below, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)(2)
----------------------- SHARES BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED (2) NUMBER PERCENT
- --------------------------------------------------------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Steven L. Darrow (3) .................................... 1,020,084 20.9% 434,783 585,301 8.5%
20514 127th Avenue, S.E.
Snohomish, WA 98290
Jerry L. and Nancy Stone (4) ............................ 1,145,000 23.7 143,478 1,001,522 14.6
3024 Key Stone Dr.
Cape Girardeau, MO 63701
Paul J. Cosgrave (5) .................................... 489,918 9.8 -- 489,918 7.0
3 Cole Drive
Armonk, NY 10504
Paul G. Mardesich ....................................... 401,485 7.7 273,913 127,572 1.8
15993 N.W. Ridgetop Lane
Beaverton, OR 97006
DLJ Capital Corporation (6) ............................. 400,000 7.6 -- 400,000 5.5
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
Brian C. Caldwell ....................................... 321,800 6.7 130,435 191,365 2.8
11018 N.E. Davis Street
Portland, OR 97220
Technology Crossover Management, LLC (7) ................ 286,223 5.9 -- 286,223 4.2
101 Eisenhower Parkway
Roseland, NJ 07068
Terry D. Murphy (8) ..................................... 248,078 5.1 -- 248,078 3.6
3447 S.W. Brentwood Dr.
Portland, OR 97201
Accel V L.P. (9) ........................................ 243,664 5.0 -- 243,664 3.6
c/o Accel Partners
One Palmer Square
Princeton, NJ 08542
Stephen D. Hawley ....................................... 204,425 4.1 -- 204,425 2.9
Ross C. Kayuha .......................................... 202,783 4.1 -- 202,783 2.9
Carol Anne Bennett ...................................... 139,900 2.9 32,609 107,291 1.6
Judy L. Smith ........................................... 60,994 1.3 34,782 26,212 *
Edward A. Fullman ....................................... 57,901 1.2 -- 57,901 *
Neil E. Goldschmidt ..................................... 16,670 * -- 16,670 *
Phillip W. Seeley ....................................... 15,005 * -- 15,005 *
All officers and directors as a group
(10 persons)............................................ 2,205,635 40.6 108,696 2,362,157 31.7
</TABLE>
40
<PAGE>
- ------------
* Less than one percent of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from May 20, 1996 are considered outstanding for
the purpose of calculating the percentage of Common Stock owned by such
person but not for the purpose of calculating the percentage of Common Stock
owned by any other person. The number of shares subject to stock options
that are exercisable within 60 days of May 20, 1996 is as follows: Mr.
Caldwell -- 2,800; Mr. Cosgrave -- 158,409; Mr. Darrow -- 58,900; Mr.
Fullman -- 33,000; Mr. Goldschmidt -- 16,670; Mr. Kayuha -- 126,793; Mr.
Mardesich -- 389,567; Mr. Seeley -- 15,005; and all officers and directors
as a group -- 602,212.
(2) If the Underwriters' over-allotment option is exercised in full, the number
of shares being offered, the number of shares beneficially owned after the
offering and the percentage of shares beneficially owned after the offering
for the following Selling Shareholders would be: Steven L. Darrow --
500,000; 520,084; 7.2%; Jerry L. and Nancy Stone -- 165,000 (includes 40,000
shares offered by S.A.S. Investment Trust); 980,000 (includes 260,000 shares
held directly by S.A.S. Investment Trust); 13.7%; Paul Mardesich -- 315,000;
86,485; 1.1%; Brian C. Caldwell -- 150,000; 171,800; 2.4%; Carol Anne
Bennett -- 37,500; 102,400; 1.4%; Judy L. Smith -- 40,000; 20,994; less than
1%.
(3) Includes 150,000 shares held in the Dorinda Darrow Children's Trust for the
benefit of the children of Dorinda Darrow.
(4) The number of shares beneficially owned prior to the offering includes
300,000 shares (6.2%) held directly by S.A.S. Investment Trust. Mr. Stone is
the sole trustee of S.A.S. Investment Trust, and as such is deemed to be the
beneficial owner of all of the shares held by such trust. The number of
shares being offered includes 34,782 shares being offered by S.A.S.
Investment Trust.
(5) Includes 15,000 shares held by Theresa Cosgrave as custodian for Mr.
Cosgrave's three children under the Uniform Gift to Minors Act. Also
includes 150,000 shares held in trusts for Mr. Cosgrave's three children.
Mr. Cosgrave disclaims any beneficial ownership interest in the shares held
in these trusts.
(6) Represents shares issuable upon the exercise of a warrant to purchase
400,000 shares of Common Stock that is immediately exercisable.
(7) Includes 265,219 shares held directly by Technology Crossover Ventures, L.P.
and 21,004 shares held directly by Technology Crossover Ventures, C.V.
Technology Crossover Management, LLC is the general partner of Technology
Crossover Ventures, L.P. and Technology Crossover Ventures, C.V.
(8) Includes 90,000 shares held by Lois N. Murphy as custodian for Mr. Murphy's
children under the Uniform Gifts to Minors Act.
(9) Includes 26,316 shares held directly by Accel Internet/Strategic Technology
Fund L.P.; 11,696 shares held directly by Accel Investors '96 L.P.; 196,392
shares held directly by Accel V L.P.; 5,361 shares held directly by Ellmore
C. Patterson Partners; and 3,899 shares held directly by Accel Keiretsu V
L.P.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, no par value per
share, and 10,000,000 shares of Preferred Stock, no par value per share. The
following summary description of the Company's capital stock does not purport to
be complete and is qualified in its entirety by the provisions of the Company's
Restated Articles and Restated Bylaws, which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock.
Holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject to
any series of Preferred Stock which the Company may issue in the future as
described below.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series, the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
shareholders of the Company. The issuance of Preferred Stock by the Board of
Directors could adversely effect the rights of holders of Common Stock. For
example, the issuance of shares of Preferred Stock could result in securities
outstanding that would have preference over the Common Stock with respect to
dividends and in liquidation and that could (upon conversion or otherwise) enjoy
all of the rights of the Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy or consent solicitation or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock without shareholder approval and
with voting rights that could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Company has no plans to issue any shares of Preferred
Stock. See "Risk Factors -- Potential Issuance of Preferred Stock."
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES; CERTAIN PROVISIONS OF
RESTATED ARTICLES
Upon completion of this offering, the Company will become subject to the
Oregon Control Share Act (OBCA Sections 60.801-60.816) (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
which results in such Acquiring Person holding more than 20%, 33 1/3% or 50% of
the total voting power of such corporation (a "Control Share Acquisition")
cannot vote the shares it acquires in the Control Share Acquisition ("control
shares") unless voting rights are accorded to such control shares by the holders
of a majority of the outstanding voting shares, excluding the control shares
held by the Acquiring Person and shares held by the Company's officers and
inside directors ("interested shares"), and by the holders of a majority of the
outstanding voting shares, including interested shares. The foregoing vote would
be required at the time an Acquiring Person's holdings exceed 20% of the total
voting power of a company, and again at the time the Acquiring Person's holdings
exceed 33 1/3% and 50%. The term "Acquiring Person" is broadly defined to
include persons acting as a group. A transaction in which voting power is
acquired solely by receipt of an immediately revocable proxy does not constitute
a "Control Share Acquisition."
The Acquiring Person may, but is not required to, submit to the Company an
"Acquiring Person Statement" setting forth certain information about the
Acquiring Person and its plans for acquiring the Company's stock.
42
<PAGE>
The Acquiring Person Statement may also request that the Company call a special
meeting of shareholders to determine whether the control shares will be allowed
to retain voting rights. If the Acquiring Person does not request a special
meeting of shareholders, the issue of voting rights of control shares will be
considered at the next annual meeting or special meeting of shareholders that is
held more than 60 days after the date of the Control Share Acquisition. If the
Acquiring Person's control shares are accorded voting rights and represent a
majority or more of all voting power, shareholders who do not vote in favor of
the restoration of such voting rights will have the right to receive the
appraised "fair value" of their shares, which may not be less than the highest
price paid per share by the Acquiring Person for the control shares. See "Risk
Factors -- Effect of Certain Anti-Takeover Provisions."
Upon completion of this offering, the Company also will become subject to
the Oregon Business Combination Act (OBCA Sections 60.825-60.845) (the "Business
Combination Act"). The Business Combination Act generally provides that in the
event a person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity, may not engage in certain business
combination transactions for a period of three years following the date the
person became an Interested Shareholder. Business combination transactions for
this purpose include (a) a merger or plan of share exchange, (b) any sale,
lease, mortgage or other disposition of the assets of the corporation where the
assets have an aggregate market value equal to 10% or more of the aggregate
market value of the corporation's assets or outstanding capital stock and (c)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers, and certain employee benefit plans), (ii) the Board of Directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's voting stock, or (iii) the
Board of Directors and the holders of at least two-thirds of the outstanding
voting stock of the corporation (disregarding shares owned by the Interested
Shareholder) approve the transaction after the Interested Shareholder acquires
15% or more of the corporation's voting stock. The Control Share Act and the
Business Combination Act will have the effect of encouraging any potential
acquiror to negotiate with the Company's Board of Directors and will also
discourage certain potential acquirors unwilling to comply with its provisions.
See "Risk Factors -- Effect of Certain Anti-Takeover Provisions."
The Company's Restated Articles contain provisions which (i) when the
Company has six or more directors, classify the Board of Directors into three
classes as nearly equal in number as possible, each of which, after an interim
arrangement, will serve for three years with one class being elected each year
(the "Classified Board Provisions"), (ii) provide that directors may be removed
by shareholders only for cause and only upon the vote of 75% of the votes then
entitled to be cast for the election of directors and (iii) require the approval
of holders of 67% of the outstanding shares of the Company entitled to vote to
effect a merger or consolidation of the Company, the sale, lease or exchange of
all or substantially all of the Company's assets or the dissolution or
liquidation of the Company. The Classified Board Provisions, the availability of
Preferred Stock for issuance without shareholder approval and the supermajority
voting requirements with respect to significant corporate transactions may have
the effect of lengthening the time required for a person to acquire control of
the Company through a proxy contest or the election of a majority of the Board
of Directors and may deter any potential unfriendly offers or other efforts to
obtain control of the Company. This could deprive the Company's shareholders of
opportunities to realize a premium for their Common Stock and could make removal
of incumbent directors more difficult. At the same time, these provisions may
have the effect of inducing any persons seeking control of the Company to
negotiate terms acceptable to the Board of Directors. In addition, the
provisions of the Restated Articles regarding removal of directors will make the
removal of any director more difficult even if such removal is believed by the
shareholders to be in their best interests. Since these provisions make the
removal of directors more difficult, they increase the likelihood that incumbent
directors will retain their positions and, since the Board has the power to
retain and discharge management, could perpetuate incumbent management. See
"Risk Factors -- Effect of Certain Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Interstate
Bank of Oregon, N.A. ("First Interstate"). First Interstate's address is 999
Third Avenue, Seattle, Washington 98104, and its telephone number is (206)
292-3795.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,855,611 shares of Common Stock (7,159,198 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,800,000
shares sold in this offering (or 3,220,000 shares if the over-allotment option
is exercised in full) will be available for resale in the public market by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). In addition, approximately 459,000 shares will be eligible for immediate
sale in the public market without restriction pursuant to Rule 144(k) under the
Securities Act. Approximately 1,656,184 additional shares outstanding upon
completion of this offering will be "restricted securities" ("Restricted
Shares") within the meaning of Rule 144 and will be eligible for sale pursuant
to Rule 144, and approximately 667,643 shares will be eligible for sale under
Rule 701, in each case after the expiration of a 90-day period after the date of
this Prospectus. The holders of 3,558,388 shares of Common Stock and the holders
of a warrant and options to purchase 2,280,470 shares of Common Stock have
agreed not to sell or dispose of such shares for a period of 180 days after the
effective date of the Registration Statement. Sales of shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years, including
persons who may be deemed "affiliates" of the Company, would be entitled to sell
within any three month period a number of shares that does not exceed the
greater of 1% of the number of shares of Common Stock then outstanding (which
will equal approximately 68,556 shares immediately after the offering) or the
average weekly trading volume of the Common Stock on all exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Such sales are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, a
person (or persons whose shares are aggregated) who is not and is not deemed to
have been an affiliate of the Company at any time during the 90 calendar days
preceding a sale, and who has beneficially owned for at least three years the
shares proposed to be sold, would be entitled to sell such shares under Rule 144
without regard to the volume limitations or other restrictions described above.
Any employee, director or officer of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract is entitled
to rely on the resale provisions of Rule 701, which permit nonaffiliates to sell
Rule 701 shares without compliance with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permit affiliates to sell
Rule 701 shares without compliance with the holding period restrictions of Rule
144, in each case commencing 90 days after the date of this Prospectus, but
subject to the lock-up agreements described below.
As soon as practicable following 180 days after the date of the Registration
Statement, the Company intends to file a registration statement under the
Securities Act to register approximately 5,200,000 shares of Common Stock
reserved for issuance under the Company's stock option plans. Such registration
statement is expected to be filed approximately 180 days after the date of this
Prospectus. Shares of Common Stock issuable after the effective date of such
registration statement upon exercise of stock options granted under the stock
option plans will generally be eligible for resale on the open market. See
"Management -- Stock Option Plans."
The number of Shares that will be sold under the foregoing rules will depend
in part on the market price for the Common Stock, the circumstances of the
sellers and other factors. In addition, following the closing of the offering,
the holders of 1,932,263 shares of Common Stock (including for this purpose
shares issued upon exercise of warrants) will be entitled to certain demand and
piggyback registration rights with respect to such shares.
The Company and the directors, executive officers, the Selling Shareholders
and certain other security holders of the Company have agreed that for a period
of 180 days after the effective date of the Registration Statement, without the
prior written consent of Robertson, Stephens & Company LLC, they will not sell,
dispose of any shares of Common Stock or any options to purchase Common Stock.
Prior to this offering, there has been no market for the Common Stock. See
"Risk Factors -- No Prior Public Market" and "Potential Volatility of Stock
Price." Sales of substantial amounts of Common Stock in the public market
(including shares issued upon the exercise of options that may be granted
pursuant to any employee stock option or other equity plan of the Company), or
the perception that such sales may occur, could adversely affect prevailing
market prices for the Common Stock.
44
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Donaldson, Lufkin & Jenrette Securities
Corporation and J.P. Morgan Securities Inc (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholders the number
of shares of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------
<S> <C>
Robertson, Stephens & Company LLC.....................................................................
Donaldson, Lufkin, Jenrette Securities Corporation....................................................
J.P. Morgan Securities Inc............................................................................
----------
Total............................................................................................. 2,800,000
----------
----------
</TABLE>
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
of not more than $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company or the Selling
Shareholders as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 262,500 and 157,500 additional shares of Common Stock,
respectively at the same price per share as the Company and the Selling
Shareholders receive for the 2,800,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock to
be purchased by it shown in the above table represents as a percentage of the
2,800,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 2,800,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Selling Shareholders and the Company against certain civil
liabilities, including liabilities under the Securities Act.
Pursuant to the terms of lock-up agreements, the directors, officers and
certain shareholders of the Company have agreed with the Representatives that,
for a period commencing on the date of the lock-up agreement and ending 180 days
after the date of this Prospectus, subject to certain limited exceptions, they
will not offer to sell, contract to sell or otherwise sell or dispose of any
shares of Common Stock, any options or warrants to purchase shares of Common
Stock, or any securities convertible or exchangeable for shares of Common Stock
owned directly by such holders or with respect to which such holders have the
power of disposition without the prior written consent of Robertson, Stephens &
Company LLC. Following expiration of such 180 day period, a portion of such
shares will be eligible for immediate public sale without registration under the
Securities Act, subject to the provisions of Rule 144. In addition, the Company
has agreed that until 180 days after the date of this Prospectus, the Company
will not, without the prior written consent of Robertson, Stephens & Company
LLC, subject to certain limited exceptions, issue, sell, or otherwise dispose
of, any shares
45
<PAGE>
of Common Stock, any options or warrants to purchase any shares of Common Stock
or any securities convertible into or exercisable for shares of Common Stock
other than the Company's sale of shares in this offering. Robertson, Stephens &
Company LLC, may, in its sole discretion, and at any time without notice, in
writing, release all or a portion of the securities subject to the lock-up
agreements from the restrictions contained therein. See "Shares Eligible For
Future Sale.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price has been
determined through negotiations among the Company, the Selling Shareholders and
the Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other publicly-traded companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland,
Oregon. Certain legal matters with respect to this Offering are being passed
upon for the Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco,
California.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1994 and
1995 and March 31, 1996 and for each of the years in the three-year period ended
June 30, 1995 and for the nine-month period ended March 31, 1996 have been
included in this Prospectus and elsewhere in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission, Washington, D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, NW, Judiciary Plaza, Washington D.C. 20549 and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
46
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of KPMG Peat Marwick LLP............................................................................ F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Claremont Technology Group, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1994 and 1995 and March
31, 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1995 and for the nine-month period ended March 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1994 and 1995 and March
31, 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1995 and for the nine-month
period ended March 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
May 20, 1996
F-2
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 1,870 $ 340 $ 80
Receivables:
Accounts receivable, net....................................................... 2,119 5,546 7,120
Revenue earned in excess of billing............................................ -- 265 3,086
Other.......................................................................... 5 40 60
Prepaid expenses and other current assets........................................ 78 73 251
Deferred income taxes............................................................ 484 219 258
Notes receivable................................................................. 85 85 604
--------- --------- -----------
Total current assets......................................................... 4,641 6,568 11,459
Property and equipment, net........................................................ 485 1,522 3,743
Long-term notes receivable......................................................... 135 710 75
Other noncurrent assets, net....................................................... 231 778 3,001
--------- --------- -----------
Total assets................................................................. $ 5,492 $ 9,578 $ 18,278
--------- --------- -----------
--------- --------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 187 $ 882 $ 2,104
Line of credit................................................... -- 200 --
Current installments of long-term debt........................... 27 290 1,063
Current installments of obligations under capital leases......... 83 3 --
Accrued expenses................................................. 1,230 2,068 3,372
Income taxes payable............................................. 102 419 375
Deferred revenue................................................. 256 253 956
Deferred income taxes............................................ 711 -- 523
--------- --------- -----------
Total current liabilities.................................... 2,596 4,115 8,393
Long-term debt, excluding current installments..................... 5 334 1,756
Obligations under capital leases, excluding current installments... 3 -- --
Deferred income taxes.............................................. 5 28 --
--------- --------- -----------
Total liabilities............................................ 2,609 4,477 10,149
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value. Authorized 2,000 shares; no shares
issued or outstanding........................................... -- -- --
Common stock, no par value. Authorized 10,000 shares; issued
5,000 shares; 3,949, 4,233 and 4,767 shares outstanding at June
30, 1994 and 1995 and March 31, 1996, respectively.............. 47 202 1,303
Retained earnings................................................ 2,836 4,898 6,831
Cumulative translation adjustment................................ -- 1 (5)
--------- --------- -----------
Total shareholders' equity................................... 2,883 5,101 8,129
--------- --------- -----------
Total liabilities and shareholders' equity................... $ 5,492 $ 9,578 $ 18,278
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Professional fees................................................. $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 31,711
Resold products and services...................................... -- -- -- -- 1,964
--------- --------- --------- --------- ---------
Total revenue................................................... 15,667 15,713 27,292 18,988 33,675
--------- --------- --------- --------- ---------
Costs and expenses:
Project costs and expenses........................................ 9,112 9,106 13,704 9,267 16,791
Resold products and services...................................... -- -- -- -- 1,874
Selling, general and administrative............................... 3,781 4,214 10,156 6,931 11,131
--------- --------- --------- --------- ---------
Total costs and expenses........................................ 12,893 13,320 23,860 16,198 29,796
--------- --------- --------- --------- ---------
Income from operations.......................................... 2,774 2,393 3,432 2,790 3,879
--------- --------- --------- --------- ---------
Other income (expense):
Interest income................................................... 53 44 83 67 38
Interest expense.................................................. (36) (30) (31) (17) (77)
Other............................................................. 4 (2) 15 -- (19)
--------- --------- --------- --------- ---------
Total other income (expense).................................... 21 12 67 50 (58)
--------- --------- --------- --------- ---------
Income before income taxes...................................... 2,795 2,405 3,499 2,840 3,821
Income tax expense.................................................. 1,204 953 1,352 1,097 1,616
--------- --------- --------- --------- ---------
Net income...................................................... $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share..................................... $ .28 $ .24 $ .31 $ .25 $ .29
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and common equivalent shares
outstanding........................................................ 5,796 6,269 7,319 7,215 7,662
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED CUMULATIVE TOTAL
---------------------- EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) ADJUSTMENT EQUITY
----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992.................................. 3,900 $ 33 $ (26) $ -- $ 7
Net income................................................ -- -- 1,591 -- 1,591
Stock options exercised................................... 66 11 -- -- 11
Purchase of common stock.................................. (25) (4) (22) -- (26)
----- --------- ----------- ----------- ------------
Balance at June 30, 1993.................................. 3,941 40 1,543 -- 1,583
Net income................................................ -- -- 1,452 -- 1,452
Stock options exercised................................... 142 33 -- -- 33
Purchase of common stock.................................. (134) (26) (159) -- (185)
----- --------- ----------- ----------- ------------
Balance at June 30, 1994.................................. 3,949 47 2,836 -- 2,883
Net income................................................ -- -- 2,147 -- 2,147
Tax benefit of stock options exercised.................... -- 83 -- -- 83
Stock options exercised................................... 339 102 -- -- 102
Purchase of common stock.................................. (55) (30) (85) -- (115)
Foreign currency translation adjustment................... -- -- -- 1 1
----- --------- ----------- ----------- ------------
Balance at June 30, 1995.................................. 4,233 202 4,898 1 5,101
Net income................................................ -- -- 2,205 -- 2,205
Tax benefit of stock options exercised.................... -- 525 -- -- 525
Stock options exercised................................... 603 472 -- -- 472
Stock compensation recognized............................. -- 107 -- -- 107
Purchase of common stock.................................. (69) (3) (272) -- (275)
Foreign currency translation adjustment................... -- -- -- (6) (6)
----- --------- ----------- ----------- ------------
Balance at March 31, 1996................................. 4,767 $ 1,303 $ 6,831 $ (5) $ 8,129
----- --------- ----------- ----------- ------------
----- --------- ----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,591 $ 1,452 $ 2,147 $ 1,743 $ 2,205
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 176 227 467 284 966
Loss from sale of fixed assets........................... -- 2 -- -- --
Deferred income taxes.................................... 562 321 (423) -- 456
Non-cash stock compensation recognized................... -- -- -- -- 107
Changes in assets and liabilities:
Receivables............................................ (1,406) 137 (3,565) (2,166) (4,419)
Prepaid expenses and other current assets.............. 377 4 5 32 (178)
Other non-current assets............................... 12 (49) (90) (91) (1,058)
Accounts payable and accrued expenses.................. 575 (196) 1,451 666 2,516
Deferred revenue....................................... (551) (777) (3) (190) 661
Income taxes payable................................... 256 (391) 242 343 (42)
--------- --------- --------- --------- ---------
Net cash provided by operating activities............ 1,592 730 231 621 1,214
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition, net of cash acquired.......................... -- -- (204) (204) (130)
Proceeds from sale of long-term certificate of deposit..... -- 32 -- -- --
Purchase of property and equipment......................... (207) (247) (1,498) (1,077) (2,936)
Proceeds from sale of property and equipment............... -- 8 -- -- --
Capitalized software development costs..................... -- -- (122) (42) (1,236)
--------- --------- --------- --------- ---------
Net cash used by investing activities................ (207) (207) (1,824) (1,323) (4,302)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payments on line of credit................................. -- -- 4,400 -- 9,325
Proceeds from line of credit............................... -- -- (4,200) -- (9,525)
Payments of long-term debt................................. (24) (29) (39) (22) (375)
Proceeds from issuance of long-term debt................... 19 -- 500 -- 2,570
Payments of obligations under capital leases............... (60) (70) (83) (61) (3)
Purchase of common stock................................... (26) (185) (115) (76) (275)
Proceeds from exercise of stock options.................... 11 33 185 71 997
Payments (issuance) of notes receivable, net............... -- (220) (575) (535) 116
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities..... (80) (471) 73 (623) 2,830
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash...................... -- -- (10) -- (2)
Net (decrease) increase in cash and cash equivalents....... 1,305 52 (1,530) (1,325) (260)
Cash and cash equivalents at beginning of year............... 513 1,818 1,870 1,870 340
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year..................... $ 1,818 $ 1,870 $ 340 $ 545 $ 80
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest..................................... $ 36 $ 30 $ 31 $ 17 $ 78
Cash paid for taxes........................................ 198 1,034 1,319 1,120 673
Supplemental disclosure of non-cash investing and financing
activities:
Net liabilities assumed in merger.......................... $ -- $ -- $ 151 $ 151 $ 57
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1995 AND MARCH 31, 1996
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Claremont Technology Group, Inc. (the Company) provides enterprise-wide
information technology (IT) solutions that re-engineer mission-critical business
processes such as customer service, order processing, billing and logistics.
Claremont services include IT planning, systems integration and development and
outsourcing, through a project management methodology that employs reusable
object oriented software modules and transferable design frameworks.
Claremont provides solutions to large organizations in select IT intensive
vertical markets including communications, financial services and
pension/retirement services. Claremont's clients consist of large corporations
and government organizations in the United States and certain foreign markets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Claremont Technology Group, Inc. and its wholly owned subsidiaries, Claremont
Retirement Technologies, Inc. (CRTI), Gunford Limited (Claremont Technology
Group (Ireland) Ltd.) and Claremont Technology Group Canada, Inc. (CTGCI). All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of three months or less.
INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. is a limited partnership for which CRTI
is the general partner. The investment in the partnership is accounted for by
the cost method.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade payables
and short term borrowings approximate fair value because of the short term
nature of these instruments. The fair value of long-term debt was estimated by
discounting the future cash flows using market interest rates and does not
differ significantly from that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
REVENUE AND COST RECOGNITION
Revenue from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost incurred to
date to the estimated total cost at completion. This method is used because
management considers accumulated costs to be the best available measure of
progress on these contracts. The cumulative impact of any revision in estimates
of the percent complete is reflected in the year in which the changes become
known. Losses on projects in progress are recognized when known. Revenue earned
in excess of billings is comprised of earnings on certain contracts in excess of
contractual billings on such contracts. Billings in excess of earnings are
classified as deferred revenues.
Revenue from time and materials contracts are recognized during the period
in which the services are provided.
F-7
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$-0-, $98 and $98 at June 30, 1994 and 1995 and March 31, 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of future minimum lease payments at the inception of
the lease.
Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets ranging from three to five
years. Equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or estimated useful
lives of the assets.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Statement 109
requires a change from the deferred method of accounting for income taxes of APB
Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
There was no material cumulative effect of this change in the method of
accounting for income taxes.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency in the Company's foreign
subsidiaries. Assets and liabilities of the foreign subsidiaries are translated
to U.S. dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates, in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation." Gains and
losses from foreign currency translation are included as a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
as a component of other income and expense.
INTANGIBLE ASSETS
Software development costs incurred subsequent to establishing a product's
technological feasibility are capitalized until such product is available for
general release to customers in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed". Capitalized software costs are amortized
on a product-by-product basis. Amortization will be recorded based on the
greater of (a) the estimated economic life of the software (generally three
years or less) or (b) the ratio of current gross revenues for each product to
the total of current and anticipated gross revenues for each product, commencing
when such product is available for general release.
Other intangibles include purchased technology and a covenant not to
compete, which are amortized over periods ranging from two to five years using
the straight-line method.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-8
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
COMPUTATION OF NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares
of common and common equivalent shares outstanding. Common equivalent shares
from stock options and warrants are excluded from the computation if their
effect is antidilutive, except that pursuant to the Securities and Exchange
Staff Accounting Bulletins common and common equivalent shares issued at prices
below the public offering price during the twelve months immediately preceding
the initial filing date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and the
initial public offering price.
(2) ACQUISITIONS
In January 1995 the Company formed CTGCI by paying $5 in consideration for
4,999 shares of CTGCI common stock. Subsequently, under the terms of a Letter of
Agreement which was effective in January 1995, CTGCI purchased 100 percent of
the outstanding stock of Tony Martins & Associes, Inc. (TMAI) for $421. The
agreement provided for $290 to be delivered upon closing and a loan payable in
the amount of $131 due on January 31, 1996. The acquisition was accounted for
under the purchase method of accounting with CTGCI acquiring the net assets of
TMAI. Financial results subsequent to the acquisition date have been included in
the consolidated statements of operations and cash flows.
The fair value of assets and liabilities acquired at the date of acquisition
are presented below:
<TABLE>
<S> <C>
Cash......................................................................... $ 86
Accounts receivable.......................................................... 156
Furniture and computer equipment............................................. 4
Purchased technology......................................................... 326
Accounts payable and accrued expenses........................................ (151)
---------
Net assets acquired...................................................... $ 421
---------
---------
</TABLE>
In January 1996, the Company purchased certain assets of The Node Connection
(TNC) for $130. The acquisition has been accounted for as a purchase, and the
financial results of TNC have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the acquisition
has been allocated on the basis of the estimated fair value of the assets
acquired and the liabilities assumed.
The fair value of assets and liabilities acquired at the date of acquisition
are presented below:
<TABLE>
<S> <C>
Accounts receivable.......................................................... $ 3
Fixed assets................................................................. 65
Identifiable intangible assets............................................... 119
Accounts payable............................................................. (15)
Deferred revenue............................................................. (42)
---
Net assets acquired........................................................ $ 130
---
---
</TABLE>
The separate operational results of these acquisitions were not material and
accordingly pro-forma financial results have been omitted.
F-9
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(3) BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Furniture and equipment.................................................. $ 171 $ 452 $ 985
Computer equipment and software.......................................... 563 1,788 4,195
Leased equipment......................................................... 216 216 216
Leasehold improvements................................................... 49 49 108
--------- --------- -----------
999 2,505 5,504
Less accumulated depreciation and amortization........................... (514) (983) (1,761)
--------- --------- -----------
Property and equipment, net............................................ $ 485 $ 1,522 $ 3,743
--------- --------- -----------
--------- --------- -----------
</TABLE>
Depreciation expense for the years ended June 30, 1993, 1994, and 1995 and
for the nine month period ending March 31, 1996 was $176, $227, $469 and $778,
respectively.
ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Accrued payroll.......................................................... $ 521 $ 805 $ 1,238
Accrued vacation......................................................... 439 828 1,075
Accrued payroll taxes.................................................... 4 18 619
Accrued profit sharing................................................... 52 392 419
Accrued other............................................................ 214 25 21
--------- --------- -----------
$ 1,230 $ 2,068 $ 3,372
--------- --------- -----------
--------- --------- -----------
</TABLE>
OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Software development costs............................................... $ -- $ 122 $ 1,384
Purchased technology..................................................... -- 334 249
Covenant not to compete.................................................. -- -- 958
Other.................................................................... 231 322 410
--------- --------- -----------
$ 231 $ 778 $ 3,001
--------- --------- -----------
--------- --------- -----------
</TABLE>
(4) INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. (the Partnership) was formed with one
of the Company's major customers to receive royalties from CRTI for future sales
of a pension/retirement system template to other public and private pension
funds. CRTI has obtained licensing rights from the Partnership to remarket the
template. CRTI's initial equity contribution to the Partnership represents
approximately 1% of the Partnership's total capital.
F-10
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(5) LEASES
The Company was obligated under various capital leasing arrangements for
certain of its computer equipment and office furniture. The leases had expired
by March 31, 1996.
The Company also leases certain of its office space through noncancelable
operating lease arrangements. The leases expire April 30, 1996 through November
30, 2000, and are net leases with the Company paying all executory costs,
including insurance, utilities, and maintenance. Rental expense for operating
leases during the years ended June 30, 1993, 1994 and 1995 and for the
nine-month period ending March 31, 1996 was $93, $102, $404 and $532,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<S> <C>
Period ending June 30:
1996 (for the three months ended June 30)....................... $ 157
1997............................................................ 617
1998............................................................ 515
1999............................................................ 435
2000............................................................ 228
-----------
Total minimum lease payments.................................. $ 1,952
-----------
-----------
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
7.6% installment loan payable in monthly installments of $61, including interest,
with final payment due April 1999, secured by certain furniture and equipment.... $ -- $ -- $ 1,944
7.59% installment loan payable in monthly installments of $14 with final payment
due November 1998, secured by certain furniture and equipment.................... -- -- 431
8.05% installment loan payable in monthly installments of $16, including interest,
with final payment due May 1998, secured by certain furniture and equipment...... -- 488 374
Non-interest bearing loans payable to former shareholders of acquired companies,
due in 1996...................................................................... -- 131 70
Installment loans payable in monthly installments................................. 32 5 --
--- --------- -----------
32 624 2,819
Less current installments of long-term debt....................................... (27) (290) (1,063)
--- --------- -----------
Long-term debt, excluding current installments.................................. $ 5 $ 334 $ 1,756
--- --------- -----------
--- --------- -----------
</TABLE>
F-11
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(6) LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt for years subsequent to March 31,
1996 are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1996 (for the three months ended June 30)................................. $ 283
1997...................................................................... 944
1998...................................................................... 993
1999...................................................................... 599
---------
$ 2,819
---------
---------
</TABLE>
During 1995, the Company entered into a $2 million line of credit with a
bank which was subsequently increased to $4 million in March 1996, with an
interest rate of .25 percentage points above the bank's reference rate (8.5% at
March 31, 1996), available through August 1, 1997. This line of credit is
secured by furniture, equipment, and accounts receivable. At March 31, 1996,
$-0- was outstanding on this line of credit.
The Company is a guarantor on a nonrevolving line of credit with a bank
which provided for borrowings of up to $2.0 million for purposes of facilitating
the purchase of Company common stock by Company executives. As of March 31,
1996, there was $1.7 million of related debt outstanding against the line.
Advances under the line of credit were made directly to the Company executive
with full recourse and bear interest. Advances under the line of credit were for
36 months and include monthly interest payments, made by each Company executive,
with principal repayment by each Company executive on or before July 31, 1998.
The Company has available a standby letter of credit for up to $125. As of
March 31, 1996 there were no amounts outstanding under the line of credit.
F-12
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109, effective July 1,
1993. Prior year financial statements have not been restated to apply the
provision of Statement 109. There was no cumulative effect with the adoption of
Statement 109.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Current:
Federal.................................................... $ 490 $ 468 $ 1,351 $ 831
State and local............................................ 152 164 398 217
Foreign.................................................... -- -- 26 112
--------- --------- --------- ------
642 632 1,775 1,160
--------- --------- --------- ------
Deferred:
Federal.................................................... 429 253 (314) 359
State and local............................................ 133 68 (109) 97
--------- --------- --------- ------
562 321 (423) 456
--------- --------- --------- ------
Total.................................................... $ 1,204 $ 953 $ 1,352 $ 1,616
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal and corporate income tax rate of 34% to
net income before income taxes) as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Computed expected income tax expense......................... $ 950 $ 818 $ 1,190 $ 1,299
Increase (reduction) in income tax expense resulting from:
State income tax expense................................... 189 147 214 210
Foreign taxes.............................................. -- -- -- (10)
Other...................................................... 65 (12) (52) 117
--------- --------- --------- ------
Income tax expense....................................... $ 1,204 $ 953 $ 1,352 $ 1,616
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>
F-13
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(7) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses......................................................... $ -- $ 176 $ 219
Expenses deductible in future periods.................................... 484 -- --
Other.................................................................... -- 43 39
--------- --------- -----
Total gross deferred tax assets........................................ 484 219 258
--------- --------- -----
Deferred tax liabilities:
Capitalized cost......................................................... -- (27) (513)
Income taxable in future periods......................................... (711) -- --
Property and equipment, due to differences in depreciation............... (5) (1) (10)
--------- --------- -----
Total gross deferred tax liabilities................................... (716) (28) (523)
--------- --------- -----
Net deferred tax assets (liabilities).................................. $ (232) $ 191 $ (265)
--------- --------- -----
--------- --------- -----
</TABLE>
The Company reported income and expense items on the cash basis for income
tax purposes and the accrual method for financial reporting purposes during the
years ended June 30, 1993 and 1994.
(8) STOCK INCENTIVE PLANS
During fiscal 1992, the Company adopted, and the Board of Directors
approved, a stock incentive plan for eligible employees, directors and outside
consultants of the Company (the 1992 Plan). Either non-qualified or incentive
stock options may be issued under this plan and are exercisable for a period of
up to ten years from the date of grant. Certain of these options are subject to
acceleration clauses. The Company has authorized issuance of such options to
purchase up to an aggregate of 4,100,000 shares of its common stock. The options
vest and are exercisable over various periods from the initial grant date.
During fiscal 1996, the Company also adopted and the Board of Directors
approved the 1996 Stock Option Plan for Nonemployee Directors (the 1996
Nonemployee Director Plan). Under the terms of the 1996 Nonemployee Director
Plan, directors of the Company who are not employees of the Company or any
subsidiary of the Company are eligible to receive non-qualified options to
purchase shares of common stock. A total of 200,000 shares of common stock have
been reserved for issuance upon exercise of stock options granted under the 1996
Nonemployee Director Plan. Upon election to the board of directors, each
director is granted an option to purchase 20,000 shares, which option will vest
over a three-year period (each a "Recruitment Grant"). Following the first
annual meeting of shareholders after a Recruitment Grant is fully-vested, the
nonemployee director holding such fully-vested Recruitment Grant will receive an
option to purchase an additional 15,000 shares of Common Stock, which option
will vest over a three-year period (a "First Renewal Grant"). Furthermore,
following the first annual meeting of shareholders after a nonemployee
director's First Renewal Grant is fully-vested, and following every third annual
meeting of shareholders thereafter, such nonemployee director will be granted an
option to purchase an additional 15,000 shares of Common Stock, which option
will vest over a three-year period. The exercise price of options granted under
the 1996 Nonemployee Director Plan may not be less than the fair market value of
a share of common stock on the date of the grant of the option.
F-14
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(8) STOCK INCENTIVE PLANS (CONTINUED)
The following table summarizes stock option activity through March 31, 1996:
<TABLE>
<CAPTION>
PRICE
SHARES SHARES
---------- --------------
<S> <C> <C>
Outstanding options at June 30, 1992....................................... 1,423,334 $ .136 - 0.16
Granted.................................................................... 1,254,425 .160 - 1.03
Exercised.................................................................. (66,250) 0.16
Canceled................................................................... (381,250) .160 - 0.51
---------- --------------
Outstanding options at June 30, 1993....................................... 2,230,259 .136 - 1.03
Granted.................................................................... 1,333,724 .030 - 1.73
Exercised.................................................................. (141,758) .160 - 1.43
Canceled................................................................... (269,808) .160 - 1.73
---------- --------------
Outstanding options at June 30, 1994....................................... 3,152,417 .136 - 1.73
Granted.................................................................... 664,635 1.730 - 3.55
Exercised.................................................................. (338,546) .136 - 2.21
Canceled................................................................... (107,351) .160 - 3.55
---------- --------------
Outstanding options at June 30, 1995....................................... 3,371,155 .136 - 3.55
Granted.................................................................... 546,000 3.550 - 4.02
Exercised.................................................................. (603,652) .136 - 4.02
Canceled................................................................... (124,407) .160 - 4.02
---------- --------------
Outstanding options at March 31, 1996...................................... 3,189,096 $ .136 - 4.02
---------- --------------
---------- --------------
</TABLE>
At March 31, 1996, 1,419,080 of the outstanding options were exercisable.
(9) PROFIT SHARING PLAN
In January 1990, the Company adopted a qualified profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. The plan requires
participants to be at least 21 years of age and have completed at least one hour
of service. Employees can make voluntary contributions up to limitations
prescribed by the Internal Revenue Code. Company matching contributions are
discretionary. For the years ended June 30, 1993, 1994 and 1995 and the
nine-month period ending March 31, 1996, the Company recognized discretionary
matching contributions of $82, $45, $75 and $101, respectively.
(10) EMPLOYEE STOCK OWNERSHIP PLAN
In June 1995, the Company established an Employee Stock Ownership Plan
(ESOP) for all non-union U.S. employees. The ESOP is designed to invest
primarily in common stock of the Company. Each nonunion employee of the Company
or any affiliated company automatically participates in the ESOP on the January
1 or July 1 following such employee's date of hire.
The general assets of the ESOP are held in trust under a Trust Agreement.
The Company has appointed the Hawaiian Trust Company, Ltd. as the trustee
("Trustee"). The Trustee holds legal title to all assets of the ESOP and subject
to applicable laws and the terms of the ESOP has the discretionary power to buy
common stock and to sell common stock held by the ESOP.
F-15
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(10) EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
The voting rights with respect to common stock held by the ESOP are
exercised by the Trustee, as directed by the ESOP committee. In the case of a
transaction such as a reorganization, recapitalization, merger, sale of
substantially all assets, liquidation, dissolution or similar transaction which
must be approved by the shareholders, the participants may direct the Trustee
how to vote the common stock allocated to their Company stock accounts.
A participant's account becomes fully vested and nonforfeitable after seven
years of service with the Company, or earlier if the participant attains age 65,
becomes totally disabled or dies. The participant's account vests at the rate of
10% per year for the first four years of employment, and at the rate of 20% per
year for each year thereafter, until fully vested. The Company pays all
administrative costs of the ESOP.
The Company makes all contributions to the ESOP, which may be made in either
cash or shares of common stock. The contributions to the ESOP for the year
ending June 30, 1995 and the nine-month period ended March 31, 1996 consisted of
cash of $300 and $318, respectively. Future contributions to the ESOP will be
made at the Company's discretion.
(11) BUSINESS AND CREDIT CONCENTRATION
Revenues from certain of the Company's largest customers individually
exceeded 10% of revenues in the years ended June 30, 1993, 1994 and 1995 and for
the nine month period ending March 31, 1996 as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Ohio State Teachers Retirement System....................... 78% 72% 38% 14%
AT&T Network Systems........................................ --% --% 19% 2%
Lucent Technologies......................................... --% --% --% 24%
Mississippi Public Employee Retirement System............... --% --% --% 12%
</TABLE>
At June 30, 1994 and 1995 and March 31, 1996, the trade accounts receivable
balances from these customers were $964, $2,014 and $1,956, respectively.
(12) RELATED PARTY TRANSACTIONS
The Company issued notes receivable to its majority shareholder during
fiscal years ended June 30, 1994 and 1995. The notes were forgiven during 1996.
The amount of the notes and interest receivable at June 30, 1994 and 1995 and
the nine-months ending March 31, 1996 were $100 and $-0-, $410 and $13 and $-0-
and $10, respectively.
The Company also issued notes receivable totaling $120, $385 and $514 to
certain employees during the fiscal years ended June 30, 1994 and 1995, and the
nine-month period ending March 31, 1996, respectively. The notes are due at
varying dates through July 31, 1997 and bear interest at rates ranging from 4%
to 7.1%. Interest receivable on these notes was $2, $6 and $2 at June 30, 1994
and 1995, and March 31, 1996, respectively. During fiscal 1995, a note
receivable totaling $85 was extended to July 1995 and paid in full at that time.
The Company has entered into a retirement and severance agreement with its
founder and (as of the date of the agreement, March 15, 1996) largest
shareholder. Under that agreement, in exchange for his commitment not to compete
with the Company for five years, the Company agreed to pay an amount equal to
one year's salary, provide a continuation of medical benefits during his
lifetime, forgive certain loans from the Company and pay resulting withholding
taxes, accelerate the exercisability of otherwise not yet exercisable stock
options for 35,800 shares of the Company's common stock with an exercise price
of $1.03 each, and grant him and certain trusts and individuals to whom he had
transferred stock certain "piggyback" registration rights. The Company also
agreed
F-16
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
(12) RELATED PARTY TRANSACTIONS (CONTINUED)
to guarantee a loan for him if the guarantee was required by the lender,
provided that the Company's guarantee was secured by a pledge of Company stock
belonging to the founder, and to provide good faith cooperation if he wished to
sell some of his stock in a transaction before the date of the Company's initial
public offering.
The Company retained a board member as a consultant through his consulting
firm, and also directly as a part-time employee, for payments aggregating $113
in fiscal year 1993, $113 in fiscal year 1994, $113 in fiscal year 1995, and $39
in the nine months ended March 31, 1996. The consulting and employment
arrangement with the board member ended effective April 26, 1996.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
The Company has approximately $500 of performance bonds outstanding as of
March 31, 1996.
The Company has entered into three year employment agreements with its
president and chief financial officer. These agreements became effective upon
retaining these individuals and provide for an initial base salary of $400 and
$295, respectively. Each agreement states that if the executive's employment is
terminated by the Company for reasons other than cause, the executive's base
salary will continue for the longer of three years from the start date or six
months from the termination date. Regardless of the reason for termination, each
agreement contains commitments of noncompetition and nonsolicitation of the
Company's personnel. These commitments last the longer of 18 months after
departure from the Company, or for as long as base salary continues to be paid.
(14) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, providing systems
integration services. The Company's subsidiary in Canada accounted for $1,703 of
total revenue and $179 of net income for the nine months ended March 31, 1996.
Identifiable assets of this subsidiary were $1,623 at March 31, 1996.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
United States.................................... $ 15,667 $ 15,713 $ 26,730 $ 18,791 $ 31,972
Canada........................................... -- -- 562 197 1,703
--------- --------- --------- --------- ---------
Total........................................ $ 15,667 $ 15,713 $ 27,292 $ 18,988 $ 33,675
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(15) SUBSEQUENT EVENTS
On April 29, 1996, the Company's Board of Directors approved an increase in
the authorized number of common and preferred stock to 25,000,000 and 10,000,000
shares, respectively. In addition, the Company's Board of Directors approved an
increase of common stock reserved for issuance under the 1992 Plan to 5,000,000,
subject to shareholder approval. The Company's shareholders approved such
increases on May 17, 1996.
On May 20, 1996, the Company issued a five year warrant to purchase 400,000
shares of common stock at an exercise price of $10.33 per share. The warrant is
subject to certain antidilution rights.
F-17
<PAGE>
[INSIDE BACK COVER GRAPHICS--Icon representations in color of the Company's
industry sector focus]
Captions: Communications
Financial Services
Pension/Retirement and Other Government Services
Retail/Commercial Services
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, expected to be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All amounts, except the SEC registration fee, the NASD filing fee and
the Nasdaq listing fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 21,097
NASD Filing Fee................................................... 6,400
Nasdaq Listing Fee................................................ 35,110
Printing and Engraving Expenses................................... 130,000
Accounting Fees and Expenses...................................... 125,000
Legal Fees and Expenses........................................... 300,000
Blue Sky Fees and Expenses (including fees of counsel)............ 15,000
Transfer Agent and Registrar Fees................................. 7,000
Director and Officer Insurance.................................... 50,000
Miscellaneous Expenses............................................ 110,393
---------
Total......................................................... $ 800,000
---------
---------
</TABLE>
- ------------
* Estimate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article IV of the Company's Second Restated Articles of Incorporation (the
"Restated Articles") eliminates the liability of the Company's directors to the
Company or its shareholders, except for any liability related to breach of the
duty of loyalty, actions not in good faith and certain other liabilities.
Article IV of the Restated Articles requires the Company to indemnify its
directors and officers to the fullest extent not prohibited by law.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
Effective upon consummation of the offering, the Company will have entered
into indemnity agreements with each executive officer of the Company and each
member of the Company's Board of Directors. These indemnity agreements provide
for indemnification of the indemnitee to the fullest extent allowed by law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 1, 1993, the Company has sold securities without registration
under the Securities Act of 1933, as amended (the "Act") in the transactions and
in reliance on the exemptions from registration described below.
During the period from May 1, 1993 through May 15, 1996, the Company sold an
aggregate of 1,112,472 shares of Common Stock for an aggregate purchase price of
$626,633.39 to various employees pursuant to exercise of options granted under
the 1992 Stock Incentive Plan in reliance on Rule 701 promulgated under the Act.
During the period from May 1, 1993 through May 15, 1996, the Company issued
options to purchase an aggregate of 2,993,959 shares of Common Stock pursuant to
the 1992 Stock Incentive Plan in reliance on Rule 701 promulgated under the Act.
On May 20, 1996 the Company issued a warrant to purchase up to 400,000
shares of Common Stock to DLJ Capital Corporation in reliance on Section 4(2) of
the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
1.0 Form of Underwriting Agreement**
3.1 Second Restated Articles of Incorporation of Claremont Technology Group, Inc.**
3.2 Second Amended and Restated Bylaws of Claremont Technology Group, Inc.**
4.1 Retirement and Severance Agreement by and between Claremont Technology Group, Inc. and Steven
L. Darrow dated March 15, 1996**
4.2 Form of Shareholder Agreement under 1992 Stock Incentive Plan**
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of the securities being
registered**
10.1 Form of Indemnity Agreement between Claremont Technology Group, Inc. and each of its executive
officers and directors**
10.2 1992 Stock Incentive Plan**
10.3 Form of Stock Option Agreement Under 1992 Stock Incentive Plan**
10.4 1996 Stock Option Plan for Nonemployee Directors**
10.5 Letter of Agreement by and among Mr. Tony Martins, Ms. Anna Mara, Ms. Claude Gareau, Mr.
Ronald Bastien, Tony Martins & Associs, Inc. and Claremont Technology Group, Inc. dated as of
January 23, 1995**
10.6 Employment Agreement by and between Claremont Technology Group, Inc. and Paul J. Cosgrave
dated July 1, 1994**
10.7 Employment Agreement by and between Claremont Consulting Group, Inc. (k/n/a Claremont
Technology Group, Inc.) and Dennis M. Goett dated February 1, 1996
10.8 Employment Agreement by and between Claremont Technology Group, Inc. and Stephen Hawley dated
February 5, 1993
10.9 Lease by and between Amberjack, Ltd. and Claremont Technology Group, Inc. dated January 13,
1995, as amended
10.10 Lease by and between Birtcher Properties, Inc., Manager for Amberjack, Ltd., and Claremont
Technology Group, Inc. dated November 27, 1991, as amended
10.11 Lease Agreement by and between TOW Ltd. and Claremont Technology Group, Inc. dated October
1995
10.12 Claremont Technology Group, Inc. 401(k) Plan and Trust
10.13 Claremont Technology Group, Inc. Executive Bonus Participation Agreement**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
10.14 Claremont Technology Group, Inc. Employee Stock Ownership Plan
<C> <S>
10.15 Business Loan Agreement between Bank of America Oregon and Claremont Technology Group, Inc.
dated April 24, 1995, as amended
10.16 Common Stock Purchase Warrant issued by Claremont Technology Group, Inc. to DLJ Capital
Corporation dated May 20, 1996
10.17 Settlement Agreement and Release dated May 20, 1996 by and between Claremont Technology Group,
Inc. and DLJ Capital Corporation and associated funds
11.0 Computation of Earnings Per Share**
21.0 Subsidiaries of the Registrant**
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed as
Exhibit 5.0)**
23.2 Consent of KPMG Peat Marwick LLP
24.0 Powers of Attorney (included in signature page in Part II of the Registration Statement)**
27.0 Financial Data Schedule**
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Beaverton,
State of Oregon, on June 10, 1996.
CLAREMONT TECHNOLOGY GROUP, INC.
By /s/ PAUL J. COSGRAVE
------------------------------------
Paul J. Cosgrave
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been duly signed by the following persons in
the capacities indicated on June 10, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------------------------------
<C> <S>
/s/ PAUL J. COSGRAVE
------------------------------------ President, Chief Executive Officer and Director (Principal
Paul J. Cosgrave Executive Officer)
/s/ DENNIS M. GOETT
------------------------------------ Chief Financial Officer and Director (Principal Financial and
Dennis M. Goett Accounting Officer)
*
------------------------------------ Director
Neil E. Goldschmidt
*
------------------------------------ Director
Phillip W. Seeley
*
------------------------------------ Director
Jerry L. Stone
*By: /s/ PAUL J. COSGRAVE
-------------------------------
Paul J. Cosgrave
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
1.0 Form of Underwriting Agreement**...........................................................
3.1 Second Restated Articles of Incorporation of Claremont Technology Group, Inc.**............
3.2 Second Amended and Restated Bylaws of Claremont Technology Group, Inc.**...................
4.1 Retirement and Severance Agreement by and between Claremont Technology Group, Inc. and
Steven L. Darrow dated March 15, 1996**...................................................
4.2 Form of Shareholder Agreement under 1992 Stock Incentive Plan**............................
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of the securities
being registered**........................................................................
10.1 Form of Indemnity Agreement between Claremont Technology Group, Inc. and each of its
executive officers and directors**........................................................
10.2 1992 Stock Incentive Plan**................................................................
10.3 Form of Stock Option Agreement Under 1992 Stock Incentive Plan**...........................
10.4 1996 Stock Option Plan for Nonemployee Directors**.........................................
10.5 Letter of Agreement by and among Mr. Tony Martins, Ms. Anna Mara, Ms. Claude Gareau, Mr.
Ronald Bastien, Tony Martins & Associs, Inc. and Claremont Technology Group, Inc. dated as
of January 23, 1995**.....................................................................
10.6 Employment Agreement by and between Claremont Technology Group, Inc. and Paul J. Cosgrave
dated July 1, 1994**......................................................................
10.7 Employment Agreement by and between Claremont Consulting Group, Inc. (k/n/a Claremont
Technology Group, Inc.) and Dennis M. Goett dated February 1, 1996........................
10.8 Employment Agreement by and between Claremont Technology Group, Inc. and Stephen Hawley
dated February 5, 1993....................................................................
10.9 Lease by and between Amberjack, Ltd. and Claremont Technology Group, Inc. dated January 13,
1995, as amended..........................................................................
10.10 Lease by and between Birtcher Properties, Inc., Manager for Amberjack, Ltd., and Claremont
Technology Group, Inc. dated November 27, 1991, as amended................................
10.11 Lease Agreement by and between TOW Ltd. and Claremont Technology Group, Inc. dated October
1995......................................................................................
10.12 Claremont Technology Group, Inc. 401(k) Plan and Trust.....................................
10.13 Claremont Technology Group, Inc. Executive Bonus Participation Agreement**.................
10.14 Claremont Technology Group, Inc. Employee Stock Ownership Plan.............................
10.15 Business Loan Agreement between Bank of America Oregon and Claremont Technology Group, Inc.
dated April 24, 1995, as amended..........................................................
10.16 Common Stock Purchase Warrant issued by Claremont Technology Group, Inc. to DLJ Capital
Corporation dated May 20, 1996............................................................
10.17 Settlement Agreement and Release dated May 20, 1996 by and between Claremont Technology
Group, Inc. and DLJ Capital Corporation and associated funds..............................
11.0 Computation of Earnings Per Share**........................................................
21.0 Subsidiaries of the Registrant**...........................................................
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed as
Exhibit 5.0)**............................................................................
23.2 Consent of KPMG Peat Marwick LLP...........................................................
24.0 Powers of Attorney (included in signature page in Part II of the Registration
Statement)**..............................................................................
27.0 Financial Data Schedule**..................................................................
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
<PAGE>
EMPLOYMENT AGREEMENT
Claremont Technology Group, Inc. (Claremont), whose address is 1600 NW
Compton Drive, Suite 210, Beaverton, Oregon 97006 and Dennis M. Goett (Executive
or Employee), whose address is 140 Old Farm Road, Pleasantville, New York 10570,
enter this agreement.
The parties acknowledge that Claremont sells and implements software-based
custom strategic solutions and that the Executive is an experienced and
successful financial manager of both public and privately traded companies.
Claremont hires Executive under these terms:
1. EMPLOYMENT.
1.1 LENGTH. Executive's employment with Claremont begins on February 1,
1996 (Effective Date), and continues until ended as this Agreement provides.
1.2 FULL TIME. Executive will work full time. Executive will devote his
good faith efforts in support of Claremont's operations and goals, during the
entire term of this Agreement. While Executive's employment by Claremont under
this Agreement continues, Executive will not engage in any other employment or
consulting without Claremont's advanced written consent. Claremont will grant
such consent to enable Executive to conclude current consulting contracts, a
process which Executive shall complete prior to June 30, 1996.
2. EXECUTIVE'S DUTIES. Executive will serve as Claremont's Chief Financial
Officer. If Claremont reassigns Executive without Executive's consent, the
Executive may, at the Executive's option, decline to accept the change in title
or the new assignment and elect instead to treat it as termination without cause
by Claremont.
3. COMPENSATION PLAN.
3.1 PAY. Claremont will pay Executive initially at the rate of $295,000 a
year (Base Salary), payable in equal increments on Claremont's standard payroll
schedules, which are biweekly as of the date of this agreement. Payment will
begin as of the first standard payroll following the Effective Date. Executive's
Base Salary will not be reduced during the first three years of employment.
With that limitation, Executive's compensation will otherwise be reviewed on an
annual basis, as with other executives of the Company.
3.2 BONUS COMPENSATION. The Executive shall be entitled to participate in
any bonus compensation programs which the company may introduce during his
employment.
3.3 OTHER COMPENSATION. Claremont will also do these things:
3.3.1 HEALTH INSURANCE, BENEFITS. Claremont will pay medical
insurance, life insurance, disability insurance, retirement, and other
fringe benefits in accordance with Claremont's then-existing policies
applicable generally to senior executives. Executive will be given a car
allowance of $650.00 per month.
Page 1 -- Dennis M. Goett Employment Agreement
<PAGE>
3.3.2 REIMBURSEMENT. Claremont will reimburse Executive for all
expenses reasonably incurred in discharging duties as an employee of
Claremont, subject to Claremont's standard policies for amounts and
documentation to which all comparable employees may be subject from time to
time.
3.3.3 VACATION/PERSONAL TIME. Executive shall be entitled to 27
"personal days" off during each calendar year, prorated for partial
calendar years, to be taken in Executive's discretion, under Claremont's
PTO (Personal Time Off) program. Rights to PTO will accrue during the year
incrementally on a biweekly basis, and may carry over to future calendar
years or lapse if and as allowed by Claremont standard policies applicable
to all senior executives generally. Against Executives' total number of
PTO days will count normal holidays, if taken (Christmas, Thanksgiving, and
so on), sick days, and vacation.
4. TERMINATION.
4.1 VOLUNTARY BY EXECUTIVE. Executive may resign from Claremont by one
month's Notice.
4.2 VOLUNTARY BY CLAREMONT. Claremont may end Executive's employment,
without cause, by Notice, subject to Claremont's obligation to pay termination
pay noted below.
4.3 WITH CAUSE. For the purposes of this Agreement, to be terminated with
Cause shall only mean termination for an act by Executive which results in
Executive being convicted of a felony; or for the acts of misappropriation of
Claremont monies or assets; dishonesty or disloyalty to Claremont, and/or fraud.
Claremont may terminate this Agreement effective as of the date Notice of
termination with Cause is given specifying the cause.
4.4 COMPENSATION ON TERMINATION. Following termination, and in
consideration of the covenants that survive termination of employment, Claremont
will pay these things.
4.4.1 COMPENSATION AND PTO EARNED THROUGH TERMINATION DATE.
Executive's Base Salary, commission, and bonuses as earned through the
termination date, and a buyout of all accumulated but unused personal time
off days, to be paid within thirty days of termination.
4.4.2 CONTINUATION OF BENEFITS. Claremont will continue health,
life, and disability insurance for ninety days after the termination date.
4.4.3 BASE EXTENSION. Unless Employee is terminated With Cause,
or voluntarily resigns for reasons other than a breach of Claremont's
obligations to the Executive of which the Executive has given Claremont
Notice and at least thirty days opportunity to cure, Claremont will
continue Employee's Base Salary for the longer of six months after the
termination date, or three years after the Effective Date of this
Agreement. Payment of the Executive Base Salary shall be made on
Claremont's standard payroll schedules from the date of termination, as if
the Executive had not been terminated.
Page 2 -- Dennis M. Goett Employment Agreement
<PAGE>
4.4.4 LIMIT TO PAY. Claremont shall not pay Executive any
continuation of salary under Section 4.4.3 for any period during which
Executive competes with Claremont, or solicits business for others from
Claremont customers.
4.5 OFFSET. To the extent permissible under applicable law, without
prejudice to other remedies, Claremont may offset any amounts Executive owes
Claremont against any amounts due upon termination or thereafter.
5. CONFIDENTIALITY.
5.1 CONFIDENTIALITY. Executive will keep Claremont's data confidential.
In doing so, Executive will not disclose Claremont's data directly or indirectly
to any person, other than an employee of Claremont or a person to whom
disclosure is reasonably necessary or appropriate to further Claremont's
business.
5.2 CLAREMONT DATA. Claremont's data consists of any trade secret or
proprietary or confidential information of Claremont or of any Claremont
affiliate. Claremont data includes, but is not limited to, records, files,
memoranda, reports, price lists, software, customer lists, drawings, sketches,
documents, equipment, and the like relating to Claremont's business which
Executive uses, prepares, or comes in contact with during the course of his work
for Claremont. Any information known generally to the public or any information
of a type not otherwise generally considered confidential by persons engaged in
the same business will not be treated as confidential.
5.3 THIRD PARTY DATA. Executive will also keep third party data
confidential as required by Claremont obligations to the third party, for at
least as long as is required for Claremont data, but longer if required by any
agreement Claremont enters into with the third party.
5.4 RETURN ON TERMINATION. Executive will return all Claremont data and
third party data, on termination of this Agreement.
5.5 SURVIVAL OF OBLIGATION. The provisions of this Section 5 shall
survive termination of this Agreement.
6. INVENTIONS.
6.1 DEFINITIONS. "Inventions" means new ideas, improvements, or
discoveries, whether or not patentable or copyrightable, as well as other newly
discovered or newly applied information or concepts. An Invention is a "Covered
Invention" if it relates to Claremont's actual or anticipated business; or was
developed in any part using Claremont resources (time, supplies, facilities, or
data); or if it results from or is suggested by a task assigned to, or work
performed for Claremont by, Executive. As used in this Section 6, "Claremont"
includes Claremont's sister corporations or subsidiaries and Claremont's
clients, consultants, and contractors.
Page 3 -- Dennis M. Goett Employment Agreement
<PAGE>
6.2 ASSIGNMENT. All Executive's right, title and interest to any Covered
Inventions that Executive makes or conceives while employed by Claremont, belong
to Claremont. This Agreement operates as a prospective assignment of all those
rights to Claremont.
6.3 OBLIGATION SURVIVES. The provisions of this Section 6 shall survive
termination of this Agreement.
7. NON-COMPETITION; NON-SOLICITATION.
7.1 COMMITMENT. During Executive's employment with Claremont, and for
eighteen months afterward (or if longer during such period of time as Claremont
continues to pay Executive's base salary hereunder), unless Claremont consents
in writing, Executive will not compete with Claremont, or solicit business from
Claremont's customers. This commitment will not survive termination, if
Claremont terminates Executive without cause, or if the Executive voluntarily
terminates his employment as a result of Claremont's breach of its obligations
to the Executive under this Agreement, provided the Executive has first given
Claremont Notice of the breach and at least thirty days' opportunity to cure it.
7.1.1 COMPETING DEFINED. "Competing" means to provide any
services or knowledge in the area of custom solutions based on CASE
technology or templates directly or indirectly to a Claremont customer.
Service is "indirect" if the service is provided to another person or
company who in turn provides it to a Claremont customer. "Service"
includes acting as an employee, independent contractor, consultant,
officer, director, or agent. Being employed by a company that itself
provides service to a Claremont customer is not competition, unless the
Executive himself is providing the service, directly or indirectly.
7.1.2 SOLICITING BUSINESS DEFINED. Soliciting business means with
respect to custom solutions or templates based on CASE technology,
performing work for or soliciting work from anyone who has been a customer
or client of Claremont, or providing knowledge or assistance to another for
any of those purposes, on either a consulting or an employment basis.
7.1.3 CLAREMONT'S CUSTOMERS DEFINED. Claremont's customers are:
(a) EXISTING. Entities or individuals who have purchased
consulting or programming services, software, or goods from Claremont
at any time within three years before the date employment ends.
(b) ACTIVE PROSPECTS. Entities or individuals who are active
prospects of Claremont. An active prospect is one upon whom more than
three calls have been made in any one-month period, or to whom a
proposal has been submitted or by whom a proposal has been requested,
and from whom, on the date employee's employment terminates, Claremont
reasonably believes it may secure work or product or service orders.
Page 4 -- Dennis M. Goett Employment Agreement
<PAGE>
(c) DEPARTMENTS OR DIVISIONS OF CUSTOMERS. In the event a
customer has more than one department and/or division, only the
particular department and/or division which would otherwise qualify as
a Claremont Customer if considered independently shall be deemed a
customer of Claremont under this paragraph 7.1.3, and not any other
department or division.
7.2 NON-HIRING. During Executive's employment, and for eighteen months
afterward, unless Claremont consents in writing, Executive will not solicit or
assist in the solicitation of Claremont employees.
7.3 SURVIVAL OF OBLIGATION. The provisions of this Section 7 shall
survive termination of this Agreement.
8. OTHER MATTERS.
8.1 NOTICE. Notice to Executive shall be sent to Executive's most recent
address shown in Claremont's personnel records. Notice to Claremont shall be
sent to Claremont's headquarters address, marked attention: Chairman. Either
party may change its address by Notice. Notice shall be effective when the
person to whom it is sent actually gets it, if sent by any method that leaves a
paper or electronic record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, to the proper
address this section defines, notice shall be considered effective whether or
not actually received on the date the return receipt shows the notice was
accepted, refused, or returned undeliverable.
8.2 SEVERABILITY. Each clause of this agreement is severable. If any
clause is ruled void or unenforceable, the balance of the agreement shall
nonetheless remain in effect.
8.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.
8.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of Claremont, its successors and assigns and shall be binding upon and
inure to the benefit of Executive, and Executive's administrators, executors,
legatees, and heirs. This Agreement shall not be assigned by Executive.
8.5 GOVERNING LAW. This agreement is entered in, and is governed by, the
laws of the state of Oregon.
8.6 JURISDICTION. Each party consents to service of process through the
method prescribed for notice. As violation of the non-competition or non-
solicitation obligations of this agreement, or those related to rights in
intellectual property, would result in damage to Claremont that could not be
cured by an award of money alone, Claremont shall be entitled to injunctive
relief in cases where a violation of those obligations is shown.
8.7 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees and the actual, reasonably necessary costs of the
proceeding.
Page 5 -- Dennis M. Goett Employment Agreement
<PAGE>
8.8 INTEGRATION. This agreement is the complete agreement between the
parties. The parties expressly agree that it constitutes the agreement that was
and is in force between them as of its effective date, and that it is made and
entered into upon initial employment of the Executive. It supersedes all prior
agreements, written or oral. It may be modified only in writing signed by the
original parties hereto, or by their successors or superiors in office.
Notwithstanding the aforesaid, any conflict in the provisions of this Agreement
and its exhibits, shall be resolved in favor of the provisions of this
Employment Agreement.
DENNIS M. GOETT CLAREMONT TECHNOLOGY GROUP, INC.
Sign: /s/ DENNIS M. GOETT Sign: /s/ PAUL J. COSGRAVE
------------------------- ----------------------------------
Dennis M. Goett Paul J. Cosgrave, Chairman & CEO
Date: 2/1/96 Date: 2/1/96
------------------------- ----------------------------------
Page 6 -- Dennis M. Goett Employment Agreement
<PAGE>
[LOGO]
CLAREMONT
Consulting Group, lnc.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 5th day of February 1993 by and between
Claremont Consulting Group, Inc., an Oregon corporation, ("Corporation") and
Stephen Hawley, ("Employee").
The parties agree as follows:
Section 1. CIRCUMSTANCES. The Corporation is an Oregon corporation
engaged in the business of computer applications consulting and related
functions which are performed on a project basis. Employee is experienced and
knowledgeable in the business of computer applications development or in support
functions. The Corporation desires to initiate employment or continue
employment with the Employee upon the terms and conditions set forth here and
set forth in the Company's EMPLOYEE GUIDELINES (policies) which are updated from
time to time and the Employee desires to accept such employment.
Section 2. EMPLOYMENT. The Corporation employs the Employee and the
Employee accepts employment with the Corporation to perform duties for the
Corporation as determined solely by the Corporation. Employee shall promote, to
the extent permitted by law, the business of the Corporation by establishing and
maintaining good rapport and appropriate professional relationships with fellow
employees and corporate clients.
Section 3. COMPENSATION. It is intended that the total of Employee's
compensation, including annual salary, bonus, and any available benefits, shall
reflect reasonable compensation to Employee for services rendered to the
Corporation.
The Employee's compensation (exclusive of director's fees, if any) during
the term of this Agreement shall be:
3.1 The employee will receive a base annual salary, paid every other
week. There will be a salary and performance review in accordance with company
policy in place at that time.
3.2 The right to receive or participate in company-wide fringe benefits
both taxable and tax-qualified, including, but not limited to, insurance
programs and pension or bonus plans or both provided Employee is otherwise
eligible.
3.3 All direct compensation shall be subject to the customary withholding
of Federal, State and local income taxes and other employment taxes.
3.4 On voluntary termination there is no severance pay but Employee shall
be paid for all earned vacation through the termination date.
Section 4. FACILITIES AND EXPENSES. The Corporation shall provide and
maintain such facilities, equipment, supplies, and staff necessary for the
Employee's performance of Employee's duties under this Agreement.
The Employee shall provide, maintain, and use when appropriate a personal
home telephone and other personal facilities and equipment reasonably needed in
connection with Employee's employment.
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
The Employee will be reimbursed for travel and other business expenses
pursuant to the policy of the Corporation then in effect.
Section 5. DUTIES. The Employee is employed to actively carry out the
business of the Corporation and shall perform such duties as determined solely
by the Corporation. All work performed by the Employee shall be subject to
review by the Corporation. The Corporation shall determine what days as well as
how many hours during the day the Employee shall perform assigned duties. The
Corporation shall direct, control, and supervise in detail the duties to be
performed, the manner of performing such duties, and the time for performing
such duties in all cases.
Section 6. EXCLUSIVE EMPLOYMENT. The Employee's full time and best
efforts shall be devoted to the performance of the employment duties under this
Agreement. During the term of this Agreement, the Employee shall not at any
time or place, either directly or indirectly, accept other employment.
Reasonable amounts of volunteer non-paid work may be done by the Employee as
long as such commitments do not materially interfere with Employee's obligation.
Section 7. VACATIONS, HOLIDAYS, AND SICK LEAVE. Employee shall be
entitled to vacation, holidays, and sick leave in accordance with current
Claremont EMPLOYEE GUIDELINES. Employee shall not receive compensation or
disability pay if Employee becomes disabled, other than pursuant to the sick pay
policy and disability insurance policy of Corporation.
Section 8. TERM.
8.1 This Agreement and the Employee's employment shall be effective upon
receipt by Employee of the "Starting Date" to be determined solely by the
Corporation or upon date signed by a current employee.
8.2 This Agreement and the Employee's employment for Corporation shall
terminate for any reason upon two weeks written notice by either party, as the
employment is "at will."
Section 9. RELATIONSHIP BETWEEN PARTIES. The parties recognize that the
Board of Directors of the Corporation shall direct the business affairs of the
Corporation and the officers shall manage the Corporation. The relationship
between the Corporation and the Employee shall be that of Employer and Employee.
The Employee shall have no authority to enter into any contracts binding upon
the Corporation or to create any obligations on behalf of the Corporation
without written authorization from the Corporation. All fees, compensation and
other things of value charged by the Corporation and received or realized as a
result of services by the Employee shall belong to and be paid and delivered to
the Corporation.
Section 10. ASSIGNMENT. This Agreement is personal to the Corporation and
Employee and neither party may assign or delegate any of its rights or
obligations without first obtaining written consent of the other party.
Section 11. NOTICES. Any notice given under the Agreement shall be
sufficient if in writing and mailed by either registered or certified mail,
return receipt requested, postage prepaid, to the Corporation at its principal
place of business and to the Employee at his last known resident address.
Section 12. AMENDMENTS. No amendments or additions to this Agreement shall
be binding unless in writing and signed by both parties.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
Section 13. CONFIDENTIALITY.
13.1 "Definitions": The following definitions apply to this Section 13:
13.1.1 "Confidential Information" means:
a. information (i) disclosed to or known by Employee
as a consequence of or through his or her employment with Corporation, (ii) not
generally known outside the Corporation, and (iii) which relates directly or
indirectly to Corporation's business;
b. any formula, pattern, device or compilation of
information which is used in the Corporation's business and which gives the
Corporation an opportunity to obtain an advantage over competitors of
Corporation that do not know or use such information;
c. "trade secrets" as defined in Section 646.461(f)
of the Oregon Revised Statutes, as amended; and
d. Corporation's or client's methods, programs,
operations, client lists, identity of client representatives, identity of
service performed for any client by Corporation, identity of Employees and
consultants employed by Corporation and any financial information pertaining
to Corporation or any current or former client of Corporation.
13.1.2 "Invention" means any new or useful art, discovery,
contribution, finding, or improvement, whether or not patentable, and all
related know how.
13.2 Employee agrees to keep secret and not to disclose any Confidential
Information of the Employer, including information received in confidence by the
Corporation from others either during or after Employee's employment with the
Corporation, except upon written consent of the Corporation. It is understood
that Confidential Information or Inventions of the Corporation includes matters
that Employee conceives or develops, as well as matters Employee learns from
other Employees, agents, or clients of the Corporation. Employee will not,
except as Corporation may otherwise consent or direct in writing, reveal or
disclose, sell, use, lecture upon, or publish any Confidential Information or
information relating to an Invention of Corporation or authorize anyone else to
do these things at any time either during or after employment with Corporation.
13.3 Section 13 of this Agreement shall continue in full force and effect
after termination of Employee's employment. Employee's obligations under this
Section shall cease with respect to any specific item of Confidential
Information or Invention when such specific item becomes publicly known except
as the result of a breach of this Section.
13.4 The remedies provided for the breach of this Section 13 shall be in
addition to, and not in lieu of, The Uniform Trade Secrets Act as it may be
amended and shall be in addition to, and not in lieu of, the rights and remedies
provided under any other local, state or federal law.
Section 14. NON-COMPETITION DURING EMPLOYMENT. While employed by the
Corporation, Employee shall not directly or indirectly compete with Corporation
in the area of consulting or the development, production, marketing or servicing
of any product or service with which the Corporation is involved during
Employee's employment with Corporation, nor shall Employee aid or become
associated in any way with others involved in such acts.
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
Section 15. NON-COMPETITION AFTER TERMINATION.
15.1 Except as provided in Paragraph 15.2 of this Section 15, for the one
year period following the termination of Employee's employment with the
Corporation, Employee agrees not to accept employment, directly or indirectly,
and in any capacity with any client of Corporation for which the Employee has
performed any service for the Corporation during the preceding one year period.
For the purposes of this Agreement, acceptance of employment includes all direct
or indirect forms of employment, including, but not limited to, employment as an
Employee or independent contractor or participation as a shareholder, partner,
sole proprietor, officer, director, Employee, independent contractor or
consultant of any business performing services for said client of a type
provided to client by Corporation. For the purposes of this Agreement, a client
of Corporation includes any client that Employee is providing services for at
the time of termination of employment of Employee or any former client that
Employee has provided services for within twelve (12) months prior to the
termination of Employment with Corporation.
15.2 Corporation agrees to waive the provision of Section 15.1 if the
client seeking to employ the Employee enters into an Agreement with Corporation.
15.3 If Employee breaches this Section, Employee will pay Corporation a sum
equal to thirty percent (30%) of all consideration directly or indirectly
generated from the client to Employee or its affiliates. Corporation may, at its
option, disclose this provision to such a client.
Section 16. MISCELLANEOUS.
16.1 All of the covenants, agreements, conditions and terms contained in
this Agreement shall be binding upon, apply and inure to the benefit of the
successors and assigns of the respective parties.
16.2 No waiver of any right arising out of a breach of any covenant, term
or condition of this Agreement shall be a waiver of any right arising out of any
other or subsequent breach of the same or any other covenant, term or condition
or a waiver of the covenant, term or condition itself.
16.3 The parties acknowledge:
16.3.1 the special nature of the business in which Corporation is
engaged;
16.3.2 the difficulty of determining monetary damages in the event of
a breach of this Agreement; and
16.3.3 the parties will be irreparably damaged in the event of a
breach of this Agreement,
Therefore, the parties agree that in the event of any breach or
threatened breach of Sections 13, 14, or 15 of this Agreement by Employee,
Corporation may bring an action at law or a suit in equity to obtain redress,
including specific performance, injunctive relief, or any other available
equitable remedy. Legal differences will be settled in the courts of law in the
State of Oregon. Time and strict performance are of the essence of this
Agreement. Such remedies shall be cumulative and exclusive and shall be in
addition to any other remedy which the Corporation may have.
16.4 This Agreement constitutes a final and complete statement of the
agreement between the parties and fully supersedes all prior agreements or
negotiations, written or oral, except as stated.
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
16.5 Each of the parties acknowledges that each party has thoroughly
reviewed this Agreement and has had the opportunity to be represented by counsel
in connection with the execution of this Agreement. The rule of construction
that a written agreement is construed against the party preparing or drafting
such agreement shall specifically not be applicable to the interpretation of
this Agreement.
16.6 If any provision of this Agreement is held to be invalid or
unenforceable, all other provisions shall nevertheless continue in full force
and effect.
16.7 The applicable law for the purpose of interpretation of this Agreement
or the enforcement of any rights or obligations shall be the laws of the State
of Oregon.
IN WITNESS WHEREOF the parties set their hands and seals the day and year
first written hereinabove.
CORPORATION: EMPLOYEE:
CLAREMONT CONSULTING GROUP, INC.
/s/ P.K. Jones /s/ Stephen Hawley
- ------------------------------------ ----------------------------------
Pamela K. Jones Stephen Hawley
Vice President of Human Resources
5 February 1993 February 17, 1993
- ----------------------------------- ----------------------------------
Date Date
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
Exhibit 10.9
LEASE
FOR
AMBERGLEN BUSINESS CENTER
BY AND BETWEEN
AMBERJACK, LTD.
Landlord
and
CLAREMONT TECHNOLOGY GROUP, INC.
an Oregon Corporation
Tenant
<PAGE>
AMBERGLEN BUSINESS CENTER
STANDARD LEASE FORM
TABLE OF CONTENTS
LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1 PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Grant of Premises . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Office Building . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Rentable Area . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Acceptance of Premises. . . . . . . . . . . . . . . . . . . . 1
SECTION 2 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Basic Term. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Early Possession. . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . 2
3.3 Insurance Cancellation. . . . . . . . . . . . . . . . . . . . 3
3.4 Landlord's Rules and Regulations. . . . . . . . . . . . . . . 3
3.5 Hazardous Substances. . . . . . . . . . . . . . . . . . . . . 3
SECTION 4 RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Security Deposit. . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Definition of Operating Expenses. . . . . . . . . . . . . . . 4
SECTION 5 REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . 7
5.1 Landlord's Responsibilities . . . . . . . . . . . . . . . . . 7
5.2 Tenant's Responsibilities . . . . . . . . . . . . . . . . . . 7
5.3 Reimbursement for Repairs Assumed . . . . . . . . . . . . . . 7
5.4 Duty to Make Repairs. . . . . . . . . . . . . . . . . . . . . 8
SECTION 6 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 7 TAXES AND ASSESSMENTS . . . . . . . . . . . . . . . . . . . . 8
7.1 Payment of Proportionate Share. . . . . . . . . . . . . . . . 8
7.2 Taxes on Rent . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 8 ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . . . . 8
8.1 Landlord's Consent Required . . . . . . . . . . . . . . . . . 8
8.2 Surrender at End of Term. . . . . . . . . . . . . . . . . . . 9
8.3 Payment for Work. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 9 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1 Liability, Property Damage and Worker's Compensation. . . . . 9
9.2 Property Insurance. . . . . . . . . . . . . . . . . . . . . . 9
9.3 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . 9
SECTION 10 DAMAGE AND DESTRUCTION. . . . . . . . . . . . . . . . . . . . 10
10.1 Partial Damage. . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.3 Rent Abatement. . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 11 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . 10
11.1 Partial Taking. . . . . . . . . . . . . . . . . . . . . . . . 10
11.2 Total Taking. . . . . . . . . . . . . . . . . . . . . . . . . 11
11.3 Sale in Lieu of Condemnation. . . . . . . . . . . . . . . . . 11
SECTION 12 LIENS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . 11
12.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 13 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 14 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . 11
14.1 Landlord's Consent Required . . . . . . . . . . . . . . . . . 11
14.2 No Release of Tenant. . . . . . . . . . . . . . . . . . . . . 11
14.3 Right to Terminate. . . . . . . . . . . . . . . . . . . . . . 12
14.4 Documentation . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 15 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15.1 Default in Rent . . . . . . . . . . . . . . . . . . . . . . . 12
15.2 Violation of Section 14 . . . . . . . . . . . . . . . . . . . 12
15.3 Default in Other Covenants. . . . . . . . . . . . . . . . . . 12
15.4 Bankruptcy, etc . . . . . . . . . . . . . . . . . . . . . . . 12
15.5 Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
SECTION 16 REMEDIES ON DEFAULT . . . . . . . . . . . . . . . . . . . . . 13
16.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 13
16.2 Reletting . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16.4 Right to Sue More Than Once . . . . . . . . . . . . . . . . . 13
16.5 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 13
SECTION 17 DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . 14
SECTION 18 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 19 PAYMENT AND PERFORMANCE BOND. . . . . . . . . . . . . . . . . 14
SECTION 20 SIGNS AND DIRECTORIES . . . . . . . . . . . . . . . . . . . . 14
20.1 Tenant's Signs. . . . . . . . . . . . . . . . . . . . . . . . 14
20.2 Directories . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 21 SURRENDER AT TERMINATION. . . . . . . . . . . . . . . . . . . 15
21.1 Condition of Premises . . . . . . . . . . . . . . . . . . . . 15
21.2 Fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
21.3 Holdover. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 22 NO BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 23 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 16
23.1 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . 16
23.2 Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . 16
23.3 Landlord's Interests. . . . . . . . . . . . . . . . . . . . . 16
23.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 17
23.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
23.6 Incorporation of Prior Agreements: Amendments . . . . . . . . 17
23.7 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
23.8 Covenants and Conditions. . . . . . . . . . . . . . . . . . . 17
23.9 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
23.10 Tenant Liability. . . . . . . . . . . . . . . . . . . . . . . 17
23.11 Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . 17
23.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
23.13 Succession. . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.14 Landlord's Right to Cure Defaults . . . . . . . . . . . . . . 18
23.15 Entry for Inspection. . . . . . . . . . . . . . . . . . . . . 18
23.16 Interest on Rent and Other Charges of Expenditures. . . . . . 18
23.17 Proration of Rent . . . . . . . . . . . . . . . . . . . . . . 18
23.18 Amendments to Statutes, etc . . . . . . . . . . . . . . . . . 18
23.19 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 18
EXHIBITS:
Exhibit A Legal Description . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit B Floor Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Exhibit C Tenant Improvements . . . . . . . . . . . . . . . . . . . . . 21
Exhibit D Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . 22
Exhibit E Certificate of Corporation Resolution . . . . . . . . . . . . 25
Exhibit F Building Standard Signage . . . . . . . . . . . . . . . . . . 26
Exhibit G Rules and Regulations . . . . . . . . . . . . . . . . . . . . 27
Lease Addendum. . . . . . . . . . . . . . . . . . . . . . . . 30
ii
<PAGE>
LEASE
THIS LEASE is made and entered into the 13th day of January, 1995, by and
between AMBERJACK, LTD., an Arizona corporation (hereinafter referred to as
"Landlord") and Claremont Technology Group, Inc., an Oregon corporation
(hereinafter referred to as "Tenant").
FOR AND IN CONSIDERATION of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Tenant, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the Premises herein
described for the term, at the rental and subject to and upon all of the terms,
covenants and agreements hereinafter set forth.
SECTION 1. PREMISES.
1.1 GRANT OF PREMISES. Landlord hereby leases to Tenant and Tenant leases
from Landlord those certain Premises consisting of approximately 3,436 rentable
square feet situated in the County of Washington, City of Hillsboro, State of
Oregon, commonly known as Suite 214, 1600 NW Compton Drive, Beaverton, Oregon
(hereinafter referred to as the "Leased Premises" or "Premises") and situated
upon the real property described as set forth in Exhibit A.
1.2 OFFICE BUILDING. The Leased Premises, together with and including
other property owned by Landlord, comprise a multi-story office building
(hereinafter referred to as the "Building"). A general floor plan, showing
the size and location of the Leased Premises within the Building, is attached
hereto as Exhibit B. Tenant's use and occupancy of the Leased Premises shall
include the use, in common with others, of the Common Areas as hereinafter
defined, but excepting therefrom and reserving unto Landlord the exterior
faces of all exterior walls, the roof and the right to install, use and
maintain where necessary in the Leased Premises all pipes, ductwork, conduits
and utility lines through hung ceiling space, partitions, beneath the floor
or through other parts of the Leased Premises. Landlord reserves the right
to effect such other above-referenced tenancies in the building as Landlord
may elect in its sole business judgment.
1.3 RENTABLE AREA. With respect to each floor of the Building, the
"Rentable Area" of a floor shall mean the sum of all space on the floor which is
or may be occupied by tenants for purposes stated in each tenant's lease and
those areas of the floor which are necessary to and specifically benefit
tenant(s) of that floor, including restrooms, corridors, lobbies, telephone
closets, mechanical rooms, electrical rooms, janitorial closets, flues, stacks,
pipe shafts and vertical ducts with their enclosing walls.
1.4 ACCEPTANCE OF PREMISES. Landlord will construct Tenant Improvements
in the Premises in accordance with the approved space plan as set forth in
Exhibit C. Tenant hereby accepts the Premises as is in their condition existing
as of the Commencement Date and subject to all applicable recorded covenants,
conditions and restrictions and all applicable zoning, municipal, county, state
and federal laws, ordinances and regulations governing and regulating the use of
the Premises. Landlord agrees that on the Commencement Date the water, sewage,
gas, electrical, mechanical, heating, ventilating and air conditioning systems
of the Premises will be in good operating condition. Landlord has not made and
does not make any representations as to the suitability of the Premises for the
conduct of Tenant's business.
1
<PAGE>
SECTION 2. TERM.
2.1 BASIC TERM. The term of this Lease shall be for a period of three
(3) years, zero (0) months (the "Lease Term") commencing on April 1, 1995
(the "Commencement Date"), and terminating on March 31, 1998 (the "Termination
Date"), provided, however, if the Premises are not "Ready for Occupancy" as
hereinafter defined, on the date the term hereof is to commence, the
commencement date and termination date of the Lease shall be adjusted
accordingly based on the date the Premises are Ready for Occupancy. The
deferral of Tenant's rental obligation with respect to the Premises shall be in
full satisfaction of any and all rights which Tenant might otherwise have as a
result of the delayed commencement date of the Lease Term hereof. "Ready for
Occupancy" as used herein shall mean the date that Landlord shall have
substantially completed the work to be performed by Landlord as set forth in
Exhibit C. The certificate of the architect (or other representative of
Landlord) in charge of supervision and completion of the Premises or a
certificate or other approval evidencing completion of improvements, as
required, shall control conclusively the date upon which the Premises are Ready
for Occupancy and Tenant's obligation to pay rent begins. If the commencement
of the Lease Term is delayed as aforesaid and the commencement date would
otherwise occur on other than the first day of the month, such commencement date
shall be further delayed until the first day of the following month and Tenant
shall pay proportionate rent at the same monthly rate set forth herein (also in
advance) for such partial month. In the event the commencement date is delayed,
the expiration of the term hereof shall also be delayed so that the Lease Term
will continue for the full period set forth above. As soon as the Lease Term
commences, Landlord and Tenant shall execute an agreement to this Lease, which
may be required by either party, setting forth the exact date on which the Lease
Term commenced and the expiration date of the Lease Term. This Lease shall not
be terminable by Tenant, and Tenant shall in no event be entitled to an
abatement or reduction of rent except as expressly set forth in Section 10.3 or
Section 11.1. Additionally, Landlord shall not be liable to Tenant for damages
in the event Landlord cannot deliver the Premises on the inception of the Lease
Term.
2.2 EARLY POSSESSION. If, prior to commencement of the Lease Term,
Tenant uses or occupies the Leased Premises or any part thereof with Landlord's
prior written consent, for the purpose of completing alterations to the Leased
Premises, Tenant agrees to observe and perform all the provisions of this Lease,
except those which require payment of Rent; provided, however, if Tenant
commences business in any part of the Leased Premises prior to commencement of
the Lease Term, Tenant shall pay Landlord an Occupation Rent for each day prior
to commencement of the term, calculated on the basis of the per diem rental and
all other sums which would be due to Landlord from Tenant if the term had then
commenced, including its percentage share of annual Common Area Expenses.
SECTION 3. USE.
3.1 PERMITTED USE. Tenant shall use the Leased Premises solely for
administrative office and engineering and shall not permit the Leased Premises
to be used for any other purpose.
3.2 COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and expense,
promptly comply with all applicable laws, ordinances, rules, regulations, orders
and requirements in effect during the Lease Term, or any part of or extension
thereof, regulating the use of occupancy of the Leased Premises, including the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant will not use or permit the use of the Leased
Premises in any manner which may tend to create waste or a nuisance, nor which
may tend to obstruct or interfere with the rights of other tenants of the
Building or injure or annoy them.
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3.3 INSURANCE CANCELLATION. Tenant shall not do or permit anything to be
done on or about the Leased Premises which may, in any way, cause cancellation
or increase the existing rate of any insurance policy covering the Building or
any of its contents or cause cancellation of any such insurance policy. If any
such action shall increase the rate of any such policy, Tenant shall pay such
increase, as Additional Rent.
3.4 LANDLORD'S RULES AND REGULATIONS. Tenant shall observe and comply
with the Building rules and regulations which are in effect on the date thereof
(a copy of which is attached hereto as Exhibit G) and such reasonable amendments
and additions thereto as Landlord may, from time to time, promulgate. Landlord
shall not be responsible for the non-performance of said rules and regulations
of any other tenants of the Building.
3.5 HAZARDOUS SUBSTANCES. Tenant shall not cause or permit the release,
discharge, or disposal nor the presence, use, transportation, generation, or
storage of any Hazardous Material (as hereafter defined) in, on, under, about,
to, or from the Premises by either Tenant, Tenant's employees, agents,
contractors, or invitees (collectively the "Tenant") other than the use of such
materials in de minimus quantities necessitated by the Tenant's regular business
activities.
Tenant further agrees and covenants to Landlord, its agents, employees,
affiliates and shareholders (collectively the "Landlord") the following:
1. To comply with all Environmental Laws in effect, or may come into
effect, applicable to the Tenant or Tenant's use and occupancy of
the Premises;
2. To immediately notify Landlord, in writing, of any existing, pending
or threatened (a) investigation, inquiry, claim or action by any
governmental authority in connection with any Environmental Laws; (b)
third party claims; (c) regulatory actions; and/or (d) contamination
of the Premises;
3. Tenant shall, at Tenant's expense, investigate, monitor, remediate,
and/or clean up any Hazardous Material or other environmental
condition on, about, or under the Premises required as a result of
Tenant's use or occupancy of the Premises;
4. To keep the Premises free of any lien imposed pursuant to any
Environmental Law; and
5. To indemnify, defend, and save Landlord harmless from and against any
and all claims (including personal injury, real, or personal property
damage), actions, judgments, damages, penalties, fines, costs,
liabilities, interest, or attorney's fees that arise, directly or
indirectly, from Tenant's violation of any Environmental Laws or the
presence of any Hazardous Materials on, under or about the Premises.
The Tenant's obligations, responsibilities, and liabilities under this Section
shall survive the expiration of this Lease.
For purposes of this Section the following definitions apply:
"Hazardous Materials" shall mean: (1) any "hazardous waste" and/or "hazardous
substance" defined pursuant to any Environmental Laws; (2) asbestos or any
substance containing asbestos; (3) polychlorinated biphenyls; (4) lead; (5)
radon; (6) pesticides; (7) petroleum or any other substance containing
hydrocarbons; (8) any substance which, when on the Premises, is prohibited by
any Environmental Laws; and (9) any other substance, material, or waste which,
(i) by any Environmental Laws requires special handling or notification of any
governmental authority in its collection, storage, treatment, or disposal or
(ii) is defined or classified as hazardous, dangerous or toxic pursuant to any
legal requirement.
"Environmental Laws" shall mean: any and all federal, state and local laws,
statutes, codes, ordinances, regulations, rules or other requirements, relating
to human health or safety or to the environment, including, but not limited to,
those applicable to the storage, treatment, disposal, handling and release of
any Hazardous Materials, all as amended or modified from time to time.
SECTION 4. RENT.
4.1 RENT. Tenant shall pay the Base Rent (as defined in 4.2), the
Additional Rent (as defined in 4.4) and Taxes (as defined in Section 7) and any
other costs, expenses, etc. as required by this Lease in accordance with the
Terms of this Lease.
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4.2 BASE RENT. Without any prior notice, demand, offset or deduction,
Tenant shall pay Landlord as rent ("Base Rent") an amount per month calculated
by multiplying the number of rentable square feet of the Premises times the
monthly Base Rent per rentable square foot determined from the following:
Monthly Base Rent Total Monthly Base
Per Rentable Rent Assuming Rentable
Months During Term Square Foot Square Feet
------------------ ----------------- ----------------------
1-12 $0.65 $2,233.40
13-24 $0.68 $2,336.48
25-36 $0.70 $2,405.20
Rent shall be payable without offset on or before the first day of each
calendar month in advance at the Landlord's address set forth above or such
other place as may be designated by Landlord from time to time, except that
Base Rent of $2,233.40 for the 1st month has been paid upon execution of this
Lease. In addition, a security deposit has been given as set forth in
Section 4.3.
4.3 SECURITY DEPOSIT: To secure Tenant's compliance with all of the terms
and provisions of this Lease, upon execution of this Lease Tenant has paid
Landlord the sum of $2,500.00 as a security deposit. The deposit shall be a
debt from Landlord to Tenant, refundable within thirty (30) days following
expiration of the Term or other termination of this Lease not caused by Tenant's
default. Landlord shall have the right to offset against the deposit any sums
owing from Tenant to Landlord not paid when due, any damages caused by Tenant's
default, the cost of curing any default by Tenant should Landlord elect to do
so, and the cost of performing any repair or cleanup that is Tenant's
responsibility under this Lease. Offset against the deposit shall not be an
exclusive remedy, but may be made by Landlord in its sole and unlimited
discretion, in addition to and not exclusive of any right or remedy provided by
law of this Lease. Landlord shall give notice to Tenant each time an offset is
claimed against the deposit, and, unless the Lease is terminated, Tenant shall
within ten (10) calendar days following any such notice deposit with Landlord a
sum equal to the amount of the offset so that the total deposit amount, net of
offset, shall remain constant throughout the Term. Landlord shall not be
required to segregate any security deposit made by Tenant, but may commingle any
security deposit with Landlord's other funds and accounts. Landlord shall not
be required to pay interest to Tenant on any security deposit while in
Landlord's possession and control.
4.4 ADDITIONAL RENT. This Lease is a net lease. All Tenant Charges (as
defined in Section 4.5) and other costs, charges and expenses which Tenant is
required to pay as Additional Rent by this Lease, arising out of or in
connection with this Lease or the ownership or operation of the Premises except
to the extent this Lease explicitly places responsibility for any such cost,
charge or expense on Landlord, shall be Additional Rent.
4.5 DEFINITION OF OPERATING EXPENSES. Operating Expenses are intended to
be inclusive of all costs incurred in operating and maintaining the Building and
all AmberGlen Business Center Common Areas incurred by Landlord on account of
operating and maintenance of the Building and AmberGlen Business Center Common
Areas and the real property on which it is situated, except franchise, states,
inheritance, net income and excess profits taxes of Landlord, depreciation on
the Building, interest on and capital retirement of Landlord's mortgage loans
and costs chargeable by Landlord directly to specific Tenants. Landlord agrees
to make reasonable efforts to minimize operating costs insofar as such efforts
are not
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inconsistent with Landlord's intent to operating and maintaining the Building
and Common Area in the AmberGlen Business Center in a first-class manner.
Operating expenses may include, but shall not be limited to:
4.5.1 All taxes, assessments, purchases, water and sewer rents, and
other governmental impositions and charges whatsoever which may create a
statutory lien upon the Leased Premises, the Building or AmberGlen Business
Center Common Area, which are assessed, levied or imposed during the term of
this Lease, surcharges levied upon or assessed against parking space or areas,
and any tax, levy or license fee measured by the rent payable to Tenant under
this Lease which may be in lieu of or in addition to current taxes (except
Landlord's net income taxes) or any obligation to any governmental entity
assessed upon Landlord as a result of its ownership or operation and all
reasonable costs and expenses incurred by Landlord in contesting or negotiating
the same with governmental authority if Landlord, in its reasonable discretion,
elects to contest or negotiate the same.
4.5.2 All costs and expenses to Landlord in maintaining fire and
extended coverage insurance, property damage, liability and rent loss insurance,
difference in conditions and any other insurance maintained by Landlord covering
the use and operation of the Building and AmberGlen Business Center Common
Areas, including loss of rent endorsements, the part of any claim required to be
paid under the deductible portion of any insurance policies carried by Landlord
in connection with the Building (all such insurance shall be in such amounts as
Landlord may reasonably determine).
4.5.3 All costs and expenses of repairing, operating and maintaining
the heating, ventilating and air conditioning systems for the Building,
including maintenance contracts therefor and the cost of all utilities required
in the operating of all such systems, except those required to be paid directly
by a tenant of the Building.
4.5.4 All costs and expense to Landlord in providing standard
services and utilities to tenants of the Building, including common area
janitorial services, window washing and utilities not separately metered;
together with the costs of replacement of electric light bulbs and florescent
tubes and ballasts, which Landlord shall have the exclusive right to provide
and install at Tenant's sole cost and expense.
4.5.5 Costs incurred by accountants and experts or other consultants
to assist the accountants in making the computations required hereunder.
4.5.6 All costs and expenses incurred by Landlord in operating,
managing, maintaining and repairing the Building and AmberGlen Business
Center Common Areas, including all sums expended in connection with the
Common Areas for general maintenance and repairs, resurfacing, painting,
restriping, cleaning, sweeping and janitorial services, window washing,
maintenance and repair of elevators, stairways, sidewalks, curbs and Building
signs, sprinkler systems, planting and landscaping, lighting and other
utilities; maintenance and repair of any fire protection systems, automatic
sprinkler systems, lighting systems, storm drainage systems and any other
utility systems; cost of all supplies and personnel to implement such
services and to police the Building and AmberGlen Business Center Common
Areas; rental and/or depreciation of machinery and equipment used in such
maintenance and services; security and fire protection services; trash
removal services; all costs and expenses pertaining to snow and ice removal,
security systems, utilities, premiums and other costs for worker's
compensation insurance, wages, withholding taxes, social security taxes,
personal property taxes, fees for required licenses and permits, supplies and
charges for management of the Building and AmberGlen Business Center Common
Areas and an overhead cost equal to five (5%) percent of the total Operating
Costs. Costs and expenses incurred by Landlord in operating, managing and
maintaining the Building and AmberGlen Business Center Common
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Areas which are incurred exclusively for the benefit of specific tenants of the
Building will be billed accordingly and will not be included within the
Operating Expenses. Landlord, however, may cause any or all of said services to
be provided by an independent contractor(s).
4.5.7 Cost of capital improvements, structural repairs or replacements
made to the Building in order to conform to changes subsequent to the date of
this Lease in any applicable laws, ordinances, rules, regulations, or orders of
any governmental or quasi-governmental authority having jurisdiction over the
Building or AmberGlen Business Center Common Area or any such capital
improvements, structural repairs or replacements designed primarily to reduce
Operating Expenses. Expenditures for the foregoing shall be amortized at market
rate of return over the useful life of such capital improvement or structural
repair or replacement as determined by Landlord's accountants; provided that the
amortized amount of any cost-saving improvement shall be limited in any year to
the reduction in Operating Expenses realized as a result thereof.
4.5.8 COLLECTION OF ACTUAL TENANT CHARGES. Unless Landlord exercises
the option contained in Section 4.5.9 below for a particular calendar year,
Tenant shall pay actual Tenant Charges for each month of such calendar year
immediately upon receipt of invoice from Landlord for such monthly Tenant
Charges.
4.5.9 COLLECTION OF TENANT CHARGES BASED ON ESTIMATES. For each
calendar year of the Lease Term, Landlord shall reasonably estimate the total
Operating Expenses for the following calendar year. In the event the Building
occupancy is not one hundred percent (100%), said Operating Expenses shall be
adjusted to equal what the total Operating Expenses would be if the occupancy
was one hundred percent (100%). Tenant shall pay their proportionate share of
building operating expenses. For each year of the Lease Term, Tenant shall pay
to Landlord in advance on or before the first day of each month, without demand
or notice, one-twelfth (1/12th) of Tenant's share of the estimated annual
Operating Expenses. If the term of this Lease commences on a day other than the
first day of a calendar month, Tenant shall pay to Landlord on the first day of
the term, a sum determined by multiplying one three-hundred-sixty-fifth
(1/365th) of the Tenant's share of the estimated Operating Expenses by the
number of days remaining in the first calendar month of the term. Any change in
the Tenant's percentage share resulting from changes in any particular floor
area during the term shall be effective as of the first day of the month
following the change.
4.5.10 REESTIMATIONS. At any time from time to time during the term
hereof, Landlord may furnish Tenant with written notice of a reestimation of
the annual Operating Expenses to reflect more accurately, in Landlord's sole
opinion, the current Operating Expenses. Commencing with the first day of
the calendar quarter next succeeding delivery of such notice to Tenant, and
continuing on the first day of each calendar month during the term (until
subsequently reestimated), Tenant shall pay to Landlord one-twelfth (1/12th)
of the Tenant's share of the estimated Operating Expenses, as reestimated.
4.5.11 ANNUAL ADJUSTMENTS. Within a reasonable time following the
end of each calendar year during the Term of this Lease, Landlord shall furnish
to Tenant an itemized statement certified as correct by Landlord, setting forth
the total Operating Expenses for the preceding calendar year, the amount of
Tenant's share of such Operating Expenses and the payments made by Tenant with
respect to such calendar year. If Tenant's share of the actual Operating
Expenses for such year exceeds the payment so made by Tenant, based on the
Landlord's estimate, Tenant shall pay Landlord the deficiency within thirty (30)
days after receipt of said statement. If said payments by Tenant, based on
Landlord's estimate, exceed Tenant's share of the actual Operating Expenses,
Landlord will credit the amount of such overpayment against Tenant's
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next Operating Expense payment due. Until Tenant receives a statement setting
forth the new amounts of Tenant's estimated share of Operating Expenses for the
new calendar year, Tenant shall continue to pay at the rate being paid for the
year just completed, but Tenant shall commence payment to Landlord of its new
estimated share of Operating Expenses on the basis of said statement beginning
on the first day of the month following the month in which said statement is
received.
4.5.12 RECORDS. Landlord agrees to maintain accurate records of the
cost of items with respect to which Tenant is required to pay as Additional Rent
and to make these records available for inspection by Tenant or its
representatives at any time during regular business hours after reasonable
notice from Tenant.
SECTION 5. REPAIRS AND MAINTENANCE.
5.1 LANDLORD'S RESPONSIBILITIES. The following shall be the
responsibility of the Landlord:
(a) Repairs, maintenance and replacement of the roof and gutters,
exterior walls (including painting); bearing walls, structural members and
foundations of the Building.
(b) Repairs and maintenance of, and removal of snow and ice from
sidewalks, driveways, curbs, parking areas and areas used in common by Tenant
and Landlord or tenants of other parts of the Building.
(c) Repairs and maintenance of water, sewage, gas, electrical and
mechanical systems.
(d) Repairs and maintenance of heating, ventilating and air
conditioning (HVAC) systems which service the Premises as well as other parts of
the Building.
(e) Maintenance of landscaping for the land described on Exhibit A.
(f) Provisions of janitorial service for Building Common Areas.
Although performance of the foregoing is the responsibility of Landlord, the
cost of all of the foregoing shall be a Tenant Charge shared on proportionate
basis by Tenant as set forth in Section 4. Except as set forth in Section 5.1,
Landlord shall not otherwise be required to repair or maintain the Premises or
perform any other duties with respect to the Premises.
5.2 TENANT'S RESPONSIBILITIES. The following shall be the responsibility
of Tenant:
(a) Repair and maintenance of the interior of the Premises, including
without limitation keeping the interior of the Premises in a clean and sanitary
condition free of debris; janitorial service for the Premises which will be
arranged for by Tenant with Landlords approval, which will not be unreasonably
withheld; repair and maintenance of all plumbing within the Premises and repair
of any damage resulting from water leaks; and replacement of all glass in
windows or doors of the Premises which become cracked or broken.
(b) Any repair necessitated by the wrongful act, negligence or breach
of or default under this Lease of or by Tenant, its agents, employees or
invitees.
(c) Any repairs or alterations required in order for Tenant to comply
with Rules and Regulations as set forth in Exhibit G.
(d) All repairs to and maintenance of the Premises other than repairs
and maintenance required in Section 5.
5.3 REIMBURSEMENT FOR REPAIRS ASSUMED. If Tenant fails or refuses to
make repairs which are required to be made by Tenant by this Section 5, Landlord
will provided Tenant with a written notice stating repairs to be made. Tenant
shall have ten (10) calendar days in which to complete said repairs. In the
event Tenant again fails to complete
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repairs following receipt of Notice, Landlord may make the repairs and charge
the costs of such repairs to Tenant. Such expenditures by Landlord shall be
reimbursed by Tenant on demand together with interest as set forth in Section
23.16 from the date of expenditure by Landlord until repayment in full.
5.4 DUTY TO MAKE REPAIRS. The duty of the Landlord to make repairs shall
not mature until a reasonable time after Landlord has received notice in writing
from Tenant of the repairs that are required.
SECTION 6. UTILITIES. Tenant shall pay all utility charges with respect to the
Premises, including but not limited to water, sewer, gas, electricity (including
utilities servicing all central HVAC systems servicing the Premises), telephone,
and garbage removal ("Utilities"). Electricity, except to Common Areas and
central HVAC systems, shall be separately metered. If the Utilities are not
separately metered and Landlord is billed directly and pays for any of these
charges, Tenant shall pay its proportionate share of such charges as set forth
in Section 4.4.
SECTION 7. TAXES AND ASSESSMENTS.
7.1 PAYMENT OF PROPORTIONATE SHARE. Tenant shall be liable for payment of
its proportionate share of all current assessments, taxes, fees, levies and
other similar charges (all of the foregoing herein called "Taxes") imposed by
any governmental jurisdiction against the Premises, the Building or the land
described on Exhibit A, either directly or indirectly.
Tenant's proportionate share shall be as set forth in Section 4.5.9. Tenant's
proportionate share of any Taxes shall be based only on that portion of the
Taxes which is allocable to the Premises during the Term. For these purposes,
an assessment related to a local improvement district shall be deemed to have a
useful life of ten (10) years and Tenant's proportionate share shall be equal to
a fraction the numerator of which is the remainder of the Term and the
denominator of which is ten (10) years. Tenant shall pay all taxes levied on or
with respect to personal property located on the Premises.
7.2 TAXES ON RENT. If, at any time during the Term of this Lease under
the laws of the United States Government, the State of Oregon, or any political
subdivision thereof in which the Premises are located, a tax or excise on rent,
or any other tax however described, is levied or assessed by any such political
body against Landlord on account of rent payable to Landlord hereunder, such tax
or excise shall be considered for the purpose of this Lease a real property tax
payable by Tenant. If real estate taxes are withdrawn in whole or in part and
any substitute tax is made therefor, such tax shall in any event for the purpose
of this Lease be considered a real property tax, a proportionate share of which
shall be paid by Tenant, regardless of the source from which it is collected.
Nothing in this Section 7 is intended to require Tenant to pay any income,
franchise, or excess profits tax of Landlord.
SECTION 8. ALTERATIONS AND ADDITIONS.
8.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not make any alterations or
additions to the Leased Premises without first procuring Landlord's written
consent, which shall not be unreasonably withheld. Only after obtaining such
consent, Tenant shall cause the work to be done promptly and in a good and
workmanlike manner and in accordance with the plans and specifications submitted
to Landlord and such rules and regulations as may be established by Landlord.
Landlord's consent notwithstanding, all work shall be performed in accordance
with applicable building codes and governmental regulations. All work done and
material supplied shall be done or supplied only by contractors
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approved by Landlord, and Landlord shall have the right to grant such approval
conditionally or to withdraw the same at any time.
8.2 SURRENDER AT END OF TERM. Any alterations, additions and
improvements made by Tenant on the Leased Premises, except Tenant's trade
fixtures, shall at once, when made, become the property of Landlord and remain
upon and be surrendered with the Leased Premises at the expiration of the Lease
Term, unless Landlord directs Tenant to remove the same within fifteen (15) days
after the expiration of the Lease Term. In no event shall Tenant alter the
exterior of the Leased Premises or make any change or alteration which would
impair the structural soundness of the Building.
8.3 PAYMENT FOR WORK. All costs of any such work shall be paid promptly
by Tenant so as to avoid the assertion of any mechanic's lien filed against the
Leased Premises or the Building within thirty (30) days after the receipt of
notice thereof, and shall promptly inform Landlord of any such notice. If the
lien is not discharged within said thirty (30) day period, Landlord shall have
the right, but not the obligation, to discharge said lien by payment, bonding or
otherwise, and the costs and expense to Landlord of obtaining such discharge
shall be paid to Landlord by Tenant on demand as Additional Rent. Landlord
shall have the right at any time and from time to time to post and maintain on
the Leased Premises such notices as Landlord deems necessary to protect the
Leased Premises from mechanic's liens.
SECTION 9. INSURANCE.
9.1 LIABILITY, PROPERTY DAMAGE AND WORKER'S COMPENSATION. Tenant shall,
at all times during the Lease Term or any extension thereof, and at its own cost
and expense, procure and maintain in force worker's compensation insurance,
bodily injury liability and property damage liability insurance adequate to
protect Landlord and naming Landlord, any persons, firms or corporation
designated by Landlord, any mortgagee of the Building of whose identity Tenant
is notified, as additional insureds, against liability for injury or death of
any person in connection with the use, operation or condition of the Lease
Premises. Such property damage and bodily injury liability insurance shall at
all times be in a combined limit of not less than $1,000,000.00 on an occurrence
basis for bodily injury and property damage. The limits of such insurance shall
not limit the liability of Tenant.
9.2 PROPERTY INSURANCE. Landlord shall maintain fire and extended
coverage (including vandalism and malicious mischief) insurance on the Building
in the amount of the full insurable replacement cost of the Building. Landlord
shall have the right to place on the Building any other insurance as Landlord
shall deem necessary. Tenant shall bear the expense of any insurance insuring
the property of Tenant and Tenant Improvements on the Premises against such
risks. As additional rent for the Premises, Tenant shall reimburse Landlord for
Tenant's proportionate share of the cost of all insurance maintained by Landlord
with respect to the Building as set forth in Section 4.5.2.
9.3 WAIVER OF SUBROGATION. Tenant and Landlord each waives any and all
right of recovery against the other, or against the officers, partners,
employees, agents and representatives of the other, for loss of or damage to
such waiving party or its property or the property of others under its control,
if and to the extent that such loss or damage is insured against under any
insurance policy in force at the time of such loss or damage.
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SECTION 10. DAMAGE AND DESTRUCTION.
10.1 PARTIAL DAMAGE. If the Premises are partly damaged and Section 10.2
does not apply, the Premises shall be repaired by Landlord provided, however,
Landlord shall not be required to repair or restore any tenant improvements or
additions other than the Initial Tenant Improvements (as defined in Exhibit C);
and provided further, Landlord shall be required to make repairs or restoration
only to the extent it receives insurance proceeds from either Landlord or
Tenant's insurance company sufficient to pay the cost of such repairs and
restoration.
10.2 DESTRUCTION. If the Premises are destroyed or damaged such that the
cost of repair exceeds seventy-five percent (75%) of the value of the Building
before the damage as reasonably determined by Landlord, either party may elect
to terminate this Lease as of the date of the damage or destruction by giving
written notice to the other party not later than forty-five (45) calendar days
following the date of damage, provided however Tenant may not elect to terminate
if the damage or destruction was caused by the wrongful act or negligence of
Tenant or by the failure by Tenant to comply with any of the provisions of this
Lease. In the event the Lease is terminated, all rights and obligations of the
parties shall cease as of the date of termination, and Tenant shall be entitled
to the reimbursement of any prepaid amounts paid by Tenant and attributable to
the anticipated Term. If neither party elects to terminate, Landlord shall
proceed to restore the premises to substantially the same form as prior to the
damage or destruction provided, however, Landlord shall not be required to
repair or restore any tenant improvements or additions other than the Initial
Tenant Improvements (as defined in Exhibit C); and, provided further, Landlord
shall be required to make repairs or restoration only to the extent it receives
insurance proceeds sufficient to pay the cost of such repairs or restoration.
10.3 RENT ABATEMENT. Rent shall be abated during the repair of any damage
to the pro-rated extent the Premises are untenantable, except that there shall
be no rent abatement where the damage occurred as the result of the wrongful
act, negligence or failure to comply with any provisions of this Lease of or by
Tenant.
SECTION 11. EMINENT DOMAIN.
11.1 PARTIAL TAKING. If a portion of the Premises is condemned and Section
11.2 below does not apply, this Lease shall continue on the following terms:
(a) Landlord shall be entitled to all of the proceeds of
condemnation, and Tenant shall have no claim against Landlord as a result of
the condemnation.
(b) Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation.
(c) After the date on which title vests in the condemning authority
or an earlier date on which alterations or repairs are commenced by Landlord to
restore the balance of the Premises in anticipation of taking, the rent shall be
reduced in proportion to the reduction in value of the Premises as an economic
unit on account of the partial taking. If the parties are unable to agree upon
the amount of the reduction of rent, the amount shall be determined by an
acceptable arbitrator on reference by either party. The determination of the
arbitrator shall be final and binding on the parties.
(d) If a portion of Landlord's property not included in the Premises
is taken and severance damages are awarded on account of the Premises, or an
award is made for detriment to the Premises as a result of activity by a public
body not involving a physical taking of any portion of the Premises, this shall
be regarded as a partial condemnation to which Section 11.1(a) and Section
11.1(c) apply, and the rent shall be reduced to the extent of reduction in
rental value of the Premises as though a portion had been physically taken.
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11.2 TOTAL TAKING. If a condemning authority takes all of the Premises or a
portion sufficient to render the remaining Premises reasonably unsuitable for
the use which Tenant was then making of the Premises, this Lease shall terminate
as of the date the title vests in the condemning authorities. Landlord shall be
entitled to all of the proceeds of condemnation, and Tenant shall have no claim
against Landlord as a result of the condemnation.
11.3 SALE IN LIEU OF CONDEMNATION. Sale of all or part of the Premises to
a purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this Section 11 as a taking by condemnation.
SECTION 12. LIENS AND INDEMNIFICATION.
12.1 LIENS.
(a) Except with respect to activities for which Landlord is
responsible, Tenant shall pay when due all claims for work done on and for
services rendered or material furnished to the Premises and shall keep the
Premises, the Building and the land described on Exhibit A free from any liens.
If Tenant fails to pay any such claims or to discharge any lien, Landlord may do
so and collect the cost as additional rent. Any amount so added shall bear
interest as set forth in Section 23.16 from the date expended by Landlord until
payment in full and shall be payable on demand. Such action by Landlord shall
not constitute a waiver of any right or remedy which Landlord may have on
account of Tenant's default.
(b) Tenant may withhold payment of any claim in connection with a
good faith dispute over the obligation to pay so long as Landlord's property
interests are not jeopardized and the amount claimed is contested in good faith
by appropriate proceedings. If a lien is filed as a result of nonpayment,
Tenant shall, within ten (10) calendar days after Tenant learns of the filing,
secure the discharge of the lien or deposit with Landlord cash or sufficient
corporate surety bond or other surety satisfactory to Landlord in an amount
sufficient to discharge the lien, plus any costs, attorney fees, and other
charges that could accrue as a result of a foreclosure or sale under the lien.
12.2 INDEMNIFICATION. Tenant shall indemnify and hold harmless Landlord
from and against any claim, loss, or liability arising out of or related to any
activity of Tenant on the Premises or any condition of the Premises in the
possession or under the control of Tenant. Landlord shall have no liability to
Tenant for any loss or damage caused by third parties or by any condition of the
Premises.
SECTION 13. QUIET ENJOYMENT. Landlord will defend Tenant's right to quiet
enjoyment of the Premises from the lawful claims of all persons during the Term.
SECTION 14. ASSIGNMENT AND SUBLETTING.
14.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law or otherwise, assign, transfer, mortgage, sublet or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises without Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting by Tenant without such consent shall be void and shall
constitute a breach of an default under this Lease. Landlord shall not be
deemed unreasonably to have withheld consent if Landlord has sought but not
obtained any required consent of a lender to Landlord, a partner of Landlord, or
shareholder of Landlord.
14.2 NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of its obligations hereunder to
pay the rent and perform all other obligations to be
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performed by Tenant hereunder. The provisions of this Lease shall be binding
upon any assignee, transferee, mortgagee, sublessee or holder of any encumbrance
on or with respect to this Lease. The acceptance of rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed consent to
any subsequent assignment or subletting.
14.3 RIGHT TO TERMINATE. Notwithstanding anything contained hereinabove in
this Section 14 to the contrary, in the event Tenant requests Landlord's consent
to sublet fifty percent (50%) or more of the Premises or to assign fifty
percent (50%) or more of its interest in this Lease, Landlord shall have the
right to: (1) consent to such subletting or assignment in its sole discretion;
(2) refuse to grant such consent in its sole discretion; or (3) refuse to grant
such consent and terminate this Lease as to the portion of the Premises with
respect to which such consent was requested; provided, however, that if Landlord
refuses to grant such consent and elects to terminate the Lease as to such
portion of the Premises, Tenant shall have the right to withdraw its request for
such consent within fifteen (15) days after Landlord's exercise of such right to
terminate and remain in possession of the Premises under the terms and
conditions hereof. In the event the Lease is terminated as set forth herein,
such termination shall be effective as of the date set forth in a written notice
from Landlord to Tenant, which date shall in no event be more than thirty (30)
days following such notice.
14.4 DOCUMENTATION. All documents utilized by Tenant as evidence any
subletting or assignment to which Landlord has consented shall be subject to
prior written approval by Landlord or its counsel. Tenant shall pay, as
Additional Rent, all Landlord's costs and expenses, including reasonable
attorneys' fees, incurred in determining whether or not to consent to any
requested subletting or assignment and in reviewing and approving such
documentation.
SECTION 15. DEFAULT. The following shall be defaults under and breaches of this
Lease:
15.1 DEFAULT IN RENT. Failure of Tenant to pay any Base Rent (as
defined 4.2), Additional Rent (as defined 4.4), Taxes (as defined Section 7) or
other charges within five (5) calendar days after it is due.
15.2 VIOLATION OF SECTION 14. Any attempted assignment, transfer,
mortgage, encumbrance or subletting in violation of Section 14.
15.3 DEFAULT IN OTHER COVENANTS. Failure of Tenant to comply with any term
or condition or fulfill any obligation of this Lease (other than the payment of
Rent or other charges and compliance with Section 14) within twenty (20)
calendar days after written notice by Landlord specifying the nature of the
default with reasonable particularity. If the default is of such a nature that
it cannot be completely remedied within the twenty (20) calendar day period,
this provision shall be complied with if Tenant begins correction of the
default within the twenty (20) calendar day period and thereafter proceeds with
reasonable diligence and in good faith to effect the remedy as soon as
practicable to prosecute the same to completion.
15.4 BANKRUPTCY, ETC. An assignment by Tenant for the benefit of
creditors; the filing by Tenant of a voluntary petition in bankruptcy; an
adjudication that Tenant is bankrupt or the appointment of a receiver of the
properties of Tenant; the filing of any involuntary petition of bankruptcy and
failure of Tenant to secure a dismissal of the petition within thirty (30)
calendar days after filing; attachment of or the levying of execution on the
leasehold interest of Tenant in the Premises and failure of Tenant to secure
discharge of the attachment or release
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of the levy of execution within ten (10) days after the making thereof. If
Tenant consists of two or more individuals or business entities, the events of
default specified in this Section 15.4 shall apply to each individual and each
business entity.
15.5 ABANDONMENT. Failure of Tenant for thirty (30) calendar days or more
to occupy the Premises for one or more of the purposes permitted under this
Lease unless such failure is excused under other provisions of this Lease, which
failure constitute an abandonment of the Premises.
SECTION 16. REMEDIES ON DEFAULT.
16.1 TERMINATION. In the event of a default, this Lease may be terminated
at the option of Landlord by Landlord's giving written notice to Tenant. If the
Lease is not terminated by election of Landlord or otherwise, Landlord shall be
entitled to recover damages from Tenant for the default. If the Lease is
terminated, Tenant's liability to Landlord for damages shall survive such
termination, and Landlord may re-enter, take possession of the Premises, and
remove any persons or property by legal action or by self-help with the use of
reasonable force and without liability for damages to Tenant, its property, any
other persons, and/or their property.
16.2 RELETTING. Following reentry or abandonment, Landlord may relet the
Premises and in that connection may make any suitable alterations or refurbish
the Premises, or both, or change the character or use of the Premises, but
Landlord shall not be required to relet for any use or purpose other than that
specified in the Lease or which Landlord may reasonably consider injurious to
the Premises, or to any tenant which Landlord may reasonably consider
objectionable. Landlord may relet all or part of the Premises, alone or in
conjunction with other properties, for a term longer or shorter than the term of
this Lease, upon any reasonable terms and conditions, including the granting of
some rent-free occupancy or other rent concessions.
16.3 DAMAGES. In the event of termination on default, Landlord shall be
entitled to recover immediately, without waiting the due date of any future rent
or until the date fixed for expiration of the Term, the following amounts as
damages:
(a) The loss of reasonable rental value from the date of default until a
new tenant has been, or with the exercise of reasonable efforts could have been,
secured.
(b) The reasonable costs of reentry reletting including, without
limitation, the cost of any clean up, refurbishing, removal of Tenant's property
and fixtures, or any other expense occasioned by Tenant's failure to quit the
Premises upon termination and to leave them in the required condition, any
remodeling costs, attorney fees, court costs, broker commissions, and
advertising costs.
(c) Any excess of the value of the rent and all of Tenant's other
obligations under this Lease over the reasonable expected return from the
Premises for the period commencing on the earlier of the date of trial or the
date the Premises are relet and continuing through the end of the Term. The
present value of future amounts will be computed using a discount rate equal to
the prime commercial loan rate of United States National Bank of Oregon in
effect on the date of trial.
16.4 RIGHT TO SUE MORE THAN ONCE. Landlord may sue periodically to recover
damages during the period corresponding to the remainder of the Term, and no
action for damages shall bar a later action for damages subsequently accruing.
16.5 REMEDIES CUMULATIVE. The foregoing remedies shall be in addition to
and shall not exclude any other remedy available to Landlord under this Lease or
applicable law.
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SECTION 17. DEFAULT OF LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within thirty (30)
calendar days after written notice by Tenant to Landlord specifying wherein
Landlord has failed to perform such obligations; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) calendar days
are required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) calendar day period and thereafter
diligently prosecutes the same to completion.
SECTION 18. SUBORDINATION. This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust or any other
hypothecation for security now or hereafter placed upon the Premises, the
Building and/or the land described on Exhibit A, and to any and all advances
made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Tenant's right to quite possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease subordinate to the lien of this mortgage, deed
of trust or ground lease, and shall give written notice thereof to Tenant, this
Lease shall be deemed subordinate to such mortgage, deed of trust, or ground
lease, whether this Lease is dated prior or subsequent to the date of such
mortgage, deed of trust or ground lease on the date of recording thereof.
Tenant agrees to execute, acknowledge and deliver any documents reasonably
requested by Landlord including, but not limited to effectuate such
subordination or to make this Lease subordinate to the lien of any mortgage,
deed of trust or ground lease, as the case may be, and, failing to do so, within
fifteen (15) calendar days after written demand from Landlord, does hereby make,
constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in
Tenant's name and stead to do so.
If any proceedings are brought for foreclosure, or in the event of the
exercise of a power of sale under any mortgage or deed of trust made by Landlord
covering the Premises, Tenant shall attorn to the purchaser upon any such
foreclosure or sale, or to the Mortgagee or Trustee and shall recognize such
purchaser, Mortgagee or Trustee as Landlord under this Lease.
SECTION 19. PAYMENT AND PERFORMANCE BOND. At any time Tenant either desires to
or is required to make any repairs, alterations, additions, improvements or
utility installations pursuant to this Lease, the cost of which will exceed ten
thousand dollars ($10,000.00), Landlord may, at its sole option, require
Tenant, at Tenant's sole cost and expense, to obtain and provide to Landlord a
payment and performance bond wherein Landlord is named as obligee. Such bond
shall be in an amount equal to the total contract amount for the repairs,
alterations, improvements, or utility installations.
SECTION 20. SIGNS AND DIRECTORIES.
20.1 TENANT'S SIGNS. Tenant shall not install or keep any signs on or
about the Premises without the prior written consent of Landlord, which Landlord
in its sole discretion may give or withhold. Tenant shall pay all costs of
signs and all costs and expenses of installation of signs. If there is any sign
on or about the Premises or Building without the consent of Landlord, Landlord
shall be free to remove any such signs and Tenant shall pay Landlord the cost of
removal together with interest as set forth in Section 23.16 from date of
expenditure until payment is made in full. Tenant shall pay promptly after
Landlord invoices Tenant for such costs. If Landlord consents to such signs,
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Tenant shall repair any damage which alteration or renovation of its signs may
cause during or at the expiration of the Term. At the request of Landlord,
Tenant at its expense shall remove its signs from the Premises at the
termination of this Lease.
20.2 DIRECTORIES. After the Commencement Date of this Lease, Landlord will
provide Tenant with signage indicating Tenant's location in the AmberGlen
Business Center and in the Building. The location of the Premises shall be
designated through a series of identification signs and directories placed at
points deemed appropriate throughout the AmberGlen Business Center and in or
near the Building. All such identification signs and directories shall be
designed and installed at the sole discretion of Landlord. The external signage
shall have substantially the design set forth in Exhibit F. Tenant shall bear
the expense of this inclusion and maintenance of Tenant's name and location on
such signs and such expense shall be treated as a Tenant Charge as set forth in
Section 23.16.
SECTION 21. SURRENDER AT TERMINATION.
21.1 CONDITION OF PREMISES. Upon expiration of the Term or earlier
termination on account of default, Tenant shall deliver all keys to Landlord and
surrender the premises in good condition, normal wear excepted, and with the
floors cleaned and waxed and carpets professionally cleaned. Alterations and
improvements constructed by Tenant with permission of Landlord shall not be
removed or restored to the original condition unless the terms of such approval
is so stated to allow for or requires such removal.
21.2 FIXTURES.
(a) All fixtures placed upon the Premises during the Term, other than
Tenant's trade fixtures, shall, at Landlord's option, become the property of
Landlord. If Landlord elects, Tenant shall remove any or all fixtures which
would otherwise remain the property of Landlord, and shall repair any physical
damage resulting from the removal. If Tenant fails to remove such fixtures,
Landlord may do so and charge the cost to Tenant with interest as set forth in
Section 23.16 from the date of expenditure until repayment in full.
(b) Prior to expiration or termination of the Term, Tenant shall
remove all furnishings, furniture, and trade fixtures which remain its
property. If Tenant fails to do so, the failure to do so shall be an
abandonment of the property, and Landlord may retain the property and all
rights of Tenant with respect to it shall cease or, by giving written notice
to Tenant within twenty (20) days after removal was required, Landlord may
elect to hold Tenant to its obligation of removal. If Landlord elects to
require Tenant to remove, Landlord may effect a removal and place the
property in public storage for Tenant's account and expense. Tenant shall be
liable to Landlord for the cost of removal, transportation to storage, and
storage, with interest as set forth in Section 23.16 on all such expenses
from the date of expenditure by Landlord until repayment in full.
21.3 HOLDOVER.
(a) If Tenant does not vacate the Premises at the time required,
Landlord shall have the option to treat Tenant as a tenant from month to month,
subject to all of the provisions of this Lease except the provisions for term
and renewal and at a rental rate equal to one hundred fifty percent (150%) of
the rent last paid by Tenant during the Term. Failure of Tenant to remove
fixtures, furniture, furnishings, or trade fixtures which Tenant is required to
remove under this Lease shall constitute a failure to vacate to which this
Section 21.3(a) shall apply if the property not removed will substantially
interfere with occupancy of the Premises by another tenant or with occupancy by
Landlord for any purpose, including preparation for a new tenant.
(b) If a month to month tenancy results from a holdover by Tenant
under this Section 21.3, the tenancy shall be terminable at the
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end of any monthly rental period on written notice from landlord given at least
ten (10) calendar days prior to the termination date which shall be specified in
the notice. Tenant waives any notice which would otherwise be provided by law
with respect to a month to month tenancy.
SECTION 22. NO BROKER. Tenant represents, warrants and covenants that no
broker was instrumental in bringing about or consummating this Lease and that
Tenant had no conversations, negotiations or agreements with any broker
concerning the leasing of the Premises. Tenant agrees to indemnify and hold
harmless Landlord from and against any claims for any brokerage commissions and
all costs, expenses and liabilities in connection therewith, including, without
limitation, attorney fees and expenses, arising out of any conversations,
negotiations or agreements of Tenant with any broker.
SECTION 23. MISCELLANEOUS.
23.1 MEMORANDUM OF LEASE. Tenant shall not record this Lease. If
requested by Landlord, simultaneously with execution and delivery hereof or at
any later time designated by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord a Memorandum of Lease suitable for recording. In its sole
and unlimited discretion, Landlord may record or not record such Memorandum of
Lease. Such Memorandum of Lease shall not be deemed to change or
otherwise affect any of the provisions of this Lease.
23.2 ESTOPPEL CERTIFICATE.
(a) Tenant shall at any time, upon at least ten (10) calendar days
written notice from Landlord, execute, acknowledge and deliver to Landlord a
statement in writing in form and substance satisfactory to Landlord (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent, security deposit and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults, if any, which are
claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises. If requested by Landlord, such
Certificate shall be in the form attached hereto as Exhibit D. If requested by
Landlord, Tenant shall also furnish Landlord with a certificate of Tenant's
secretary as to corporate resolutions in the form attached hereto as Exhibit E.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are no
uncured defaults in Landlord's performance, and (iii) not more than two (2)
months' rent has been paid in advance.
(c) If Landlord desires to finance, refinance, sell or otherwise
transfer the Premises, the Building or the land described on Exhibit A, or any
part thereof, Tenant hereby agrees to deliver to Landlord, any lender, buyer or
other party participating in a transfer designated by Landlord such financial
statements of Tenant as may be reasonably required by Landlord or such lender or
other transferee. Such statements shall include the past three (3) years'
financial statements of Tenant. All such financial statements shall be received
by Landlord in confidence and shall be used only for the purposes herein set
forth, and shall be returned after review.
23.3 LANDLORD'S INTERESTS. "Landlord" as used herein shall mean only the
owner or owners at the time in question of the Landlord's interest in the
Premises. In the event of any transfer of title to the Premises, Landlord
herein named (and, in case of any subsequent transfers, the then grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Landlord's obligations thereafter to be performed, provided that any
funds in the hands of
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Landlord or the then grantor at the time of such transfer, in which Tenant
has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Landlord shall be binding on
Landlord's successors and assigns only during their respective periods of
ownership.
23.4 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
23.5 HEADINGS. The headings in this Lease are for the purpose of reference
only, and shall not limit or otherwise affect any of the terms or provisions
hereof.
23.6 INCORPORATION OF PRIOR AGREEMENTS: AMENDMENTS. This Lease contains
all agreements of the parties with respect to the subject matter hereof. No
prior agreement or understanding with respect thereto shall be effective. This
Lease may be modified only by a writing, signed by the parties in interest at
the time of the modification.
23.7 WAIVERS. No waiver by Landlord of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Tenant of the same or any other provision. Landlord's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The acceptance of rent
hereunder by Landlord shall not be a waiver of any preceding breach of default
by Tenant of any provision hereof, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach or default at the time of acceptance of such rent.
23.8 COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
23.9 MERGER. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any and/or all of such
subtenancies.
23.10 TENANT LIABILITY. If more than one party has executed this Lease as
Tenant, the obligations of Tenant under this Lease shall be the joint and
several obligations of each of such parties.
23.11 ATTORNEY FEES. If suit or action is instituted in connection with
any controversy arising out of this Lease, the prevailing party shall be
entitled to recover in addition to costs such sum as the court may adjudge
reasonable as attorney fees whether on trial or appeal.
23.12 NOTICES. Any notice or communication required or permitted under
this Lease shall be deemed given and made when actually delivered or on the
date of deposit in the United States mail (certified or registered), return
receipt requested, postage prepaid, addressed to the party to whom such notice
is being given at the address indicated below or to such other address as may be
specified from time to time by either of the parties in writing.
Tenant: Claremont Technology Group, Inc.
-------------------------------------------
1600 NW Compton Drive
-------------------------------------------
Suite 210
-------------------------------------------
Beaverton, OR 97006
-------------------------------------------
Landlord: Birtcher Properties, Inc.
27612 El Lazo Road, Laguna Niguel, CA 92656
P.O. Box 30009, Laguna Niguel, CA 92607-0009
Attn: Director of Property Management
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23.13 SUCCESSION. This Lease shall be binding upon and inure to the
benefit of the parties, their respective permitted successors and assigns.
23.14 LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant fails to perform any
obligation or duty under this Lease, Landlord shall have the option to do so
after at least thirty (30) calendar days written notice to Tenant. All of
Landlord's expenditures to correct the default shall be reimbursed by Tenant on
demand with interest as set forth in Section 23.16 from the date of expenditure
by Landlord until payment in full.
23.15 ENTRY FOR INSPECTION.
(a) Landlord shall have the right to enter upon the Premises during
business hours, or at other times by prior arrangement, to determine Tenant's
compliance with this Lease, to determine the necessity of repair or maintenance,
to make necessary repairs to the Building or to the Premises, or to show the
Premises to any prospective tenant or purchaser, and in addition shall have the
right during business hours, or at other times by prior arrangement, during the
last two months of the Term of this Lease, to place and maintain upon the
Building or the Premises notices for leasing or selling of the Building or the
Premises.
(b) Landlord shall have the right to enter upon the Premises at any
time in the event of an emergency.
23.16 INTEREST ON RENT AND OTHER CHARGES OR EXPENDITURES. Any rent or
other payment required to be made by Tenant by this Lease shall, if not paid
when due, bear interest at a variable rate equal to the United States National
Bank of Oregon's prime commercial rate as adopted from time to time plus two
percent (2%) (but in no event greater than the maximum interest rate allowed
under applicable law).
23.17 PRORATION OF RENT. In the event of commencement or termination of
this Lease at a time other than the beginning or end of one of the specified
rental periods, then rent shall be prorated as of the date of commencement or
termination.
23.18 AMENDMENTS TO STATUTES, ETC. Reference in this Lease to any
particular law, statute, ordinance, rule, regulation or administrative order
includes reference to any successors or amendments thereto.
23.19 GOVERNING LAW. This Lease shall be governed as to validity and
interpretation by the laws of the State of Oregon.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first hereinabove written.
TENANT LANDLORD
- ------ --------
Claremont Technology Group, Inc. AmberJack, LTD., an Arizona
- --------------------------------- Corporation
an Oregon Corporation
- ---------------------------------
- ---------------------------------
By: Birtcher Property Services
Its: Property Manager
By: /s/ Paul G. Mardesich By: /s/ Bruce R. Birkeland
------------------------------ -----------------------------
BRUCE R. BIRKELAND, CPM
Its: Vice President Its: CHIEF OPERATING OFFICER
----------------------------- ----------------------------
Date: 2/17/95 Date: 3/10/95
---------------------------- ---------------------------
By: /s/ Lynda L. Bettini
-----------------------------
LYNDA L. BETTINI, CPM
Its: DIRECTOR OF PROPERTIES
----------------------------
Date: 3-6-95
---------------------------
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EXHIBIT A
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
LEGAL DESCRIPTION
Legal Description of 1600 Building (Formerly D-2 Area)
Prepared by Wilsey & Ham (File 4-2615-0205)
September 28, 1987
A tract of land located in the Northwest 1/4 of Section 36, Township 1 North,
Range 2 West, Willamette Meridian, Washington County, Oregon, being more
particularly described as follows:
Beginning at a point on the southerly right of way of N.W. Walker Road, said
point bearing South 01 Degrees 41'53" West 923.92 feet and North 61 Degrees
43'35" West 390.82 feet from the north 1/4 corner of said Section 36; thence
South 28 Degrees 16'25" West 180.51 feet; thence South 72 Degrees 28'45" West
68.19 feet; thence 13.00 feet along the arc of a 50.00 foot radius curve to the
left through a central angle of 14 Degrees 53'49" (the long chord bears South 07
Degrees 53'22" East 12.96 feet); thence 72.86 feet along the arc of a 335.57
foot radius curve to the right through a central angle of 12 Degrees 26'23" (the
long chord bears South 09 Degrees 07'06" East 72.71 feet); thence 13.31 feet
along the arc of a 10.00 foot radius curve to the right through a central angle
of 76 Degrees 13'45" (the long chord bears South 35 Degrees 12'58" West 12.34
feet); thence 69.91 feet along the arc of a 446.00 foot radius curve to the
right through a central angle of 08 Degrees 58'52" (the long cord bears South 77
Degrees 46'09" West 69.55 feet); thence North 00 Degrees 01'52" West 7.99 feet;
thence 306.34 feet along the arc of a 259.75 foot radius curve to the left
through a central angle of 67 Degrees 34'22" (the long chord bears North 33
Degrees 49'03" West 288.89 feet); thence North 67 Degrees 36'14" West 10.00
feet; thence South 22 Degrees 23'46" West 173.75 feet; thence North 67 Degrees
36'14" West 262.53 feet; thence 43.86 feet along the arc of a 24.00 foot radius
curve to the left through a central angle of 104 Degrees 42'07" (the long chord
bears South 60 Degrees 02'42" West 38.00 feet); thence North 06 Degrees 24'04"
East 81.86 feet; thence 124.23 feet along the arc of a 1814.00 foot radius curve
to the left through a central angle of 03 Degrees 55'26" (the long chord bears
North 03 Degrees 08'47" East 124.21 feet); thence 9.23 feet along the arc of a
10.00 foot radius curve to the right through a central angle of 52 Degrees
52'42" (the long chord bears North 27 Degrees 37'23" East 8.90 feet); thence
9.32 feet along the arc of a 10.00 foot radius curve to the left through a
central angle of 53 Degrees 22'58" (the long chord bears North 27 Degrees 22'17"
East 8.98 feet); thence North 37 Degrees 56'54" East 281.96 feet to a point on a
southerly right of way of N.W. Walker Road; thence South 55 Degrees 13'36" East
along said southerly right of way 338.00 feet; thence South 61 Degrees 43'35"
East 283.04 feet to the POINT OF BEGINNING. Contains 5.028 acres.
19
<PAGE>
EXHIBIT B
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
FLOOR PLAN
[FLOOR PLAN]
[FLOOR PLAN]
20
<PAGE>
EXHIBIT C
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
TENANT IMPROVEMENTS
Concurrently herewith, the undersigned Tenant and Landlord have executed a Lease
covering the Premises (the provisions of said Lease are hereby incorporated by
reference as if fully set forth herein). In consideration of the execution of
said Lease, Landlord and Tenant mutually agree as follows:
Landlord shall provide Tenant with an interior Tenant Improvement Allowance of
up to twenty and 00/100ths dollars ($20.00) per rentable square foot which is
included in Section 4.2 Base Rent, to construct the floor plan attached as
Exhibit B herein. Landlord supplied Tenant Improvement dollars are limited to
permanent building fixtures.
21
<PAGE>
EXHIBIT D
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
NONDISTURBANCE, ATTORNMENT, AND SUBORDINATION AGREEMENT
AND TENANT'S ESTOPPEL CERTIFICATE
DATE: , 19
------------- --
BETWEEN: ("Tenant")
--------------------------
AND: ("Lender")
--------------------------
Tenant is party to a lease (the "Lease") dated__________,19__ pursuant
to which Tenant has leased (from "Landlord") approximately_______square feet of
space (the "Premises") in the AmberGlen Business Center, Building ______,
located at_____________________________________in Hillsboro, Washington County,
Oregon on the real property described on the attached Exhibit A (the
"Property").
Lender has agreed to make a loan in the amount of $__________(the "Loan")
to Landlord, which will be secured by a deed of trust on the Property (the "Deed
of Trust").
As a condition to making the Loan, Lender has required that the Lease be
subordinated to the lien of the Deed of Trust. Tenant desires to be assured of
continued occupancy of the Premises in the event of a foreclosure of the Deed of
Trust or in the event Lender otherwise succeeds to the interest of Landlord in
the Property.
NOW, THEREFORE, in consideration of the Premises and the mutual covenants
set forth in this Nondisturbance, Attornment, and Subordination Agreement and
Tenant's Estoppel Certificate (the "Agreement"), and intending to be legally
bound, the parties agree as follows:
1. ESTOPPEL PROVISIONS. Tenant, understanding that Lender will be
relying thereon in making the Loan, hereby represents and certifies to Lender
that as of the date of this certificate:
1.1 The Lease is in full force and effect, has not been assigned, and is
unmodified except as indicated on the attached Exhibit B;
1.2 The term of the Lease has commenced, Tenant has accepted possession of
the Premises, and any improvements to the Premises required by the terms of the
Lease to be made by Landlord have been completed;
1.3 Except as set forth on Exhibit B, the full amount of rent specified in
the Lease is accruing (i.e., any free or reduced rent period has terminated), no
rent or additional rent has been paid more than one month in advance, and
Landlord holds no security deposit except $____________. Rent has been paid up
to and including the month of___________, 19__;
1.4 Tenant has no charge, lien, defense, or claim or offset under the
Lease or against the payment of rent or other charges due or to become due under
the Lease; and
1.5 To Tenant's actual knowledge, without investigation, Landlord is not
in breach or default of any term or condition of the Lease.
22
<PAGE>
2. COVENANTS OF TENANT. Tenant agrees that, unless Lender's prior
consent is obtained, Tenant will not (a) pay any rent or additional rent more
than one month in advance of its due date, (b) modify or amend the Lease*, or
(c) consent to a termination of the Lease*. Tenant further agrees not to seek
or terminate the Lease as a result of any breach thereof by Landlord without
giving Lender ten (10) days prior written notice of an opportunity to cure such
breach.
3. NONDISTURBANCE. In exercising any rights arising under the Deed of
Trust or any instrument modifying or amending the same or entered into in
substitution or replacement thereof, Lender shall not disturb or deprive Tenant
in or of its possession of the Premises or other rights under the Lease;
provided that the Lease is then in full force and effect and Tenant is not in
default thereunder beyond any applicable cure period; and provided further that
in no event shall Lender be:
3.1 Liable for any act or emission of Landlord;
3.2 Subject to or liable for any charges, liens, defenses, or offsets
which Tenant might be entitled to assert against Landlord;
3.3 Bound by any payment of rent or additional rent made by Tenant
for more than one month in advance or liable to Tenant for any security deposit
not actually received by Lender; or
3.4 Bound by any modification or amendment to the Lease which was
neither disclosed to Lender on Exhibit B nor consented to by Lender under
Section 2.
4. ATTORNMENT. In the event it becomes necessary to foreclose the Deed
of Trust, Lender agrees not to join Tenant in any foreclosure proceedings, so
long as Tenant is not then in default under the Lease, unless failure to join
Tenant would impair Lender's ability to exercise its remedies against Landlord
under the Deed of Trust. In the event such joinder is necessary despite the
absence of any default under the Lease, such joinder shall not extinguish or
interfere with Tenant's rights under the Lease, including, without limitation,
Tenant's right to possession of the Premises. Subject to the provisions of this
Agreement, Tenant agrees (a) to attorn to Lender or any other party obtaining
title to the Property pursuant to any remedy provided in the Deed of Trust or a
deed in lieu of foreclosure thereof, (b) to recognize Lender or such other party
as Landlord under the Lease, (c) that the Lease shall continue in full force and
effect as a Lease between Tenant and Lender or such other party, and (d) to
execute an agreement of attornment upon request of Lender or such other party.
5. SUBORDINATION. Tenant agrees that the Lease shall be and remain at
all times subordinate to the lien of the Deed of Trust. The priority of the
Deed of Trust shall in no way be affected by (a) any extension in the time of
payment or performance of any obligation secured by the Deed of Trust, (b) the
exchange or modification of any such obligation, (c) the release of any other
security for any such obligation, or (d) the settlement or compromise of any
claim with respect to any such obligation.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, legal representatives,
successors, and assigns.
7. SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
other provisions of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby and each provision
of this Agreement shall be enforceable to the maximum extent permitted by
applicable law.
8. ATTORNEYS' FEES. In the event a suit or action is instituted to
enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover such amount as the court may adjudge reasonable
as attorneys' fees and costs of litigation at trial or on any appeal, in
addition to all other amounts provided by law.
* except as otherwise expressly provided in the lease
23
<PAGE>
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon.
10. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be considered an original and both of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first written above.
Tenant: __________________________
__________________________
By________________________
Its_______________________
Lender: __________________________
__________________________
By________________________
Its_______________________
STATE OF OREGON )
) ss.
County of_____________ )
The foregoing instrument was acknowledged before me this_____day of
________, 19__ by ________________________, who is ____________________ of
_____________________, an Oregon corporation, on behalf of the corporation.
________________________________
Notary Public for Oregon
My Commission Expires___________
STATE OF________________ )
) ss.
County of_____________ )
The foregoing instrument was acknowledged before me this_____day of
________, 19__ by ________________________, who is ____________________ of
_____________________, a[n]_____________ corporation, on behalf of the
corporation.
________________________________
Notary Public for Oregon
My Commission Expires___________
24
<PAGE>
EXHIBIT E
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
CORPORATION RESOLUTION
RESOLVED, that Paul G. Mardesich, the Treasurer of the Corporation
and/or ______________, the ___________ of the Corporation are hereby authorized
to sign on behalf of Claremont Technology Group, Inc., the Lease between
Amberjack, Ltd., "Landlord" and Claremont Technology Group, Inc., "Tenant" dated
January 13, 1995. We further authorize his/her/their signature on a
Nondisturbance, Attornment, and Subordination Agreement and Tenant's Estoppel
Certificate from this corporation to Birtcher Properties, Manager for AmberJack,
Ltd. and its assigns.
I certify that the above resolution was duly passed at a special
and/or general meeting of the Board of Directors of Claremont Technology Group,
Inc., held on January 30, 1995, at which were present, and voting, a majority of
the directors; that the Resolution has not been altered or amended subsequent to
its adoption and that said Resolution is now in full force and effect.
By /s/ William C. Campbell, Secretary
------------------------
Date March 3, 1995
------------------------
Attest: /s/ Brenda L. Meltebeke
------------------------
Date: March 3, 1995
------------------------
25
<PAGE>
EXHIBIT F
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
BUILDING SIGNAGE CRITERIA
The AmberGlen Business Center sign program does not apply to this lease.
26
<PAGE>
EXHIBIT G
JANUARY 13, 1995
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
RULES AND REGULATIONS
The following rules and regulations shall apply to the Building and all tenants,
their employees and agents, or any others permitted to occupy or enter the
Building, or any part thereof, pursuant to a Lease. Tenants will at all times
abide by said rules and regulations, to-wit:
A. The sidewalks, entries, passages, corridors and stairways of the
Building shall not be obstructed by any Tenant, or its agents or employees, or
used for any purpose other than ingress or egress to and from the Tenant's
Premises. Further, no Tenant shall misuse or in any manner damage the
landscaped or other Common Areas. No furniture, equipment, or picnic tables or
chairs may be placed on such areas.
B. Furniture, equipment or supplies will be moved in or out of the
Building only via the loading dock and facilities designated by Landlord. In
the event any Tenant damages any parts of the Building during any such move,
such Tenant shall forthwith pay to Landlord the amount required to repair said
damage subject to Section 9.3.
C. No safe or article, the weight or which may, in the opinion of
Landlord, constitute a hazard or damage to the Building or its equipment, shall
be moved into the Building without prior written consent of Landlord. If such
consent is granted, such article may be moved into the Building and located in
Tenant's premises only in the manner designated by Landlord.
D. No Tenant shall do or permit anything to be done in its Premises, or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property kept therein, or constitute a nuisance
or waste, or obstruct or interfere with the rights of other tenants, or in any
way injured or annoy them, or conflict with the laws relating to fire, or with
any regulations of the fire department or with any insurance policy upon the
Building or any part thereof, or conflict with any of the rules or ordinances of
the Department of Health of the County in which the Building is located.
E. Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of any Tenant, its agents or
employees shall be paid for by such Tenant. No person shall waste water by
tying back or wedging the faucets or by any other means.
F. No animals (other than trained guide dogs) shall be allowed in
the Building. No person shall disturb the occupants of this or adjoining
buildings or premises by the use of any radio, sound equipment or musical
instrument or by making of loud or improper noises.
G. There shall be no obstruction of sidewalks, entrances, common roadways
or drives, or truck loading areas of the Building. Further, no unlicensed
vehicles may be parked in any common parking or drives, or truck loading areas
of the Building and no vehicles or bicycles may be stored in any Common Areas,
except where designated.
H. No Tenant shall allow anything to be placed on the outside of the
Building, other than permitted signs, and then only to the extent expressly
provided in a Lease, nor shall anything be thrown by any Tenant, its agents or
employees, out of the windows or doors or down the
27
<PAGE>
corridors of the Building. Landlord shall have the right to remove all non-
permitted signs, or any furniture, equipment or supplies located in any Common
Areas without notice to the Tenant which is responsible therefor and at the
expense of such Tenant.
I. No additional lock(s) shall be placed by any Tenant on any exterior
door in the Building. A reasonable number of keys to a Tenant's Premises will
be furnished to such Tenant by Landlord, and neither Tenant nor its agents or
employees, shall have any duplicate keys made. Additionally, Tenant shall not
alter any existing lock(s) without the prior written approval of Landlord. At
the termination of Tenant's Lease, it shall promptly return to Landlord all keys
to offices, warehouse space or vaults.
J. No awning shall be placed over the windows, except with the prior
written consent of Landlord.
K. If any Tenant desires telegraphic, telephonic, heavy equipment or
other electric connections utilizing other than standard 110-volt connections,
Landlord or its agents will direct the electricians as to where and how the
wires may be introduced, and without such directions, no boring or cutting for
wires will be permitted. Any such installation and connection shall be made at
such Tenant's expense.
L. Landlord shall at all times have the right, by its officers or agents,
to enter the Premises and show the same to persons wishing to lease them, and
may at any time within six (6) months immediately preceding the termination of
this tenancy place upon the doors and windows of the Premises the notice "For
Rent", which notice shall not be removed by Tenant.
M. Tenant shall comply with all applicable laws and regulations of any
public authority affecting the Premises or the use thereof, and correct at
Tenant's expense and failure to comply created through Tenant's fault or by
reason of Tenant's use.
N. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales in or from the Premises, or any business other than
that specifically provided for in the Lease.
O. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms and
conditions, including but not limited to the payment of a reasonable fee and
provision for insurance coverage, as are related to the safety, care and
cleanliness of the Building, the preservation of good order thereon, and the
relief of any financial or other burden on Landlord occasioned by the presence
of such vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these purposes,
Landlord may exclude a particular vendor entirely or limit the number of vendors
who may be present at any one time in the Building. The term "personal goods or
services vendors" means persons who periodically enter the Building for the
purpose of selling goods or services to a tenant, other than goods or services
which are used by a tenant only for the purpose of conducting its business on
the Premises. "Personal goods or services" include, but are not limited to,
drinking water and other beverages, food, barbering services, and shoe shining
services.
P. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places of the
Building shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substances of any kind
whatsoever shall be thrown therein, and the expense of any breakage, stoppage or
damage, resulting from the violation of this rule shall be borne by the Tenant.
28
<PAGE>
Q. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premises shall be subject
to Landlord's prior approval. If Landlord, by a notice in writing to Tenant,
shall object to any curtain, blind, shade or screen attached to, or hung in, or
used in connection with, any window or door of the Premises, such use of such
curtain, blind, shade or screen shall be forthwith discontinued by Tenant.
R. No cooking shall be done or permitted by Tenant on the Premises other
than (i) in a cafeteria operated in compliance with law and applicable covenants
affecting the Premises, or (ii) the use of a microwave oven for food or
Underwriter's Laboratory approved equipment for brewing coffee, tea, and similar
beverages, provided that the use is in compliance with law. Offices in the
Building shall not be used for the storage of merchandise or for lodging.
S. Tenant shall not lay linoleum or other similar floor covering so that
the same be affixed to the floor of the Premises in any manner except by a
paste, or other material which may easily be removed with water, the use of
cement or other similar adhesive materials being expressly prohibited. The
method of affixing any such linoleum or other similar floor covering to the
floor, as well as the method of affixing carpets or rugs to the Premises, shall
be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant by whom, or by
those agents, clerks, employees or visitors, the damage have been caused.
T. Tenant shall see that the windows and doors of the Premises are closed
and securely locked before leaving the Building.
Landlord may reasonably amend, modify, delete or add new and additional rules
and regulations regarding the use and care of the Premises leased to Tenants and
the Building of which such Premises are a part. All Tenants shall comply with
all such rules and regulations upon notice thereof to them from Landlord. Any
breach by a Tenant of any rules and regulations herein set forth or any
amendments, modifications or additions thereto, shall constitute a default by
such Tenant under its lease agreement and Landlord shall have all rights and
remedies set forth therein.
The foregoing rules and regulations are subject in all respects to the terms of
the Lease.
29
<PAGE>
LEASE ADDENDUM
Re: Tenant: Claremont Technology Group, Inc.
---------------------------------------
Premises: Suite 214
-----
1600 N.W. Compton Drive
-----------------------------
Beaverton, Oregon
1. Provided Tenant is not in default under the Terms and Conditions of the
Lease, Tenant shall have the option to terminate the initial lease term at
the end of month twenty-four (24) of the initial lease term by providing
Landlord four (4) months prior written notice. In addition, Tenant shall
pay a lease Termination Penalty equal to ten thousand and 00/100ths dollars
($10,000.00) in order to terminate the Lease.
30
<PAGE>
FIRST AMENDMENT TO LEASE
1. PARTIES
This First Amendment to Lease (the "First Amendment") is executed this 2nd
day of May, 1995, and is by and between AMBERJACK, LTD., an Arizona corporation
(hereinafter referred to as "Landlord") and CLAREMONT TECHNOLOGY GROUP, INC.,
an Oregon corporation (hereinafter referred to as "Tenant").
2. RECITALS
Landlord and Tenant entered into that certain Lease dated January 13, 1995
(the "Lease") for those certain premises described in the Lease (the
"Premises"). The Lease provides that Landlord and Tenant shall enter into an
agreement to the Lease at such time as the Lease Commencement Date (as defined
in the Lease) has been determined by the parties.
The Lease Commencement Date has now been determined by Landlord and Tenant
as well as the date of the termination of the Term (the "Termination Date") and,
therefore, the purpose of this First Amendment is to set forth such dates and to
provide for Tenant's acceptance of the Premises.
3. DATES
In accordance with the terms of the Lease, Landlord and Tenant agree that
the Term of the Lease has commenced and shall terminate on the following dates:
Lease Commencement Date: May 1, 1995
Lease Termination Date: April 30, 1998
4. ACCEPTANCE OF PREMISES
Except with respect to those items listed on the punch list, if any, timely
submitted by Tenant to Landlord pursuant to the terms of the Lease, Tenant
accepts the Premises in the condition existing as of the Lease Commencement Date
and acknowledges and agrees that all work required to be performed by Landlord
pursuant to the Lease has been completed by Landlord in full compliance with the
Lease and to the satisfaction of Tenant.
5. MISCELLANEOUS
Except to the extent this Lease has been modified by this First Amendment,
the remaining terms and conditions of the Lease shall remain unmodified and in
full force and effect.
The defined terms used in this First Amendment, as indicated by the first
letter of a word being capitalized, shall have the same meaning in this First
Amendment as such terms and provisions in the Lease.
First Amendment to Lease
Page 1
<PAGE>
6. EXECUTION
This First Amendment shall be deemed effective as of the date first written
above.
"TENANT" "LANDLORD"
CLAREMONT TECHNOLOGY GROUP, AMBERJACK, LTD., an Arizona
- --------------------------- Corporation
INC., an Oregon Corporation
- ---------------------------
By: Birtcher Property Services
Its: Property Manager
By: /s/ Paul G. Mardesich By: /s/ Bruce R. Birkeland
---------------------- --------------------------
BRUCE R. BIRKELAND, CPM
Its: Vice President Its: CHIEF OPERATING OFFICER
---------------------- --------------------------
Date: May 4, 1995 Date: 5/22/95
---------------------- --------------------------
By: /s/ Lynda L. Bettini
--------------------------
LYNDA L. BETTINI, CPM
Its: DIRECTOR OF PROPERTIES
--------------------------
Date: May 22, 1995
--------------------------
First Amendment to Lease
Page 2
<PAGE>
Exhibit 10.10
LEASE
FOR
OREGON GRADUATE CENTER SCIENCE PARK
BY AND BETWEEN
BIRTCHER PROPERTIES, INC.
MANAGER FOR
AMBERJACK, LTD.
Landlord
and
(CLAREMONT CONSULTING GROUP, INC.)
Tenant
Lease Agreement - Claremont Consulting Group
<PAGE>
OREGON GRADUATE CENTER SCIENCE PARK
STANDARD LEASE FORM
TABLE OF CONTENTS
LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1 PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Grant of Premises. . . . . . . . . . . . . . . . . . . . . .1
1.2 Office Building. . . . . . . . . . . . . . . . . . . . . . .1
1.3 Rentable Area. . . . . . . . . . . . . . . . . . . . . . . .1
1.4 Acceptance of Premises . . . . . . . . . . . . . . . . . . .1
SECTION 2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 Basic Term . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Early Possession . . . . . . . . . . . . . . . . . . . . . .2
SECTION 3 USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.1 Permitted Use. . . . . . . . . . . . . . . . . . . . . . . .2
3.2 Compliance With Laws . . . . . . . . . . . . . . . . . . . .2
3.3 Insurance Cancellation . . . . . . . . . . . . . . . . . . .3
3.4 Landlord's Rules and Regulations . . . . . . . . . . . . . .3
3.5 Hazardous Substances . . . . . . . . . . . . . . . . . . . .3
SECTION 4 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.2 Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . .4
4.3 Security Deposit . . . . . . . . . . . . . . . . . . . . . .4
4.4 Additional Rent. . . . . . . . . . . . . . . . . . . . . . .4
4.5 Definition of Operating Expenses . . . . . . . . . . . . . .4
SECTION 5 REPAIRS AND MAINTENANCE... . . . . . . . . . . . . . . . . .7
5.1 Landlord's Responsibilities. . . . . . . . . . . . . . . . .7
5.2 Tenant's Responsibilities . . . . . . . . . . . . . . . . .7
5.3 Reimbursement for Repairs Assumed. . . . . . . . . . . . . .7
5.4 Duty to Make Repairs . . . . . . . . . . . . . . . . . . . .8
SECTION 6 UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 7 TAXES AND ASSESSMENTS. . . . . . . . . . . . . . . . . . . .8
7.1 Payment of Proportionate Share . . . . . . . . . . . . . . .8
7.2 Taxes on Rent. . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 8 ALTERATIONS AND ADDITIONS. . . . . . . . . . . . . . . . . .8
8.1 Landlord's Consent Required. . . . . . . . . . . . . . . . .8
8.2 Surrender at End of Term . . . . . . . . . . . . . . . . . .9
8.3 Payment for Work . . . . . . . . . . . . . . . . . . . . . .9
SECTION 9 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . .9
9.1 Liability, Property Damage and Worker's Compensation . . . .9
9.2 Property Insurance . . . . . . . . . . . . . . . . . . . . .9
9.3 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . .9
SECTION 10 DAMAGE AND DESTRUCTION.... . . . . . . . . . . . . . . . . .10
10.1 Partial Damage . . . . . . . . . . . . . . . . . . . . . . .10
10.2 Destruction. . . . . . . . . . . . . . . . . . . . . . . . .10
10.3 Rent Abatement . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 11 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . .10
11.1 Partial Taking . . . . . . . . . . . . . . . . . . . . . . .10
11.2 Total Taking . . . . . . . . . . . . . . . . . . . . . . . .11
11.3 Sale in Lieu of Condemnation.... . . . . . . . . . . . . . .11
SECTION 12 LIENS AND INDEMNIFICATION. . . . . . . . . . . . . . . . . .11
12.1 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . .11
SECTION 13 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . .11
SECTION 14 ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . .11
14.1 Landlord's Consent Required. . . . . . . . . . . . . . . . .11
14.2 No Release of Tenant . . . . . . . . . . . . . . . . . . . .11
14.3 Right to Terminate . . . . . . . . . . . . . . . . . . . . .12
14.4 Documentation. . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 15 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . .12
15.1 Default in Rent. . . . . . . . . . . . . . . . . . . . . . .12
15.2 Violation of Section 14. . . . . . . . . . . . . . . . . . .12
15.3 Default in Other Covenants . . . . . . . . . . . . . . . . .12
15.4 Bankruptcy, etc . . . . . . . . . . . . . . . . . . . . . .12
15.5 Abandonment. . . . . . . . . . . . . . . . . . . . . . . . .13
1
LEASE AGREEMENT - CLAREMONT CONSULTING GROUP
<PAGE>
SECTION 16 REMEDIES ON DEFAULT. . . . . . . . . . . . . . . . . . . . .13
16.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . .13
16.2 Reletting. . . . . . . . . . . . . . . . . . . . . . . . . .13
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . .13
16.4 Right to Sue More Than Once. . . . . . . . . . . . . . . . .13
16.5 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . .13
SECTION 17 DEFAULT BY LANDLORD. . . . . . . . . . . . . . . . . . . . .14
SECTION 18 SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 19 PAYMENT AND PERFORMANCE BOND . . . . . . . . . . . . . . . .14
SECTION 20 SIGNS AND DIRECTORIES. . . . . . . . . . . . . . . . . . . .14
20.1 Tenant's Signs . . . . . . . . . . . . . . . . . . . . . . .14
20.2 Directories. . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 21 SURRENDER AT TERMINATION . . . . . . . . . . . . . . . . . .15
21.1 Condition of Premises. . . . . . . . . . . . . . . . . . . .15
21.2 Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . .15
21.3 Holdover . . . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 22 NO BROKER. . . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 23 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . .16
23.1 Memorandum of Lease. . . . . . . . . . . . . . . . . . . . .16
23.2 Estoppel Certificate . . . . . . . . . . . . . . . . . . . .16
23.3 Landlord's Interests . . . . . . . . . . . . . . . . . . . .16
23.4 Severability . . . . . . . . . . . . . . . . . . . . . . . .17
23.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . .17
23.6 Incorporation of Prior Agreements: Amendments. . . . . . . .17
23.7 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . .17
23.8 Covenants and Conditions . . . . . . . . . . . . . . . . . .17
23.9 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .17
23.10 Tenant Liability . . . . . . . . . . . . . . . . . . . . . .17
23.11 Attorney Fees. . . . . . . . . . . . . . . . . . . . . . . .17
23.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .17
23.13 Succession . . . . . . . . . . . . . . . . . . . . . . . . .18
23.14 Landlord's Right to Cure Defaults. . . . . . . . . . . . . .18
23.15 Entry for Inspection . . . . . . . . . . . . . . . . . . . .18
23.16 Interest on Rent and Other Charges of Expenditures . . . . .18
23.17 Proration of Rent. . . . . . . . . . . . . . . . . . . . . .18
23.18 Amendments to Statutes, etc. . . . . . . . . . . . . . . . .18
23.19 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .18
EXHIBITS:
Exhibit A Legal Description. . . . . . . . . . . . . . . . . . . . . .19
Exhibit B Floor Plan . . . . . . . . . . . . . . . . . . . . . . . . .20
Exhibit C Tenant Improvements. . . . . . . . . . . . . . . . . . . . .21
Exhibit D Estoppel Certificate . . . . . . . . . . . . . . . . . . . .23
Exhibit E Certificate of Corporation Resolution. . . . . . . . . . . .26
Exhibit F Building Standard Signage. . . . . . . . . . . . . . . . . .27
Exhibit G Rules and Regulations. . . . . . . . . . . . . . . . . . . .28
Exhibit H Interim Space Agreement. . . . . . . . . . . . . . . . . . .31
Exhibit I Right of First Offer to Lease Additional Space . . . . . . .32
ii
Lease Agreement Claremont Consulting Group
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LEASE
THIS LEASE is made and entered into the 27th day of November, 1991, by
and between BIRTCHER PROPERTIES, a California corporation, as Manager for
AMBERJACK, LTD., an Arizona corporation ("hereinafter referred to as
"Landlord") and CLAREMONT CONSULTING GROUP, INC., an Oregon Corporation
(hereinafter referred to as "Tenant").
FOR AND IN CONSIDERATION of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Tenant, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the Premises herein
described for the term, at the rental and subject to and upon all of the terms,
covenants and agreements hereinafter set forth.
SECTION 1. PREMISES.
1.1 GRANT OF PREMISES. Landlord hereby leases to Tenant and Tenant
leases from Landlord those certain Premises consisting of approximately 3,976
rentable square feet situated in the County of Washington, City of Hillsboro,
State of Oregon, commonly known as Suite 210, 1600 NW Compton Drive, Beaverton,
Oregon (hereinafter referred to as the "Leased Premises" or "Premises") and
situated upon the real property described as set forth in Exhibit A.
1.2 OFFICE BUILDING. The Leased Premises, together with and including
other property owned by Landlord, comprise a multi-story office building
(hereinafter referred to as the "Building"). A general floor plan, showing the
size and location of the Leased Premises within the Building, is attached
hereto as Exhibit B. Tenant's use and occupancy of the Leased Premises shall
include the use, in common with others, of the Common Areas as hereinafter
defined, but excepting therefrom and reserving unto Landlord the exterior faces
of all exterior walls, the roof and the right to install, use and maintain where
necessary in the Leased Premises all pipes, ductwork, conduits and utility lines
through hung ceiling space, partitions, beneath the floor or through other parts
of the Leased Premises. Landlord reserves the right to effect such other above-
referenced tenancies in the building as Landlord may elect in its sole business
judgment.
1.3 RENTABLE AREA. With respect to each floor of the Building, the
"Rentable Area" of a floor shall mean the sum of all space on the floor which
is or may be occupied by tenants for purposes stated in each tenants lease and
those areas of the floor which are necessary to and specifically benefit
tenant(s) of that floor, including restrooms, corridors, lobbies, telephone
closets, mechanical rooms, electrical rooms, janitorial closets, flues, stacks,
pipe shafts and vertical ducts with their enclosing walls.
1.4 ACCEPTANCE OF PREMISES. Landlord will construct Tenant Improvements
in the Premises in accordance with the approved space plan as set forth in
Exhibit C. Tenant hereby accepts the Premises as is in their condition existing
as of the Commencement Date and subject to all applicable recorded covenants,
conditions and restrictions and all applicable zoning, municipal, county, state
and federal laws, ordinances and regulations governing and regulating the use of
the Premises. Landlord agrees that on the Commencement Date the water, sewage,
gas, electrical, mechanical, heating, ventilating and air conditioning systems
of the Premises will be in good operating condition. Landlord has not made and
does not make any representations as to the suitability of the Premises for the
conduct of Tenant's business.
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SECTION 2. TERM.
2.1 BASIC TERM. The term of this Lease shall be for a period of
four (4 years, no (0) months (the "Lease Term") commencing on March 1, 1992
(the "Commencement Date"), and terminating on February 29, 1996 (the
"Termination Date"), provided, however, if the Premises are not "Ready for
Occupancy" as hereinafter defined, on the date the term hereof was to commence,
the commencement date and termination date of the Lease shall be adjusted
accordingly based. on the date the Premises are Ready for Occupancy. The
deferral of Tenant's rental obligation with respect to the Premises shall be in
full satisfaction of any and all rights which Tenant might otherwise have as a
result of the delayed commencement date of the Lease Term hereof. "Ready for
Occupancy" as used herein shall mean the date that Landlord shall have
substantially completed the work to be performed by Landlord as set forth in
Exhibit C. The certificate of the architect (or other representative of
Landlord) in charge of supervision and completion of the Premises or a
certificate or other approval evidencing completion of improvements, as
required, shall control conclusively the date upon which the Premises are Ready
for Occupancy and Tenant's obligation to pay rent begins. If the commencement
of the Lease Term is delayed as aforesaid and the commencement date would
otherwise occur on other than the first day of the month, such commencement date
shall be further delayed until the first day of the following month and Tenant
shall pay proportionate rent at the same monthly rate set forth herein (also in
advance) for such partial month. In the event the commencement date is
delayed, the expiration of the term hereof shall also be delayed so that, the
Lease Term will continue for the full period set forth above. As soon as the
Lease Term commences, Landlord and Tenant shall execute an agreement to this
Lease, which may be required by either party, setting forth the exact date on
which the Lease Term commenced and the expiration date of the Lease Term. This
Lease shall not be terminable by Tenant, and Tenant shall in no event be
entitled to an abatement or reduction of rent except as expressly set forth in
Section 10.3 or Section 11.1. Additionally, Landlord shall not be liable to
Tenant for damages in the event Landlord cannot deliver the Premises on the
inception of the Lease Term.
2.2 EARLY POSSESSION. If, prior to commencement of the Lease Term, Tenant
uses or occupies the Leased Premises or any part thereof with Landlord's prior
written consent, for the purpose of completing alterations to the Leased
Premises, Tenant agrees to observe and perform all the provisions of this Lease,
except those which require payment of Rent; provided, however, if Tenant
commences business in any part of the Leased Premises prior to commencement of
the Lease Term, Tenant shall pay Landlord an Occupation Rent for each day prior
to commencement of the term, calculated on the basis of the per diem rental and
all other sums which would be due to Landlord from Tenant if the term had then
commenced, including its percentage share of annual Common Area Expenses.
SECTION 3. USE.
3.1 PERMITTED USE. Tenant shall use the Leased Premises solely for
office and engineering and shall not permit the Leased Premises to be used for
any other purpose.
3.2 COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and expense,
promptly comply with all applicable laws, ordinances, rules, regulations, orders
and requirements in effect during the Lease Term, or any part of or extension
thereof, regulating the use of occupancy of the Leased Premises, including the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant will not use or permit the use of the Leased
Premises in any manner which may tend to create waste or a nuisance, nor which
may tend to obstruct or interfere with the rights of other tenants of the
Building or injure or annoy them.
Lease Agreement Claremont Consulting Group 2
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3.3 INSURANCE CANCELLATION. Tenant shall not do or permit anything to be
done on or about the Leased Premises which may, in any way, cause cancellation
or increase the existing rate of any insurance policy covering the Building or
any of its contents or cause cancellation of any such insurance policy. If any
such action shall increase the rate of any such policy, Tenant shall pay such
increase, as Additional Rent.
3.4 LANDLORD'S RULES AND REGULATIONS. Tenant shall observe and comply
with the Building rules and regulations which are in effect on the date thereof
(a copy of which is attached hereto as Exhibit G) and such reasonable
amendments and additions thereto as Landlord may, from time to time, promulgate.
Landlord shall not be responsible for the non-performance of said rules and
regulations of any other tenants of the Building.
3.5 HAZARDOUS SUBSTANCES. Without limiting the generality of the
obligations of Tenant pursuant to Section 3.1 through 3.4 above, Tenant, at its
sole cost and expense, shall comply with all present and future applicable
local, state and federal environmental laws, regulations, ordinances and
administrative and judicial orders relating to any substance or material on the
Premises defined or designated as hazardous or toxic, or other similar term, by
any present or future local, state or federal environmental statute, regulation
or ordinance.
Upon the request of Landlord, Tenant agrees to deliver to Landlord, from time to
time, a narrative explaining the nature and scope of Tenant's activities
involving such hazardous or toxic material and evidence satisfactory to Landlord
of compliance with all governmental standards. In addition, Tenant shall notify
Landlord within five (5) days of any spills, releases, or discharges of such
hazardous or toxic substances that occur with respect to the Premises and of any
regulatory inquiries and non-routine inspections, and all investigations and
potential investigations known to Tenant regarding any aspect of the premises as
it relates to such hazardous or toxic substances. Tenant shall not install,
bring into operation, operate or decommission an underground storage tank as
defined and regulated under 42 USC 6991, et seq., or ORS 466.705 et seq. in the
real property described in Exhibit "B" or the Project. In addition, Tenant
shall not manufacture, use, process, distribute, store or dispose on, above or
beneath the premises, the Building, the real property described in Exhibit "B"
or the OGC Science Park any compounds commonly known as polycholorinated
biphenyls, including without limitation, any chlorinated biphenyls,
polycholorinated biphenyls, terphenyls, higher polyphenyls or mixture of these
compounds or similar compounds or mixtures which have been determined or are
determined in the future to present a danger to public health or which are, or
become, controlled by regulation of any public authority regardless of whether
they are contained in a "totally enclosed" manner as defined in the Toxic
Substances Control Act, 15 USC 2601, et seq., or the regulations promulgated
thereunder, and any amendments to the Act or regulations (all of which are
herein called "PCBs"). Tenant agrees to indemnify, defend and hold Landlord and
its officers, directors, partners and employees entirely harmless from and
against any and all liabilities, losses, demands, actions, expenses or claims,
including attorneys' fees and courts costs, incurred directly or indirectly in
connection with or arising from any failure of Tenant to perform its obligations
under this paragraph. This indemnification and Tenant's obligations to cause
the Premises to comply with such governmental standards shall survive the
termination of this Lease.
SECTION 4. RENT.
4.1 RENT. Tenant shall pay the Base Rent (as defined in 4.2), the
Additional Rent (as defined in 4.4) and Taxes (as defined in section 7) and any
other costs, expenses, etc. as required by this Lease in accordance with the
Terms of this Lease.
Lease Agreement - Claremont Consulting Group 3
<PAGE>
4.2 BASE RENT. Without any prior notice, demand, offset or deduction,
Tenant shall pay Landlord as rent ("Base Rent") an amount per month calculated
by multiplying the number of rentable square feet of the Premises times the
monthly Base Rent per rentable square foot determined from the following:
Monthly Base Rent Total Monthly Base
Per Rentable Rent Assuming Rentable
Months During Term Square Foot Square Feet
__________________ _________________ _______________________
1-12 $0.71 $2,822.96
13-24 $0.74 $2,942.24
25-36 $0.77 $3,061.52
37-48 $0.80 $3,180.80
Rent shall be payable without offset on or before the first day of each
calendar month in advance at the Landlord's address set forth above or such
other place as may be designated by Landlord from time to time, except that
Base Rent of $ 1,179.90 * for the 1st month has been paid upon execution of
this Lease. In addition, A security deposit has been given as set forth in
Section 4.3.
4.3 SECURITY DEPOSIT: To secure Tenant's compliance with all of the terms
and provisions of this Lease, upon execution of this Lease Tenant has paid
Landlord the sum of $ 3,180.80 as a security deposit. The deposit shall be a
debt from Landlord to Tenant, refundable within thirty (30) days following
expiration of the Term or other termination of this Lease not caused by
Tenant's default. Landlord shall have the right to offset against the deposit
any sums owing from Tenant to Landlord not paid when due, any damages caused by
Tenant's default, the cost of curing any default by Tenant should Landlord elect
to do so, and the cost of performing any repair or cleanup that is Tenant's
responsibility under this Lease. Offset against the deposit shall not be an
exclusive remedy, but may be made by Landlord in its sole and unlimited
discretion, in addition to and not exclusive of any right or remedy provided by
law of this Lease. Landlord shall give notice to Tenant each time an offset was
claimed against the deposit, and, unless the Lease was terminated, Tenant shall
within ten (10) calendar days following any such notice deposit with Landlord a
sum equal to the amount of the offset so that the total deposit amount, net of
offset, shall remain constant throughout the Term. Landlord shall not be
required to segregate any security deposit made by Tenant, but may commingle any
security deposit with Landlord's other funds and accounts. Landlord shall not
be required to pay interest to Tenant on any security deposit while in
Landlord's possession and control.
4.4 ADDITIONAL RENT. This Lease was a net lease. All Tenant Charges (as
defined in Section 4.5) and other costs, charges and expenses which Tenant was
required to pay as Additional Rent by this Lease, arising out of or in
connection with this Lease or the ownership or operation of the Premises except
to the extent this Lease explicitly places responsibility for any such cost,
charge or expense on Landlord, shall be Additional Rent.
4.5 DEFINITION OF OPERATING EXPENSES. Operating Expenses are intended to
be inclusive of all costs incurred in operating and maintaining the Building and
all Science Park Common Areas incurred by Landlord on account of operating and
maintenance of the Building and Science Park Common Areas and the real property
on which it was situated, except franchise, states, inheritance, net income and
excess profits taxes of Landlord, depreciation on the Building, interest on and
capital retirement of Landlord's mortgage loans and costs chargeable by Landlord
directly to specific Tenants. Landlord agrees to make reasonable efforts to
minimize operating costs insofar as such efforts are not
* second month rent for interim space (refer to Exhibit "H")
LEASE Agreement Claremont Consulting Group 4
<PAGE>
inconsistent with Landlord's intent to operating and maintaining the Building
and Common Area in the Science Park in a first-class Manner. Operating expenses
may include, but shall not be limited to:
4.5.1 All taxes, assessments, purchases, water and sewer rents, and other
governmental impositions and charges whatsoever which may create a statutory
lien upon the Leased Premises, the Building or Science Park Common Area, which
are assessed, levied or imposed during the term of this Lease, surcharges levied
upon or assessed against parking space or areas, and any tax, levy or license
fee measured by the rent payable to Tenant under this Lease which may be in
lieu of or in addition to current taxes (except Landlord's net income taxes) or
any obligation to any governmental entity assessed upon Landlord as a result of
its ownership or operation and all reasonable costs and expenses incurred by
Landlord in contesting or negotiating the same with governmental authority if
Landlord, in its reasonable discretion, elects to contest or negotiate the same.
4.5.2 All costs and expenses to Landlord in maintaining fire and extended
coverage insurance, property damage, liability and rent loss insurance,
difference in conditions and any other insurance maintained by Landlord covering
the use and operation of the Building and Science Park Common Areas, including
loss of rent endorsements, the part of any claim required to be paid under the
deductible portion of any insurance policies carried by Landlord in connection
with the Building (all such insurance shall be in such amounts as Landlord may
reasonably determine).
4.5.3 All costs and expenses of repairing, operating and maintaining the
heating, ventilating and air conditioning systems for the Building, including
maintenance contracts therefor and the cost of all utilities required in the
operating of all such systems, except those required to be paid directly by a
tenant of the Building.
4.5.4 All costs and expense to Landlord in providing standard services
and utilities to tenants of the Building, including common area janitorial
services, window washing and utilities not separately metered; together with the
costs of replacement of electric light bulbs and florescent tubes and ballasts,
which Landlord shall have the exclusive right to provide and install at Tenant's
sole cost and expense.
4.5.5 Costs incurred by accountants and experts or other consultants to
assist the accountants in making the computations required hereunder.
4.5.6 All costs and expenses incurred by Landlord in operating,
managing, maintaining and repairing the Building and Science Park Common
Areas, including all sums expended in connection with the Common Areas for
general maintenance and repairs, resurfacing, painting, restriping, cleaning,
sweeping and janitorial services, window washing, maintenance and repair of
elevators, stairways, sidewalks, curbs and Building signs, sprinkler systems,
planting and landscaping, lighting and other utilities; maintenance and
repair of any fire protection systems, automatic sprinkler systems, lighting
systems, storm drainage systems and any other utility systems; cost of all
supplies and personnel to implement such services and to police the Building
and Science Park Common Areas; rental and/or depreciation of machinery and
equipment used in such maintenance and services; security and fire protection
services; trash removal services; all costs and expenses pertaining to snow
and ice removal, security systems, utilities, premiums and other costs for
worker's compensation insurance, wages, withholding taxes, social security
taxes, personal property taxes, fees for required licenses and permits,
supplies and charges for management of the Building and Science Park Common
Areas and an overhead cost equal to five (5%) percent of the total Operating
Costs. Costs and expenses incurred by Landlord in operating, managing and
maintaining the Building and Science Park Common
Lease Agreement - Claremont consulting Group 5
<PAGE>
Areas which are incurred exclusively for the benefit of specific tenants of the
Building will be billed accordingly and will not be included within the
Operating Expenses. Landlord, however, may cause any or all of said services to
be provided by an independent contractor(s).
4.5.7 Cost of capital improvements, structural repairs or replacements
made to the Building in order to conform to changes subsequent to the date of
this Lease in any applicable laws, ordinances, rules, regulations, or orders of
any governmental or quasi-governmental authority having jurisdiction over the
Building or Science Park Common Area or any such capital improvements,
structural repairs or replacements designed primarily to reduce Operating
Expenses. Expenditures for the foregoing shall be amortized at market rate of
return over the useful life of such capital improvement or structural repair or
replacement as determined by Landlord's accountants; provided that the amortized
amount of any cost-saving improvement shall be limited in any year to the
reduction in Operating Expenses realized as a result thereof.
4.5.8 COLLECTION OF ACTUAL TENANT CHARGES. Unless Landlord exercises the
option contained in Section 4.5.9 below for a particular calendar year, Tenant
shall pay actual Tenant Charges for each month of such calendar year immediately
upon receipt of invoice from Landlord for such monthly Tenant Charges.
4.5.9 COLLECTION OF TENANT CHARGES BASED ON ESTIMATES. For each calendar
year of the Lease Term, Landlord shall reasonably estimate the total Operating
Expenses for the following calendar year. In the event the Building
occupancy was not one hundred percent (100%), at landlord's option, said
Operating Expenses shall be adjusted to equal what the total Operating Expenses
would be if the occupancy was one hundred percent (100%). For each year of the
Lease Term, Tenant shall pay to Landlord in advance on or before the first day
of each month, without demand or notice, one-twelfth (1/12th) of Tenant's share
of the estimated annual Operating Expenses. If the term of this Lease commences
on a day other than the first day of a calendar month, Tenant shall pay to
Landlord on the first day of the term, a sum determined by multiplying one
three-hundred sixty-fifth (1/365th) of the Tenant's share of the estimated
Operating Expenses by the number of days remaining in the first calendar month
of the term. Any change in the Tenant's percentage share resulting from changes
in any particular floor area during the term shall be effective as of the first
day of the month following the change.
4.5.10 REESTIMATIONS. At any time from time to time during the term
hereof, Landlord may furnish Tenant with written notice of a reestimation of
the annual Operating Expenses to reflect more accurately, in Landlord's sole
opinion, the current Operating Expenses. Commencing with the first day of the
calendar quarter next succeeding delivery of such notice to Tenant, and
continuing on the first day of each calendar month during the term (until
subsequently reestimated) Tenant shall pay to Landlord one-twelfth (1/12th) of
the Tenant's share of the estimated Operating Expenses, as reestimated.
4.5.11 ANNUAL ADJUSTMENTS. Within a reasonable time following the
end of each calendar year during the Term of this Lease, Landlord shall
furnish to Tenant an itemized statement certified as correct by Landlord,
setting forth the total Operating Expenses for the preceding calendar year, the
amount of Tenant's share of such Operating Expenses and the payments made by
Tenant with respect to such calendar year. If Tenant's share of the actual
Operating Expenses for such year exceeds the payment so made by Tenant, based on
the Landlord's estimate, Tenant shall pay Landlord the deficiency within thirty
(30) days after receipt of said statement. If said payments by Tenant, based on
Landlord's estimate, exceed Tenant's share of the actual Operating Expenses,
Landlord will credit the amount of such overpayment against Tenant's
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<PAGE>
next Operating Expense payment due. Until Tenant receives a statement setting
forth the new amounts of Tenant's estimated share of Operating Expenses for the
new calendar year, Tenant shall continue to pay at the rate being paid for the
year just completed, but Tenant shall commence payment to Landlord of its new
estimated share of Operating Expenses on the basis of said statement beginning
on the first day of the month following the month in which said statement was
received.
4.5.12 RECORDS. Landlord agrees to maintain accurate records of the cost
of items with respect to which Tenant was required to pay as Additional Rent and
to make these records available for inspection by Tenant or its representatives
at any time during regular business hours after reasonable notice from Tenant.
SECTION 5. REPAIRS AND MAINTENANCE.
5.1 LANDLORD'S RESPONSIBILITIES. The following shall be the
responsibility of the Landlord:
(a) Repairs, maintenance and replacement of the roof and gutters, exterior
walls (including painting); bearing walls, structural members and foundations of
the Building.
(b) Repairs and maintenance of, and removal of snow and ice from
sidewalks, driveways, curbs, parking areas and areas used in common by Tenant
and Landlord or tenants of other parts of the Building.
(c) Repairs and maintenance of water, sewage, gas, electrical
and mechanical systems.
(d) Repairs and maintenance of heating, ventilating and air conditioning
(HVAC) systems which service the Premises as well as other parts of the
Building.
(e) Maintenance of landscaping for the land described on Exhibit A.
(f) Provisions of janitorial service for Building Common Areas.
Although performance of the foregoing was the responsibility of Landlord, the
cost of all of the foregoing shall be a Tenant Charge shared on proportionate
basis by Tenant as set forth in Section 4. Except as set forth in Section 5.1,
Landlord shall not otherwise be required to repair or maintain the Premises or
perform-any other duties with respect to the Premises.
5.2 TENANT'S RESPONSIBILITIES. The following shall be the responsibility
of Tenant:
(a) Repair and maintenance of the interior of the Premises, including
without limitation keeping the interior of the Premises in a clean and sanitary
condition free of debris; janitorial service for the Premises which will be
arranged for by Tenant with Landlords approval, which will not be unreasonably
withheld; repair and maintenance of all plumbing within the Premises and repair
of any damage resulting from water leaks; and replacement of all glass in
windows or doors of the Premises which become cracked or broken.
(b) Any repair necessitated by the wrongful act, negligence or breach of
or default under this Lease of or by Tenant, its agents, employees or invitees.
(c) Any repairs or alterations required in order for Tenant to comply with
Rules and Regulations as set forth in Exhibit G.
(d) All repairs to and maintenance of the Premises other than repairs and
maintenance required in Section 5.
5.3 REIMBURSEMENT FOR REPAIRS ASSUMED. If Tenant fails or refuses to
make repairs which are required to be made by Tenant by this Section 5, Landlord
will provided Tenant with a written notice stating repairs to be made. Tenant
shall have ten (10) calendar days in which to complete said repairs. In the
event Tenant again fails to complete
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repairs following receipt of Notice, Landlord may make the repairs and charge
the costs of such repairs to Tenant. Such expenditures by Landlord shall be
reimbursed by Tenant on demand together with interest as set forth in Section
23.16 from the date of expenditure by Landlord until repayment in full.
5.4 DUTY TO MAKE REPAIRS. The duty of the Landlord to make repairs
shall not mature until a reasonable time after Landlord has received notice in
writing from Tenant of the repairs that are required.
SECTION 6. UTILITIES. Tenant shall pay all utility charges with respect
to the Premises, including but not limited to water, sewer, gas, electricity
(including utilities servicing all central HVAC systems servicing the Premises),
telephone, and garbage removal ("Utilities"). Electricity, except to Common
Areas and central HVAC systems, shall be separately metered. If the Utilities
are not separately metered and Landlord is billed directly and pays for any of
these charges, Tenant shall pay its proportionate share of such charges as set
forth in Section 4.4.
SECTION 7. TAXES AND ASSESSMENTS.
7.1 PAYMENT OF PROPORTIONATE SHARE. Tenant shall be liable for payment
of its proportionate share of all current assessments, taxes, fees, levies and
other similar charges (all of the foregoing herein called "Taxes") imposed by
any governmental jurisdiction against the Premises, the Building or the land
described on Exhibit A, either directly or indirectly.
Tenant's proportionate share shall be as set forth in Section 4.4.9. Tenant's
proportionate share of any Taxes shall be based only on that portion of the
Taxes which was allocable to the Premises during the Term. For these purposes,
an assessment related to a local improvement district shall be deemed to have
a useful life of ten (10) years and Tenant's proportionate share shall be equal
to a fraction the numerator of which was the remainder of the Term and the
denominator of which is ten (10) years. Tenant shall pay all taxes levied on
or with respect to personal property located on the Premises.
7.2 TAXES ON RENT. If, at any time during the Term of this Lease
under the laws of the United States Government, the State of Oregon, or any
political subdivision thereof in which the Premises are located, a tax or excise
on rent, or any other tax however described, was levied or assessed by any such
political body against Landlord on account of rent payable to Landlord
hereunder, such tax or excise shall be considered for the purpose of this Lease
a real property tax payable by Tenant. If real estate taxes are withdrawn in
whole or in part and any substitute tax is made therefor, such tax shall in any
event for the purpose of this Lease be considered a real property tax, a
proportionate share of which shall be paid by Tenant, regardless of the source
from which it is collected. Nothing in this Section 7 is intended to require
Tenant to pay any income, franchise, or excess profits tax of Landlord.
SECTION 8. ALTERATIONS AND ADDITIONS.
8.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not make any alterations
or additions to the Leased Premises without first procuring Landlord's written
consent, which shall not be unreasonably withheld. Only after obtaining such
consent, Tenant shall cause the work to be done promptly and in a good and
workmanlike manner and in accordance with the plans and specifications submitted
to Landlord and such rules and regulations as may be established by Landlord.
Landlord's' consent notwithstanding, all work shall be performed in accordance
with applicable building codes and governmental regulations. All work done and
material supplied shall be done or supplied only by contractors
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approved by Landlord, and Landlord shall have the right to grant such approval
conditionally or to withdraw the same at any time.
8.2 SURRENDER AT END OF TERM. Any alterations, additions and
improvements made by Tenant on the Leased Premises, except Tenant's trade
fixtures, shall at once, when made, become the property of Landlord and remain
upon and be surrendered with the Leased Premises at the expiration of the Lease
Term, unless Landlord directs Tenant to remove the same within fifteen (15) days
after the expiration of the Lease Term. In no event shall Tenant alter the
exterior of the Leased Premises or make any change or alteration which would
impair the structural soundness of the Building.
8.3 PAYMENT FOR WORK. All costs of any such work shall be paid promptly
by Tenant so as to avoid the assertion of any mechanic's lien filed against the
Leased Premises or the Building within thirty (30) days after the receipt of
notice thereof, and shall promptly inform Landlord of any such notice. If the
lien was not discharged within said thirty (30) day period, Landlord shall have
the right, but not the obligation, to discharge said lien by payment, bonding or
otherwise, and the costs and expense to Landlord of obtaining such discharge
shall be paid to Landlord by Tenant on demand as Additional Rent. Landlord
shall have the right at any time and from time to time to post and maintain on
the Leased Premises such notices as Landlord deems necessary to protect the
Leased Premises from mechanics liens.
SECTION 9. INSURANCE.
9.1 LIABILITY, PROPERTY DAMAGE AND WORKER'S COMPENSATION. Tenant
shall, at all times during the Lease Term or any extension thereof, and at
its own cost and expense, procure and maintain in force worker's compensation
insurance, bodily injury liability and property damage liability insurance
adequate to protect Landlord and naming Landlord, any persons, firms or
corporation designated by Landlord, any mortgagee of the Building of whose
identity Tenant was notified, as additional insureds, against liability for
injury or death of any person in connection with the use, operation or
condition of the Lease Premises. Such property damage and bodily injury
liability insurance shall at all times be in a combined limit of not less
than $1,000,000.00 on an occurrence basis for bodily injury and property
damage. The limits of such insurance shall not limit the liability of Tenant.
9.2 PROPERTY INSURANCE. Landlord shall maintain fire and extended
coverage (including vandalism and malicious mischief) insurance on the
Building in the amount of the full insurable replacement cost of the Building.
Landlord shall have the right to place on the Building any other insurance as
Landlord shall deem necessary. Tenant shall bear the expense of any insurance
insuring the property of Tenant and Tenant Improvements on the Premises against
such risks. As additional rent for the Premises, Tenant shall reimburse
Landlord for Tenant's proportionate share of the cost of all insurance
maintained by Landlord with respect to the Building as set forth in Section
4.5.2.
9.3 WAIVER OF SUBROGATION. Tenant and Landlord each waives any and all
right of recovery against the other, or against the officers, partners,
employees, agents and representatives of the other, for loss of or damage to
such waiving party or its property or the property of others under its control,
if and to the extent that such loss or damage was insured against under any
insurance policy in force at the time of such loss or damage.
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SECTION 10. DAMAGE AND DESTRUCTION.
10.1 PARTIAL DAMAGE. If the Premises are partly damaged and Section
10.2 does not apply, the Premises shall be repaired by Landlord provided,
however, Landlord shall not be required to repair or restore any tenant
improvements or additions other than the Initial Tenant Improvements (as defined
in Exhibit C); and provided further, Landlord shall be required to make repairs
or restoration only to the extent it receives insurance proceeds from either
Landlord or Tenant's insurance company sufficient to pay the cost of such
repairs and restoration.
10.2 DESTRUCTION. If the Premises are destroyed or damaged such that
the cost of repair exceeds seventy-five percent (75%) of the value of the
Building before the damage as reasonably determined by Landlord, either party
may elect to terminate this Lease as of the date of the damage or destruction by
giving written notice to the other party not later than forty-five (45) calendar
days following the date of damage, provided however Tenant may not elect to
terminate if the damage or destruction was caused by the wrongful act or
negligence of Tenant or by the failure by Tenant to comply with any of the
provisions of this Lease. In the event the Lease is terminated, all rights and
obligations of the parties shall cease as of the date of termination, and Tenant
shall be entitled to the reimbursement of any prepaid amounts paid by Tenant and
attributable to the anticipated Term. If neither party elects to terminate,
Landlord shall proceed to restore the premises to substantially the same form as
prior to the damage or destruction provided, however, Landlord shall not be
required to repair or restore any tenant improvements or additions other
than the Initial Tenant Improvements (as defined in Exhibit C) ; and, provided
further, Landlord shall be required to make repairs or restoration only to the
extent it receives insurance proceeds sufficient to pay the cost of such repairs
or restoration.
10.3 RENT ABATEMENT. Rent shall be abated during the repair of any
damage to the pro-rated extent the Premises are untenantable, except that there
shall be no rent abatement where the damage occurred as the result of the
wrongful act, negligence or failure to comply with any provisions of this Lease
of or by Tenant.
SECTION 11. EMINENT DOMAIN.
11.1 PARTIAL TAKING. If a portion of the Premises is condemned and
Section 11.2 below does not apply, this Lease shall continue on the following
terms:
(a) Landlord shall be entitled to all of the proceeds of condemnation, and
Tenant shall have no claim against Landlord as a result of the condemnation.
(b) Landlord shall proceed as soon as reasonably possible to make such
repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation.
(c) After the date on which title vests in the condemning authority or an
earlier date on which alterations or repairs are commenced by Landlord to
restore the balance of the Premises in anticipation of taking, the rent shall be
reduced in proportion to the reduction in value of the Premises as an economic
unit on account of the partial taking. If the parties are unable to agree upon
the amount of the reduction of rent, the amount shall be determined by an
acceptable arbitrator on reference by either party. The determination of the
arbitrator shall be final and binding on the parties.
(d) If a portion of Landlord's property not included in the Premises is
taken and severance damages are awarded on account of the Premises, or an award
is made for detriment to the Premises as a result of activity by a public body
not involving a physical taking of any portion of the Premises, this shall be
regarded as a partial condemnation to which Section 11.1(a) and Section 11.1(c)
apply, and the rent shall be reduced to the extent of reduction in rental value
of the Premises as though a portion had been physically taken.
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11.2 TOTAL TAKING. If a condemning authority takes all of the Premises
or a portion sufficient to render the remaining Premises reasonably unsuitable
for the use which Tenant was then making of the Premises, this Lease shall
terminate as of the date the title vests in the condemning authorities.
Landlord shall be entitled to all of the proceeds of condemnation, and Tenant
shall have no claim against Landlord as a result of the condemnation.
11.3 SALE IN LIEU OF CONDEMNATION. Sale of all or part of the Premises
to a purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this Section 11 as a taking by condemnation.
SECTION 12. LIENS AND INDEMNIFICATION.
12.1 LIENS.
(a) Except with respect to activities for which Landlord is responsible,
Tenant shall pay when due all claims for work done on and for services rendered
or material furnished to the Premises and shall keep the Premises, the Building
and the land described on Exhibit A free from any liens. If Tenant fails to pay
any such claims or to discharge any lien, Landlord may do so and collect the
cost as additional rent. Any amount so added shall bear interest as set forth
in Section 23.16 from the date expended by Landlord until payment in full and
shall be payable on demand. Such action by Landlord shall not constitute a
waiver of any right or remedy which Landlord may have on account of Tenant's
default.
(b) Tenant may withhold payment of any claim in connection with a good
faith dispute over the obligation to pay so long as Landlord's property
interests are not jeopardized and the amount claimed is contested in good faith
by appropriate proceedings. If a lien is filed as a result of nonpayment,
Tenant shall, within ten (10) calendar days after Tenant learns of the filing,
secure the discharge of the lien or deposit with Landlord cash or sufficient
corporate surety bond or other surety satisfactory to Landlord in an amount
sufficient to discharge the lien, plus any costs, attorney fees, and other
charges that could accrue as a result of a foreclosure or sale under the lien.
12.2 INDEMNIFICATION. Tenant shall indemnify and hold harmless Landlord
from and against any claim, loss, or liability arising out of or related to any
activity of Tenant on the Premises or any condition of the Premises in the
possession or under the control of Tenant. Landlord shall have no liability to
Tenant for any loss or damage caused by third parties or by any condition of
the Premises.
SECTION 13. QUIET ENJOYMENT. Landlord will defend Tenant's right to quiet
enjoyment of the Premises from the lawful claims of all persons during the Term.
SECTION 14. ASSIGNMENT AND SUBLETTING.
14.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law or otherwise, assign, transfer, mortgage, sublet or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises without Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting by Tenant without such consent shall be void and shall
constitute a breach of an default under this Lease. Landlord shall not be
deemed unreasonably to have withheld consent if Landlord has sought but not
obtained any required consent of a lender to Landlord, a partner of Landlord, or
shareholder of Landlord.
14.2 NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of its obligations hereunder to
pay the rent and perform all other obligations to be
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performed by Tenant hereunder. The provisions of this Lease shall be binding
upon any assignee, transferee, mortgagee sublessee or holder of any encumbrance
on or with respect to this Lease. The acceptance of rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed consent to
any subsequent assignment or subletting.
14.3 RIGHT TO TERMINATE. Notwithstanding anything contained hereinabove
in this Section 14 to the contrary, in the event Tenant requests Landlord's
consent to sublet fifty percent (50%) or more of the Premises or to assign fifty
percent (50%) or more of its interest in this Lease, Landlord shall have the
right to: (1) consent to such subletting or assignment in its sole discretion;
(2) refuse to grant such consent in its sole discretion; or (3) refuse to grant
such consent and terminate this Lease as to the portion of the Premises with
respect to which such consent was requested; provided, however, that if Landlord
refuses to grant such consent and elects to terminate the Lease as to such
portion of the Premises, Tenant shall have the right to withdraw its request for
such consent within fifteen (15) days after Landlord's exercise of such right to
terminate and remain in possession of the Premises under the terms and
conditions hereof. In the event the Lease is terminated as set forth herein,
such termination shall be effective as of the date set forth in a written notice
from Landlord to Tenant, which date shall in no event be more than thirty (30)
days following such notice.
14.4 DOCUMENTATION. All documents utilized by Tenant is evidence any
subletting or assignment to which Landlord has consented shall be subject to
prior written approval by Landlord or its counsel. Tenant shall pay, as
Additional Rent, all Landlord's costs and expenses, including reasonable
attorneys' fees, incurred in determining whether or not to consent to any
requested subletting or assignment and in reviewing and approving such
documentation.
SECTION 15. DEFAULT. The following shall be defaults under and breaches of
this Lease:
15.1 DEFAULT IN RENT. Failure of Tenant to pay any Base Rent (as
defined 4.2), Additional Rent (as defined 4.4), Taxes (as defined Section 7) or
other charges within five (5) calendar days after it was due.
15.2 VIOLATION OF SECTION 14. Any attempted assignment, transfer,
mortgage, encumbrance or subletting in violation of Section 14.
15.3 DEFAULT IN OTHER COVENANTS. Failure of Tenant to comply with any
term or condition or fulfill any obligation of this Lease (other than the
payment of Rent or other charges and compliance with Section 14) within twenty
(20) calendar days after written notice by Landlord specifying the nature of the
default with reasonable particularity. If the default is of such a nature that
it cannot be completely remedied within the twenty (20) calendar day period,
this provision shall be complied with if Tenant begins correction of the default
within the twenty (20) calendar day period and thereafter proceeds with
reasonable diligence and in good faith to effect the remedy as soon as
practicable to prosecute the same to completion.
15.4 BANKRUPTCY, ETC. An assignment by Tenant for the benefit of
creditors; the filing by Tenant of a voluntary petition in bankruptcy; an
adjudication that Tenant is bankrupt or the appointment of a receiver of the
properties of Tenant; the filing of any involuntary petition of bankruptcy and
failure of Tenant to secure a dismissal of the petition within thirty (30)
calendar days after filing; attachment of or the levying of execution on the
leasehold interest of Tenant in the Premises and failure of Tenant to secure
discharge of the attachment or release
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of the levy of execution within ten (10) days after the making thereof. If
Tenant consists of two or more individuals or business entities, the events of
default specified in this Section 15.4 shall apply to each individual and each
business entity.
15.5 ABANDONMENT. Failure of Tenant for thirty (3) calendar days or
more to occupy the Premises for one or more of the purposes permitted under this
Lease unless such failure was excused under other provisions of this Lease,
which failure constitute an abandonment of the Premises.
SECTION 16. REMEDIES ON DEFAULT.
16.1 TERMINATION. In the event of a default, this Lease may be
terminated at the option of Landlord by Landlord's giving written notice to
Tenant. If the Lease was not terminated by election of Landlord or otherwise,
Landlord shall be entitled to recover damages from Tenant for the default. If
the Lease was terminated, Tenant's liability to Landlord for damages shall
survive such termination, and Landlord may re-enter, take possession of the
Premises, and remove any persons or property by legal action or by self-help
with the use of reasonable force and without liability for damages to Tenant,
its property, any other persons, and/or their property.
16.2 RELETTING. Following reentry or abandonment, Landlord may relet
the Premises and in that connection may make any suitable alterations or
refurbish the Premises, or both, or change the character or use of the Premises,
but Landlord shall not be required to relet for any use or purpose other than
that specified in the Lease or which Landlord may reasonably consider
injurious to the Premises, or to any tenant which Landlord may reasonably
consider objectionable. Landlord may relet all or part of the Premises, alone
or in conjunction with other properties, for a term longer or shorter than the
term of this Lease, upon any reasonable terms and conditions, including the
granting of some rent-free occupancy or other rent concessions.
16.3 DAMAGES. In the event of termination on default, Landlord shall be
entitled to recover immediately, without waiting the due date of any future rent
or until the date fixed for expiration of the Term, the following amounts as
damages:
(a) The loss of reasonable rental value from the date of default until a
new tenant has been, or with the exercise of reasonable efforts could have been,
secured.
(b) The reasonable costs of reentry reletting including, without
limitation, the cost of any clean up, refurbishing, removal of Tenant's property
and fixtures, or any other expense occasioned by Tenant's failure to quit the
Premises upon termination and to leave them in the required condition, any
remodeling costs, attorney fees, court costs, broker commissions, and
advertising costs.
(c) Any excess of the value of the rent and all of Tenant's other
obligations under this Lease over the reasonable expected return from the
Premises for the period commencing on the earlier of the date of trial or the
date the Premises are relet and continuing through the end of the Term. The
present value of future amounts will be computed using a discount rate equal to
the prime commercial loan rate of United States National Bank of Oregon in
effect on the date of trial.
16.4 RIGHT TO SUE MORE THAN ONCE. Landlord may sue periodically to
recover damages during the period corresponding to the remainder of the Term,
and no action for damages shall bar a later action for damages subsequently
accruing.
16.5 REMEDIES CUMULATIVE. The foregoing remedies shall be in addition
to and shall not exclude any other remedy available to Landlord under this Lease
or applicable law.
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SECTION 17. DEFAULT OF LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within thirty (30)
calendar days after written notice by Tenant to Landlord specifying wherein
Landlord has failed to perform such obligations; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) calendar
days are required for performance, then Landlord shall not be in default if
Landlord commences performance within such thirty (30) calendar day period and
thereafter diligently prosecutes the same to completion.
SECTION 18. SUBORDINATION. This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust or any other
hypothecation for security now or hereafter placed upon the Premises, the
Building and/or the land described on Exhibit A, and to any and all advances
made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Tenant's right to quite possession of the Premises shall not be disturbed if
Tenant was not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease was otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease subordinate to the lien of this mortgage, deed of
trust or ground lease, and shall give written notice thereof to Tenant, this
Lease shall be deemed subordinate to such mortgage, deed of trust, or ground
lease, whether this Lease was dated prior or subsequent to the date of such
mortgage, deed of trust or ground lease on the date of recording thereof.
Tenant agrees to execute, acknowledge and deliver any documents reasonably
requested by Landlord including, but not limited to effectuate such
subordination or to make this Lease subordinate to the lien of any mortgage,
deed of trust or ground lease, as the case may be, and, failing to do so, within
fifteen (15) calendar days after written demand from Landlord, does hereby make,
constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in
Tenant's name and stead to do so.
If any proceedings are brought for foreclosure, or in the event of the
exercise of a power of sale under any mortgage or deed of trust made by Landlord
covering the Premises, Tenant shall attorn to the purchaser upon any such
foreclosure or sale, or to the Mortgagee or Trustee and shall recognize such
purchaser, Mortgagee or Trustee as Landlord under this Lease.
SECTION 19. PAYMENT AND PERFORMANCE BOND. At any time Tenant either desires
to or was required to make any repairs, alterations, additions, improvements or
utility installations pursuant to this Lease, the cost of which will exceed ten
thousand dollars ($10,000.00), Landlord may, at its sole option, require
Tenant, at Tenant's sole cost and expense, to obtain and provide to Landlord a
payment and performance bond wherein Landlord is named as obligee. Such bond
shall be in an amount equal to the total contract amount for the repairs,
alterations, improvements, or utility installations.
SECTION 20. SIGNS AND DIRECTORIES.
20.1 TENANTS SIGNS. Tenant shall not install or keep any signs on or
about the Premises without the prior written consent of Landlord, which Landlord
in its sole discretion may give or withhold. Tenant shall pay all costs of
signs and all costs and expenses of installation of signs. If there is any
sign on or about the Premises or Building without the consent of Landlord,
Landlord shall be free to remove any such signs and Tenant shall pay Landlord
the cost of removal together with interest as set forth in Section 23.16 from
date of expenditure until payment was made in full. Tenant shall pay promptly
after Landlord invoices Tenant for such costs. If Landlord consents to such
signs,
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Tenant shall repair any damage which alteration or renovation of its signs may
cause during or at the expiration of the Term. At the request of Landlord,
Tenant at its expense shall remove its signs from the Premises at the
termination of this Lease.
20.2 DIRECTORIES. After the Commencement Date of this Lease, Landlord
will provide Tenant with signage indicating Tenant's location in the OGC Science
Park and in the Building. The location of the Premises shall be designated
through a series of identification signs and directories placed at points deemed
appropriate throughout the OGC Science Park and in or near the Building. All
such identification signs and directories shall be designed and installed at the
sole discretion of Landlord. The external signage shall have substantially the
design set forth in Exhibit F. Tenant shall bear the expense of this inclusion
and maintenance of Tenant's name and location or such signs and such expense
shall be treated as a Tenant Charge as set forth in Section 23.16.
SECTION 21. SURRENDER AT TERMINATION.
21.1 CONDITION OF PREMISES. Upon expiration of the Term or earlier
termination on account of default, Tenant shall deliver all keys to Landlord and
surrender the premises in good condition, normal wear excepted, and with the
floors cleaned and waxed and carpets professionally cleaned. Alterations and
improvements constructed by Tenant with permission of Landlord shall not be
removed or restored to the original condition unless the terms of such approval
was so stated to allow for or requires such removal.
21.2 FIXTURES.
(a) All fixtures placed upon the Premises during the Term, other than
Tenant's trade fixtures, shall, at Landlord's option, become the property of
Landlord. If Landlord elects, Tenant shall remove any or all fixtures which
would otherwise remain the property of Landlord, and shall repair any physical
damage resulting from the removal. If Tenant fails to remove such fixtures,
Landlord may do so and charge the cost to Tenant with interest as set forth in
Section 23.16 from the date of expenditure until repayment in full.
(b) Prior to expiration or termination of the Term, Tenant shall remove
all furnishings, furniture, and trade fixtures which remain its property. If
Tenant fails to do so, the failure to do so shall be an abandonment of the
property, and Landlord may retain the property and all rights of Tenant with
respect to it shall cease or, by giving written notice to Tenant within twenty
(20) days after removal was required, Landlord may elect to hold Tenant to its
obligation of removal. If Landlord elects to require Tenant to remove, Landlord
may effect a removal and place the property in public storage for Tenant's
account and expense. Tenant shall be liable to Landlord for the cost of
removal, transportation to storage, and storage, with interest as set forth in
Section 23.16 on all such expenses from the date of expenditure by Landlord
until repayment in full.
21.3 HOLDOVER.
(a) If Tenant does not vacate the Premises at the time required, Landlord
shall have the option to treat Tenant as a tenant from month to month, subject
to all of the provisions of this Lease except the provisions for term and
renewal and at a rental rate equal to one hundred fifty percent (150%) of the
rent last paid by Tenant during the Term. Failure of Tenant to remove fixtures,
furniture, furnishings, or trade fixtures which Tenant is required to remove
under this Lease shall constitute a failure to vacate to which this Section
21.3(a) shall apply if the property not removed will substantially interfere
with occupancy of the Premises by another tenant or with occupancy by Landlord
for any purpose, including preparation for a new tenant.
(b) If a month to month tenancy results from a holdover by Tenant under
this Section 21.3. the tenancy shall be terminable at the
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end of any monthly rental period on written notice from landlord given at least
ten (10) calendar days prior to the termination date which shall be specified in
the notice. Tenant waives any notice which would otherwise be provided by law
with respect to a month to month tenancy.
SECTION 22. NO BROKER. Tenant represents, warrants and covenants that no
broker, except NORRIS & STEVENS, was instrumental in bringing about or
consummating this Lease and that Tenant had no conversations, negotiations or
agreements with any broker, except NORRIS & STEVENS, concerning the leasing of
the Premises. Tenant agrees to indemnify and hold harmless Landlord from and
against any claims for any brokerage commissions and all costs, expenses and
liabilities in connection therewith, including, without limitation, attorney
fees and expenses, arising out of any conversations, negotiations or agreements
of Tenant with any broker except NORRIS & STEVENS.
SECTION 23. MISCELLANEOUS.
23.1 MEMORANDUM OF LEASE. Tenant shall not record this Lease. If
requested by Landlord, simultaneously with execution and delivery hereof or at
any later time designated by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord a Memorandum of Lease suitable for recording. In its sole
and unlimited discretion, Landlord may record or not record such Memorandum of
Lease. Such Memorandum of Lease shall not be deemed to change or otherwise
affect any of the provisions of this Lease.
23.2 ESTOPPEL CERTIFICATE.
(a) Tenant shall at any time, upon at least ten (10) calendar days written
notice from Landlord, execute, acknowledge and deliver to Landlord a statement
in writing in form and substance satisfactory to Landlord (i) certifying that
this Lease was unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent, security deposit
and other charges are paid in advance, if any, and (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults, if any, which are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises. If requested by Landlord, such Certificate shall
be in the form attached hereto as Exhibit D. If requested by Landlord, Tenant
shall also furnish Landlord with a certificate of Tenant's secretary as to
corporate resolutions in the form attached hereto as Exhibit E.
(b) Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that (i) this Lease was in full force and effect, without
modification except as may be represented by Landlord, (ii) there are no uncured
defaults in Landlord's performance, and (iii) not more than two (2) months'
rent has been paid in advance.
(c) If Landlord desires to finance, refinance, sell or otherwise
transfer the Premises, the Building or the land described on Exhibit A, or
any part thereof, Tenant hereby agrees to deliver to Landlord, any lender,
buyer or other party participating in a transfer designated by Landlord such
financial statements of Tenant as may be reasonably required by Landlord or
such lender or other transferee. Such statements shall include the past
three (3) years' financial statements of Tenant. All such financial
statements shall be received by Landlord in confidence and shall be used only
for the purposes herein set forth, and shall be returned after review.
23.3 LANDLORD'S INTERESTS. "Landlord" as used herein shall mean only
the owner or owners at the time in question of the Landlord's interest in the
Premises. In the event of any transfer of title to the Premises, Landlord
herein named (and, in case of any subsequent transfers, the then grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Landlord's obligations thereafter to be performed, provided that any
funds in the hands of
Lease Agreement - Claremont Consulting Group 16
<PAGE>
23.13 SUCCESSION. This Lease shall be binding upon and inure to the
benefit of the parties, their respective permitted successors and assigns.
23.14 LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant fails to perform any
obligation or duty under this Lease, Landlord shall have the option to do so
after at least thirty (30) calendar days written notice to Tenant. All of
Landlord's expenditures to correct the default shall be reimbursed by Tenant on
demand with interest as set forth in Section 23.16 from the date of expenditure
by Landlord until payment in full.
23.15 ENTRY FOR INSPECTION.
(a) Landlord shall have the right to enter upon the Premises during
business hours, or at other times by prior arrangement, to determine Tenant's
compliance with this Lease, to determine the necessity of repair or maintenance,
to make necessary repairs to the Building or to the Premises, or to show the
Premises to any prospective tenant or purchaser, and in addition shall have the
right during business hours, or at other times by prior arrangement, during the
last two months of the Term of this Lease, to place and maintain upon the
Building or the Premises notices for leasing or selling of the Building or the
Premises.
(b) Landlord shall have the right to enter upon the Premises at any time
in the event of an emergency.
23.16 INTEREST ON RENT AND OTHER CHARGES OR EXPENDITURES. Any rent or
other payment required to be made by Tenant by this Lease shall, if not paid
when due, bear interest at a variable rate equal to the United States National
Bank of Oregon's prime commercial rate as adopted from time to time plus two
percent (2%) (but in no event greater than the maximum interest rate allowed
under applicable law).
23.17 PRORATION OF RENT. In the event of commencement or termination of
this Lease at a time other than the beginning or end of one of the specified
rental periods, then rent shall be prorated as of the date of commencement or
termination.
23.18 AMENDMENTS TO STATUES, ETC. Reference in this Lease to any
particular law, statute, ordinance, rule, regulation or administrative order
includes reference to any successors or amendments thereto.
23.19 GOVERNING LAW. This Lease shall be governed as to validity and
interpretation by the laws of the State of Oregon.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first hereinabove written.
TENANT LANDLORD
- ------ --------
Claremont Consulting Group, AmberJack, LTD., an Arizona
- ----------------------------- Corporation
Inc., an Oregon Corporation
- -----------------------------
By: Birtcher Properties
Its: Property Manager
By: /s/Paul G. Mardesich By: /s/ Mike Yee
---------------------- ----------------------------
Its: Vice President Its: Regional Executive Manager
-------------------- --------------------------
Date: November 27, 1991 Date: November 27, 1991
-------------------- --------------------------
By: /s/ Linda Wallthau
---------------------------
Its: Chief Operating Officer
--------------------------
Date: December 17, 1991
--------------------------
Lease Agreement Claremont Consulting Group 18
<PAGE>
EXHIBIT A
(November 27, 1991)
Re: Tenant: CLAREMONT CONSULTING GROUP, INC
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
LEGAL DESCRIPTION
Legal Description of D-2 Area
Prepared by Wilsey & Ham (File 4-2615-0205)
September 28, 1987
A tract of land located in the Northwest 1/4 of Section 36, Township 1 North,
Range 2 West, Willamette Meridian, Washington County, Oregon, being more
particularly described as follows:
Beginning at a point on the southerly right of way of N.W. Walker Road, said
point bearing South 01 DEG. 41'53" West 923.92 feet and North 6l DEG. 43'35"
West 390.82 feet from the north 1/4 corner of said Section 36; thence South
28 DEG. 16'25" West 180.51 feet; thence South 72 DEG.28'45" West 68.19 feet;
thence 13.00 feet along the arc of a 50.00 foot radius curve to the left
through a central angle of 14 DEG. 53'49" (the long chord bears South 07 DEG.
53'22" East 12.96 feet); thence 72.86 feet along the arc of a 335.57 foot
radius curve to the right through a central angle of 12 DEG.26'23" (the long
chord bears South 09 DEG. 07'6" East 72.71 feet); thence 13.31 feet along the
arc of a 10.00 foot radius curve to the right through a central angle of 76
DEG. 13'45" (the long chord bears South 35 DEG. 12'58" West 12.34 feet);
thence 69.91 feet along the arc of a 446.00 foot radius curve to the right
through a central angle of 08 DEG.58'52" (the long cord bears South 77 DEG.
46'09" West 69.55 feet); thence North OO DEG.O1'52" West 7.99 feet; thence
306.34 feet along the arc of a 259.75 foot radius curve to the left through a
central angle of 67 DEG. 34'22" (the long chord bears North 33 DEG. 49'03"
West 288.89 feet); thence North 67 DEG. 36'14" West 10.00 feet; thence
South 22 DEG. 23'46" West 173.75 feet; thence North 67 DEG. 36'14" West
262.53 feet; thence 43.86 feet along the arc of a 24.00 foot radius curve to
the left through a central angle of 104 DEG. 42'07" (the long chord bears
South 60 DEG. 02'42" West 38.00 feet) ; thence North 06 DEG. 24'04" East
81.86 feet; thence 124.23 feet along the arc of a 1814.00 foot radius curve
to the left through a central angle of 03 DEG. 55'26" (the long chord bears
North 03 DEG. 08'47" East 124.21 feet); thence 9.23 feet along the arc of a
10.00 foot radius curve to the right through a central angle of 52 DEG.
52'42" (the long chord bears North 27 DEG. 37'23" East 8.90 feet); thence
9.32 feet along the arc of a 10.00 foot radius curve to the left through a
central angle of 53 DEG. 22'58" (the long chord bears North 27 DEG. 22'17"
East 8.98 feet); thence North 37 DEG. 56'54" East 281.96 feet to a point on a
southerly right of way of N.W. Walker Road; thence South 55 DEG. 13'36" East
along said southerly right of way 338.00 feet; thence South 61 DEG. 43'35"
East 283.04 feet to the POINT OF BEGINNING. Contains 5.028 acres.
Lease Agreement Claremont Consulting Group 19
<PAGE>
EXHIBIT B
(November 27, 1991)
Re: Tenant: CLAREMONT CONSULTING GROUP INC.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
FLOOR PLAN
OGC Science Park
Building D2
Suite 210
1600 NW Compton Drive
Beaverton, Oregon 97006
[FLOOR PLAN]
Claremont Consulting Group
Proposed Premises
Suite 210
Lease Agreement - Claremont Consulting Group 20
<PAGE>
EXHIBIT C
(November 27, 1991)
Re: Tenant: CLAREMONT CONSULTING GROUP, INC.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
TENANT IMPROVEMENTS
Concurrently herewith, the undersigned Tenant and Landlord have executed a Lease
covering the Premises (the provisions of said Lease are hereby incorporated by
reference as if fully set forth herein). In consideration of the execution of
said Lease, Landlord and Tenant mutually agree as follows:
Landlord and Tenant acknowledge and agree that the Landlord is investing $15.00
per rentable sq. ft. in constructing alterations and improvements to the
Premises ("Tenant Improvements") requested by the Tenant.
Tenant Improvements shall consist of permanent walls, doors, door frames and
hardware, ceiling, floor covering, electrical distribution from the
mechanical/electrical rooms to the point of need, including electrical switches,
outlets, lighting, heating ventilation and air conditions (HVAC) and other
permanent improvements that may be required, subject to the Landlord's approval.
The Tenant Improvements shall also include any and all architectural fees,
consultants fees, permit fees, system development fees, contractor's overhead
and general conditions, construction documentation, engineering, project
management and supervision costs, space planning services that relate to said
improvements, and other Tenant Improvements not specifically excluded.
Exclusions shall include any non-permanent improvements, furniture, and tenant
equipment.
TENANT'S CONSTRUCTION DEPOSIT - Contemporaneously with Tenant and Landlord's
approval of a final space plan and budget for the design and construction of the
Tenant Improvements to the Premises:
A. Tenant shall cause to be delivered to Landlord, as security for
Tenant's obligation to pay to Landlord the balance of the cost for the
Tenant Improvements, a payment to Landlord equal to the balance of the
cost of the Tenant Improvements as defined in the approved Tenant
Improvement budget ("Tenant's Construction Deposit"). This payment is
in addition to funds otherwise deposited with the Landlord as Tenant's
Security Deposit pursuant to the terms of this Lease.
B. Upon completion of the Tenant Improvement construction, and receipt of
an Occupancy Permit, Landlord will reconcile the Tenant Improvement
budget and return to Tenant any funds remaining in the Tenant's
Construction Deposit.
INSTALLATION OF THE TENANT IMPROVEMENTS
A. Landlord agrees to improve the Premises in accordance with plans and
specifications to be approved by Tenant and Landlord. Landlord shall
hire the designers and contractors and construct the improvements.
All improvements are subject to the codes of all jurisdictions having
control over this work.
B. The Tenant Improvement construction schedule is dependent upon final
execution of this Lease Agreement. The preliminary construction
schedule is as follows:
Lease Agreement - Claremont Consulting Group 21
<PAGE>
Design Start December 1, 1991
Submit for Permit December 21, 1991
Begin Construction January 6. 1992
Complete Construction March 1, 1992
C. The Landlord warrants material, labor and workmanship for the period of
one year from the date of Notice of Completion and to the extent a
like warranty is extended to the Landlord from the Contractor(s).
Lease Agreement - Claremont Consulting Group 22
<PAGE>
EXHIBIT D
(November 27, 1991)
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
NONDISTURBANCE ATTORNMENT, AND SUBORDINATION AGREEMENT
AND TENANT'S ESTOPPEL CERTIFICATE
DATE: _____________, 19__
BETWEEN: ___________________________ ("Tenant")
AND: ___________________________ ("Lender")
Tenant is party to a lease (the "Lease") dated _______________, 19_
pursuant to which Tenant has leased (from "Landlord") approximately
_____________ square feet of space (the "Premises") in the OGC Science Park,
Building ___________________, located at ______________ in Hillsboro,
Washington County, Oregon on the real property described on the attached
Exhibit A (the "Property").
Lender has agreed to make a loan in the amount of $________ (the "Loan") to
Landlord, which will be secured by a deed of trust on the Property (the "Deed of
Trust").
As a condition to making the Loan, Lender has required that the Lease be
subordinated to the lien of the Deed of Trust. Tenant desires to be assured of
continued occupancy of the Premises in the event of a foreclosure of the Deed of
Trust or in the event Lender otherwise succeeds to the interest of Landlord in
the Property.
NOW, THEREFORE, in consideration of the Premises and the mutual covenants
set forth in this Nondisturbance, Attornment, and Subordination Agreement and
Tenant's Estoppel Certificate (the "Agreement"), and intending to be legally
bound, the parties agree as follows:
1. ESTOPPEL PROVISIONS. Tenant, understanding that Lender will be
relying thereon in making the Loan, hereby represents and certifies to Lender as
follows:
1.1 The Lease is in full force and effect, has not been assigned, and is
unmodified except as indicated on the attached Exhibit B;
1.2 The term of the Lease has commenced, Tenant has accepted possession of
the Premises, and any improvements to the Premises required by the terms of the
Lease to be made by Landlord have been completed;
1.3 Except as set forth on Exhibit B, the full amount of rent specified
in the Lease is accruing (i.e., any free or reduced rent period has terminated),
no rent or additional rent has been paid more than one month in advance, and
Landlord holds no security deposit except ________________. Rent has been paid
up to and including the month of _________________, 19__;
Lease Agreement - Claremont Consulting Group 23
<PAGE>
1.4 Tenant has no charge, lien, defense, or claim or offset under the
Lease or against the payment of rent or other charges due or to become due under
the Lease; and
1.5 Landlord is not in breach or default of any term or condition of the
Lease.
2. COVENANTS OF TENANT. Tenant agrees that, unless Lender's prior
consent is obtained, Tenant will not (a) pay any rent or additional rent more
than one month in advance of its due date, (b) modify or amend the Lease, or (c)
consent to a termination of the Lease. Tenant further agrees not to seek or
terminate the Lease as a result of any breach thereof by Landlord without giving
Lender ten (10) days prior written notice of an opportunity to cure such breach.
3. NONDISTURBANCE. In exercising any rights arising under the Deed of
Trust or any instrument modifying or amending the same or entered into in
substitution or replacement thereof, Lender shall not disturb or deprive Tenant
in or of its possession of the Premises under the Lease; provided that the Lease
is then in full force and effect and Tenant is not in default thereunder; and
provided further that in no event shall Lender be:
3.1 Liable for any act or omission of Landlord;
3.2 Subject to or liable for any charges, liens, defenses, or
offsets which Tenant might be entitled to assert against Landlord;
3.3 Bound by any payment of rent or additional rent made by Tenant
for more than one month in advance or liable to Tenant for any security
deposit not actually received by Lender; or
3.4 Bound by any modification or amendment to the Lease which was
neither disclosed to Lender on Exhibit B nor consented to by Lender under
Section 2.
4. ATTORNMENT. In the event it becomes necessary to foreclose the Deed
of Trust, Lender agrees not to join Tenant in any foreclosure proceedings, so
long as Tenant is not then in default under the Lease, unless failure to join
Tenant would impair Lender's ability to exercise its remedies against Landlord
under the Deed of Trust. In the event such joinder is necessary despite the
absence of any default under the Lease, such joinder shall not extinguish or
interfere with Tenant's rights under the Lease, including, without limitation,
Tenant's right to possession of the Premises. Subject to the provisions of this
Agreement, Tenant agrees (a) to attorn to Lender or any other party obtaining
title to the Property pursuant to any remedy provided in the Deed of Trust or a
deed in lieu of foreclosure thereof, (b) to recognize Lender or such other party
as Landlord under the Lease, (c) that the Lease shall continue in full force and
effect as a Lease between Tenant and Lender or such other party, and (d) to
execute an agreement of attornment upon request of Lender or such other party.
5. SUBORDINATION. Tenant agrees that the Lease shall be and remain at
all times subordinate to the lien of the Deed of Trust. The priority of the
Deed of Trust shall in no way be affected by (a) any extension in the time of
payment or performance of any obligation secured by the Deed of Trust, (b) the
exchange or modification of any such obligation, (c) the release of any other
security for any such obligation, or (d) the settlement or compromise of any
claim with respect to any such obligation.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, legal representatives,
successors, and assigns.
7. SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
other provisions of this Agreement and the application of such provision to
other persons or circumstances shall
Lease Agreement - Claremont Consulting Group 24
<PAGE>
not be affected thereby and each provision of this Agreement shall be
enforceable to the maximum extent permitted by applicable law.
B. ATTORNEYS' FEES. In the event a suit or action is instituted to
enforce or interpret any provision of this Agreement, the prevailing party shall
be entitled to recover such amount as the court may adjudge reasonable as
attorneys' fees and costs of litigation at trail or on any appeal, in addition
to all other amounts provided by law.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon.
10. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be considered an original and both of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first written above.
Tenant: _______________________________________
_______________________________________
By ___________________________________
Its____________________________________
Lender: _______________________________________
_______________________________________
By ___________________________________
Its __________________________________
STATE OF OREGON )
) ss.
County of ______________ )
The foregoing instrument was acknowledged before me this _________________
day of _____________ 19_____ by ____________________, who is _________________
of______________________, an Oregon corporation, on behalf of the corporation.
____________________________________
Notary Public for Oregon
My Commission Expires ______________
STATE OF _____________ )
) ss.
County of _____________ )
The foregoing instrument was acknowledged before me this _____ day of 19__
by ___________________, who is _____________________ of _________________,
a[n] __________________ corporation, on behalf of the corporation.
____________________________________
Notary Public for Oregon
My Commission Expires ______________
Lease Agreement - Claremont Consulting Group 25
<PAGE>
EXHIBIT E
(November 27, 1991)
Re: Tenant: CLAREMONT CONSULTING GROUP, INC.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
CORPORATION RESOLUTION
RESOLVED, that Paul G. Mardesich, the Vice President of the Corporation
and/or Steven L. Darrow, the President of the Corporation are hereby authorized
to sign on behalf of Claremont Consulting Group, Inc., an Oregon Corporation,
the Lease between Birtcher Property, Manager for AmberJack, Ltd., "Landlord" and
Claremont Consulting Group, Inc., "Tenant" dated November 27, 1991. We further
authorize his/her/their signature on a Nondisturbance, Attornment, and
Subordination Agreement and Tenant's Estoppel Certificate from this corporation
to Birtcher Properties, Manager for AmberJack, Ltd. and its assigns.
I certify that the above resolution was duly passed at a special and/or
general meeting of the Board of Directors of Claremont Consulting Group, Inc.,
held on November 26, 1991, at which were present, and voting, a majority of the
directors; that the Resolution has not been altered or amended subsequent to its
adoption and that said Resolution is now in full force and effect.
By
Steven L. Darrow
------------------------
Date
11/26/91
------------------------
Attest: Dawn Combs
---------------
Date: November 26, 1991
--------------------
Lease Agreement - Claremont Consulting Group 26
<PAGE>
EXHIBIT F
(November 27, 1991)
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
EXTERIOR SIGNAGE
Lease Agreement - Claremont Consulting Group 27
<PAGE>
EXHIBIT G
(November 27, 1991)
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
RULES AND REGULATIONS
The following rules and regulations shall apply to the Building and all tenants,
their employees and agents, or any others permitted to occupy or enter the
Building, or any part thereof, pursuant to a Lease. Tenants will at all times
abide by said rules and regulations, to-wit:
A. The sidewalks, entries, passages, corridors and stairways of the
Building shall not be obstructed by any Tenant, or its agents or employees, or
used for any purpose other than ingress or egress to and from the Tenant's
Premises. Further, no Tenant shall misuse or in any manner damage the
landscaped or other Common Areas. No furniture, equipment, or picnic tables or
chairs may be placed on such areas.
B. Furniture, equipment or supplies will be moved in or out of the
Building only via the loading dock and facilities designated by Landlord. In
the event any Tenant damages any parts of the Building during any such move,
such Tenant shall forthwith pay to Land1ord the amount required to repair
said damage.
C. No safe or article, the weight or which may, in the opinion of
Landlord, constitute a hazard or damage to the Building or its equipment, shall
be moved into the Building without prior written consent of Landlord. If such
consent is granted, such article may be moved into the Building and located in
Tenant's premises only in the manner designated by Landlord.
D. No Tenant shall do or permit anything to be done in its Premises, or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property kept therein, or constitute a nuisance
or waste, or obstruct or interfere with the rights of other tenants, or in any
way injure or annoy them, or conflict with the laws relating to fire, or with
any regulations of the fire department or with any insurance policy upon the
Building or any part thereof, or conflict with any of the rules or ordinances of
the Department of Health of the County in which the Building is located.
E. Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of any Tenant, its agents or
employees shall be paid for by such Tenant. No person shall waste water by
tying back or wedging the faucets or by any other means.
F. No animals (other than trained guide dogs) shall be allowed in
the Building. No person shall disturb the occupants of this or adjoining
buildings or premises by the use of any radio, sound equipment or musical
instrument or by making of loud or improper noises.
G. There shall be no obstruction of sidewalks, entrances, common roadways
or drives, or truck loading areas of the Building. Further, no unlicensed
vehicles may be parked in any common parking or drives, or truck loading areas
of the Building and no vehicles or bicycles may.be stored in any Common Areas,
except where designated.
H. No Tenant shall allow anything to be placed on the outside of the
Building, other than permitted signs, and then only to the extent expressly
provided in a Lease, nor shall anything be thrown by any
Lease Agreement - Claremont Consulting Group 28
<PAGE>
Tenant, its agents or employees, out of the windows or doors or down the
corridors of the Building. Landlord shall have the right to remove all non-
permitted signs, or any furniture, equipment or supplies located in any Common
Areas without notice to the Tenant which is responsible therefor and at the
expense of such Tenant.
I. No additional lock(s) shall be placed by any Tenant on any
exterior door in the Building. A reasonable number of keys to a Tenant's
Premises will be furnished to such Tenant by Landlord, and neither Tenant nor
its agents or employees, shall have any duplicate keys made. Additionally,
Tenant shall not alter any existing lock(s) without the prior written approval
of Landlord. At the termination of Tenant's Lease, it shall promptly return to
Landlord all keys to offices, warehouse space or vaults.
J. No awning shall be placed over the windows, except with the prior
written consent of Landlord.
K. If any Tenant desires telegraphic, telephonic, heavy equipment or
other electric connections utilizing other than standard 110-volt connections,
Landlord or its agents will direct the electricians as to where and how the
wires may be introduced, and without such directions, no boring or cutting for
wires will be permitted. Any such installation and connection shall be made at
such Tenant's expense.
L. Landlord shall at all times have the right, by its officers or agents,
to enter the Premises and show the same to persons wishing to lease them, and
may at any time within six (6) months immediately preceding the termination of
this tenancy place upon the doors and windows of the Premises the notice "For
Rent", which notice shall not be removed by Tenant.
M. Tenant shall comply with all applicable laws and regulations of any
public authority affecting the Premises or the use thereof, and correct at
Tenant's expense and failure to comply created through Tenant's fault or by
reason of Tenant's use.
N. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales in or from the Premises, or any business other than
that specifically provided for in the Lease.
0. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms and
conditions, including but not limited to the payment of a reasonable fee and
provision for insurance coverage, as are related to the safety, care and
cleanliness of the Building, the preservation of good order thereon, and the
relief of any financial or other burden on Landlord occasioned by the presence
of such vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these purposes,
Landlord may exclude a particular vendor entirely or limit the number of vendors
who may be present at any one time in the Building. The term "personal goods or
services vendors" means persons who periodically enter the Building for the
purpose of selling goods or services to a tenant, other than goods or services
which are used by a tenant only for the purpose of conducting its business on
the Premises. "Personal goods or services" include, but are not limited to,
drinking water and other beverages, food, barbering services, and shoeshining
services.
P. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places of the
Building shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substances of any kind
whatsoever shall be thrown therein, and the expense of any breakage, stoppage or
damage, resulting from the violation of this rule shall be borne by the Tenant.
Lease Agreement - Claremont Consulting Group 29
<PAGE>
Q. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premises shall be subject
to Landlord's prior approval. If Landlord, by a notice in writing to Tenant,
shall object to any curtain, blind, shade or screen attached to, or hung in, or
used in connection with, any window or door of the Premises, such use of such
curtain, blind, shade or screen shall be forthwith discontinued by Tenant.
R. No cooking shall be done or permitted by Tenant on the Premises other
than (i) in a cafeteria operated in compliance with law and applicable covenants
affecting the Premises, or (ii) the use of a microwave oven for food or
Underwriter's Laboratory approved equipment for brewing coffee, tea, and similar
beverages, provided that the use is in compliance with law. Offices in the
Building shall not be used for the storage of merchandise or for lodging.
S. Tenant shall not lay linoleum or other similar floor covering so that
the same be affixed to the floor of the Premises in any manner except by a
paste, or other material which may easily be removed with water, the use of
cement or other similar adhesive materials being expressly prohibited. The
method of affixing any such linoleum or other similar floor covering to the
floor, as well as the method of affixing carpets or rugs to the Premises, shall
be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant by whom, or by
those agents, clerks, employees or visitors, the damage have been caused.
T. Tenant shall see that the windows and doors of the Premises are closed
and securely locked before leaving the Building.
Landlord may reasonably amend, modify, delete or add new and additional rules
and regulations regarding the use and care of the Premises leased to Tenants and
the Building of which such Premises are a part. All Tenants shall comply with
all such rules and regulations upon notice thereof to them from Landlord. Any
breach by a Tenant of any rules and regulations herein set forth or any
amendments, modifications or additions thereto, shall constitute a default by
such Tenant under its lease agreement and Landlord shall have all rights and
remedies set forth therein.
Lease Agreement - Claremont Consulting Group 30
<PAGE>
EXHIBIT H
(November 27, 1991)
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
INTERIM SPACE AGREEMENT
Landlord will provide Tenant the use of temporary space on the third floor of
OGC Science Park Building D-2 ("Interim Space") during the design and
construction of the Tenant's Premises. The terms and conditions of the use of
the Interim Space are governed by this Lease Agreement, and are in full force
and effect, with the exception of the following:
Interim Space: 2,622 rentable sq. ft.
Term: November 27, 1991 to February 29, 1992 or until the
Tenant's Premises is "Ready for Occupancy" (see Section
2.1). This Interim Space Agreement will expire March
31, 1992.
Rent: Rent for the Interim Space shall be as follows:
$0.00 sq. ft. commencing December 1, 1991
$0.45 sq. ft. commencing January 1, 1992
$0.90 sq. ft. commencing February 1, 1992
The rent for the Interim Space is a "full service" rent
that includes the costs of utilities, operations,
common areas, and janitorial expenses.
Tenant Improvements: The space is "as is" and no Tenant Improvements will be
provided by the Landlord.
[FLOOR PLAN]
Building D-2
3rd Level
Lease Agreement - Claremont Consulting Group 31
<PAGE>
EXHIBIT I
(November 27, 1991)
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
RIGHT OF FIRST OFFER TO LEASE ADDITIONAL SPACE
Provided Tenant is not in default and has performed all of its obligations
hereunder, Tenant shall have the first offer to lease additional space on the
second floor of the Building, as shown below, as it becomes available for
leasing during the first thirty (30) months of the Term ("First Offer").
Landlord agrees that during the initial thirty (30) months of the Term, Landlord
will not lease the offer space (see floor plan map) on the second floor of the
building to any third party unless (a) Landlord has made an offer, in writing,
to lease such space to Tenant at a rent and upon terms and conditions the same
as, or least as favorable, those to the third party and (b) Tenant has not
accepted such offer within three (3) calendar days after Landlord has made such
offer to Tenant.
In the event Tenant declines or fails to elect so to lease such space, then the
First offer hereby granted shall automatically terminate and shall thereafter be
null and void as to the offer space.
It is understood that this First Offer shall not be construed to prevent any
tenant in the Building from extending or renewing its Lease.
The First offer hereby granted is personal to Claremont Consulting Group, Inc.
and it not transferable; in the event of any assignment or subletting under this
Lease, this First Offer shall automatically terminate and shall thereafter be
null and void.
[FLOOR PLAN]
Claremont Consulting Group
Premises - Suite 210
Lease Agreement - Claremont Consulting Group 32
<PAGE>
LEASE AMENDMENT NO. 1
TO
LEASE AGREEMENT FOR
CLAREMONT CONSULTING GROUP, INC.
DATED NOVEMBER 27,1991
This Lease Amendment No. 1 is made as of this 9th day of March, 1992 by and
between Birtcher Properties, Manager for AmberJack, Ltd. ("Landlord") and
Claremont Consulting Group, Inc. ("Tenant") having offices at 1600 NW Compton
Drive, Suite 210, Beaverton, Oregon 97006.
Landlord and Tenant wish to modify the Lease. In consideration of the mutual
promises herein contained, the parties agree as follows:
1. The square footage identified in Section 1. 1 (Grant of Premises)
shall be changed from 3,976 rentable square feet to 7,379 rentable
square feet (or an increase of 3,403 square feet).
2. The lease term identified in Section 2.1 (Basic Term) shall be revised
to commence May 1, 1992 and terminate April 30, 1996.
3. Monthly rental rates per square foot will remain the same, however,
due to the increased square footage, the monthly rates will be changed
to:
----------------------------------------------------------------------
TOTAL MONTHLY BASE
MONTHLY BASE RENT RENT ASSUMING
MONTHS DURING TERM PER RENTABLE SQ. FT. RENTABLE SQ FT.
------------------- -------------------- -------------------
1 - 12 $ 0.71 $ 5,239.09
------------------- -------------------- -------------------
13 - 24 $ 0.74 $ 5,460.46
------------------- -------------------- -------------------
25 - 36 $ 0.77 $ 5,681.83
------------------- -------------------- -------------------
37 - 48 $ 0.80 $ 5,903.20
------------------- -------------------- -------------------
----------------------------------------------------------------------
4. The security deposit identified in Section 4.3 (Security Deposit)
shall increase to a total of $5,903.20 upon execution of this Lease
Amendment #1.
5. Exhibit "B" (Floor Plan) shall be replaced with Exhibit "B.1" as a
result of change of premises.
6. The schedule for improvements identified in Exhibit "C" (Tenant
Improvements) shall be revised to:
Design Start: January 15, 1992
Submit for Permit: February 7, 1992
Begin Construction: March 9, 1992
Complete Construction: April 30, 1992
7. Exhibit "H" (Interim Space Agreement) shall be amended as follows:
A. Term will end on April 30, 1992.
B. Rental rate for March and April 1992 shall be as follows:
$1.00 sq. ft. commencing March 1, 1992
$1.05 sq. ft. commencing April 1, 1992.
Lease Amendment No. 1 - Claremont Consulting Group
Page 1
<PAGE>
8. Exhibit "I" (Right of First Offer to Lease Additional Space) shall be
replaced with Exhibit "I. 1" as a result of change of premises and,
therefore, offer space.
All other provisions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the day
and year first hereinabove written.
TENANT LANDLORD
CLAREMONT CONSULTING GROUP. AmberJack, Ltd., an Arizona
INC., an Oregon Corporation Corporation
By: Birtcher Properties
Its: Property Manager
By: /s/ Paul G. Mardesich By: /s/ L. Wallthau
---------------------- --------------------------
Its: Secretary / Treasurer Its: Chief Operating Officer
--------------------- --------------------------
Date: March 10, 1992 Date: March 24, 1992
-------------------- ------------------------
By: /s/ Mike Yee
-------------------------
Its: Regional Executive Manager
Date: March 30, 1992
Lease Amendment No. 1 - Claremont Consulting Group
Page 2
<PAGE>
EXHIBIT B. 1
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
[FLOOR PLAN]
[FLOOR PLAN]
Lease Amendment No. 1 - Claremont Consulting Group
Page 3
<PAGE>
EXHIBIT 1.1
Re: Tenant: Claremont Consulting Group, Inc.
Premises: Suite 210
1600 NW Compton Drive
Beaverton, Oregon
RIGHT OF FIRST OFFER TO LEASE ADDITIONAL SPACE
[FLOOR PLAN]
Lease Amendment No. 1 - Claremont Consulting Group
Page 4
<PAGE>
LEASE AMENDMENT NO. 2
TO
LEASE AGREEMENT FOR
CLAREMONT CONSULTING GROUP, INC.
DATED May 13, 1992
This Lease Amendment No. 2 is made as of this 29th day of April, 1992 by and
between Birtcher Properties, Manager for AmberJack, Ltd. ("Landlord") and
Claremont Consulting Group, Inc. ("Tenant") having offices at 1600 NW Compton
Drive, Suite 210, Beaverton, Oregon 97006.
Landlord and Tenant wish to modify the Lease. In consideration of the mutual
promises herein contained, the parties agree as follows:
1. The lease term identified in Section 2.1 (Basic Term) shall be revised
to commence May 16, 1992 and terminate April 30, 1996.
2. Monthly rental rates per square foot will remain the same, however,
due to the revised commencement date, the monthly rates will be
changed to:
<TABLE>
<CAPTION>
TOTAL MONTHLY BASE
MONTHLY BASE RENT RENT ASSUMING
MONTHS DURING TERM PER RENTABLE SQ. FT. RENTABLE SQ. FT.
- --------------------------------------------------------------------------------
<S> <C> <C>
May 16, 1992- May 31, $ 0.71 $ 2,704.04
1992
- --------------------------------------------------------------------------------
June 1, 1992-April 30, 1993 $ 0.71 $ 5,239.09
- --------------------------------------------------------------------------------
May 1, 1993-April 30, 1994 $ 0.74 $ 5,460.46
- --------------------------------------------------------------------------------
May 1, 1994-April 30, 1995 $ 0.77 $ 5,681.83
- --------------------------------------------------------------------------------
May 1, 1995-April 30, 1996 $ 0.80 $ 5,903.20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
3. Exhibit "H" (Interim Space Agreement) shall be amended as follows:
A. Term will end on May 15, 1992.
B. Rental rate for May 1 - 15, 1992 shall be $1.05 per sq. ft. per month
(prorated for the period to $1,332.15).
All other provisions of the Lease shall remain in full force and effect.
Lease Amendment No. 2 - Claremont Consulting Group
Page 1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of the day
and year first hereinabove written.
TENANT LANDLORD
CLAREMONT CONSULTING GROUP, AmberJack, Ltd., an Arizona
INC., an Oregon Corporation Corporation
By: Birtcher Properties
Its: Property Manager
By: /s/ Terry D. Murphy By: /s/ Linda Wallthau
----------------------- -----------------------
Its: Vice President Finance Its: Chief Operating Officer
----------------------- ---------------------------
Date: 10/9/92 Date: 1/8/93
----------------------- ---------------------------
By: /s/ Mike Yee
---------------------------
Its: Regional Executive Manager
---------------------------
Date: 10/12/92
---------------------------
Lease Amendment No. 2 - Claremont Consulting Group
Page 2
<PAGE>
LEASE AMENDMENT NO. 3
TO
LEASE AGREEMENT DATED NOVEMBER 27,1991 FOR
CLAREMONT CONSULTING GROUP
AND AMENDED BY LEASE AMENDMENT NO. 1 DATED MARCH 9,1992
AND AMENDED BY LEASE AMENDMENT NO. 2 DATED APRIL 29,1992
This Lease Amendment No. 3 is made as of this 27th day of July, 1992 by and
between Birtcher Properties, Manager for AmberJack, Ltd. ("Landlord") and
Claremont Consulting Group, Inc. ("Tenant") having offices at 1600 N.W. Compton
Drive, Suite 210, Beaverton, Oregon 97006.
Landlord and Tenant wish to modify the Lease. In consideration of the mutual
promises herein contained, the parties agree as follows:
1. Landlord shall amortize $19,181 of additional tenant improvements for
the original design and construction of Tenant's Premises ("Extra
T.I.'s"). The Extra T.I.'s will be amortized through the term of
August 1, 1992 to April 1, 1996 at a 10% annualized interest rate.
Tenant will pay forty-five (45) installments of $512.90 on the first
of each month to cover the cost of the Extra T.I.'s.
2. All other terms, conditions, and provisions of the Lease shall
continue to be in full force and effect.
TENANT LANDLORD
Claremont Consulting Group, Inc. Birtcher Properties, Manager for
AmberJack, Ltd.
By: /s/ Terry D. Murphy By: /s/ Linda Wallthau
----------------------- ---------------------------
Its: Vice President Finance Its: Chief Operating Officer
----------------------- --------------------------
Date: 10/9/92 Date: 1/8/93
----------------------- --------------------------
By: /s/ Mike Yee
---------------------------
Its: Regional Executive Manager
---------------------------
Date: 10/12/92
-----------------------
Lease Amendment No. 2 - Claremont Consulting Group
Page 1
<PAGE>
LEASE AMENDMENT NO. 4
TO
LEASE AGREEMENT DATED NOVEMBER 27, 1991, AS AMENDED
This Lease Amendment No. 4 is made and entered into the 9th day of
November, 1994 by and between BIRTCHER PROPERTY SERVICES, a California
corporation, as Manager for AMBERJACK, LTD., an Arizona corporation (hereinafter
referred to as "Landlord") and CLAREMONT CONSULTING GROUP, INC. (hereinafter
referred to as "Tenant") having offices at 1600 N.W. Compton Drive, Suite 210,
Beaverton, Oregon 97006.
Landlord and Tenant wish to modify the Lease. In consideration of the
mutual promises herein contained, the parties agree as follows:
1. Tenant's name, identified in paragraph one of the Lease Agreement as
CLAREMONT CONSULTING GROUP, INC. shall be changed to CLAREMONT
TECHNOLOGY GROUP, INC., in accordance with the Articles of Amendment
filed with the State of Oregon, Corporation Division, on April 30,
1993.
2. Section 4.5.6 shall be amended to include the following sentence: The
overhead cost equal to five percent (5%) of the total operating
expense costs shall not be applied to the shared electrical meter
between Suites 210 and 212.
All other terms, conditions and provisions of the Lease Agreement shall continue
to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No.4 as of the
day and year first hereinabove written.
TENANT LANDLORD
CLAREMONT TECHNOLOGY AmberJack, Ltd., an Arizona
- ---------------------------------- Corporation
GROUP, INC., an Oregon Corporation
- ----------------------------------
By: Birtcher Property Services
Its: Property Manager
By: /s/ Terry D. Murphy By: /s/ Bruce R. Birkeland
--------------------------- -----------------------
Terry D. Murphy BRUCE R. BIRKELAND, CPM
Its: Vice President of Finance Its: CHIEF OPERATING OFFICER
-------------------------- -----------------------
Date: 11/11/94 Date: 12/21/94
-------------------------- -----------------------
By: /s/ Lynda L. Bettini
-----------------------
LYNDA L. BETTINI, CPM
Its: DIRECTOR OF PROPERTIES
-----------------------
Date: 12/21/94
-----------------------
<PAGE>
AMENDMENT NO. 5 TO LEASE
1. PARTIES
This Amendment No.5 to Lease (the "Fifth Amendment") is executed this 22nd
day of February, 1996,and is by and between AMBERJACK, LTD.,an Arizona
corporation (hereinafter referred to as "Landlord") and CLAREMONT TECHNOLOGY
GROUP, INC., an Oregon Corporation (hereinafter referred to as "Tenant").
2. RECITALS
Landlord and Tenant entered into that certain Lease dated November 27
1991 as amended by Lease Amendment No. 1 dated March 9, 1992, Lease Amendment
No. 2 dated April 29, 1992, Lease Amendment No. 3 dated July 27, 1992 and Lease
Amendment No. 4 dated November 9, 1994. (collectively the "Lease") for those
certain premises described in the Lease (the "Premises").
Landlord and Tenant wish to further amend the Lease as follows:
3. SECTION 1. PREMISES
1.1 GRANT OF PREMISES. The square footage shall be amended to 7,575
rentable square feet effective May 1, 1996.
4. SECTION 2. TERM
2.1 BASIC TERM. The term for the renewal period shall commence May l,
1996 and terminate April 30, 1999.
5. SECTION 3. USE
3.1 PERMITTED USE. The Premises will be used and occupied for
administrative offices for a consulting firm.
6. SECTION 4. RENT
4.2 BASE RENT. The Base Rent for the renewal term shall be $0.72 per
rentable square foot.
7. EXHIBIT C - TENANT IMPROVEMENTS. Landlord will modify the Premises in
accordance with a mutually acceptable floor plan and work letter at a cost not
to exceed $11,362.50 (approximately $1.50 per rentable square foot) inclusive of
space planning fees. All improvements will meet AmberGlen building standard
finishes, and will exclude furniture, equipment, fixtures, or other items of
personal property whether or not physically attached to the building. All
improvements will be subject to Landlord's approval of final plans and
specifications.
Fifth Amendment to Lease
Page 1
<PAGE>
8. EXHIBIT I - OPPORTUNITY FOR EXPANSION. Tenant shall have the opportunity to
expand into Suite 212, currently occupied by Birtcher Property Services,
totalling 3,586 rentable square feet (the "Expansion Premises"). Tenant will
provide Landlord with written notice of its intent to occupy the Expansion
Premises an or before July 31, 1996 or Tenant's opportunity to expand shall
become null and void.
Upon receipt of written notice from Tenant, Landlord will make arrangements
to relocate Birtcher Property Services to another office within AmberGlen
Business Center. If Tenant improvements are required, the process of relocating
Birtcher Property Services may take ninety (90) days. Once Suite 212 is
vacated, construction of required Tenant improvements for the Expansion Premises
may begin.
The Lease term for the Expansion Premises shall commence upon completion of
Tenant improvements and terminate April 30, 1999, however, in no event shall the
Lease term for the Expansion Premises be less than thirty (30) months. If, when
Tenant occupies the Expansion Premises, less than thirty (30) months remains on
the Lease Term, then the Lease for both the Original Premises of 7,575 rentable
square feet and the Expansion Premises shall be extended from April 30, 1999 to
terminate thirty (30) months from the date of occupancy of the Expansion
Premises.
The Base Rent for the Expansion Premises shall be $0.72 per rentable square
feet. For the Expansion Premises of 3,586 rentable square feet, an allowance of
$5.00 per rentable square foot will be provided for Tenant improvements upon the
same terms and conditions as indicated In item 7 above.
9. MISCELLANEOUS
Except to the extent this Lease his been modified by this Fifth Amendment,
the remaining terms and conditions of the Lease shall remain unmodified and in
full force and effect.
The defined terms used in this Fifth Amendment, as indicated by the first
letter of a word being capitalized, shall have the same meaning in this Fifth
Amendment as such terms and provisions In the Lease.
10. EXECUTION
This Fifth Amendment shall be deemed effective as of the date first
written above.
"TENANT" "LANDLORD"
CLAREMONT TECHNOLOGY AMBERJACK, LTD., an Arizona
- ---------------------------------- Corporation
GROUP, INC., an Oregon Corporation
- ----------------------------------
By: /s/ Paul G. Mardesich By: /s/ Michael S. Buzar
----------------------- -----------------------
MICHAEL S. BUZAR
Its: Sr. Vice President Its: SENIOR VICE PRESIDENT
----------------------- -----------------------
Date: March 12, 1996 Date: 4/16/96
----------------------- -----------------------
By: By: /s/ Lynda L. Bettini
----------------------- -----------------------
LYNDA L. BETTINI, CPM
Its: Its: DIRECTOR OF PROPERTIES
----------------------- -----------------------
Date: Date: 4/12/96
----------------------- -----------------------
Fifth Amendment to Lease
Page 2
<PAGE>
FLOORPLAN EXHIBIT FOR
EXPANSION PREMISES OF SUITE 212
[Architectural drawing of premises (Suite 212)]
Fifth Amendment to Lease
Page 3
<PAGE>
Exhibit 10.11
LIBERTY BUILDING
LEASE AGREEMENT
FOR
CLAREMONT TECHNOLOGY GROUP, INC,
OCTOBER 20, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
TOPIC SECTION
- ----- -------
Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3(A)
Operating Expense Rent . . . . . . . . . . . . . . . . . . . . . 3(B)
Late Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 3(C)
Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . 3(D)
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Heating Ventilating & Air Conditioning . . . . . . . . . . . . . . . 5
Electricity and Natural Gas. . . . . . . . . . . . . . . . . . . . . 6
Janitorial Service . . . . . . . . . . . . . . . . . . . . . . . . . 7
Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Water. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Interruption of Services . . . . . . . . . . . . . . . . . . . . . . 10
Operation of Building; Rights Reserved to Landlord . . . . . . . . . 11
Operation of Building; Tenants Obligations . . . . . . . . . . . . . 12
Signs and Advertisements . . . . . . . . . . . . . . . . . . . . . . 13
Mechanic's Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . . 16
Casualty Loss or Damage. . . . . . . . . . . . . . . . . . . . . . . 17
Waiver of Claims and Subrogation . . . . . . . . . . . . . . . . . . 18
Use of Demised Premises. . . . . . . . . . . . . . . . . . . . . . . 19
Events of Default by Tenant. . . . . . . . . . . . . . . . . . . . . 20
Landlord's Rights Upon Tenant's Default. . . . . . . . . . . . . . . 21
Landlord's Rights Upon Termination or Abandonment. . . . . . . . . . 22
Costs of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 23
Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . 24
Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Holding Over by Tenant . . . . . . . . . . . . . . . . . . . . . . . 26
Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Floor Load, Noise and Vibrations . . . . . . . . . . . . . . . . . . 29
Compliance Withy Laws and Regulations. . . . . . . . . . . . . . . . 30
Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Landlord's Right to Remedy Default . . . . . . . . . . . . . . . . . 32
Limitation on Tenant's Right to Terminate. . . . . . . . . . . . . . 33
Limitation on Tenant's Recovery of Damages . . . . . . . . . . . . . 34
Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . 35
Landlord's Right to Relocate Tenant. . . . . . . . . . . . . . . . . 36
Liability Insurance Policy . . . . . . . . . . . . . . . . . . . . . 37
Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Miscellaneous Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 39
Condition of Premises. . . . . . . . . . . . . . . . . . . . . . . . 40
Tenant Defined; Pronouns. . . . . . . . . . . . . . . . . . . . . . . 41
No Representations by Landlord . . . . . . . . . . . . . . . . . . . 42
Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Additional Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Governing Law; Amendments . . . . . . . . . . . . . . . . . . . . . . 45
Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . . . . . 46
Accord and Satisfaction. . . . . . . . . . . . . . . . . . . . . . . 47
Parties Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Parking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Signature Block. . . . . . . . . . . . . . . . . . . . . . . . . Page 17
Landlord's Acknowledgment. . . . . . . . . . . . . . . . . . . . Page 18
Corporate Tenant Acknowledgment. . . . . . . . . . . . . . . . . Page 18
Demised Premises Floor Plan. . . . . . . . . . . . . . . . . . . Exhibit A
Standard Work Letter . . . . . . . . . . . . . . . . . . . . . . Exhibit B
Base Rent Schedule: Use Limitations. . . . . . . . . . . . . . . Exhibit C
Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . Exhibit D
<PAGE>
LIBERTY BUILDING
LEASE AGREEMENT
This Lease Agreement (the "Lease") is executed at Columbus, Ohio to be
effective the ____ day of OCTOBER, 1995 by and between TOW LTD., an Ohio limited
liability company (the "Landlord"), and CLAREMONT TECHNOLOGY GROUP, INC. an
Oregon corporation (the "Tenant"), who hereby agree as follows:
1. DEMISED PREMISES
Subject to the terms and conditions of this Lease, Landlord hereby leases
to Tenant approximately FOURTEEN THOUSAND FIVE SEVENTEEN (14,517) square feet of
rentable area (the "Demised Premises") located on the FIRST (1ST) floor of the
building located at 111 Liberty Street, Columbus, Ohio (the "Building"). The
Demised Premises are more particularly described in the Demised Premises Floor
Plan attached hereto as Exhibit "A". The rentable area in the Demised Premises
and the Building has been measured in accordance with American National Standard
Z65.1-1980 published by B.O.M.A., a copy of which will be provided to Tenant
upon request.
All of the outside walls of the Demised Premises, any terraces or roofs
adjacent to the Demised Premises, and any space in the Demised Premises used for
shafts, stacks, pipes, conduits or ducts, the use thereof, as well as access
thereto through the Demised Premises for purposes of operation, maintenance,
decoration and repair, are expressly reserved to Landlord.
2. LEASE TERM
Subject to the provisions of the next sentence of this Section 2, the term
of this Lease (the "Lease Term") shall be the period of FIVE (5) years,
commencing on DECEMBER 1, 1995 (the "Commencement Date") and ending on NOVEMBER
30, 2000 (the "Expiration Date"), unless extended or sooner terminated as
provided herein. If for any reason the Commencement Date is a day other than
the first day of a calendar month, that partial month at the beginning of the
Lease Term shall be added to the Lease Term and the number of years specified
above shall be measured from the first day of the next succeeding calendar
month. If the Demised Premises are not ready for occupancy (as defined
hereinafter) on the Commencement Date, the Lease Term shall commence on the
earlier of (i) the date when the Demised Premises are ready for occupancy or
(ii) the date on which Tenant takes possession of the Demised Premises, and the
Expiration Date shall be extended accordingly. The Demised Premises shall be
deemed "ready for occupancy" under the terms of this Lease when any work
required to be performed on the Demised Premises by Landlord has been
substantially completed with the exception of minor items which will not
unreasonably interfere with Tenant's use of the Demised Premises for the
purposes intended. All work to be performed by Landlord in and about the
Demised Premises is described in the attached Exhibit "B".
Upon demand by either party, the other party shall join in the execution of
a certificate in recordable form evidencing the Commencement Date and the
Expiration Date of the Lease Term. In the event of Landlord's inability to
deliver possession of the Demised Premises ready for occupancy to Tenant on or
before the intended Commencement Date, Landlord shall not be liable for any
damages caused thereby, nor shall this Lease be void or voidable by Tenant, but
in such event, no rent shall be payable by Tenant to Landlord until the date the
Lease Term commences, Under no circumstances shall Landlord be liable to Tenant
in damages for any delay in commencing or completing its construction of the
Demised Premises or any other work performed by Landlord.
3. RENT
(A) BASE RENT. Tenant shall pay to Landlord, as annual Base Rent for the
Demised Premises, those sums that are specified in the attached Exhibit "C".
Such Base Rent shall be payable in monthly installments, without any setoff or
counter-claim whatsoever, on the first day of each calendar month in advance.
The amount of each such monthly installment is also specified in Exhibit "C",
except that if the Lease Term includes a partial calendar month at the beginning
thereof, Base Rent for that partial month shall be prorated at the rate that the
Base Rent is payable for the first full calendar month thereafter, and shall be
payable on the Commencement Date. For purposes of this Lease, a "Lease Year"
shall be the twelve (12) month period that begins on the
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Commencement Date if that date is also the first day of a calendar month or on
the first day of the next succeeding calendar month if it is not, and ends at
midnight on the day prior to the annual anniversary of that date.
OPERATING EXPENSE RENT. As used in this Lease, the term "Operating Year"
means a twelve (12) month period beginning on January 1 and ending on December
31 of the same calendar year. If for any Operating Year which falls in whole or
in part within the Lease Term (including renewal periods, if any) the Operating
Expense (as defined hereinafter) per square foot of rentable area of the
Building exceeds $ 0.00 per square foot of rentable area therein, Tenant shall
pay additional rent for that Operating Year or for that part of the Operating
Year falling within the Lease Term. Operating Expense per square foot of
rentable area of the Building shall be determined by dividing the Operating
Expense of the Building by the total rentable area of the Building. The excess
of Operating Expense per square foot of rentable area over $0.00 shall be
defined as the Operating Expense Differential. The additional rent payable
annually by Tenant under this Section 3(B) shall be the Operating Expense
Differential for that Operating Year times the number of square feet of rentable
area in the Demised Premises as set forth in Section 1 of this Lease. Such
additional rent for any Operating Year which does not fall entirely within the
Lease Term shall be the amount of additional rent computed for that entire
Operating Year multiplied by a fraction, the numerator of which is the number of
days in that Operating Year which fall within the Lease Term and the denominator
of which is three hundred sixty-five (365).
At the commencement of the Lease Term at or prior to the commencement of
any Operating Year during the Lease Term, Landlord may deliver to Tenant a
written estimate of the estimated Operating Expense Differential that Landlord
expects to accrue during the Operating Year in which the Lease Term commences or
the next succeeding Operating Year, as the case may be and the additional rent
that Tenant is expected to owe to Landlord as a result of that estimated
Operating Expense Differential (which estimated additional rent is referred to
hereinafter as "Tenant's Estimated Operating Expense Rent"). Landlord may also
give Tenant written notice at any time during an Operating Year of any increases
or decreases in Tenant's Estimated Operating Expense Rent for that Operating
Year that Landlord reasonably determines to be appropriate. Each monthly
installment of Operating Expense Rent due from Tenant to Landlord may be
adjusted by Landlord from time to time. If Landlord fails to give Tenant
written notice of Tenant's Estimated Operating Expense Rent for any particular
Operating Year prior to the commencement of that Operating Year, Tenant's
monthly installments of Operating Expense Rent for that Operating Year shall be
increased by one-twelfth (1/12) of Tenant's Estimated Operating Expense Rent for
the preceding Operating Year until Landlord gives Tenant written notice of any
increases or decreases thereto.
A statement showing in detail the actual Operating Expense of the Building
for each Operating Year and Tenant's proportionate share of that Operating
Expense (hereinafter referred to as the "Statement of Actual Adjustment") shall
be delivered by Landlord to Tenant within a reasonable period of time after the
end of any Operating Year in which Estimated Operating Expense Rent was paid by
Tenant or due to Landlord under the provisions hereof. Within thirty (30) days
after the delivery by Landlord to Tenant of each Statement of Actual Adjustment,
Tenant shall pay to Landlord or Landlord shall credit to Tenant, as appropriate,
the amount by which Tenant's proportionate share of the Operating Expense of the
Building for that Operating Year was more or less than the Estimated Operating
Expense Rent paid by Tenant to Landlord during that Operating Year.
In the event of clerical errors or the discovery of new facts by Landlord
or Landlord's accountants that cause the Statement of Actual Adjustment for any
particular Operating Year to increase or decrease, upon written notice from
Landlord to Tenant of the new, revised Statement of Actual Adjustment for that
Operating Year, any deficiency or overpayment by Tenant in the payment of
Tenant's proportionate share of the Operating Expense of the Building for that
Operating Year shall be paid by Tenant to Landlord within thirty (30) days
thereafter or taken as a credit by Tenant against the next installment of rent
due under this Lease.
If Tenant shall, within thirty (30) days after receipt thereof, question in
writing any such Statement of Actual Adjustment, the parties shall attempt to
resolve that question amicably. If any such question is not amicably resolved
by Landlord and Tenant within thirty (30) days after Landlord receives written
notice of the question from Tenant, Landlord shall, during the sixty (60) days
next following the expiration of that thirty (30) day resolution period, employ
an independent
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certified public accountant to audit the disputed Statement of Actual Adjustment
and the Operating Expense of the Building for that particular Operating Year.
The determination of such accountant shall be final, conclusive and binding upon
Landlord and Tenant. The amounts of individual items constituting the Operating
Expense shall be confidential, and while Landlord shall keep and make available
to such accountant all relevant records in reasonable detail, and shall permit
such accountant to examine and audit any of Landlord's records as may reasonably
be required to verify the Statement of Actual Adjustment at reasonable times
during business hours, Landlord shall not be required to (and the accountant
shall not be permitted to) disclose to any person or entity any details (it
being the intent of the parties that such accountant shall merely certify to
Landlord and Tenant the correct Statement of Actual Adjustment). Any change in
the Statement of Actual Adjustment required by such accountant's determination
shall be made within thirty (30) days after such determination has been
rendered. The expenses involved in such determination shall be borne by
Landlord, unless the results of the audit disclose that Landlord's Statement of
Actual Adjustment was substantially correct, in which case Tenant shall
reimburse Landlord for one-half (1/2) of the reasonable costs of the audit,
which reimbursement shall be due and payable upon demand by Landlord and shall
be deemed to be additional rent due under this Lease. If Tenant does not
question any Statement of Actual Adjustment within thirty (30) days after
receiving the same, Tenant shall be deemed to have approved and accepted that
Statement of Actual Adjustment.
The term "Operating Expense" as used in this Lease means all costs and
expenses of operating, maintaining and repairing the Building, as such costs and
expenses would be incurred by a reasonable and prudent operator of a first class
office building in downtown Columbus, Ohio, and shall include without limitation
the following costs and expenses of Landlord with respect to the Building, all
as determined on an accrual basis: all real property taxes and assessments,
general or special, ordinary or extraordinary, payroll taxes, federal and state
unemployment taxes and social security taxes; all insurance premiums, including
without limitation premiums for water damage, fire and extended coverage,
liability, workers' compensation, health, accident and group insurance; water
and sewer charges; license, permit and inspection fees; wages and salaries of
operating personnel including welfare, retirement, vacation pay and other
compensation and fringe benefits; commercially reasonable management fees;
auditor's fees; legal fees for services that are of general benefit to the
Building or its tenants; the cost of all materials and supplies, including
without limitation charges for telephones, telecopiers, postage, stationery
supplies and other materials and services, required for the routine operation of
the Building; the cost of all repairs to and routine maintenance of the
Building, including without limitation the cost of materials, supplies, tools
and equipment used in connection therewith; all costs incurred in the operation,
inspection and servicing of the Building, including without limitation costs
paid pursuant to contracts for outside maintenance, janitorial service and
security personnel, the cost of electrical, plumbing, heating, air conditioning
and mechanical equipment, and the cost of materials, supplies (including lamps,
bulbs, starters and ballasts used in the suites of tenants of the Building),
tools and equipment used in connection therewith; the cost of all services
(including electricity, gas, sewer, water and other utilities) used in the
operation and maintenance of the Building; and all other costs and expenses that
are necessary or desirable to be incurred in connection with operating and
maintaining the Building in a first class manner and condition; provided,
however, that Operating Expense shall not include the cost of utilities and
other services to the extent that such services are sold to and separately paid
for by any tenant in the Building, any costs and expenses that are reimbursed by
insurance proceeds (to the extent of such reimbursement), and costs incurred by
Landlord for leasing commissions, tenant alterations, depreciation and capital
improvements to the Building, except that Operating Expense shall include the
annual amortization over its anticipated useful life of the cost of any capital
improvements (including any interest and other financing charges thereon)
falling within any of the following categories: (i) a labor-saving or energy-
saving device or improvement which eliminates any other component of Operating
Expense or which reduces any such Operating Expense from the costs that would
have been incurred had such device or improvement not been installed; (ii) an
installation or improvement required by reason of any law, ordinance or
regulation, which requirement did not exist on the date of this Lease and is
generally applicable to similar office buildings; or (iii) an installation or
improvement which directly enhances the safety or welfare of tenants in the
Building generally.
The phrase "real property taxes and assessments" as used in this Lease
means all taxes, including state equalization factors, if any, and assessments,
special or otherwise, exclusive of penalties or discounts, levied upon or with
respect to the Building and the land on which it is situated, imposed by any
federal, state or local governmental agency, including any use,
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occupancy, excise or other similar taxes. Real property taxes and assessments
shall include the expense of contesting the amount or validity of any such
taxes, charges or assessments, such expense to be applicable to the period of
the items contested. Real property taxes and assessments shall not, however,
include income, franchise, capital stock, estate or inheritance taxes. For
purposes of this Lease, real property taxes and assessments for any particular
Operating Year shall be those taxes the last timely payment date for which
occurs during that Operating Year. In the case of special taxes or assessments
payable in installments, only the amount of each installment the last timely
payment day for which occurs in any particular Operating Year shall be included
in the Operating Expense for that Operating Year. Landlord has retained the
sole right to institute or participate in any proceedings to establish or
contest the amount of any real property taxes or assessments.
Under no circumstances shall a decrease in the Operating Expense of the
Building result in a reduction of the monthly installment of rent paid by Tenant
hereunder to an amount that is less than the monthly installment of Base Rent
specified in Exhibit "C". All costs and expenses which Tenant assumes or
agrees to pay to Landlord pursuant to this Lease shall be deemed to be
additional rent and, in the event of non-payment thereof, Landlord shall have
all rights and remedies provided herein in the event of the non-payment of any
Base Rent or other rent hereunder.
(C) LATE CHARGE. If any installment of Base Rent or additional rent or
other moneys that Tenant is obligated to pay to Landlord under this Lease is not
paid within the applicable period specified in Section 21 of this Lease, such
unpaid installment shall bear interest at the rate of one and one-half percent
(1 .5%) per month from the date such installment became due and payable to the
date of payment thereof by Tenant; provided, however, that nothing contained
herein shall be construed or implemented in such a manner as to allow Landlord
to charge or receive interest in excess of the maximum legal rate then allowed
by law. Such late charge and interest shall constitute additional rent
hereunder that is due and payable with the next monthly installment of Base
Rent.
(D) PLACE OF PAYMENT. All payments of Base Rent, additional rent and any
other moneys owing from Tenant to Landlord shall be made to Landlord's property
manager, ROI Realty Services, Inc., at Suite 102, 505 South High Street,
Columbus, Ohio 43215, or at such other place as may be designated by Landlord
from time to time.
4. SECURITY DEPOSIT
As security for the performance and observance by Tenant of all of its
duties, obligations, covenants and conditions under this Lease, Tenant has
deposited with Landlord the sum of FOURTEEN THOUSAND ONE HUNDRED TWENTY-NINE
AND EIGHTY-EIGHT CENTS ($14,129.88) (the "Security Deposit"), which sum shall
be held by Landlord as a security deposit during the Lease Term. If Tenant
performs and observes all of the duties, obligations, covenants and conditions
that are required to be performed and observed by it under this Lease, Landlord
shall return the Security Deposit, or the balance thereof then held by Landlord,
without interest to Tenant within thirty (30) days after the Expiration Date or
after Tenant surrenders possession of the Demised Premises to Landlord,
whichever is later. In the event of a default by Tenant in the payment of any
rent or the performance or observance of any of its other duties, obligations,
covenants or conditions under this Lease, Landlord may, at its option and
without further notice or demand to Tenant, apply all or any part of the
Security Deposit to the payment of such rent or to the curing of any such other
default. In that event, Tenant shall upon request promptly deposit with
Landlord the amount so applied so that Landlord will have on hand at all times
during the Lease Term the full amount of the Security Deposit. Landlord shall
not be required to hold the Security Deposit in a separate account, but may
commingle it with Landlord's other funds. In the event of a sale or lease of
the land and Building of which the Demised Premises are a part, Landlord shall
have the right to transfer the Security Deposit to its purchaser or lessee and
Landlord shall thereupon be automatically released by Tenant from all
responsibility for the return of such deposit, and Tenant agrees to look solely
to the new purchaser or lessee for the return of such deposit. In the event of
an assignment of its rights under this Lease by Tenant, the Security Deposit
shall be deemed to be held by Landlord as a deposit made by the assignee, and
Landlord shall have no further responsibility for the return of the Security
Deposit to the assignor.
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5. HEATING, VENTILATING AND AIR CONDITIONING
Landlord agrees to furnish heating, ventilating and air conditioning to
provide a temperature and humidity condition required in Landlord's judgement
for comfortable occupancy of the Demised Premises under normal business
operations from 8:00 a.m. to 6:00 p.m. on weekdays and from 8:00 a.m. to 1:30
p.m. on Saturdays, with Sundays and holidays excepted. Whenever heat generating
machines or equipment are used in the Demised Premises which affect the
temperature or humidity otherwise maintained by the air conditioning system,
Landlord reserves the right, at its option, either to require Tenant to
discontinue use of such heat generating machines or equipment or to install
supplemental air conditioning equipment in the Demised Premises. The cost of
such installation shall be paid by Tenant to Landlord promptly on being billed
therefor, and the cost of operating and maintaining such supplemental equipment
shall be paid by Tenant to Landlord on the monthly rent payment dates at such
rates as may be agreed upon, but in no event at a rate less than Landlord's
actual cost of that operation and maintenance.
Landlord shall install utility meters that may be necessary or desirable to
measure the cost of providing such heating, ventilating and air conditioning
services, and Tenant shall pay the actual cost of all utilities measured by
those meters. All other costs and expenses shall constitute additional rent due
under this Lease and shall, as appropriate, be paid to Landlord within ten
(10) days after Tenant receives a bill or other demand therefor.
6. ELECTRICITY AND NATURAL GAS
Landlord agrees to provide natural gas and electrical service in the
Building, and the necessary utility meters to measure Tenant's use of natural
gas and electricity. Tenant shall obtain all such service used in the Demised
Premises directly from the utility providing such service. Tenant shall not
install or connect any computers, large business machines, X-rays or other heavy
electrical equipment of any type to the electrical distribution system of the
Building without obtaining the prior written consent of Landlord.
7. JANITORIAL SERVICE
Landlord agrees to provide janitorial service five (5) evenings per week in
and about the Demised Premises, Saturdays and Sundays and holidays excepted.
Tenant shall not provide any additional janitorial service without Landlord's
prior written consent, in which event such janitorial service shall be subject
to Landlord's supervision but at Tenant's sole cost and responsibility. If
Tenant should request Landlord to provide janitorial service to the Demised
Premises at times other than those specified above, Landlord shall make a
reasonable effort to provide such service and shall bill Tenant directly for the
cost thereof at such rates as have been reasonably established by Landlord.
Such charges shall constitute additional rent due under this Lease and shall be
due and payable within ten (10) days after Tenant receives a bill therefor.
8. REPAIRS
Landlord agrees to make all usual and customary repairs to the Demised
Premises, excluding repairs to any special coverings of walls, partitions,
floors or ceilings installed by or at the request of Tenant, and to repair and
maintain the common areas of the Building. All such repairs and maintenance
shall be at the cost and expense of Landlord (and shall be included as part of
the Operating Expense of the Building when appropriate under Section 3 of this
Lease), except the cost of any repairs that are occasioned by the negligence or
willful misconduct of Tenant or its agents, employees, customers, licensees or
invitees, which cost shall be borne by and billed directly to Tenant, shall
constitute additional rent due under this Lease, and shall be due and payable
within ten (10) days after Tenant's receipt of each such bill.
9. WATER
Landlord agrees to provide water from City of Columbus mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord. The
water used by Tenant shall be
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separately metered through a metering device installed by Landlord, and Tenant
shall pay the City of Columbus for such water services.
10. INTERRUPTION OF SERVICES
Landlord does not warrant that any of the services mentioned above will be
free from interruptions caused by war, insurrection, civil commotion, riots,
acts of God or the enemy, government action, repairs, renewals, improvements,
alterations, strikes, lockouts, picketing, whether legal or illegal, accidents,
inability of Landlord to obtain fuel or supplies, or any other causes beyond the
reasonable control of Landlord. Any such interruption of service shall never be
deemed an eviction or disturbance of Tenant's use and possession of the Demised
Premises or any part thereof, or render Landlord liable to Tenant for damages,
or relieve Tenant from the performance of any of Tenant's obligations under this
Lease. Although Landlord intends to operate a first class office building, the
quality and adequacy of all services furnished shall be determined by Landlord.
Landlord shall not be liable for any loss, damage or expense which Tenant may
sustain or incur if either the quantity or character of any such service is
changed or made unavailable to Tenant, or is unsuitable for Tenant's
requirements by reason of the requirements or actions of the public utility
company supplying such service to the Building, or for any other reason not
attributable to Landlord.
11. OPERATION OF BUILDING; RIGHTS RESERVED TO LANDLORD
Landlord reserves the right to do any and all of the following:
(A) To change the name of the Building without notice or liability to
Tenant;
(B) To install and maintain a sign or signs on the exterior of the
Building;
(C) To designate all sources that furnish vending equipment, painting
services within office suites in the Building, sign painting and lettering, ice,
drinking water, towels and toilet supplies, and other similar goods and services
that are provided to, delivered to or consumed in or about the Demised Premises
and the Building;
(D) To decorate, remodel, repair, alter or otherwise prepare the Demised
Premises for re-occupancy if during the last ninety (90) days of the Lease Term
or any part thereof, Tenant vacates the Demised Premises;
(E) To have pass keys to the Demised Premises at all times;
(F) To grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building;
(G) To show the Demised Premises to others upon giving reasonable notice
to Tenant;
and
(H) To take any and all measures, including inspections, repairs,
alterations, additions and improvements to the Demised Premises or to the
Building, that may be necessary or desirable for the safety, protection or
preservation of the Demised Premises or the Building or the interests of
Landlord or other tenants herein.
Landlord may enter the Demised Premises at all reasonable times under
ordinary circumstances and at any time under emergency circumstances to exercise
any or all of the foregoing rights without being deemed guilty of an eviction or
a disturbance of Tenant's quiet enjoyment of the Demised Premises, and without
being liable in any manner to Tenant. Landlord will use its best efforts to
prevent any unnecessary inconvenience to Tenant or Tenant's business. This
Section shall not limit the rights of Landlord under law in any manner and the
foregoing shall not be deemed to be an exclusive list of the rights of Landlord
under law or under this Lease.
12. OPERATION OF THE BUILDING; TENANT'S OBLIGATIONS
Tenant agrees to do or perform all of the following:
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(A) To observe the rules and regulations annexed hereto as Exhibit "D" and
such further rules and regulations as from time to time may be put in effect by
Landlord for the general safety, comfort and convenience of Landlord, occupants
and tenants of the Building. Any failure by Landlord to enforce any rules and
regulations against Tenant or any other tenant in the Building shall not
constitute a waiver thereof.
(B) To give Landlord, its agents and employees, its mortgagees and any
other person or persons authorized by Landlord, access to the Demised Premises
at all reasonable times, without charge or diminution of rent, to enable any
such person or entity to examine the same and to make such repairs, additions
and alterations as Landlord may deem advisable. Except as expressly provided
otherwise in this Lease, there shall be no allowance to Tenant or diminution of
rent and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from the making of any repairs,
alterations, additions or improvements in or to any portion of the Building of
the Demised Premises, or in or to any fixtures, appurtenances and equipment
thereof.
(C) To keep the Demised Premises in good order and condition, and to make
all repairs thereto which are not Landlord's obligations pursuant to Section 9
of this Lease.
(D) Not to overload, damage or deface the Demised Premises or the Building
or do any act to or bring or keep anything in or about the Demised Premises or
the Building that may make void or voidable any insurance on the Demised
Premises or the Building, or which may cause an increase or extra premium to be
payable for any insurance.
(E) Not to install any curtains, drapes, blinds or other window treatments
in the Demised Premises that are visible from the outside of the Building unless
(i) such curtains, drapes, blinds or other window treatments are in compliance
with any specific guidelines therefor that may be promulgated by Landlord, or
(ii) Tenant obtains Landlord's prior written approval of the same.
(F) Not to make any alteration of or addition to the Demised Premises
without the prior written approval of Landlord.
Tenant's obligations under this Section 13 to do or not to do a specified
act shall extend to and include Tenant's obligation to see to it that Tenant's
agents, employees, customers, licensees and invitees also shall do or shall not
do any such acts, as the case may be.
13. SIGNS AND ADVERTISEMENTS
Tenant shall not place any signs, advertisements or notices on the outside
or inside walls, windows, doors or roof of the Building or the Demised Premises
except as approved in writing by Landlord with respect to the lettering, size,
color, style, location and text of each sign, advertisement or notice.
14. MECHANICS' LIENS
Tenant shall keep the Demised Premises, the Building, every part thereof
and every estate therein, including the leasehold estate of Tenant, free and
clear of any and all mechanics', materialmen's and other liens arising out of or
in connection with any work or labor done, services performed or materials,
appliances, machinery, supplies or fuel used or furnished for or in connection
with any alteration, improvements, repairs or additions which Tenant may make or
cause to be made in or about the Demised Premises, or in connection with the
installation or removal of any improvements, furnishings and equipment as
permitted hereunder. If any such lien is filed against the Building, the
Demised Premises, any part thereof or any estate therein, Tenant shall cause it
to be discharged of record within forty-five (45) days after the filing thereof,
by payment, deposit, bond, order of a court of competent jurisdiction or
otherwise. If Tenant fails to cause any such lien to be discharged within said
period, then, in addition to any other right or remedy, Landlord may, but shall
not be obligated to, discharge it either by paying to the lienor the amount
claimed to be due or by procuring the discharge of such lien by deposit or by
statutory or non-statutory bonding proceedings, all at the option of Landlord.
In such event Landlord shall be entitled, if it so elects, to compel the
prosecution of any action for the foreclosure of such lien by the lienor and to
pay the amount of any judgment rendered in favor of the lienor with interest,
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costs and allowances. Any amount so paid by Landlord together with all costs
and expenses incurred by Landlord in connection therewith, including reasonable
attorneys' fees, shall constitute additional rent payable by Tenant under this
Lease, and shall be due and payable by Tenant to Landlord upon demand.
15. INDEMNIFICATION
Tenant hereby agrees to indemnify Landlord against all liabilities, damages,
losses, costs and expenses, including reasonable attorneys' fees and other
expenses of litigation, incurred by Landlord as a result of (i) Tenant's failure
to perform any duty or obligation or to observe any covenant or condition
required to be performed or observed by Tenant under this Lease; (ii) any
accident, injury or damage which may occur in or about the Demised Premises
unless such accident, injury or damage has been solely caused by the gross
negligence or intentional act of Landlord or its agents or employees; (iii)
Tenant's failure to comply with any governmental authority; and (iv) any
mechanics', materialmen's or other liens that Tenant causes or permits to
attach to the Demised Premises, the Building, any part thereof or any estate
therein, or any claims, suits or proceedings pertaining to any such lien.
16. ASSIGNMENT AND SUBLETTING
The Tenant shall not, sell, assign, mortgage, encumber or otherwise
transfer its interest under this Lease, or sublet the Demised Premises or any
part thereof, or allow any transfer hereof, or allow any lien to be created upon
Tenant's interest under this Lease by operation of law or otherwise, without the
prior written consent of Landlord. Any attempted or purported sale, assignment,
mortgaging, encumbrance, transfer or subletting of the Demised Premises, this
Lease or any interest of Tenant hereunder that is not in compliance with the
provisions of this Section 17 shall be void and of no force or effect. Any such
sale, assignment, mortgaging, encumbrance, transfer or subletting by Tenant with
Landlord's consent shall not release or discharge Tenant from any duties,
obligations or liability under this Lease, whether past, present or future, and
Tenant shall continue to be fully liable hereunder. Any assignee or subtenant
of Tenant shall comply with and be bound by all terms, covenants, conditions,
provisions and agreements of this Lease to the extent of the space sublet or
assigned, and Tenant shall deliver to Landlord promptly after execution, an
executed copy of each such sublease or assignment and an agreement of compliance
by each such subtenant or assignee.
Landlord may sell, assign, transfer, mortgage, encumber, or otherwise
dispose of the Building and/or its interest under this Lease at any time. In
the event of such a sale, assignment or transfer, Landlord shall not be liable
for any obligations of the lessor hereunder that accrue thereafter provided that
the buyer, assignee or transferee assumes all of those obligations.
17. CASUALTY LOSS OR DAMAGE
If the Demised Premises or the Building are damaged by fire or other
casualty during the Lease Term, Tenant shall give immediate notice to Landlord,
who shall thereupon cause the damage to be repaired with reasonable speed at the
expense of Landlord, subject to delays beyond the reasonable control of
Landlord, and to the extent that the Demised Premises are rendered untenantable,
all rent due hereunder shall proportionately abate. If such damage to the
Demised Premises or the Building cannot be repaired within one hundred eighty
(180) days after the date of such casualty, either Landlord or Tenant may
terminate this Lease by giving the other written notice of such termination
prior to the commencement of repairs by Landlord, all rent due hereunder shall
be adjusted to the date of such damage, and Tenant shall thereupon promptly
vacate the Demised Premises.
In addition, if the casualty loss or damage occurs to the Demised Premises
during the last Lease Year of the Lease Term, Landlord shall have the unilateral
right to terminate this Lease by giving written notice of such termination to
Tenant regardless of the period of time that it will take to repair the damage,
in which event rent shall be abated and Tenant shall promptly vacate the Demised
Premises as provided in the preceding sentence.
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18. WAIVER OF CLAIMS AND SUBROGATION
Tenant agrees that Landlord and its building manager and their respective
partners, officers, agents and employees shall not be liable to Tenant for any
damage to or loss of personal property located in or about the Demised Premises
or the Building, or for injuries or death to persons unless such damage, loss,
injury or death is the result of the gross negligence or willful misconduct of
Landlord, its building manager or any such partner, officer, agent or employee.
Landlord and Tenant hereby waive all causes of action and rights of
recovery against each other and their respective partners, officers, agents and
employees for any injury to or death of any person or loss or damage occurring
to the Demised Premises, the Building, any improvements, fixtures, merchandise
and other personal property located in or about the Building, or business or
rent interruption, resulting from any perils covered by insurance, regardless of
the cause or origin of such loss or damage (including without limitation the
negligence of either party or their partners, officers, agents or employees), to
the extent of any recovery on or under any policy or policies of insurance
provided that said insurance will not be invalidated in whole or in part by
reason hereof.
19. USE OF THE DEMISED PREMISES
Subject to any additional rights or restrictions set forth in the attached
Exhibit "C", Tenant shall use the Demised Premises only for general office
purposes. Under no circumstances shall Tenant use or occupy the Demised
Premises, or permit them to be used or occupied, or do or permit anything to be
done in or about the Building:
(A) That will in any way violate any certificate of occupancy affecting
the Demised Premises or the Building;
(B) That may cause structural damage to the Building or any part thereof;
(C) That will violate any present or future laws, ordinances or regulation
of any governmental authority;
(D) That involves the storage, preparation and/or sale of food products or
beverages, whether at wholesale or retail, including without limitation the
operation of a restaurant, delicatessen, food store, bar, cocktail lounge or
carry-out;
(E) That creates noise that may be heard outside the Demised Premises and
which could reasonably be considered objectionable by Landlord or other tenants
of the Building;
(F) That will interfere with the reception or (if permitted by the
attached Exhibit "C") transmission or television, radio, microwave or other
signals to, from or in the Building; or
(G) That may constitute waste or a public or private nuisance
20. EVENTS OF DEFAULT BY TENANT
The occurrence of any of the following shall constitute an "Event of
Default" by Tenant under this Lease:
(A) Delinquency in the payment of any installment of Base Rent, additional
rent or other money owed by Tenant under this Lease for a period of five (5)
days after the same becomes due and payable;
(B) Tenant's failure to perform or observe any other duty, obligation,
covenant or condition imposed upon Tenant by this Lease within twenty (20) days
after Landlord gives Tenant written notice of such failure;
(C) Vacation or desertion of the Demised Premises by Tenant for a period
of more than fifteen (15) days;
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(D) The commencement of any involuntary bankruptcy proceeding against
Tenant that is not dismissed within thirty (30) days after the date of
commencement, or the commencement of any other proceedings under any bankruptcy
act by or against Tenant, or an assignment by Tenant for the benefit of its
creditors, or the appointment of a receiver with authority to take possession or
control of the Demised Premises or the business conducted thereon by Tenant or
Tenant's leasehold estate hereunder, which receiver is not discharged within a
period of thirty (30) days after his appointment, or the involuntary assignment,
transfer or sale of this Lease or the leasehold estate of Tenant hereunder by
operation of law in any manner whatsoever, except through statutory merger or
consolidation or devise or intestate succession.
21. LANDLORD'S RIGHTS UPON TENANT'S DEFAULT
If Tenant commits an Event of Default as described in Section 21 hereof,
Landlord may, at its option, without further notice and with process of law, re-
enter and take possession of the Demised Premises and remove Tenant's signs,
equipment, furnishings and other personal property therefrom, and place said
property in storage at Tenant's expense. If Tenant fails to reclaim said
property and to pay all expenses incurred in its removal and storage within a
period of twenty (20) days after its removal, Landlord may, in its sole
discretion, either continue to store said property at Tenant's expense or sell
said property at Public or private sale, with notice, and to apply the net
proceeds thereof (after the payment of all costs and expenses incurred in such
removal, storage and sale) to any Base Rent, additional rent or other
indebtedness owed by Tenant to Landlord. Further, Landlord may make any
changes, repairs, alterations, and additions in or to the Demised Premises which
may be necessary and may (but shall not be obligated to) re-let the Demised
Premises or any part thereof on such terms and conditions as Landlord deems
proper. Tenant Hereby expressly agrees that in the event that Landlord attempts
such a reletting, Landlord shall not be obligated to give preferential treatment
to the leasing of the Demised Premises over the leasing of any other space in
the Building, or in any other building that Landlord manages or in which
Landlord owns an interest.
Upon each such re-letting (i) Tenant shall pay to Landlord, in addition to
any indebtedness other than rent due hereunder, the expenses of such re-letting
and of such changes, repairs, alterations and additions incurred by Landlord,
and the amount, if any, by which the Base Rent and additional rent required
under this Lease for the period of such re-letting (up to but not beyond the end
of the Lease Term) exceeds the amount actually paid as rent for the Demised
Premises for such period of such re-letting; or (ii) at the option of Landlord,
rents received by Landlord from such re-letting shall be applied first to the
payment of any indebtedness owed by Tenant to Landlord under this Lease other
than Base Rent and additional rent due hereunder, and second to the payment of
any expenses of such re-letting and of such changes, repairs, alterations and
additions, and third to the payment of any Base Rent and additional rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord and applied
in payment of future rent and other obligations of Tenant to Landlord as the
same become due and payable hereunder. If the proceeds generated by such re-
letting are not sufficient to pay all such indebtedness, expenses and rent,
Tenant shall pay any such deficiency to Landlord promptly upon demand. No such
reentry or taking of possession of the Demised Premises by Landlord shall be
construed as an election on the part of Landlord to terminate this Lease unless
a written notice of such intention is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction. Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for any previous uncured Event of Default. Should Landlord
at any time terminate this Lease for any Event of Default, in addition to any
other remedy that it may have at law or in equity, Landlord may recover from
Tenant all damages incurred by reason of such Event of Default which amounts
shall be immediately due and payable from Tenant to Landlord.
22. LANDLORD'S RIGHTS UPON TERMINATION OR ABANDONMENT
In addition to the rights and remedies specified in Section 22 hereof, upon
the termination of this Lease in any manner or for any reason whatsoever
(including the expiration of the Lease Term), or upon the vacation or
abandonment of the Demised Premises by Tenant prior to the end of the Lease
Term, Tenant shall remove Tenant's signs, equipment, furnishings and other
personal property therefrom (including all such property owned by persons
claiming rights of use or occupancy under or through Tenant ), and vacate and
deliver up the Demised Premises to Landlord peaceably and quietly in as good
order and condition as the same are now or may hereafter be
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improved by Landlord or Tenant, reasonable use and wear thereof, taking under
the power of eminent domain, and repairs that are Landlord's responsibility
excepted. In the event of such termination or abandonment, Tenant hereby grants
Landlord full and free license to enter into and upon the Demised Premises with
process of law to expel or remove Tenant and any others who may be using or
occupying the Demised Premises and to remove any and all such property
therefrom, using such force as allowed by law, without being deemed in any
manner guilty of trespass, eviction, or forcible entry or detainer, and without
relinquishing any right or remedy given to Landlord under this Lease or by
operation of law. Any such property that is not removed by Tenant at the
termination of this Lease (or within forty-eight (48) hours after a termination
by reason of Tenant's committing an Event of Default hereunder) may be disposed
of by Landlord in the manner described in Section 22 hereof. All alterations,
additions and improvements made to or installed in the Demised Premises by
Landlord at Landlord's expense shall remain Landlord's property, and Tenant
shall not remove any such property at any time without the prior consent of
Landlord.
23. COSTS OF ENFORCEMENT
In addition to any other rights and remedies granted to Landlord by this
Lease, Tenant shall, as a further obligation of Tenant under this Lease and to
the extent permitted by applicable law, pay to Landlord upon demand all costs,
charges and expenses, including without limitation the reasonable fees of
counsel, agents and others, incurred by Landlord in enforcing any of Tenant's
obligations under this Lease or in taking part in any litigation, negotiations
or transactions in which Tenant causes Landlord, through no fault of Landlord,
to become involved or concerned, plus interest at the rate specified in Section
3-C- hereof, which amount shall be deemed to be additional rent under this Lease
that is due and payable by Landlord to Tenant upon demand.
24. REMEDIES CUMULATIVE
All rights and remedies of Landlord under this Lease shall be cumulative,
and none shall exclude any other right of remedy allowed by law.
25. NOTICES
All bills, statements, requests for attornment and estoppel certificates,
notices or communications which Landlord may desire or be required to give to
Tenant shall be deemed sufficiently given or rendered if in writing and either
delivered to Tenant personally, or sent by registered or certified mail
addressed to Tenant at the Demised Premises, and the time of rendition thereof
or the giving of such notice or communication shall be deemed to be the time
when the same is delivered to Tenant, or three (3) days after deposited in the
mail as provided herein. Any notice by Tenant to Landlord must be in writing
and delivered personally to the Property Manager of the Building or served by
registered or certified mail addressed to Landlord at 505 South High Street,
Columbus, Ohio 43215, or if Landlord changes such address by subsequently giving
written notice thereof to Tenant, at the latest address that is so furnished.
26. HOLDING OVER BY TENANT
Should Tenant continue to occupy the Demised Premises or any part thereof
after the expiration of the Lease Term without the express consent of Landlord,
such holdover tenancy shall be from month to month and in no event from year to
year or for any longer period. Unless otherwise agreed to in writing by
Landlord and Tenant, the monthly Base Rent payable by Tenant to Landlord during
such a holdover tenancy shall be at twice the monthly rate in effect immediately
prior to the expiration of the Lease Term, lasting for as long as Tenant remains
in possession, and Tenant shall continue to be subject to all other provisions,
covenants and conditions of this Lease except those that are inconsistent with
this Section 27. In addition, Tenant shall pay Landlord for all damages,
incidental, consequential and direct, sustained by Landlord by reason of
Tenant's retention of possession. The provisions of this Section do not impair
or exclude Landlord's rights of re-entry or any other right or remedy of
Landlord hereunder. No such holding over shall constitute or be deemed to be a
renewal or extension of the Lease Term.
27. ATTORNMENT
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This Lease and all rights of Tenant hereunder are subject and subordinate
to any and all mortgages, blanket or otherwise, that presently or may hereafter
affect the Building or any other real property of which the Demised Premises are
a part, and to any and all renewals, modifications, consolidations, replacements
and extensions thereof. It is the intention of the parties that this provision
shall be self-operative and that no further instrument shall be required to
effectuate such subordination of this Lease. Tenant shall, however, at any time
upon demand, execute, acknowledge and deliver to Landlord, without expense to
Landlord, any and all instruments that may be reasonably necessary or proper to
subordinate this Lease and all rights of Tenant hereunder to any such mortgages
or to confirm or evidence said subordination. Tenant covenants and agrees, in
the event any proceedings are brought for the foreclosure of any such mortgage,
to attorn to the purchaser and to recognize such purchaser as the lessor under
this Lease. Tenant further agrees to execute and deliver at any time and from
time to time, upon the request of Landlord or of any holder of such mortgage or
of such purchaser, any instrument which, in the sole judgment of such requesting
party, may be necessary or appropriate in any such foreclosure proceeding or
otherwise to evidence such attornment. Tenant hereby appoints Landlord and the
holder of such mortgage, or either of them, the Attorney-in-Fact, irrevocably,
of Tenant to execute and deliver for and on behalf of Tenant any such
instrument.
Notwithstanding the foregoing, Landlord and Tenant further agree that if
the holder of any such mortgage so requests, this Lease shall remain or be made
superior to the lien of said mortgage, and that they will execute such documents
as may be reasonably required by such mortgages to effectuate the superiority of
this Lease to said mortgage.
28. CONDEMNATION
If the whole or substantially the whole of the Building or any part of the
Demised Premises shall be lawfully and permanently condemned or taken in any
manner for any public or quasi-public use or purpose, this Lease and the Term
and estate hereby granted shall forthwith cease and terminate as of the date of
the taking of possession for such use or purpose. If less than the whole or
substantially the whole of the Building shall be so condemned or taken, then
Landlord may, at its option, terminate this Lease and the term and estate hereby
granted as of the date or the taking of possession for such use or purpose by
notifying Tenant in writing of such termination. Upon any such taking or
condemnation under circumstances where this Lease continues in effect, Landlord
shall, at its expense, proceed with reasonable diligence to repair, alter and
restore the remaining part of the Building to substantially its former condition
to the extent feasible. Landlord shall be entitled to receive the entire award
in any condemnation proceeding, including any award for the value of the
unexpired Lease Term, and Tenant shall have no claim against Landlord or against
the proceeds of the condemnation except to the extent expressly provided in the
next two succeeding sentences. If the temporary use or occupancy of all or any
part of the Demised premises shall be condemned or taken for any public or
quasi-public use during the Lease Term, this Lease shall be and remain
unaffected by such condemnation or taking and Tenant shall continue to pay in
full all Base Rent, additional rent and other moneys payable by Tenant to
Landlord under this Lease, and Tenant shall have the right to claim, prove and
receive so much of the award for such taking as constitutes compensation for use
and occupancy of the Demised Premises up to and including the date of the
expiration of the Lease Term or the date of termination of the temporary taking.
In addition, in any proceedings relating to the condemnation or taking of any
part of the Demised Premises or the Building that result in the termination of
this Lease, Tenant shall be entitled, at Tenant's expense, to claim, prove and
receive directly from the condemning authority, but not from Landlord, any
proceeds that may be specifically allocated to compensate Tenant for its moving
expenses and the loss of use of the Demised Premises for the remainder of the
Lease Term.
29. FLOOR LOAD, NOISE AND VIBRATIONS
Tenant shall not place a load upon any floor of the Demised Premises that
exceeds the load per square foot that such floor was designed to carry and which
is allowed by law. Landlord hereby certifies that such floors will carry sixty-
five (65) pounds per square foot live load which includes allowance for
partition load. Landlord reserves the right to prescribe the weight and
position of all safes and heavy installations which Tenant wishes to place in
the Demised Premises so as properly to distribute the weight thereof.
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Business machines and mechanical equipment belonging to Tenant that cause
vibration, noise, electromagnetism or other similar phenomena to be transmitted
to the structure Of the Building or any space therein to such a degree as to be
objectionable to Landlord or to any tenants in the Building shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration, and Tenant shall take such
corrective measures as are necessary to eliminate electro-magnetism and other
phenomena which are disruptive of the conduct of business by Landlord or other
tenants of the Building.
30. COMPLIANCE WITH LAWS AND REGULATIONS
Tenant shall, at its own expense, comply with all laws, orders, ordinances
and regulations of Federal, state, county and municipal authorities and with any
direction made pursuant to law by any public officer or officers which shall,
with respect to the use of the Demised Premises or any abatement of nuisance,
impose any violation, order or duty upon Landlord or Tenant arising from
Tenant's use of the Demised Premises, or from conditions that have been created
by or at the instance of Tenant or have been created by a breach of any of
Tenant's covenants or agreements under this Lease. Tenant shall further, at its
own expense comply with all rules, regulations, and requirements of the National
Board of Fire Underwriters or any state of other similar body having
jurisdiction.
31. QUIET ENJOYMENT
Landlord covenants that upon Tenant's paying before delinquency each
installment of Base Rent, additional rent and other moneys owed by Tenant under
this Lease and observing and performing in a timely manner all other terms,
covenants and conditions of this Lease on its part to be observed and performed,
Tenant may peaceably and quietly enjoy the Demised Premises, subject,
nevertheless, to the terms and conditions of this Lease.
32. LANDLORD'S RIGHT TO REMEDY DEFAULT
If Tenant fails to perform any duty or obligation or to observe any
covenant or condition that Tenant is required to perform or observe under this
Lease, Landlord may, at its option, without being under any obligation to do so
and without thereby waiving any rights that it may have as a result of such
failure, remedy such failure for the account of and at the expense of Tenant,
immediately and without notice in case of emergency, or in any other case, if
Tenant fails or refuses to cure such failure with reasonable dispatch after
Landlord shall have notified Tenant in writing of the same. If Landlord makes
any expenditures or incurs any obligations for the payment of money in
connection therewith, including without limitation attorney's fees in
instituting, prosecuting or defending any action or proceeding, such money paid
or obligations incurred shall thereafter bear interest at the rate specified in
Section 3-C- hereof, shall constitute additional rent payable by Tenant to
Landlord hereunder, and shall be due and payable upon demand.
33. LIMITATION ON TENANT'S RIGHT TO TERMINATE
In the event of any act or omission by Landlord that would give Tenant the
right to terminate this Lease or to claim a partial or total eviction, Tenant
shall not exercise any such right until (i) it has given written notice of such
act or omission to Landlord and (ii) a reasonable period of time shall have
elapsed following Landlord's receipt of such notice during which Landlord shall
have failed to commence to remedy or cure the act or omission, or to prosecute
such remedy or cure with reasonable diligence.
34. LIMITATION ON TENANT'S RECOVERY OF DAMAGES
Notwithstanding any other provision of this Lease to the contrary, if
Tenant seeks to recover from Landlord any costs, expenses, judgments or other
damages that arise under or relate in any manner to this Lease or to Tenant's
use or occupancy of the Demised Premises or the Building, Tenant hereby agrees
that in the collection of such costs, expenses, judgments and other darnages it
shall be limited to levying upon and recovering from only the interests of
Landlord in the Demised Premises, the Building and the land upon which they are
situated. Tenant shall not seek to levy upon or recover from, and hereby
releases any claims against, any other assets of
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Landlord, any individual partner of Landlord, whether general or limited, and
any of the assets of such partners.
35. ESTOPPEL CERTIFICATE
Tenant agrees that when Tenant takes possession of the Demised Premises and
at any other time, and from time to time, upon not less than fifteen (15) days
prior notice by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a statement in writing, which statement may be relied upon by any
prospective purchaser or lessee of the Building and the land upon which it is
situated, any mortgagee or prospective mortgagee thereof, or any prospective
assignee of any mortgage encumbering that property or any part thereof. Tenant
also agrees to execute and deliver from time to time such other estoppel
certificates as an institutional lender may reasonably require with respect to
this Lease.
36. LANDLORD'S RIGHT TO RELOCATE TENANT
Landlord shall have the right, at its option, upon at least sixty (60) days
prior written notice to Tenant, to relocate Tenant and to substitute for the
Demised Premises other space in the Building containing at least as much
rentable area as the Demised Premises. Such substituted space shall be improved
by Landlord, at its expense, with improvements at least equal in quantity and
quality to those in the Demised Premises. Landlord shall pay all reasonable
expenses incurred by Tenant in connection with such relocation, including
without limitation the costs of moving, telephone relocation, and reasonable
quantities of new stationery (if necessary to identify Tenant's new suite).
Upon completion of the relocation, Landlord and Tenant shall amend this Lease to
change the description of the Demised Premises and any other matters pertinent
thereto.
37. LIABILITY INSURANCE POLICY
Tenant shall carry at its own expense, throughout the Lease Term, public
liability insurance covering the Demised Premises and Tenant's use of the
Demised Premises, together with contractual liability endorsements covering
Tenant's obligations under Section 16 of this Lease, in companies and in a form
reasonably satisfactory to Landlord, with minimum coverages of $1,000,000 on
account of bodily injuries and/or death of one person, $1,000,000 on account of
bodily injuries and/or death of more than one person as a result of any one
accident or disaster, and $250,000 for property damage, and shall deposit said
policy or policies or certificates thereof with Landlord prior to the date of
any use or occupancy of the Demised Premises by Tenant. Each such policy shall
be endorsed in a manner that is reasonably acceptable to Landlord to verify that
the policy insures both Tenant and Landlord, as their interests may appear.
Should Tenant fail to carry such public liability insurance, properly endorsed,
at any time during the Lease Term, Landlord may at its option (but shall not be
required to) cause such public liability insurance to be issued, in which event
Tenant shall pay all premiums and other costs thereof upon demand, which sums
shall also be deemed to be additional rent due under this Lease. Each such
liability insurance policy shall also be endorsed to the effect that the insurer
agrees to notify Landlord in writing not less than thirty (30) days in advance
of modification or termination thereof.
38. BROKERAGE
In connection with this leasing transaction, Landlord hereby warrants and
represents that it has been represented only by ROI Realty Services, Inc., and
Tenant hereby warrants and represents that it has been represented only by
__________. Unless otherwise agreed in writing, each party shall be responsible
for paying all fees and commissions of the broker[s] or agent[s] named above
that have represented that party. Landlord and Tenant further warrant and
represent to each other that they have not dealt with any other broker or agent
in connection with this leasing transaction agree agent in connection with this
leasing transaction and that no other broker, agent or other person brought
about this leasing transaction. Landlord and Tenant further agree to indemnify
and hold each other harmless from and against any and all causes of action,
claims, demands, costs and expenses (including reasonable attorneys' fees)
arising from or accruing in
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connection with any fee, commission or other compensation sought, claimed or
recovered by any such broker, agent or other person as a result of the act or
omission of the indemnifying party.
39. MISCELLANEOUS TAXES
Tenant shall pay prior to delinquency all taxes assessed against or levied
upon its Occupancy of the Demised Premises, or upon the fixtures, furnishing,
equipment and other personal property of Tenant located in the Demised Premises
or the Building, if nonpayment thereof shall give rise to a lien on the real
estate, and when possible Tenant shall cause said fixtures, furnishings,
equipment and other personal property to be assessed and billed separately from
the real property. In the event that any or all of Tenant's fixtures,
furnishings, equipment and other personal property, or Tenant's occupancy of the
Demised Premises, shall be assessed and taxed with the real property, Tenant
shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant of a statement in writing setting forth in the amount of such
taxes attributable to Tenant's fixtures, furnishings, equipment or personal
property or Tenant's occupancy of the Demised Premises. Any such sums that are
payable by Tenant to Landlord shall also be deemed to be additional rent due
under this Lease.
40. CONDITION OF PREMISES
Except as otherwise agreed in writing, Tenant's taking possession of the
Demised Premises shall be deemed to be Tenant's acknowledgement and agreement
that the Demised Premises were in good order and satisfactory condition when
Tenant took possession, except as to latent defects. No promise of Landlord to
alter, remodel, repair or improve the Demised Premises or the Building and no
representation respecting the condition of the Demised Premises or the Building
has been made by Landlord to Tenant, other than as may be contained herein or in
a separate agreement signed by Landlord and Tenant.
41. TENANT DEFINED; PRONOUNS
The word "Tenant", wherever used in this Lease, shall be construed to mean
Tenants in all cases where there is more than one Tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases be
assumed as if fully expressed in each case. All pronouns used in this Lease
shall be deemed to mean and include all other numbers and genders, as the
context or their antecedents may require.
42. NO REPRESENTATIONS BY LANDLORD
Neither Landlord nor any of its agents or employees have made any
representations concerning the condition of the Demised Premises or the
Building, plans for further leasing or development thereof, or any other matter
relating to this Lease, which are not contained in this Lease.
43. SECTION HEADINGS
The headings to the various sections of this Lease are entirely for
purposes of convenience and reference, and shall not be considered when
interpreting or construing this Lease or any part thereof.
44. ADDITIONAL TERMS
Any additional terms and conditions of this Lease are set forth in the
exhibits and riders that are attached hereto. All such exhibits and riders are
hereby incorporated into and made a part of this Lease by this reference.
45. GOVERNING LAW; AMENDMENTS
This Lease shall be governed by and construed in accordance with the laws
of the State of Ohio. If any provision of this Lease is declared invalid or
unenforceable, the remainder of this Lease shall continue in full force and
effect. This Lease may not be amended or supplemented except by a writing that
is signed by both Landlord and Tenant.
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46. MEMORANDUM OF LEASE
Landlord and Tenant mutually agree that this Lease shall not be recorded,
but upon the written request of either one to the other, a Memorandum of this
Lease in recordable form for filing and recording in the Office of the Recorder
of Franklin County, Ohio, which Memorandum of Lease shall be in conformance with
Ohio Revised Code s5301.251, shall be promptly executed, acknowledged and
delivered by both Landlord and Tenant. Such Memorandum of Lease may then be
recorded by either party pursuant to the provisions of Section 2 above.
47. ACCORD AND SATISFACTION
No payment by Tenant or receipt and deposit by Landlord of any sum that is
less than the Base Rent, additional rent or other money then owed by Tenant
under this Lease shall be deemed to be anything other than a payment on account
to be applied against the amount(s) first coming due, nor shall any statement or
endorsement on any check or in any letter accompanying the payment cause the
acceptance of that payment to be deemed to be an accord and satisfaction.
Notwithstanding any such endorsement or statement, Landlord shall be entitled to
receive and deposit any such check or payment without prejudice to Landlord's
right to recover the balance due or to pursue any other right or remedy provided
in this Lease. If Landlord receives any such payment from Tenant after serving
any notice upon or commencing any suit or proceeding against Tenant, the receipt
and deposit of that payment shall not operate to waive or nullify that notice,
suite or proceeding if and to the extent that other sums continue to be owed by
Tenant to Landlord.
48. PARTIES BOUND
This Lease shall be binding upon and inure to the benefit of Landlord and
Tenant and their respective heirs, executors, administrators, personal
representatives, successors and assigns (to the extent that assignment is
permitted by this Lease).
49. PARKING
Landlord shall provide unreserved surface parking for up to eighty (80)
cars.. Such surface parking will be available during normal business hours at a
rate of Forty Dollars ($40.00) per month for the first twelve (12) months. The
Rate may increase at not more than ten percent (10%) annually.
50. LANDLORD PARTY
Tenant acknowledges that its previous lease to the Demised Premises
inadvertently listed Multicon Builders Inc, An Ohio Corporation, as Landlord,
and by its execution hereof, Tenant will look to TOW LTD. as the proper Landlord
party for this Lease.
END OF PAGE
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IN WITNESS WHEREOF, Landlord and Tenant have each executed this Lease or have
caused it to be executed by a duly authorized partner, officer or agent, as
appropriate, in multiple counterparts, each of which shall constitute an
original of this Lease and all of which together shall constitute one and the
same Lease, to be effective as of the day, month and year first above written.
LANDLORD:
Signed and acknowledged By: TOW LTD.,
in the presence of: an Ohio Limited Liability Company
/s/
- ----------------------- By /s/ Jeffrey W. Edwards
------------------------------------
/s/ Anita B. Collins Jeffrey W. Edwards
- ----------------------- General Manager
TENANT:
Claremont Technology Group, Inc.,
an Oregon Corporation
By /s/ Ross C. Kayuha
/s/ ------------------------------------
- -----------------------
Title Senior V.P.
/s/ ---------------------------------
- -----------------------
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LANDLORD'S ACKNOWLEDGEMENT
State of Ohio )
Franklin County )ss:
The foregoing instrument was acknowledged before me this 26 day of Oct,
1995 by Jeffrey W. Edwards, the General Manager of TOW LTD., an Ohio Limited
Liability Company.
/s/ Anita B. Collins
--------------------
Notary Public
My commission expires:
ANITA B. COLLINS
[SEAL] NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT. 6, 1996
CORPORATE-TENANT ACKNOWLEDGEMENT
State of Oregon
County of Franklin )ss:
The foregoing instrument was acknowledged before me this 26th day of
October, 1995 by Ross C. Kayuha, its Sr. Vice President on behalf of CLAREMONT
TECHNOLOGY GROUP, INC. an Oregon Corporation.
/s/ Jennifer D. Lucas (Harris)
----------------------------------
Notary Public
My commission expires:
Jennifer D. Lucas (Harris)
Notary Public, State of Ohio
Commission Expires 10/30/95
18
<PAGE>
EXHIBIT "A"
DEMISED PREMISES FLOOR PLAN
14,517 RENTABLE SQUARE FEET
[ DRAWING OF THE FLOOR PLAN ]
FLOOR PLAN
<PAGE>
EXHIBIT "B"
STANDARD WORKLETTER
The following is a summary of the Standard Workletter for 101-111 Liberty
Street. The Landlord agrees that, subject to delays due to causes beyond
Landlord's control, it will, at its own expense not to exceed $328,328.00 equal
to $22.62 per rentable square foot, do the following "Building Standard" work to
prepare CLAREMONT TECHNOLOGY GROUP, INC.'S Demised Premises as proposed by
Landlord.
BUILDING
Single Story Masonry with plaster facade and accent panels on exterior.
Windows to be insulated glass with aluminum frames, (color to be
determined). Building Standard 1" miniblinds provided for exterior windows
only.
HEATING, VENTILATING, AIR CONDITIONING
Designed to comply with the Municipal Building Code Requirements. Large
Computers and heat-producing equipment are not considered and any
additional load and cost will have to be calculated based on information
supplied by Tenant.
FIRE PROTECTION
Supply and install Building Standard horns, sensors, pull stations and
strokes as required by the Municipal Building Code Requirements.
TELEPHONE SYSTEM
Pull wires with plaster rings shall be provided as required by Tenant
plans. All computer and telephone cables to be installed by Tenant.
CEILINGS
Supply and install Building Standard 2' x 4' white grid and mineral fiber
acoustical tile lay-in ceiling with a 1' x 1' appearance throughout the
Premises. Ceiling height 8' x 6'
ELECTRICAL LIGHT FIXTURES, SWITCHES AND RECEPTACLES
Supply and install Building Standard 2' x 4' four tube fluorescent lighting
fixtures as required by the suite plan.
Supply and install Building Standard duplex wall mounted grounded type
receptacles as required by the suite plan.
Supply and install one dedicated outlet.
Conduit for Tenant's telephone service will be extended to the Premises. A
telephone equipment board will be installed within the Premises.
Supply and install, in interior partitions, Building Standard flush wall
mounted electrical switches as required by the suite plan.
Note: No floor receptacles are included. All special equipment that
requires special circuiting is not included.
Standard electrical service to the Premises on Building Standard lighting
and power loads.
<PAGE>
FLOOR COVERINGS
Supply and install Building Standard wall-to-wall carpeting (or vinyl
composition tile) throughout the Premises. Standard to be 0 ounce cut pile
or level loop of similar price.
PARTITIONING
Supply and install Building Standard interior 8'6" drywall partitions
(taped, painted and 2-1/2" vinyl base) in an amount as required.
One-half of all demising walls are included in this allowance. Demising
walls will be of the same construction as described previously, secured to
the underside of the floor above and sealed, with the addition of sound
attenuating blanket insulation between the metal studs.
DOORS
TENANT ENTRY: Supply and install Building Standard glass and aluminum
store front entrance Standard. Entry/exit doors provided per Municipal
Building Code.
Interior: Supply and install three (3) 3' x 7' x 1-3/4" solid core wood
door with passage hardware having polished chromium.
TENANT IDENTIFICATION
Supply and install Building Standard tenant identification for both the
building directory and tenant entry door.
SPACE PLANNING
Landlord will furnish design services to produce a suite plan and one (1)
revision of that suite plan reflecting Tenant's desired layout of the
Premises, location of light switches, electrical outlets, ceiling fixtures,
as well as color selections for paint, carpet and vinyl floor coverings,
(all of the fore-going being hereinafter collectively called the
"Selections"). Tenant's layout and Selections shall be subject to the
approval of Landlord, which shall not be unreasonably withheld so long as
the work contemplated thereby does not require changes outside the Premises
or does not adversely affect the legality of the use of the Premises, or
the cost of fire insurance for the Building.
Landlord shall prepare and furnish to Tenant construction drawings for the
tenant finish work for the Premises in accordance with the Layout and
Sections, together with an itemization of the cost of any of such tenant
finish work in excess of the allowance set forth in this summary. Tenant
shall furnish written approval of said construction drawings to Landlord
within three (30 days after same are delivered to Tenant unless Tenant
elects to modify the layout and/or Selections to decrease or eliminate any
cost in excess of the allowances set forth in this summary, in which event
Tenant shall have three days after receipt of such construction drawings in
which to notify Landlord of such modification and Tenant's three (3) day
period for approving the construction drawings shall commence upon
receipt of the modified construction drawings. Tenant shall pay to
Landlord upon the commencement date of the Term of this Lease the amount of
any such excess cost for tenant finish work or design changes.
<PAGE>
EXHIBIT "C"
BASE RENT SCHEDULE; USE LIMITATIONS
1. The Base Rent payable by Tenant to Landlord during the five (5) year
portion of the Lease Term that is described in Section 2 of the Lease shall
be the following amounts:
Annual Monthly
Base Rent Base Rent
___________ __________
$169,558.56 $14,129.88
2. In addition to and notwithstanding the uses of the Demised Premises and the
Building that are permitted and prohibited by the Lease, Tenant's use and
occupancy of the Demised Premises and the building shall be further limited
and/or authorized as follows (none if nothing inserted): NONE
END OF PAGE
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. Landlord shall have the right to control and operate the public portions of
the Building and the public facilities, as well as facilities furnished for
the common use of all tenants of the Building (hereinafter individually a
"tenant" and collectively the "tenants"), in such manner as it deems best
for the benefit of the tenants generally. No tenant shall invite to the
Building or permit the visit of persons in such numbers or under such
conditions as to interfere with the use and enjoyment of the entrances,
corridors, elevators and facilities of the Building by Landlord or other
tenants.
2. Landlord may refuse admission to the Building outside of ordinary business
hours to any person not known to the watchman in charge, or not having a
pass issued by Landlord, or not properly identified, and may require all
persons admitted to or leaving the Building outside of ordinary business
hours to register.
3. No awning or other projections over and around the windows or entrances of
any suite in the Building shall be installed by any tenant.
4. Freight, furniture, business equipment, merchandise and bulky matter of any
description ordinarily shall be delivered to and removed from the Building
only in the freight elevator and through the service entrances and
corridors, but special arrangements will be made for moving large
quantities of furniture and equipment into or out of the Building. Moving
furniture or large equipment into or out of the Building must be scheduled
with Landlord at least seven (7) days in advance. Landlord reserves the
right to set times for regular deliveries.
5. All entrance doors to each suite in the Building shall be left locked when
those premises are not in use.
6. Canvassing, soliciting or peddling in the Building is prohibited and all
tenants shall cooperate to prevent the same.
7. No tenant shall advertise its business, profession, or activities in any
manner which violates the letter or spirit of any code of ethics adopted by
any recognized association or organization pertaining thereto, or use the
name of the Building for any purpose other than that of its business
address.
8. Tenants shall not attach or permit to be attached additional locks or
similar devices to any doors, transoms or windows of their respective
suites in the Building; change existing locks or the mechanism thereof; or
make or permit to be made any keys for any door thereof other than those
provided by Landlord. If more than two (2) keys for one (1) lock are
desired, Landlord will provide them upon payment of Landlord's cost
therefor by that tenant.
9. Each tenant agrees that it shall not willfully do or omit to do any act or
thing which shall discriminate or segregate upon the basis of race, color,
creed or national origin in the use and occupancy of its respective suite
in the Building or in any subletting thereof.
10. Landlord reserves the right by written notice to terminate, rescind, alter
or waive any rule or regulation at any time prescribed for the Building
when, in the reasonable exercise of Landlord's judgement, it is necessary,
desirable or proper for the best interests of the Building and its tenants.
END OF PAGE
<PAGE>
AMERICAN
CAPITAL
MARKETING,
INC.
PROTOTYPE
401(K) PROFIT SHARING
PLAN & TRUST
1990 Amended and Restated Prototype Plan Document, approved by I.R.S. 02/23/90
AMERICAN
CAPITAL
FAMILY OF FUNDS
<PAGE>
AMERICAN CAPITAL MARKETING, INC
401(K) PLAN & TRUST
- -C- 1990 AMERICAN CAPITAL MARKETING, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS. . . . . . . . . . . . . . . . . . . . 11
2.2 DETERMINATION OF TOP HEAVY STATUS. . . . . . . . . . . . . . . . . 11
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER. . . . . . . . . . . . 13
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY. . . . . . . . . . . . . . 14
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES. . . . . . . . . . . 14
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . 14
2.7 RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . 15
2.8 APPOINTMENT OF ADVISERS. . . . . . . . . . . . . . . . . . . . . . 15
2.9 INFORMATION FROM EMPLOYER. . . . . . . . . . . . . . . . . . . . . 15
2.10 PAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.13 CLAIMS REVIEW PROCEDURE. . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . 17
3.2 EFFECTIVE DATE OF PARTICIPATION. . . . . . . . . . . . . . . . . . 17
3.3 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . 17
3.4 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . 17
3.5 OMISSION OF ELIGIBLE EMPLOYEE. . . . . . . . . . . . . . . . . . . 17
3.6 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . 17
3.7 ELECTION NOT TO PARTICIPATE. . . . . . . . . . . . . . . . . . . . 18
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE. . . . . . . . . . . . . . . 18
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION. . . . . . . . . . 18
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION. . . . . . . . . . . . . . 19
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . 21
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND
EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . 26
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . 28
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . 30
4.8 ADJUSTMENT TO
i
<PAGE>
ACTUAL CONTRIBUTION PERCENTAGE TESTS . . . . . . . . . . . . . . . 32
4.9 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . 35
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS. . . . . . . . . . . . . 40
4.11 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . 40
4.12 VOLUNTARY CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . 41
4.13 DIRECTED INVESTMENT ACCOUNT. . . . . . . . . . . . . . . . . . . . 41
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . 42
4.15 INTEGRATION IN MORE THAN ONE PLAN. . . . . . . . . . . . . . . . . 42
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND. . . . . . . . . . . . . . . . . . . . 43
5.2 METHOD OF VALUATION. . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT. . . . . . . . . . . . . 43
6.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . 43
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . 44
6.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . 44
6.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 47
6.6 DISTRIBUTION OF BENEFITS UPON DEATH. . . . . . . . . . . . . . . . 50
6.7 TIME OF SEGREGATION OR DISTRIBUTION. . . . . . . . . . . . . . . . 53
6.8 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . 53
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . 53
6.10 PRE-RETIREMENT DISTRIBUTION. . . . . . . . . . . . . . . . . . . . 54
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP. . . . . . . . . . . . . . . . . 54
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS. . . . . . . . . . . . . 55
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS . . . . . . . . . . . . . . . . 55
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE. . . . . . . . . . . . . . . 56
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE. . . . . . . . . . . . 56
7.3 OTHER POWERS OF THE TRUSTEE. . . . . . . . . . . . . . . . . . . . 57
7.4 LOANS TO PARTICIPANTS. . . . . . . . . . . . . . . . . . . . . . . 59
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS . . . . . . . . . . . . . 61
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES. . . . . . . . . . . 61
7.7 ANNUAL REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . 61
7.8 AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE . . . . . . . . . . 62
7.10 TRANSFER OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . 62
7.11 TRUSTEE INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 63
7.12 EMPLOYER SECURITIES AND REAL PROPERTY. . . . . . . . . . . . . . . 63
ii
<PAGE>
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.2 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.3 MERGER OR CONSOLIDATION. . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 64
9.2 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 64
9.3 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.4 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . 65
9.5 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . 65
9.6 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . 65
9.8 BONDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.9 INSURER'S PROTECTIVE CLAUSE. . . . . . . . . . . . . . . . . . . . 66
9.10 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . 66
9.11 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . 66
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . 66
9.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.14 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . 67
9.15 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.16 PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER. . . . . . . . . . . . 68
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS. . . . . . . . . . . . . . 68
10.3 DESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . . . . . . 68
10.4 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . 68
10.5 PARTICIPATING EMPLOYER'S
CONTRIBUTION AND FORFEITURES . . . . . . . . . . . . . . . . . . . 68
10.6 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.7 DISCONTINUANCE OF PARTICIPATION. . . . . . . . . . . . . . . . . . 69
10.8 ADMINISTRATOR'S AUTHORITY. . . . . . . . . . . . . . . . . . . . . 69
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE. . . . . . . . . 69
iii
<PAGE>
- --------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
- --------------------------------------------------------------------------------
As used in this Plan, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by the
context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed by the
Employer and accepted by the Trustee which sets forth the elective provisions of
this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.5 "Aggregate Account" means with respect to each Participant, the value of
all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased Participant's
interest in the Plan is payable, subject to the restrictions of Sections 6.2 and
6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
1.9 "Compensation" with respect to any Participant means such Participant's
compensation as specified by the Employer in E1 of the Adoption Agreement that
is paid during the applicable period. Compensation for any Self-Employed
Individual shall be equal to his Earned Income.
In addition, if specified in the Adoption Agreement, Compensation for all
Plan purposes shall also include compensation which is not currently includible
in the Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(h)(1)(B), or 403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount shall
be adjusted at the same time and in such manner as permitted under Code Section
415(d). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q)(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules, the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of Compensation up to the
integration level if this plan is integrated), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application of
this limitation.
<PAGE>
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.10 "Contract" or "Policy" means any life insurance policy, retirement income
policy, or annuity contract (group or individual) issued by the Insurer. In the
event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "Deferred Compensation" means that portion of a Participant's total
Compensation that such Participant has elected to defer for a Plan Year pursuant
to Section 4.2.
1.12 "Early Retirement Date" means the date specified in the Adoption Agreement
on which a Participant or Former Participant has satisfied the age and service
requirements specified in the Adoption Agreement (Early Retirement Age). A
Participant shall become fully Vested upon satisfying this requirement if still
employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
1.13 "Earned Income" means with respect to a Self-Employed Individual, the net
earnings from self-employment in the trade or business with respect to which the
Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without
regard to items not included in gross income and the deductions allocable to
such items. Net earnings are reduced by contributions by the Employer to a
qualified Plan to the extent deductible under Code Section 404. In addition,
for Plan Years beginning after December 31, 1989, net earnings shall be
determined with regard to the deduction allowed to the Employer by Code Section
164(f).
1.14 "Elective Contribution" means the Employer's contributions to the Plan that
are made pursuant to the Participant's deferral election pursuant to Section
4.2. In addition, if selected in E3 of the Adoption Agreement, the Employer's
matching contribution made pursuant to Section 4.1(b) shall be considered an
Elective Contribution for purposes of the Plan. Elective Contributions shall be
subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be
required to satisfy the discrimination requirements of Regulation
1.401(k)-1(b)(3), the provisions of which are specifically incorporated herein
by reference.
1.15 "Eligible Employee" means any Employee specified in D1 of the Adoption
Agreement.
1.16 "Employee" means any person who is employed by the Employer, but excludes
any person who is employed as an independent contractor. The term Employee
shall also include Leased Employees as provided in Code Section 414(n) or (o).
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be treated as
employed by a single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this
Plan, any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is integrated with
Social Security, a Participant's Compensation which is in excess of the amount
set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess of
Elective Contributions and Qualified Non-Elective Contributions made on behalf
of Highly Compensated Participants for the Plan Year over the maximum amount of
such contributions permitted under Section 4.5(a).
2
<PAGE>
1.20 "Excess Deferred Compensation" means, with respect to any taxable year of a
Participant, the excess of the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section 4.2(f) actually made
on behalf of such Participant for such taxable year, over the dollar limitation
provided for in Code Section 402(g), which is incorporated herein by reference.
1.21 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, (b)
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any monies or other property of the Plan or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and the Administrator.
1.23 "Fiscal Year" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account, or
(b) the last day of the Plan Year in which the Participant incurs five (5)
consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.25 "Former Participant" means a person who has been a Participant, but who has
ceased to be a Participant for any reason.
1.26 "414(s) Compensation" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of this Section, Compensation
shall be Compensation paid and shall be determined by including, in the case of
a non-standardized Adoption Agreement, any items that are excluded from
Compensation pursuant to the Adoption Agreement. The amount of "414(s)
Compensation" with respect to any Employee shall include "414(s) Compensation"
during the entire twelve (12) month period ending on the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1,
1992, or the date that is sixty (60) days after the date final Regulations are
issued, "414(s) Compensation" shall only be recognized as of an Employee's
effective date of participation.
In addition, if specified in the Adoption Agreement, "414(s) Compensation"
shall also include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b), plus Elective Contributions attributable to
Deferred Compensation recharacterized as voluntary Employee contributions
pursuant to 4.6(a).
1.27 "415 Compensation" means compensation as defined in Section 4.9(f)(2).
1.28 "Highly Compensated Employee" means an Employee described in Code Section
414(q) and the regulations thereunder and generally means an Employee who
performed services for the Employer during the "determination year" and is in
one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section 1.35(c).
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(b) Employees who received "415 Compensation" during the "look-back"
year from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top Paid Group
of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations
under Code Section 416) and received "415 Compensation" during the "look-
back year" from the Employer greater than 50 percent of the limit in effect
under Code Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. If the Employer does
not have at least one officer whose annual "415 Compensation" is in excess
of 50 percent of the Code Section 415(b)(1)(A) limit, then the highest paid
officer of the Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination year" and
are also described in (b), (c) or (d) above when these paragraphs are
modified to substitute "determination year" for "look-back year".
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately
preceding twelve-month period. However, if the Plan Year is a calendar
year, or if another Plan of the Employer so provides, then the "look-back
year" shall be the calendar year ending with or within the Plan Year for
which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for which
testing is being performed (the "lag period"). With respect to this
election, it shall be applied on a uniform and consistent basis to all
plans, entities, and arrangements of the Employer.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, Code Section 403(b).
Additionally, the dollar threshold amounts specified in (b) and (c) above
shall be adjusted at such time and in such manner as is provided in
Regulations. In the case of such an adjustment, the dollar limits which
shall be applied are those for the calendar year in which the
"determination year" or "look back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning
of Code Section 911(d)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall be taken into
account as a single employer and Leased Employees within the meaning of
Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless
such Leased Employees are covered by a plan described in Code Section
414(n)(5) and are not covered in any qualified plan maintained by the
Employer. The exclusion of Leased Employees for this purpose shall be
applied on a uniform and consistent basis for all of the Employer's
retirement plans. In addition, Highly Compensated Former Employees shall
be treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year".
1.29 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who
separated from service prior to 1987 will be treated as a Highly Compensated
Former Employee only if during the separation year (or year preceding the
separation year) or any year after the Employee attains age 55 (or the last year
ending before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For purposes
of this Section, "determination year", "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.28. Highly Compensated
Former Employees shall be treated as
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Highly Compensated Employees. The method set forth in this Section for
determining who is a "Highly Compensated Former Employee" shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated Employee who
is eligible to participate in the Plan.
1.31 "Hour of Service" means (1) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c)
are incorporated herein by reference.
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee pursuant to
Code Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected in
the Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall issue one
or more policies under the Plan.
1.33 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.34 "Joint and Survivor Annuity" means an annuity for the life of a Participant
with a survivor annuity for the life of the Participant's spouse which is not
less than 1/2, nor greater than the amount of the annuity payable during the
joint lives of the Participant and the Participant's spouse. The Joint and
Survivor Annuity will be the amount of benefit which can be purchased with the
Participant's Vested interest in the Plan.
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1.35 "Key Employee" means an Employee as defined in Code Section 416(i) and the
Regulations thereunder. Generally, any Employee or former Employee (as well as
each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under Code
Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from
the Employer for a Plan Year greater than the dollar limitation in effect
under Code Section 415(c)(1)(A) for the calendar year in which such Plan
Year ends and owning (or considered as owning within the meaning of Code
Section 318) both more than one-half percent interest and the largest
interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than five percent (5%) of the outstanding stock of
the Employer or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five percent (5%) of
the capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be treated as separate
employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent owner"
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than one percent (1%) of the outstanding stock of
the Employer or stock possessing more than one percent (1%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent (1%) of
the capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be treated as separate
employers. However, in determining whether an individual has "415
Compensation" of more than $150,000, "415 Compensation" from each employer
required to be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be taken into account.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b).
1.36 "Late Retirement Date" means the date of, or the first day of the month or
the Anniversary Date coinciding with or next following, whichever corresponds to
the election made for the Normal Retirement Date, a Participant's actual
retirement after having reached his Normal Retirement Date.
1.37 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A leased employee shall not be considered an Employee of the recipient if:
(i) such employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10 percent of compensation,
as defined in Code Section 415(c)(3), but including amounts contributed pursuant
to a salary reduction agreement which are excludible from the employee's gross
income under Code Sections 125, 402(a)(8),
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402(h) or 403(b), (2) immediate participation, and (3) full and immediate
vesting; and (ii) leased employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
1.38 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income, or for
contributions made by the Employer to this Plan and any other qualified plan.
1.39 "Non-Elective Contribution" means the Employer's contributions to the Plan
other than those made pursuant to the Participant's deferral election made
pursuant to Section 4.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4.1(b) shall be considered a Non-Elective
Contribution for purposes of the Plan.
1.40 "Non-Highly Compensated Participant" means any Participant who is neither a
Highly Compensated Employee nor a Family Member.
1.41 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "Normal Retirement Age" means the age specified in the Adoption Agreement
at which time a Participant shall become fully Vested in his Participant's
Account.
1.43 "Normal Retirement Date" means the date specified in the Adoption Agreement
on which a Participant shall become eligible to have his benefits distributed to
him.
1.44 "1-Year Break in Service" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further, solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service, Hours of Service shall be recognized
for "authorized leaves of absence" and "maternity and paternity leaves of
absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning
after December 31, 1994, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for
the computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.45 "Owner-Employee" means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than 10% of either the capital interest
or the profits interest in the Employer and who receives income for personal
services from the Employer.
1.46 "Participant" means any Eligible Employee who participates in the Plan as
provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.47 "Participant's Account" means the account established and maintained by the
Administrator for each Participant with respect to his total interest under the
Plan resulting from the Employer's Non-Elective
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Contributions. A separate accounting shall be maintained for matching
contributions if they are deemed to be Non-Elective Contributions.
1.48 "Participant's Combined Account" means the total aggregate amount of each
Participant's Elective Account, Qualified Non-Elective Account, and
Participant's Account.
1.49 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions made pursuant to Section 4.2, Employer matching contributions if
they are deemed to be Elective Contributions, and any Qualified Non-Elective
Contributions.
1.50 "Participant's Rollover Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with
Section 4.11.
1.51 "Plan" means this instrument (hereinafter referred to as American Capital
Marketing, Inc. 401(k) Plan & Trust Basic Plan Document #02) including all
amendments thereto, and the Adoption Agreement as adopted by the Employer.
1.52 "Plan Year" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
1.53 "Pre-Retirement Survivor Annuity" means an immediate annuity for the life
of the Participant's spouse, the payments under which must be equal to the
actuarial equivalent of 50% of the Participant's Vested interest in the Plan as
of the date of death.
1.54 "Qualified Non-Elective Account" means the account established hereunder
to which Qualified Non-Elective Contributions are allocated.
1.55 "Qualified Non-Elective Contribution" means the Employer's contributions to
the Plan that are made pursuant to Section 4.1(d) and Section 4.6(b) which are
used to satisfy the "Actual Deferral Percentage" tests. Qualified Non-Elective
Contributions are nonforfeitable when made and are distributable only as
specified in Sections 4.2(c) and 6.11. In addition, the Employer's contributions
to the Plan that are made pursuant to Section 4.8(h) and which are used to
satisfy the "Actual Contribution Percentage" tests shall be considered Qualified
Non-Elective Contributions.
1.56 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the Participant's
tax deductible qualified voluntary employee contributions made pursuant to
Section 4.14.
1.57 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.58 "Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.59 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.60 "Self-Employed Individual" means an individual who has earned income for
the taxable year from the trade or business for which the Plan is established,
and, also, an individual who would have had earned income but for the fact that
the trade or business had no net profits for the taxable year. A Self-Employed
Individual shall be treated as an Employee.
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1.61 "Shareholder-Employee" means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which the
Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.62 "Short Plan Year" means, if specified in the Adoption Agreement, that the
Plan Year shall be less than a 12 month period. If chosen, the following rules
shall apply in the administration of this Plan. In determining whether an
Employee has completed a Year of Service for benefit accrual purposes in the
Short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2(c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.64 "Taxable Wage Base" means, with respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code Section
3121(a)(1).
1.65 "Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
1.66 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.67 "Top Heavy Plan Year" means a Plan Year commencing after December 31, 1983
during which the Plan is a Top Heavy Plan.
1.68 "Top Paid Group" shall be determined pursuant to Code Section 414(q) and
the Regulations thereunder and generally means the top 20 percent of Employees
who performed services for the Employer during the applicable year, ranked
according to the amount of "415 Compensation" (as determined pursuant to Section
1.28) received from the Employer during such year. All Affiliated Employers
shall be taken into account as a single employer, and Leased Employees shall be
treated as Employees pursuant to Code Section 414(n) or (o). Employees who are
non-resident aliens who received no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, for the purpose of determining the number of active Employees in
any year, the following additional Employees shall also be excluded, however,
such Employees shall still be considered for the purpose of identifying the
particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year;
and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied an a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
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1.69 "Total and Permanent Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
disability of a Participant shall be determined by a licensed physician chosen
by the Administrator. However, if the condition constitutes total disability
under the federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled for the
purposes of this Plan. The determination shall be applied uniformly to all
Participants.
1.70 "Trustee" means the person or entity named in B6 of the Adoption Agreement
and any successors.
1.71 "Trust Fund" means the assets of the Plan and Trust as the same shall exist
from time to time.
1.72 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.73 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) shall remain subject to the limitations of Sections 4.2(b) and
4.2(c). Therefore, a separate accounting shall be maintained with respect to
that portion of the Voluntary Contribution Account attributable to voluntary
Employee contributions made pursuant to Section 4.12.
1.74 "Year of Service" means the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after
a 1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The succeeding computation periods shall
begin with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period, the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with 1,000 Hours of Service in
both the initial eligibility computation period and the first Plan Year which
commences prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two Years of Service for purposes of
eligibility to participate.
For vesting purposes, and all other purposes not specifically addressed in
this Section, the computation period shall be the Plan Year, including periods
prior to the Effective Date of the Plan unless specifically excluded pursuant to
the Adoption Agreement.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this Plan
shall be recognized. Years of Service with any other predecessor Employer shall
be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
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ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4(i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit and/or Aggregate Account balance shall not
be taken into account for purposes of determining whether this Plan is a
Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top Heavy Group). In addition, if a Participant or
Former Participant has not performed any services for any Employer
maintaining the Plan at any time during the five year period ending on the
Determination Date, any accrued benefit for such Participant or Former
Participant shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
beginning after December 31, 1983, in which, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all plans of
an Aggregation Group, exceeds ninety percent (90%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period ending on
the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but on or before
the Determination Date, except for the first Plan Year when such
adjustment shall also reflect the amount of any contributions made
after the Determination Date that are allocated as of a date in that
first Plan Year;
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding Plan
Years. However, in the case of distributions made after the valuation
date and prior to the Determination Date, such distributions are not
included as distributions for top heavy purposes to the extent that
such distributions are already included in the Participant's Aggregate
Account balance as of the valuation date. Notwithstanding anything
herein to the contrary, all distributions, including distributions
made prior to January 1, 1984, and distributions under a terminated
plan which if it had not been terminated would have been required to
be included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life
insurance
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policies) of a Participant's account balance because of death shall be
treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified voluntary
employee contributions shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and made from
a plan maintained by one employer to a plan maintained by another
employer), if this Plan provides the rollovers or plan-to-plan
transfers, it shall always consider such rollovers or plan-to-plan
transfers as a distribution for the purposes of this Section. If this
Plan is the plan accepting such rollovers or plan-to-plan transfers,
it shall not consider such rollovers or plan-to-plan transfers
accepted after December 31, 1983 as part of the Participant's
Aggregate Account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall be considered as
part of the Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the rollover
or plan-to-plan transfer, it shall not be counted as a distribution
for purposes of this Section. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Participant's Aggregate Account
balance, irrespective of the date on which such rollover or plan-to-
plan transfer is accepted.
(7) For the purposes of determining whether two employers are to
be treated as the same employer in 2.2(c)(5) and 2.2(c)(6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o) are
treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or
a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each qualified plan of the Employer,
including any Simplified Employee Pension Plan, in which a Key
Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and each
other qualified plan of the Employer which enables any qualified plan
in which a Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required Aggregation
Group is a Top Heavy Group. No plan in the Required Aggregation Group
will be considered a Top Heavy Plan if the Required Aggregation Group
is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include
any other plan of the Employer, including any Simplified Employee
Pension Plan, not required to be included in the Required Aggregation
Group, provided the resulting group, taken as a whole, would continue
to satisfy the provisions of Code Sections 401(a)(4) and 410. Such
group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group.
No plan in the Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a Top Heavy
Group.
(3) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated in order
to determine whether such plans are Top Heavy Plans.
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(4) When aggregating plans, the value of Aggregate Accounts and
Accrued Benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
(5) An Aggregation Group shall include any terminated plan of
the Employer if it was maintained within the last five (5) years
ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such Plan
Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant other
than a Key Employee shall be as determined using the single accrual method
used for all plans of the Employer and Affiliated Employers, or if no such
single method exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code Section
411(b)(1)(C). The determination of the Present Value of Accrued Benefit
shall be determined as of the most recent valuation date that falls within
or ends with the 12-month period ending on the Determination Date, except
as provided in Code Section 416 and the Regulations thereunder for the
first and second plan years of a defined benefit plan.
However, any such determination must include present value of accrued
benefit attributable to any Plan distributions referred to in Section
2.2(c)(3) above, any Employee contributions referred to in Section
2.2(c)(4) above or any related or unrelated rollovers referred to in
Sections 2.2(c)(5) and 2.2(c)(6) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under
all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
(h) The Administrator shall determine whether this Plan is a Top
Heavy Plan on the Anniversary Date specified in the Adoption Agreement.
Such determination of the top heavy ratio shall be in accordance with Code
Section 416 and the Regulations thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee
and the Administrator from time to time as it deems necessary for the
proper administration of the Plan to assure that the Plan is being operated
for the exclusive benefit of the Participants and their Beneficiaries in
accordance with the terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method", i.e.,
it shall determine whether the Plan has a short run need for liquidity
(e.g., to pay benefits) or whether liquidity is a long run goal and
investment growth (and stability of same) is a more current need, or shall
appoint a qualified person to do so. The Employer or its delegate shall
communicate such needs and goals to the Trustee, who shall coordinate such
Plan needs with its investment policy. The communication of such a
"funding policy and method" shall not, however, constitute a directive to
the Trustee as to investment of the Trust Funds. Such "funding policy and
method" shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
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(c) The Employer may, in its discretion, appoint an Investment
Manager to manage all or a designated portion of the assets of the Plan.
In such event, the Trustee shall follow the directive of the Investment
Manager in investing the assets of the Plan managed by the Investment
Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or allocated by it
under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by the
Employer or by a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer
does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in writing
by each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan. The Administrator shall administer the Plan
in accordance with its terms and shall have the power and discretion to construe
the terms of the Plan and determine all questions arising in connection with the
administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant hereunder
and to receive benefits under the Plan;
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(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be entitled
hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust Fund;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the terms
hereof;
(f) to determine the size and type of any Contract to be purchased
from any Insurer, and to designate the Insurer from which such Contract
shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from
time to time the sums of money necessary or desirable to be contributed to
the Trust Fund;
(h) to consult with the Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order that the Trustee can
exercise any investment discretion in a manner designed to accomplish
specific objectives;
(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect Joint and Survivor
Annuities and Pre-Retirement Survivor Annuities if required by the Code and
Regulations thereunder;
(j) to prepare and implement a procedure to notify Eligible Employees
that they may elect to have a portion of their Compensation deferred or
paid to them in cash;
(k) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
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2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability
of the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE .
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator a written request for a hearing.
Such request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and expense and at which the claimant shall have
an opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written notice
to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator which
are pertinent to the claim at issue and its disallowance. Either the claimant
or the Administrator may cause a court reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the
proceedings shall be furnished to both parties by the court reporter. The full
expense of any such court reporter and such transcripts shall be borne by the
party causing the court reporter to attend the hearing. A final decision as to
the allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period). Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a noneligible Employee to an Eligible Employee, such Employee
shall become a Participant as of the date he becomes an Eligible Employee.
In the event an employee who has satisfied the Plan's eligibility
requirements and would otherwise become a Participant shall go from a
classification of an Eligible Employee to a noneligible Employee and becomes
ineligible to participate and has not incurred a 1-Year Break in Service, such
Employee shall participate in the Plan as of the date he returns to an eligible
class of Employees. If such Employee does incur a 1-Year Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of Service completed while a
noneligible employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution, if necessary after the
application of Section 4.4(e), so that the omitted Employee receives a total
amount which the said Employee would have received had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the
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<PAGE>
amount contributed with respect to the ineligible person shall constitute a
Forfeiture for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily
not to participate in the Plan. The election not to participate must be
communicated to the Employer, in writing, at least thirty (30) days before the
beginning of a Plan Year. For Standardized Plans, a Participant or an Eligible
Employee may not elect not to participate. Furthermore, the foregoing election
not to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other entities, this Plan and the plan
established for other trades or businesses must, when looked at as a single
Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and
all other entities.
(b) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Code Sections 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for Owner-
Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans
of two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the benefits or contributions
of the employees under the plan of the trades or businesses which are
controlled must be as favorable as those provided for him under the most
favorable plan of the trade or business which is not controlled.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or
two or more Owner-Employees, will be considered to control an entity if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
(e) For purposes of the preceding sentence, an Owner-Employee, or two
or more Owner-Employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership which
such Owner-Employee, or such two or more Owner-Employees, are considered to
control within the meaning of the preceding sentence.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be deemed
an Employer's Elective Contribution, plus
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(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the percentage specified in the Adoption Agreement of
the Deferred Compensation of each Participant eligible to share in the
allocations of the matching contribution, which amount shall be deemed an
Employer's Non-Elective or Elective Contribution as selected in the
Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a discretionary
amount, if any, which shall be deemed an Employer's Non-Elective
Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a Qualified Non-
Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Fiscal Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash or in
such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it
exceeds current or accumulated Net Profit or the amount which is deductible
under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer his Compensation which would
have been received in the Plan Year, but for the deferral election, subject
to the limitations of this Section and the Adoption Agreement. A deferral
election (or modification of an earlier election) may not be made with
respect to Compensation which is currently available on or before the date
the Participant executed such election, or if later, the latest of the date
the Employer adopts this cash or deferred arrangement, or the date such
arrangement first became effective. Any elections made pursuant to this
Section shall become effective as soon as is administratively feasible.
Additionally, if elected in the Adoption Agreement, each Participant
may elect to defer and have allocated for a Plan Year all or a portion of
any cash bonus attributable to services performed by the Participant for
the Employer during such Plan Year and which would have been received by
the Participant on or before two and one-half months following the end of
the Plan Year but for the deferral. A deferral election may not be made
with respect to cash bonuses which are currently available on or before the
date the Participant executed such election. Notwithstanding the
foregoing, cash bonuses attributable to services performed by the
Participant during a Plan Year but which are to be paid to the Participant
later than two and one-half months after the close of such Plan Year will
be subjected to whatever deferral election is in effect at the time such
cash bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced shall
be that Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective Account.
Once made, a Participant's election to reduce Compensation shall
remain in effect until modified or terminated. Modifications may be made
as specified in the Adoption Agreement, and terminations may be made at any
time. Any modification or termination of an election will become effective
as soon as is administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the Plan, but
in no event prior to the earlier of:
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(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to
the limitations of Section 6.11;
(4) the termination of the Plan without the existence at the
time of Plan termination of another defined contribution plan (other
than an employee stock ownership plan as defined in Code Section
4975(e)(7)) or the establishment of a successor defined contribution
plan (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7)) by the Employer or an Affiliated Employer within
the period ending twelve months after distribution of all assets from
the Plan maintained by the Employer;
(5) the date of the sale by the Employer to an entity that is
not an Affiliated Employer of substantially all of the assets (within
the meaning of Code Section 409(d)(2)) with respect to a Participant
who continues employment with the corporation acquiring such assets;
or
(6) the date of the sale by the Employer or an Affiliated
Employer of its interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) to an entity that is not an Affiliated Employer
with respect to a Participant who continues employment with such
subsidiary.
(d) In any Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all other
plans, contracts or arrangements of the Employer maintaining this Plan
shall not exceed the limitation imposed by Code Section 402(g), as in
effect for the calendar year in which such Plan Year began. This dollar
limitation shall be adjusted annually pursuant to the method provided in
Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan
maintained by the Employer or from his Participant's Elective Account
pursuant to Section 6.11(c), then such Participant shall not be permitted
to elect to have Deferred Compensation contributed to the Plan on his
behalf for a period of twelve (12) months following the receipt of the
distribution. Furthermore, the dollar limitation under Code Section 402(g)
shall be reduced, with respect to the Participant's taxable year following
the taxable year in which the hardship distribution was made, by the amount
of such Participant's Deferred Compensation, if any, made pursuant to this
Plan (and any other plan maintained by the Employer) for the taxable year
of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan together
with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under
another qualified cash or deferred arrangement (as defined in Code Section
401(k)), a simplified employee pension (as defined in Code Section 408(k)),
a salary reduction arrangement (within the meaning of Code Section
3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a
trust described in Code Section 501(c)(18) cumulatively exceed the
limitation imposed by Code Section 402(g) (as adjusted annually in
accordance with the method provided in Code Section 415(d) pursuant to
Regulations) for such Participant's taxable year, the Participant may, not
later than March 1st following the close of his taxable year, notify the
Administrator in writing of such excess and request that his Deferred
Compensation under this Plan be reduced by an amount specified by the
Participant. In such event, the Administrator shall direct the Trustee to
distribute such excess amount (and any Income allocable to such excess
amount) to the Participant not later than the first April 15th following
the close of the Participant's taxable year. Distributions in accordance
with this paragraph may be made for any taxable year of the Participant
which begins after December 31, 1986. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be treated
as a pro rata distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred Compensation
under the Plan for the taxable year. Any distribution on or before the
last day of the Participant's taxable year must satisfy each of the
following conditions:
(1) the Participant shall designate the distribution as Excess
Deferred Compensation;
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(2) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution
of Excess Deferred Compensation.
For the purpose of this Section, "Income" means the amount of income
or loss allocable to a Participant's Excess Deferred Compensation and shall
be equal to the sum of the allocable gain or loss for the taxable year of
the Participant and the allocable gain or loss for the period between the
end of the taxable year of the Participant and the date of distribution
("gap period"). The income or loss allocable to each such period is
calculated separately and is determined by multiplying the income or loss
allocable to the Participant's Deferred Compensation for the respective
period by a fraction. The numerator of the fraction is the Participant's
Excess Deferred Compensation for the taxable year of the Participant. The
denominator is the balance, as of the last day of the respective period, of
the Participant's Elective Account that is attributable to the
Participant's Deferred Compensation reduced by the gain allocable to such
total amount for the respective period and increased by the loss allocable
to such total amount for the respective period.
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable income or loss for the "gap
period". Under such "safe harbor method", allocable income or loss for the
"gap period" shall be deemed to equal ten percent (10%) of the income or
loss allocable to a Participant's Excess Deferred Compensation for the
taxable year of the Participant multiplied by the number calendar months in
the "gap period". For purposes of determining the number of calendar
months in the "gap period", a distribution occurring on or before the
fifteenth day of the month shall be treated as having been made on the last
day of the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first day of the
next subsequent month.
Income or loss allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the
Participant shall be calculated from the first day of the taxable year of
the Participant to the date on which the distribution is made pursuant to
either the "fractional method" or the "safe harbor method".
Notwithstanding the above, for the 1987 calendar year, Income during
the "gap period" shall not be taken into account.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any
distribution and/or recharacterization of Excess Contributions pursuant to
Section 4.6(a) for the Plan Year beginning with or within the taxable year
of the Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide benefits to the
Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may
be segregated into a separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank or savings and
loan association, money market certificate, or other short-term debt
security acceptable to the Trustee until such time as the allocations
pursuant to Section 4.4 have been made.
(j) The Employer and the Administrator shall adopt a procedure
necessary to implement the salary reduction elections provided for herein.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
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However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of each
Anniversary Date, or other valuation date, all amounts allocated to each
such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable period of time after
the date of receipt by the Administrator of such information, the
Administrator shall allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 4.1(a), to each Participant's Elective Account in
an amount equal to each such Participant's Deferred Compensation for
the year.
(2) With respect to the Employer's Matching Contribution made
pursuant to Section 4.1(b), to each Participant's Account, or
Participant's Elective Account as selected in E3 of the Adoption
Agreement, in accordance with Section 4.1(b).
Except, however, a Participant who is not credited with a Year of
Service during any Plan Year shall or shall not share in the
Employer's Matching Contribution for that year as provided in E3 of
the Adoption Agreement. However, for Plan Years beginning after 1989,
if this is a standardized Plan, a Participant shall share in the
Employer's Matching Contribution regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's Account in
accordance with the provisions of E4 of the Adoption Agreement.
However, if an integrated allocation formula is selected at E4 of the
Adoption Agreement, then such contribution shall be allocated to each
Participant's Combined Account in a dollar amount equal to 5.7% of the
sum of each Participant's total Compensation plus Excess Compensation.
If the Employer does not contribute such amount for all Participants,
each Participant will be allocated a share of the contribution in the
same proportion that his total Compensation plus his total Excess
Compensation for the Plan Years bears to the total Compensation plus
the total Excess Compensation of all Participants for that year. The
balance of the contribution, if any, will be allocated in the same
proportion that his total Compensation bears to the total Compensation
of all Participant's eligible to share in the allocation.
Regardless of the preceding, 4.3% shall be substituted for 5.7% above
if Excess Compensation is based on more than 20% and less than or
equal to 80% of the Taxable Wage Base. If Excess Compensation is
based on less than 100% and more than 80% of the Taxable Wage Base,
then 5.4% shall be substituted for 5.7% above.
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), to each Participant's
Qualified Non-Elective Contribution Account in the same proportion
that each such Participant's Compensation for the year bears to the
total Compensation of all Participants for such year.
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(5) Regardless of the preceding, a Participant who is not
credited with a Year of Service during a Plan Year shall not share in
the allocation of the Employer's Non-Elective Contribution made
pursuant to Section 4.1(c) and the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), unless reduced pursuant
to Section 4.4(h). However, for Plan Years beginning after 1989, for a
standardized plan, and if elected in the non-standardized Adoption
Agreement, a Participant shall share in the allocation of such
contributions regardless of whether Year of Service was completed
during the Plan Year.
(c) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any earnings or
losses (net appreciation or net depreciation) of the Trust Fund shall be
allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all Participants'
and Former Participants' nonsegregated accounts as of such date. If any
nonsegregated account of a Participant has been distributed prior to the
Anniversary Date or other valuation date subsequent to a Participant's
termination of employment, no earnings or losses shall be credited to such
account.
Notwithstanding the above, with respect to contributions made to a
401(k) Plan after the previous Anniversary Date or allocation date, the
method specified in the Adoption Agreement shall be used.
(d) Participants' Accounts shall be debited for any insurance or
annuity premiums paid, if any, and credited with any dividends or interest
received on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any, in
accordance with Section 6.4(g)(2) or be used to satisfy any contribution
that may be required pursuant to Section 3.5 and/or 6.9. The remaining
Forfeitures, if any, shall be treated in accordance with the Adoption
Agreement. Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as defined
in Section 4.9) to any Participant's Account to exceed the amount allowable
by the Code, the excess shall be reallocated in accordance with Section
4.10. Except, however, for any Plan Year beginning prior to January 1,
1990, and if elected in the non-standardized Adoption Agreement for any
Plan Year beginning on or after January 1, 1990, a Participant who performs
less than a Year of Service during any Plan Year shall not share in the
Plan Forfeitures for that year, unless there is a Short Plan Year or a
contribution required pursuant to Section 4.4(h).
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's
Combined Account of each Non-Key Employee shall be equal to at least three
percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by
contributions and forfeitures, if any, allocated to each Non-Key Employee
in any defined contribution plan included with this plan in a Required
Aggregation Group). However, if (i) the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined
Account of each Key Employee for such Top Heavy Plan Year is less than
three percent (3%) of each Key Employee's "415 Compensation" and (ii) this
Plan is not required to be included in an Aggregation Group to enable a
defined benefit plan to meet the requirements of Code Section 401(a)(4) or
410, the sum of the Employer's contributions and Forfeitures allocated to
the Participant's Combined Account of each Non-Key Employee shall be equal
to the largest percentage allocated to the Participant's Combined Account
of any Key Employee. However, for Plan Years beginning after December 31,
1988, in determining whether a Non-Key Employee has received the required
minimum allocation, such Non-Key Employee's Deferred Compensation and
matching contributions used to satisfy the "Actual Deferral Percentage"
test pursuant to Section 4.5(a) or the "Actual Contribution Percentage"
test of Section 4.7(a) shall not be taken into account.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
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(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each
Participant's Account. If the Employer does not contribute such
amount for all Participants, the amount shall be allocated to each
Participant's Account in the same proportion that his total
Compensation for the Plan Year bears to the total Compensation of all
Participants for such year.
(2) The balance of the Employer's contribution over the amount
allocated under subparagraph (1) hereof shall be allocated to each
Participant's Account in a dollar amount equal to 3% multiplied by a
Participant's Excess Compensation. If the Employer does not
contribute such amount for all Participants, each Participant will be
allocated a share of the contribution in the same proportion that his
Excess Compensation bears to the total Excess Compensation of all
Participants for that year.
(3) The balance of the Employer's contribution over the amount
allocated under subparagraph (2) hereof shall be allocated to each
Participant's Account in a dollar amount equal to 2.7% multiplied by
the sum of each Participant's total Compensation plus Excess
Compensation. If the Employer does not contribute such amount for all
Participants, each Participant will be allocated a share of the
contribution in the same proportion that his total Compensation plus
his total Excess Compensation for the Plan Year bears to the total
Compensation plus the total Excess Compensation of all Participants
for that year.
Regardless of the preceding, 1.3% shall be substituted for 2.7% above
if Excess Compensation is based on more than 20% and less than or
equal to 80% of the Taxable Wage Base. If Excess Compensation is
based on less than 100% and more than 80% of the Taxable Wage Base,
then 2.4% shall be substituted for 2.7% above.
(4) The balance of the Employer's contributions over the amount
allocated above, if any, shall be allocated to each Participant's
Account in the same proportion that his total Compensation for the
Plan Year bears to the total Compensation of all Participants for such
year.
For each Non-Key Employee who is a Participant in this Plan and
another non-paired defined contribution plan maintained by the Employer,
the minimum 3% allocation specified above shall be provided as specified
in F3 of the Adoption Agreement.
(g) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth
above shall be allocated to the Participant's Combined Account of all Non-
Key Employees who are Participants and who are employed by the Employer on
the last day of the Plan Year, including Non-Key Employees who have (1)
failed to complete a Year of Service; or (2) declined to make mandatory
contributions (if required) or salary reduction contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in any Plan Year
in which the Employer maintains both this Plan and a defined benefit
pension plan included in a Required Aggregation Group which is top heavy,
the Employer shall not be required to provide a Non-Key Employee with both
the full separate minimum defined benefit plan benefit and the full
separate defined contribution plan allocations. Therefore, if the Employer
maintains both a Defined Benefit and a Defined Contribution Plan that are a
Top Heavy Group, the top heavy minimum benefits shall be provided as
follows:
Applies if F1b of the Adoption Agreement is selected -
(1) The requirements of Section 2.1 shall apply except that each
Non-Key Employee who is a Participant in this Plan or a Money Purchase
Plan and who is also a Participant in the Defined Benefit
24
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Plan shall receive a minimum allocation of five percent (5%) of such
Participant's "415 Compensation" from the applicable Defined
Contribution Plan(s).
(2) For each Non-Key Employee who is a Participant only in the
Defined Benefit Plan, the Employer will provide a minimum
non-integrated benefit in the Defined Benefit Plan equal to 2% of his
highest five consecutive year average "415 Compensation" for each Year
of Service while a Participant in the Plan, in which the Plan is top
heavy, not to exceed ten.
(3) For each Non-Key Employee who is a Participant only in this
Defined Contribution Plan, the Employer will provide a contribution
equal to 3% of his "415 Compensation".
Applies if F1c of the Adoption Agreement is selected -
(4) The minimum allocation specified in Section 4.4(i)(1) shall
be 7 1/2% for years in which the Plan is Top Heavy, but not Super Top
Heavy.
(5) The minimum benefit specified in Section 4.4(i)(2) shall be
3% for years in which the Plan is Top Heavy, but not Super Top Heavy.
(6) The minimum allocation specified in Section 4.4(i)(3) shall
be 4% for years in which the Plan is Top Heavy, but not Super Top
Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be
limited to $200,000 (unless adjusted in such manner as permitted under Code
Section 415(d)). However, for Plan Years beginning prior to January 1,
1989, the $200,O00 limit shall apply only for Top Heavy Plan Years and
shall not be adjusted.
(k) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of termination
without regard to the Hours of Service credited.
(l) Notwithstanding anything herein to the contrary (other than
Sections 4.4(k) and 6.6(h)(1)), any Participant who terminated employment
during the Plan Year for reasons other than death, Total and Permanent
Disability, or retirement shall or shall not share in the allocations of
the Employer's Matching Contribution made pursuant to Section 4.1(b), the
Employer's Non-Elective Contributions made pursuant to Section 4.1(c), the
Employer's Qualified Non-Elective Contribution made pursuant to Section
4.1(d), and Forfeitures as provided in the Adoption Agreement.
Notwithstanding the foregoing, for Plan Years beginning after 1989, if this
is a standardized Plan, any such terminated Participant shall share in such
allocations provided the terminated Participant completed more than 500
Hours of Service.
(m) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocation of the Employer's Matching
Contribution made pursuant to Section 4.1(b), the Employer's Non-Elective
Contributions made pursuant to Section 4.1(c), the Employer's Qualified
Non-Elective Contribution made pursuant to Section 4.1(d), and Forfeitures
as provided in this Section regardless of whether they completed a Year of
Service during the Plan Year.
(n) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained as
follows:
(1) one account for nonforfeitable benefits attributable to pre-
break service; and
(2) one account representing his status in the Plan attributable
to post-break service.
(o) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail to
meet the requirements of Code Sections 401(a)(26),
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<PAGE>
410(b)(1), or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer matching Contributions made pursuant to Section 4.1(b), Employer
Non-Elective Contributions made pursuant to Section 4.1(c) or Employer
Qualified Non-Elective Contributions made pursuant to Section 4.1(d) have
not been allocated to a sufficient number or percentage of Participants for
a Plan Year, then the following rules shall apply:
(1) Allocations of the respective contribution and Forfeitures
shall first be made to all active Participants who are employed on the
last day of the Plan Year, regardless of the number of Hours of
Service completed; and
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants eligible
to share in the Employer's contribution and Forfeitures for the Plan
Year shall be further expanded to include the minimum number of
Participants who are not actively employed on the last day of the Plan
Year as are necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated Participants, who
have completed the greatest number of Hours of Service in the Plan
Year before terminating employment.
Nothing in this Section shall permit the reduction of a Participant's
accrued benefit. Therefore any amounts that have previously been allocated
to Participants may not be reallocated to satisfy these requirements. In
such event, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they been
included in the allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the allocations
pursuant to this paragraph shall be considered a retroactive amendment
adopted by the last day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer Elective
Contributions and Qualified Non-Elective Contributions to a Participant's
Elective Account and Qualified Non-Elective Account shall satisfy one of
the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group multiplied
by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the
Highly Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group shall not
be more than two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated Participant group
shall not exceed the "Actual Deferral Percentage" for the Non-Highly
Compensated Participant group multiplied by 2. The provisions of Code
Section 401(k)(3) and Regulation 1.401(k)-1(b) are incorporated herein
by reference.
However, for Plan Years beginning after December 31, 1988, to
prevent the multiple use of the alternative method described in (2)
above and Code Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals pursuant to Section
4.2 and to make Employee contributions or to receive matching
contributions under this Plan or under any other plan maintained by
the Employer or an Affiliated Employer shall have his actual
contribution ratio reduced pursuant to Regulation 1.401(m)-2, the
provisions of which are incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and Non-
Highly Compensated Participant group for a Plan Year, the average of the
ratios, calculated separately for each Participant in such group, of the
amount of Employer Elective Contributions and Qualified Non-Elective
Contributions allocated to each Participant's Elective Account and
Qualified Non-Elective Account for such Plan Year, to such Participant's
"414(s) Compensation" for such Plan Year. The actual deferral ratio for
each Participant and the "Actual Deferral Percentage" for each
26
<PAGE>
group, for Plan Years beginning after December 31, 1988, shall be
calculated to the nearest one-hundredth of one percent of the Participant's
"414(s) Compensation". Employer Elective Contributions allocated to each
Non-Highly Compensated Participant's Elective Account shall be reduced by
Excess Deferred Compensation to the extent such excess amounts are made
under this Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during the year,
the following shall apply:
(1) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating Employer
Elective Contributions and "414(s) Compensation" of all eligible
Family Members who are Highly Compensated Participants without regard
to family aggregation; and (ii) the ratio determined by aggregating
Employer Elective Contributions and "414(s) Compensation" of all
eligible Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s) Compensation" for
Plan Years beginning after December 31, 1988, Family Members shall
include only the affected Employee's spouse and any lineal descendants
who have not attained age 19 before the close of the Plan Year.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be disregarded for purposes
of determining the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group except to the extent taken into account
in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are members
of those family groups that include the Participant are aggregated as
one family group in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to make a deferral election pursuant to Section 4.2.
whether or not such deferral election was made or suspended pursuant to
Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 401(b)(2)(A)(ii) as in effect
for Plan Years beginning after December 31, 1988), the cash or deferred
arrangements included in such plans shall be treated as one arrangement.
In addition, two or more cash or deferred arrangements may be considered as
a single arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans and the
plans including such arrangements shall be treated as one arrangement and
as one plan for purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k). For plan years beginning after December 31, 1989, plans
may be aggregated under this paragraph (e) only if they have the same plan
year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section 4975(e)(7)
may not be combined with this Plan for purposes of determining whether the
employee stock ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two (2) or more cash or deferred
arrangements (other than a cash or deferred arrangement which is part of an
employee stock ownership plan as defined in Code Section 4975(e)(7) for
Plan Years beginning after December 31, 1988) of the Employer or an
Affiliated Employer, all such cash or deferred arrangements shall be
treated as one cash or deferred arrangement for the purpose of determining
the actual deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after December 31, 1988,
if the cash or deferred arrangements have different Plan Years, this
paragraph shall be applied by
27
<PAGE>
treating all cash or deferred arrangements ending with or within the sum
calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions made pursuant to Section
4.4 do not satisfy one of the tests set forth in Section 4.5, for Plan Years
beginning after December 31, 1986, the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following the
end of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him and/or at his election recharacterized as
a voluntary Employee contribution pursuant to Section 4.12 until one of the
tests set forth in Section 4.5 is satisfied, or until his actual deferral
ratio equals the actual deferral ratio of the Highly Compensated
Participant having the second highest actual deferral ratio. This process
shall continue until one of the tests set forth in Section 4.5 is
satisfied. For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions and Qualified Non-
Elective Contributions made on behalf of such Highly Compensated
Participant (determined prior to the application of this paragraph) minus
the amount determined by multiplying the Highly Compensated Participant's
actual deferral ratio (determined after application of this paragraph) by
his "414(s) Compensation". However, in determining the amount of Excess
Contributions to be distributed and/or recharacterized with respect to an
affected Highly Compensated Participant as determined herein, such amount
shall be reduced by any Excess Deferred Compensation previously distributed
to such affected Highly Compensated Participant for his taxable year ending
with or within such Plan Year. Any distribution and/or recharacterization
of Excess Contributions shall be made in accordance with the following:
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are allocable;
(ii) shall be made first from unmatched Deferred
Compensation and, thereafter, simultaneously from Deferred
Compensation which is matched and matching contributions which
relate to such Deferred Compensation. However, any such matching
contributions which are not Vested shall be forfeited in lieu of
being distributed;
(iii) shall be made from Qualified Non-Elective
Contributions only to the extent that Excess Contributions
exceed the balance in the Participant's Elective Account
attributable to Deferred Compensation and Employer matching
contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a distribution
of Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess
Contributions pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which
the last of those Highly Compensated Participants with Excess
Contributions to be recharacterized is notified of the
recharacterization and the tax consequences of such
recharacterization;
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<PAGE>
(ii) for Plan Years ending on or before August 8, 1988, may
be postponed but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred Compensation
on behalf of any Highly Compensated Participant for any Plan
Year;
(iv) shall be treated as voluntary Employee contributions
for purposes of Code Section 401(a)(4) and Regulation
1.401(k)-1(b). However, for purposes of Sections 2.2 and 4.4(f),
recharacterized Excess Contributions continue to be treated as
Employer contributions that are Deferred Compensation. For Plan
Years beginning after December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions shall
continue to be nonforfeitable and subject to the same
distribution rules provided for in Section 4.9(f);
(v) which relate to Plan Years ending on or before October
24, 1988, may be treated as either Employer contributions or
voluntary Employee contributions and therefore shall not be
subject to the restrictions of Section 4.2(c);
(vi) are not permitted if the amount recharacterized plus
voluntary Employee contributions actually made by such Highly
Compensated Participant, exceed the maximum amount of voluntary
Employee contributions (determined prior to application of
Section 4.7(a)) that such Highly Compensated Participant is
permitted to make under the Plan in the absence of
recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the
entire amount of Excess Contributions shall be treated as a pro rata
distribution and/or recharacterization of Excess Contributions and
Income.
(4) The determination and correction of Excess Contributions of
a Highly Compensated Participant whose actual deferral ratio is
determined under the family aggregation rules shall be accomplished as
follows:
(i) If the actual deferral ratio for the Highly Compensated
Participant is determined in accordance with Section
4.5(c)(1)(ii), then the actual deferral ratio shall be reduced as
required herein and the Excess Contributions for the family unit
shall be allocated among the Family Members in proportion to the
Elective Contributions of each Family Member that were combined
to determine the group actual deferral ratio.
(ii) If the actual deferral ratio for the Highly Compensated
Participant is determined under Section 4.5(c)(1)(i), then the
actual deferral ratio shall first be reduced as required herein,
but not below the actual deferral ratio of the group of Family
Members who are not Highly Compensated Participants without
regard to family aggregation. The Excess Contributions resulting
from this initial reduction shall be allocated (in proportion to
Elective Contributions) among the Highly Compensated Participants
whose Elective Contributions were combined to determine the
actual deferral ratio. If further reduction is still required,
then Excess Contributions resulting from this further reduction
shall be determined by taking into account the contributions of
all Family Members and shall be allocated among them in
proportion to their respective Elective Contributions.
(b) Within twelve (12) months after the end of the Plan Year, the
Employer shall make a special Qualified Non-Elective Contribution on behalf
of Non-Highly Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 4.5(a). Such contribution shall be
allocated to the Participant's Qualified Non-Elective Account of each Non-
Highly Compensated Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants.
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(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of the
allocable gain or loss for the Plan Year and the allocable gain or loss for
the period between the end of the Plan Year and the date of distribution
("gap period"). The income or loss allocable to Excess Contributions for
the Plan Year and the "gap period" is calculated separately and is
determined by multiplying the income or loss for the Plan Year or the "gap
period" by a fraction. The numerator of the fraction is the Excess
Contributions for the Plan Year. The denominator of the fraction is the
total of the Participant's Elective Account attributable to Elective
Contributions and the Participant's Qualified Non-Elective Account as of
the end of the Plan Year or the "gap period", reduced by the gain allocable
to such total amount for the Plan Year or the "gap period" and increased by
the loss allocable to such total amount for the Plan Year or the "gap
period".
In lieu of the "fractional method" described above, a "safe harbor method"
may be used to calculate the allocable Income for the "gap period". Under
such "safe harbor method", allocable Income for the "gap period" shall be
deemed to equal ten percent (10%) of the Income allocable to Excess
Contributions for the Plan Year of the Participant multiplied by the number
of calendar months in the "gap period". For purposes of determining the
number of calendar months in the "gap period", a distribution occurring on
or before the fifteenth day of the month shall be treated as having been
made on the last day of the preceding month and a distribution occurring
after such fifteenth day shall be treated as having been made on the first
day of the next subsequent month.
Notwithstanding the above, for Plan Years which began in 1987, Income
during the "gap period" shall not be taken into account.
(d) Any amounts not distributed or recharacterized within 2 1/2
months after the end of the Plan Year shall be subject to the 10% Employer
excise tax imposed by Code Section 4979.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage", for Plan Years beginning
after the later of the Effective Date of this Plan or December 31, 1986,
for the Highly Compensated Participant group shall not exceed the
greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the Non-
Highly Compensated Participant Group, or such percentage for the Non-
Highly Compensated Participant group plus 2 percentage points.
However, for Plan Years beginning after December 31, 1988, to prevent
the multiple use of the alternative method described in this paragraph
and Code Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2 or any
other cash or deferred arrangement maintained by the Employer or an
Affiliated Employer and to make Employee contributions or to receive
matching contributions under any plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2. The provisions of Code Section
401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated
herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the Highly
Compensated Participant group and Non-Highly Compensated Participant group,
the average of the ratios (calculated separately for each Participant in
each group) of:
(1) the sum of Employer matching contributions pursuant to
Section 4.1(b) (to the extent such matching contributions are not used
to satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12 and Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) contributed under the Plan on behalf of each such
Participant for such Plan Year; to
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(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage"
and the amount of Excess Aggregate Contributions pursuant to Section
4.8(e), only Employer matching contributions contributed to the Plan prior
to the end of the succeeding Plan Year shall be considered. In addition,
the Administrator may elect to take into account, with respect to Employees
eligible to have Employer matching contributions made pursuant to Section
4.1(b) or voluntary Employee contributions made pursuant to Section 4.12
allocated to their accounts, elective deferrals (as defined in Regulation
1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code
Section 401(m)(4)(C)) contributed to any plan maintained by the employer.
Such elective deferrals and qualified non-elective contributions shall be
treated as Employer matching contributions subject to Regulation
1.401(m)-1(b)(2) which is incorporated herein by reference. However, for
Plan Years beginning after December 31, 1988, the Plan Year must be the
same as the plan year of the plan to which the elective deferrals and the
qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of a
Highly Compensated Employee who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Employee is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the
following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating Employer
matching contributions made pursuant to Section 4.1(b) (to the extent
such matching contributions are not used to satisfy the tests set
forth in Section 4.5), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of all eligible Family Members who are Highly
Compensated Participants without regard to family aggregation; and
(ii) the ratio determined by aggregating Employer matching
contributions made pursuant to Section 4.1(b) (to the extent such
matching contributions are not used to satisfy the tests set forth in
Section 4.5), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of a eligible Family Members (including Highly
Compensated Participants). However, in applying the $200,000 limit to
"414(s) Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected Employee's spouse
and any lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Employer matching contributions made pursuant to Section
4.1(b) (to the extent such matching contributions are not used to
satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and "414(s) Compensation" of all Family Members shall
be disregarded for purposes of determining the "Actual Contribution
Percentage" of the Non-Highly Compensated Participant group except to
the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are members
of those family groups that include the Participant are aggregated as
one family group in accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as one
plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the
average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for
Plan Years beginning after December 31, 1988), such plans shall be treated
as one plan. In addition, two or more plans of the Employer to which
matching contributions, Employee contributions, or both, are made may be
considered as a single plan for purposes of determining whether or not such
plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case,
the aggregated plans must satisfy this Section and Code Sections 401(a)(4),
410(b) and 401(m) as though such
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aggregated plans were a single plan. For plan years beginning after
December 31, 1989, plans may be aggregated under this paragraph only if
they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section 4975(e)(7)
may not be aggregated with this Plan for purposes of determining whether
the employee stock ownership plan or this Plan satisfies this Section and
Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or
more plans (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7) for Plan Years beginning after December 31, 1988) which
are maintained by the Employer or an Affiliated Employer to which matching
contributions, Employee contributions, or both, are made, all such
contributions on behalf of such Highly Compensated Participant shall be
aggregated for purposes of determining such Highly Compensated
Participant's actual contribution ratio. However, for Plan Years beginning
after December 31, 1988, if the plans have different plan years, this
paragraph shall be applied by treating all plans ending with or within the
same calendar year as a single plan.
(g) For purposes of Section 4.7(a) and 4.8, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to have matching contributions made pursuant to Section
4.1(b) (whether or not a deferred election was made or suspended pursuant
to Section 4.2(e)) allocated to his account for the Plan Year or to make
salary deferrals pursuant to Section 4.2 (if the Employer uses salary
deferrals to satisfy the provisions of this Section) or voluntary Employee
contributions pursuant to Section 4.12 (whether not voluntary Employee
contributions are made) allocated to his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean
an Employee contribution made to the Plan, or to a contract described in
Code Section 403(b), on behalf of a Participant on account of an Employee
contribution made by such Participant, or on account of a participant's
deferred compensation, under a plan maintained by the Employer.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31,
1986, the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the Non-
Highly Compensated Participant group pursuant to Section 4.7(a), the
Administrator (on or before the fifteenth day of the third month following
the end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to the Highly
Compensated Participant having the highest actual contribution ratio, his
portion of Excess Aggregate Contributions (and Income allocable to such
contributions) or, if forfeitable, forfeit such non-Vested Excess Aggregate
Contributions attributable to Employer matching contributions (and Income
allocable to such Forfeitures) until either one of the tests set forth in
Section 4.7(a) is satisfied, or until his actual contribution ratio equals
the actual contribution ratio of the Highly Compensated Participant having
the second highest actual contribution ratio. This process shall continue
until one of the tests set forth in Section 4.7(a) is satisfied. The
distribution and/or Forfeiture of Excess Aggregate Contributions shall be
made in the following order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 4.6(a)(1);
(2) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate Contributions (and Income) shall be treated as a pro rata
distribution of Excess Aggregate Contributions and Income.
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Distribution of Excess Aggregate Contributions shall be designated by the
Employer as a distribution of Excess Aggregate Contributions (and Income).
Forfeitures of Excess Aggregate Contributions shall be treated in
accordance with Section 4.4. However, no such Forfeiture may be allocated
to a Highly Compensated Participant whose contributions are reduced
pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes of
Code Sections 404 and 415 even if distributed from the Plan.
(d) For the purposes of this Section and Section 4.7, "Excess
Aggregate Contributions" means, with respect to any Plan Year, the excess
of:
(1) the aggregate amount of Employer matching contributions made
pursuant to Section 4.1(b) (to the extent such contributions are taken
into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c)
actually made on behalf of the Highly Compensated Participant group
for such Plan Year, over
(2) the maximum amount of such contributions permitted under the
limitations of Section 4.7(a).
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken into
account pursuant to Section 4.7(b)), voluntary Employee contributions made
pursuant to Section 4.12, Excess Contributions characterized as voluntary
Employee contributions pursuant to Section 4.6(a) and any Qualified Non-
Elective Contributions or elective deferrals taken into account pursuant to
Section 4.7(c) on behalf of the Highly Compensated Participant (determined
prior to the application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual contribution ratio
(determined after application of this paragraph) by his "414(s)
Compensation". The actual contribution ratio must be rounded to the
nearest one-hundredth of one percent for Plan Years beginning after
December 31, 1988. In no case shall the amount of Excess Aggregate
Contribution with respect to any Highly Compensated Participant exceed the
amount of Employer matching contributions made pursuant to Section 4.1(b)
(to the extent taken into account pursuant to Section 4.7(b)), voluntary
Employee contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to Section
4.6(a) and any Qualified Non-Elective Contributions or elective deferrals
taken into account pursuant to Section 4.7(c) on behalf of such Highly
Compensated Participant for such Plan Year.
(f) The determination of the amount of Excess Aggregate Contributions
with respect to any Plan Year shall be made after first determining the
Excess Contributions, if any, to be treated as voluntary Employee
contributions due to recharacterization for the plan year of any other
qualified cash or deferred arrangement (as defined in Code Section 401(k))
maintained by the Employer that ends with or within the Plan Year or which
are treated as voluntary Employee contributions due to recharacterization
pursuant to Section 4.6(a).
(g) The determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual contribution
ratio is determined under the family aggregation rules shall be
accomplished as follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance with Section 4.7(d)(1)(ii),
then the actual contribution ratio shall be reduced and the Excess
Aggregate Contributions for the family unit shall be allocated among
the Family Members in proportion to the sum of Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken
into account pursuant to Section 4.7(b)), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c) of
each Family Member that were combined to determine the group actual
contribution ratio.
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(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 4.7(d)(l)(i), then the actual
contribution ratio shall first be reduced, as required herein, but not
below the actual contribution ratio of the group of Family Members who
are not Highly Compensated Participants without regard to family
aggregation. The Excess Aggregate Contributions resulting from this
initial reduction shall be allocated among the Highly Compensated
Participants whose Employer matching contributions made pursuant to
Section 4.1(b) (to the extent taken into account pursuant to Section
4.7(b)), voluntary Employee contributions made pursuant to Section
4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-
Elective Contributions or elective deferrals taken into account
pursuant to Section 4.7(c) were combined to determine the actual
contribution ratio. If further reduction is still required, then
Excess Aggregate Contributions resulting from this further reduction
shall be determined by taking into account the contributions of all
Family Members and shall be allocated among them in proportion to
their respective Employer matching contributions made pursuant to
Section 4.1(b) (to the extent taken into account pursuant to Section
4.7(b)), voluntary Employee contributions made pursuant to Section
4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-
Elective Contributions or elective deferrals taken into account
pursuant to Section 4.7(c).
(h) Notwithstanding the above, within twelve (12) months after the
end of the Plan Year, the Employer may make a special Qualified Non-
Elective Contribution on behalf of Non-Highly Compensated Participants in
an amount sufficient to satisfy one of the tests set forth in Section
4.7(a). Such contribution shall be allocated to the Participant's Qualified
Non-Elective Account of each Non-Highly Compensated Participant in the same
proportion that each Non-Highly Compensated Participant's Compensation for
the year bears to the total Compensation of all Non-Highly Compensated
Participants. A separate accounting shall be maintained for the purpose of
excluding such contributions from the "Actual Deferral Percentage" tests
pursuant to Code Section 4.5(a).
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum of
the allocable gain or loss for the Plan Year and the allocable gain or loss
for the period between the end of the Plan Year and the date of
distribution ("gap period"). The income or loss allocable to Excess
Aggregate Contributions for the Plan Year and the "gap period" is
calculated separately and is determined by multiplying the income or loss
for the Plan Year or the "gap period" by a fraction. The numerator of the
fraction is the Excess Aggregate Contributions for the Plan Year. The
denominator of the fraction is the total Participant's Account and
Voluntary Contribution Account attributable to Employer matching
contributions subject to Section 4.7, voluntary Employee contributions made
pursuant to Section 4.12, and any Qualified Non-Elective Contributions and
elective deferrals taken into account pursuant to Section 4.7(c) as of the
end of the Plan Year or the "gap period", reduced by the gain allocable to
such total amount for the Plan Year or the "gap period" and increased by
the loss allocable to such total amount for the Plan Year or the "gap
period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap period".
Under such "safe harbor method", allocable Income for the "gap period"
shall be deemed to equal ten percent (10%) of the Income allocable to
Excess Aggregate Contributions for the Plan Year of the Participant
multiplied by the number of calendar months in the "gap period". For
purposes of determining the number of calendar months in the "gap period",
a distribution occurring on or before the fifteenth day of the month shall
be treated as having been made on the last day of the preceding month and a
distribution occurring after such fifteenth day shall be treated as having
been made on the first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting from
recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
Notwithstanding the above, for Plan Years which began in 1987, Income
during the "gap period" shall not be taken into account.
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4.9 MAXIMUM ANNUAL ADDITIONS
(a) (1) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer, or
a welfare benefit fund (as defined in Code Section 419(e)), maintained
by the Employer, or an individual medical account (as defined in Code
Section 415(1)(2)) maintained by the Employer, which provides Annual
Additions, the amount of Annual Additions which may be credited to the
Participant's accounts for any limitation Year shall not exceed the
lesser of the Maximum Permissible Amount or any other limitation
contained in this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the Participant's accounts
would cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the amount contributed or allocated will
be reduced so that the Annual Additions for the Limitation Year will
equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation
for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
compensation for such Limitation Year.
(4) If pursuant to Section 4.9(a)(2) or as a result of the
allocation of Forfeitures, there is an Excess Amount, the excess will
be disposed of as follows:
(i) Any nondeductible Voluntary Employee Contributions, to
the extent they would reduce the Excess Amount, will be returned
to the Participant;
(ii) If, after the application of subparagraph (i), an
Excess Amount still exists, and the Participant is covered by the
Plan at the end of the Limitation Year, the Excess Amount in the
Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures) for such
Participant in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(iii) If, after the application of subparagraph (i), an
Excess Amount still exists, and the Participant is not covered by
the Plan at the end of a Limitation Year, the Excess Amount will
be held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions
(including allocation of any Forfeitures) for all remaining
Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(iv) If a suspense account is in existence at any time
during a Limitation Year pursuant to this Section, it will not
participate in the allocation of investment gains and losses. If
a suspense account is in existence at any time during a
particular limitation year, all amounts in the suspense account
must be allocated and reallocated to participants' accounts
before any employer contributions or any employee contributions
may be made to the plan for that limitation year. Excess amounts
may not be distributed to participants or former participants.
(b) (1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified Prototype defined
contribution plan maintained by the Employer, or a welfare benefit
fund (as defined in Code Section 419(e)) maintained by the Employer,
or an individual medical account (as defined in Code Section
415(i)(2)) maintained by the Employer, which provides Annual
Additions, during any Limitation Year. The Annual Additions which may
be credited to a Participant's accounts under this Plan for any such
Limitation Year shall not exceed the Maximum Permissible Amount
reduced by the Annual Additions credited to a Participant's accounts
under the other plans and welfare
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<PAGE>
benefit funds for the same Limitation Year. If the Annual Additions
with respect to the Participant under other defined contribution plans
and welfare benefit funds maintained by the Employer are less than the
Maximum Permissible Amount and the Employer contribution that would
otherwise be contributed or allocated to the Participant's accounts
under this Plan would cause the Annual Additions for the Limitation
Year to exceed this limitation, the amount contributed or allocated
will be reduced so that the Annual Additions under all such plans and
welfare benefit funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the
Participant under such other defined contribution plans and welfare
benefit funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated
to the Participant's account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation
for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in
Section 4.9(a)(2).
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(4) If, pursuant to Section 4.9(b)(2) or as a result of the
allocation of Forfeitures, a Participant's Annual Additions under this
Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical account
will be deemed to have been allocated first regardless of the actual
allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of another plan, the Excess Amount attributed to this Plan will be the
product of,
(i) the total Excess Amount allocated as of such date,
times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this
Plan to (2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date under this
and all the other qualified defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed
in the manner described in Section 4.9(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Prototype Plan,
Annual Additions which may be credited to the Participant's account under
this Plan for any Limitation Year will be limited in accordance with
Section 4.9(b), unless the Employer provides other limitations in the
Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan the sum of the
Participant's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's account under this Plan for any
Limitation Year will be limited in accordance with the Limitation on
Allocations Section of the Adoption Agreement.
(e) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an "annual
addition". In addition, the following are not Employee contributions for
the purposes of Section 4.9(f)(1)(2): (1) rollover contributions (as
defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan; (3)repayments
of distributions received by an Employee pursuant to Code Section
411(a)(7)(B) (cash-outs);
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<PAGE>
(4) repayments of distributions received by an Employee pursuant to Code
Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross income
under Code Section 408(k)(6).
(f) For purposes of this Section, the following terms shall be
defined as follows:
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer contributions, (2)
effective with respect to "limitation years" beginning after December
31, 1986, Employee contributions, (3) forfeitures, (4) amounts
allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(l)(2), which is part of a pension or
annuity plan maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-
retirement medical benefits allocated to the separate account of a key
employee (as defined in Code Section 419A(d)(3)) under a welfare
benefit fund (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply to:
(1) any contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is otherwise
treated as an "annual addition", or (2) any amount otherwise treated
as an "annual addition" under Code Section 415(l)(1). Notwithstanding
the foregoing, for "limitation years" beginning prior to January 1,
1987, only that portion of Employee contributions equal to the lesser
of Employee contributions in excess of six percent (6%) of "415
Compensation" or one-half of Employee contributions shall be
considered an "annual addition". For this purpose, any Excess Amount
applied under Sections 4.9(a)(4) and 4.9(b)(6) in the Limitation Year
to reduce Employer contributions shall be considered Annual Additions
for such Limitation Year.
(2) Compensation means a Participant's earned income, wages,
salaries, fees for professional services and other amounts received
for personal services actually rendered in the course of employment
with the Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, and
bonuses) and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not includible in the Employee's gross
income for the taxable year in which contributed, or Employer
contributions under a simplified employee pension plan to the
extent such contributions are excludable from the Employee's
gross income, or any distributions from a plan of deferred
compensation;
(ii) contributions made by the Employer to a plan of
deferred compensation to the extent that all or a portion of such
contributions are recharacterized as a voluntary Employee
contribution;
(iii) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iv) amounts realized from the sale, exchange or other
disposition of stock acquired under qualified stock option; and
(v) other amounts which received special tax benefits, or
contributions made by an Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the
Employee).
For purposes of applying the limitations of this Section 4.9,
Compensation for any Limitation Year is the Compensation actually paid
or includible in gross income during such year. Notwithstanding the
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preceding sentence, Compensation for a Participant in a profit-sharing
plan who is permanently and totally disabled (as defined in Code
Section 22(e)(3)) is the Compensation such Participant would have
received for the Limitation Year if the Participant had been paid at
the rate of Compensation paid immediately before becoming permanently
and totally disabled; such imputed Compensation for the disabled
Participant may be taken into account only if the Participant is not a
Highly Compensated Employee and contributions made on behalf of such
Participant are nonforfeitable when made.
(3) Defined Benefit Fraction means a fraction, the numerator of
which is the sum of the Participant's Projected Annual Benefits under
all the defined benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the lesser of 125
percent of the dollar limitation determined for the Limitation Year
under Code Sections 415(b) and (d) or 140 percent of his Highest
Average Compensation including any adjustments under Code Section
415(b).
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first Limitation Year beginning after December
31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of
this fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as
of the end of the close of the last Limitation Year beginning before
January 1, 1987, disregarding any changes in the terms and conditions
of the plan after May 5, 1986. The preceding sentence applies only if
the defined benefit plans individually and in the aggregate satisfied
the requirements of Code Section 415 for all Limitation Years
beginning before January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100 shall
be substituted for 125 unless the extra minimum allocation is being
made pursuant to the Employer's election in F1 of the Adoption
Agreement. However, for any Plan Year in which this Plan is a Super
Top Heavy Plan, 100 shall be substituted for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if
greater, one-fourth of the defined benefit dollar limitation set forth
in Code Section 415(b)(1) as in effect for the Limitation Year.
(5) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's account under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the current
and all prior Limitation Years, (including the Annual Additions
attributable to the Participant's nondeductible voluntary employee
contributions to any defined benefit plans, whether or not terminated,
maintained by the Employer and the annual additions attributable to
all welfare benefit funds, as defined in Code Section 419(e), and
individual medical accounts, as defined in Code Section 415(l)(2),
maintained by the Employer), and the denominator of which is the sum
of the maximum aggregate amounts for the current and all prior
Limitation Years of Service with the Employer (regardless of whether a
defined contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the lesser of 125
percent of the Defined Contribution Dollar Limitation or 35 percent of
the Participant's Compensation for such year. For Limitation Years
beginning prior to January 1, 1987, the "annual addition" shall not be
recomputed to treat all Employee contributions as an Annual Addition.
If the Employee was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986, in one
or more defined contribution plans maintained by the Employer which
were in existence on May 5, 1986, the numerator of this fraction will
be adjusted if the sum of this fraction and the Defined Benefit
Fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the Code
Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987.
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Notwithstanding the foregoing, for any Top Heavy Plan Year, 100
shall be substituted for 125 unless the extra minimum allocation is
being made pursuant to the Employer's election in F1 of the Adoption
Agreement. However, for any Plan Year in which this Plan is a Super
Top Heavy Plan, 100 shall be substituted for 125 in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this Section,
Affiliated Employers shall be determined pursuant to the modification
made by Code Section 415(h).
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(8) Highest Average Compensation means the average Compensation
for the three consecutive Years of Service with the Employer that
produces the highest average. A Year of Service with the Employer is
the 12 consecutive month period defined in Section E1 of the Adoption
Agreement which is used to determine Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12
consecutive month period) as elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must use
the same Limitation Year. If the Limitation Year is amended to a
different 12 consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year in which the amendment is
made.
(10) Master or Prototype Plan means a plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(11) Maximum Permissible Amount means the maximum Annual Addition
that may be contributed or allocated to a Participant's account under
the plan for any Limitation Year, which shall not exceed the lesser
of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation Limitation referred to in (ii) shall not
apply to any contribution for medical benefits (within the
meaning of Code Sections 401(h) or 419A(f)(2)) which is otherwise
treated as an annual addition under Code Sections 415(l)(1) or
419A(d)(2).
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive month
period, the Maximum Permissible Amount will not exceed the Defined
Contribution Dollar Contribution multiplied by the following fraction:
number of months in the short Limitation Year
-------------------------------------
12
(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or
qualified Joint and Survivor Annuity) to which the Participant would
be entitled under the terms of the plan assuming:
(13) the Participant will continue employment until Normal
Retirement Age (or current age, if later), and
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(14) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under
the Plan will remain constant for all future Limitation Years.
(g) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements prescribed in
this Section shall at all times comply with the provisions of Code Section
415 and the Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable
error in estimating a Participant's annual Compensation, or other facts and
circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the
"annual additions" under this Plan would cause the maximum provided in
Section 4.9 to be exceeded, the Administrator shall treat the excess in
accordance with Section 4.9(a)(4).
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of
the Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax exempt
status of the Plan or create adverse tax consequences for the Employer.
The amounts transferred shall be set up in a separate account herein
referred to as a "Participant's Rollover Account". Such account shall be
fully Vested at all times and shall not be subject to forfeiture for any
reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn
by, or distributed to the Participant, in whole or in part, except as
provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his Beneficiary. Any
distributions of amounts held in a Participant's Rollover Account shall be
made in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder. Furthermore, such amounts shall be considered as part of a
Participant's benefit in determining whether an involuntary cash-out of
benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each Participant
until such time as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part of the general
Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan" shall
mean any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts transferred
to this Plan directly from another qualified plan; (ii) lump-sum
distributions received by an Employee from another qualified plan which are
eligible for tax free rollover to a qualified plan and which are
transferred by the Employee to this Plan within sixty (60) days following
his receipt thereof; (iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit individual
retirement account has no assets other than assets which (A) were
previously distributed to the Employee by another qualified plan as a
lump-sum distribution (B) were eligible for tax-free rollover to a
qualified plan
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and (C) were deposited in such conduit individual retirement account within
sixty (60) days of receipt thereof and other than earnings on said assets;
and (iv) amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty (60) days of his
receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section applies,
the Administrator may require the Employee to establish that the amounts to
be transferred to this Plan meet the requirements of this Section and may
also require the Employee to provide an opinion of counsel satisfactory to
the Employer that the amounts to be transferred meet the requirements of
this Section.
(h) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction having
the effect of such a transfer) shall only be permitted if it will not
result in the elimination or reduction of any "Section 411(d)(6) protected
benefit" as described in Section 8.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) If elected in the Adoption Agreement, each Participant may, at
the discretion of the Administrator in a nondiscriminatory manner, elect to
voluntarily contribute a portion of his compensation earned while a
Participant under this Plan. Such contributions shall be paid to the
Trustee within a reasonable period of time but in no event later than 90
days after the receipt of the contribution.
(b) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) A Participant may elect to withdraw his voluntary contributions
from his Voluntary Contribution Account and the actual earnings thereon in
a manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder. If the
Administrator maintains sub-accounts with respect to voluntary
contributions (and earnings thereon) which were made on or before a
specified date, a Participant shall be permitted to designate which sub-
account shall be the source for his withdrawal. No Forfeitures shall occur
solely as a result of an Employee's withdrawal of Employee contributions.
In the event such a withdrawal is made, or in the event a Participant
has received a hardship distribution pursuant to Regulation
1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by the Employer
or from his Participant's Elective Account pursuant to Section 6.11, then
such Participant shall be barred from making any voluntary contributions to
the Trust Fund for a period of twelve (12) months after receipt of the
withdrawal or distribution.
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(e) The Administrator may direct that voluntary contributions made
after a valuation date be segregated into a separate account until such
time as the allocations pursuant to this Plan have been made, at which time
they may remain segregated or be invested as part of the general Trust
Fund, to be determined by the Administrator.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants may direct
the Trustee as to the investment of all or a portion of any one or more of
their individual account balances. Participants may direct the Trustee in
writing to invest their account in specific assets as permitted by the
Administrator provided such investments are in accordance with the
Department of Labor regulations and are permitted by the Plan. That
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portion of the account of any Participant so directing will thereupon be
considered a Directed Investment Account.
(b) A separate Directed Investment Account shall be established for
each Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account shall
be charged and credited as the case may be to each account. The Directed
Investment Account shall not share in Trust Fund Earnings, but it shall be
charged or credited as appropriate with the net earnings, gains, losses and
expenses as well as any appreciation or depreciation in market value during
each Plan Year attributable to such account.
(c) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the Administrator
shall impose on a Participant's right to direct investments.
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions, then each Participant who made a
"Qualified Voluntary Employee Contribution" within the meaning of Code
Section 219(e)(2) as it existed prior to the enactment of the Tax Reform
Act of 1986, shall have his contribution held in a separate Qualified
Voluntary Employee Contribution Account which shall be fully Vested at all
times. Such contributions, however, shall not be permitted if they are
attributable to taxable years beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including, but
not limited to, all notice and consent requirements of Code Sections
411(a)(11) and 417 and the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Qualified Voluntary Employee Contribution Account
shall be used to provide additional benefits to the Participant or his
Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a separate
account for each Participant, they shall be invested as part of the general
Trust Fund and share in earnings and losses.
4.15 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified retirement
plans integrated with Social Security such that any Participant in this Plan is
covered under more than one of such plans, then such plans will be considered to
be one plan and will be considered to be integrated if the extent of the
integration of all such plans does not exceed 100%. For purposes of the
preceding sentence, the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable, under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
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ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date", to determine the net worth of the assets comprising the
Trust Fund as it exists on the "valuation date". In determining such net worth,
the Trustee shall value the assets comprising the Trust Fund at their fair
market value as of the "valuation date" and shall deduct all expenses for which
the Trustee has not yet obtained reimbursement from the Employer or the Trust
Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on
such exchange preceding the close of business on the "valuation date". If
such securities were not traded on the "valuation date", or if the exchange
on which they are traded was not open for business on the "valuation date",
then the securities shall be valued at the prices at which they were last
traded prior to the "valuation date". Any unlisted security held in the
Trust Fund shall be valued at its bid price next preceding the close of
business on the "valuation date", which bid price shall be obtained from a
registered broker or an investment banker. In determining the fair market
value of assets other than securities for which trading or bid prices can be
obtained, the Trustee may appraise such assets itself, or in its discretion,
employ one or more appraisers for that purpose and rely on the values
established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire
for the purposes hereof on or after his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date or Early Retirement Date, all
amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.4, shall continue until his late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or
other termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of Sections
6.6 and 6.7, the distribution of the deceased Participant's accounts to the
Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7, the
distribution of any remaining amounts credited to the accounts of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the value of
the account of a deceased Participant or Former Participant as the
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Administrator may deem desirable. The Administrators determination of
death and of the right of any person to receive payment shall be
conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6,
the Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse for the Pre-Retirement Survivor Annuity
if:
(1) the Participant and his spouse have validly waived the Pre-
Retirement Survivor Annuity in the manner prescribed in Section 6.6,
and the spouse has waived his or her right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic relations
order" as defined in Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a
form satisfactory to the Administrator. A Participant may at any time
revoke his designation of a Beneficiary or change his Beneficiary by filing
written notice of such revocation or change with the Administrator.
However, the Participant's spouse must again consent in writing to any
change in Beneficiary unless the original consent acknowledged that the
spouse had the right to limit consent only to a specific Beneficiary and
that the spouse voluntarily elected to relinquish such right. The
Participant may, at any time, designate a Beneficiary for death benefits
payable under the Plan that are in excess of the Pre-Retirement Survivor
Annuity. In the event no valid designation of Beneficiary exists at the
time of the Participant's death, the death benefit shall be payable to his
estate.
(e) If the Plan provides an insured death benefit and a Participant
dies before any insurance coverage to which he is entitled under the Plan
is effected, his death benefit from such insurance coverage shall be
limited to the standard rated premium which was or should have been used
for such purpose.
(f) In the event of any conflict between the terms of this Plan and
the terms of any Contract issued hereunder, the Plan provisions shall
control.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited to
such Participant's Combined Account shall become fully Vested. In the event of
a Participant's Total and Permanent Disability, the Administrator, in accordance
with the provisions of Sections 6.5 and 6.7, shall direct the distribution to
such Participant of all amounts credited to such Participant's Combined Account
as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent
to the termination of a Participant's employment for any reason other than
retirement, death, or Total and Permanent Disability, the Administrator may
direct the Trustee to segregate the amount of the Vested portion of such
Terminated Participant's Combined Account and invest the aggregate amount
thereof in a separate, federally insured savings account, certificate of
deposit, common or collective trust fund of a bank or a deferred annuity.
In the event the Vested portion of a Participant's Combined Account is not
segregated, the amount shall remain in a separate account for the
Terminated Participant and share in allocations pursuant to Section 4.4
until such time as a distribution is made to the Terminated Participant.
The amount of the portion of the
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Participant's Combined Account which is not Vested may be credited to a
separate account (which will always share in gains and losses of the Trust)
and at such time as the amount becomes a Forfeiture shall be treated in
accordance with the provisions of the Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in the
event that the amount of the Vested portion of the Terminated
Participant's Combined Account equals or exceeds the fair market value
of any insurance Contracts, the Trustee, when so directed by the
Administrator and agreed to by the Terminated Participant, shall assign,
transfer, and set over to such Terminated Participant all Contracts on
his life in such form or with such endorsements, so that the settlement
options and forms of payment are consistent with the provisions of
Section 6.5. In the event that the Terminated Participant's Vested
portion does not at least equal the fair market value of the Contracts,
if any, the Terminated Participant may pay over to the Trustee the sum
needed to make the distribution equal to the value of the Contracts
being assigned or transferred, or the Trustee, pursuant to the
Participant's election, may borrow the cash value of the Contracts from
the Insurer so that the value of the Contracts is equal to the Vested
portion of the Terminated Participant's Combined Account and then assign
the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be
made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct that the entire Vested
portion of the Terminated Participant's Combined Account to be payable
to such Terminated Participant provided the conditions, if any, set
forth in the Adoption Agreement have been satisfied. Any distribution
under this paragraph shall be made in a manner which is consistent with
and satisfies the provisions of Section 6.5, including but not limited
to, all notice and consent requirements of Code Sections 411(a)(11) and
417 and the Regulations thereunder.
Notwithstanding the above, if the value of a Terminated
Participant's Vested benefit derived from Employer and Employee
contributions does not exceed, and at the time of any prior
distribution, has never exceeded $3,500, the Administrator shall direct
that the entire Vested benefit be paid to such Participant in a single
lump-sum without regard to the consent of the Participant or the
Participant's spouse. A Participant's Vested benefit shall not include
Qualified Voluntary Employee Contributions within the meaning of Code
Section 72(o)(5)(B) for Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a
percentage of such Participant's Account determined on the basis of the
Participant's number of Years of Service according to the vesting schedule
specified in the Adoption Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting
schedules as elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. The minimum top heavy vesting schedule
applies to all benefits within the meaning of Code Section 411(a)(7)
except those attributable to Employee contributions, including benefits
accrued before the effective date of Code Section 416 and benefits accrued
before the Plan became top heavy. Further, no decrease in a Participant's
Vested percentage may occur in the event the Plan's status as top heavy
changes for any Plan Year. However, this Section does not apply to the
account balances of any Employee who does not have an Hour of Service after
the Plan has initially become top heavy and the Vested percentage of such
Employee's Participant's Account shall be determined without regard to this
Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy
Plan, the Administrator shall continue to use the vesting schedule in
effect while the Plan was a Top Heavy Plan for each Employee who had an
Hour of Service during a Plan Year when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any full
or partial termination of the Plan, all amounts credited to the account of
any affected Participant shall become 100% Vested and shall not
thereafter be subject to Forfeiture.
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(e) If this is an amended or restated Plan, then notwithstanding the
vesting schedule specified in the Adoption Agreement, the Vested percentage
of a Participant's Account shall not be less than the Vested percentage
attained as of the later of the effective date or adoption date of this
amendment and restatement. The computation of a Participant's
nonforfeitable percentage of his interest in the Plan shall not be reduced
as the result of any direct or indirect amendment to this Article, or due
to changes in the Plan's status as a Top Heavy Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is
amended in any way that directly or indirectly affects the computation of
the Participant's nonforfeitable percentage or if the Plan is deemed
amended by an automatic change to a top heavy vesting schedule, then each
Participant with at least 3 Years of Service as of the expiration date of
the election period may elect to have his nonforfeitable percentage
computed under the Plan without regard to such amendment or change.
Notwithstanding the foregoing, for Plan Years beginning before January 1,
1989, or with respect to Employees who fail to complete at least one (1)
Hour of Service in a Plan Year beginning after December 31, 1988, five (5)
shall be substituted for three (3) in the preceding sentence. If a
Participant fails to make such election, then such Participant shall be
subject to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end 60 days
after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the Employer
before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had
not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in Service, and
such Former Participant had received a distribution of his entire
Vested interest prior to his reemployment, his forfeited account shall
be reinstated only if he repays the full amount distributed to him
before the earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer or the close of
the first period of 5 consecutive 1-Year Breaks in Service commencing
after the distribution. If a distribution occurs for any reason other
than a separation from service, the time for repayment may not end
earlier than five (5) years after the date of separation. In the
event the Former Participant does repay the full amount distributed to
him, the undistributed portion of the Participant's Account must be
restored in full, unadjusted by any gains or losses occurring
subsequent to the Anniversary Date or other valuation date preceding
his termination. If an employee receives a distribution pursuant to
this section and the employee resumes employment covered under this
plan, the employee's employer-derived account balance will be restored
to the amount on the date of distribution if the employee repays to
the plan the full amount of the distribution attributable to employer
contributions before the earlier of 5 years after the first date on
which the participant is subsequently re-employed by the employer, or
the date the participant incurs 5 consecutive 1-year breaks in service
following the date of the distribution. If a non-Vested Former
Participant was deemed to have received a distribution and such Former
Participant is reemployed by the Employer before five (5) consecutive
1-Year Breaks in Service, then such Participant will be deemed to have
repaid the deemed distribution as of the date of reemployment.
(3) If any Former Participant is reemployed after a 1-Year Break
in Service has occurred, Years of Service shall include Years of
Service prior to his 1-Year Break in Service subject to the following
rules:
(i) Any Former Participant who under the Plan does not
have a nonforfeitable right to any interest in the Plan resulting
from Employer contributions shall lose credits if his consecutive
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1 -Year Breaks in Service equal or exceed the greater of (A) five
(5) or (B) the aggregate number of his pre-break Years of
Service;
(ii) After five (5) consecutive 1-Year Breaks in Service, a
Former Participant's Vested Account balance attributable to pre-
break service shall not be increased as a result of post-break
service;
(iii) A Former Participant who is reemployed and who has not
had his Years of Service before a 1-Year Break in Service
disregarded pursuant to (i) above, shall participate in the Plan
as of his date of reemployment;
(iv) If a Former Participant completes a Year of Service (a
1-Year Break in Service previously occurred, but employment had
not terminated), he shall participate in the Plan retroactively
from the first day of the Plan Year during which he completes one
(1) Year of Service.
(h) In determining Years of Service for purposes of vesting under the
Plan, Years of Service shall be excluded as specified in the Adoption
Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a Participant who
is married on the "annuity starting date" and who does not die before
the "annuity starting date" shall receive the value of all of his
benefits in the form of a Joint and Survivor Annuity. "The Joint and
Survivor Annuity is an annuity that commences immediately and shall be
equal in value to a single life annuity. Such joint and survivor
benefits following the Participant's death shall continue to the
spouse during the spouse's lifetime at a rate equal to 50% of the rate
at which such benefits were payable to the Participant. This Joint and
Survivor Annuity shall be considered the designated qualified Joint
and Survivor Annuity and automatic form of payment for the purposes of
this Plan. However, the Participant may elect to receive a smaller
annuity benefit with continuation of payments to the spouse at a rate
of seventy-five percent (75%) or one hundred percent (100%) of the
rate payable to a Participant during his lifetime which alternative
Joint and Survivor Annuity shall be equal in value to the automatic
Joint and 50% Survivor Annuity. An unmarried Participant shall
receive the value of his benefit in the form of a life annuity. Such
unmarried Participant, however, may elect in writing to waive the life
annuity. The election must comply with the provisions of this Section
as if it were an election to waive the Joint and Survivor Annuity by a
married Participant, but without the spousal consent requirement. The
Participant may elect to have any annuity provided for in this Section
distributed upon the attainment of the "earliest retirement age" under
the Plan. The "earliest retirement age" is the earliest date on which,
under the Plan, the Participant could elect to receive retirement
benefits.
(2) Any election to waive the Joint and Survivor Annuity must be
made by the Participant in writing during the election period and be
consented to by the Participant's spouse. If the spouse is legally
incompetent to give consent, the spouse's legal guardian, even if such
guardian is the Participant, may give consent. Such election shall
designate a Beneficiary (or a form of benefits) that may not be
changed without spousal consent (unless the consent of the spouse
expressly permits designations by the Participant without the
requirement of further consent by the spouse). Such spouse's consent
shall be irrevocable and must acknowledge the effect of such election
and be witnessed by a Plan representative or a notary public. Such
consent shall not be required if it is established to the satisfaction
of the Administrator that the required consent cannot be obtained
because there is no spouse, the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The election made
by the Participant and consented to by his spouse may be revoked by
the Participant in writing without the consent of the spouse at any
time during the election period. The number of revocations shall not
be limited. Any new election must comply with the requirements of
this paragraph. A former spouse's waiver shall not be binding on a
new spouse.
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(3) The election period to waive the Joint and Survivor Annuity
shall be the 90 day period ending on the "annuity starting date."
(4) For purposes of this Section and Section 6.6. the "annuity
starting date" means the first day of the first period for which an
amount is paid as an annuity, or, in the case of a benefit not payable
in the form of an annuity, the first day on which all events have
occurred which entitles the Participant to such benefit.
(5) With regard to the election, the Administrator shall provide
to the Participant no less than 30 days and no more than 90 days
before the "annuity starting date" a written explanation of:
(i) the terms and conditions of the Joint and Survivor
Annuity, and
(ii) the Participant's right to make and the effect of an
election to waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to
any election to waive the Joint and Survivor Annuity, and
(iv) the right of the Participant to revoke such election,
and the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to
paragraph (a)(2) above not to receive his benefit in the form of a Joint
and Survivor Annuity, or if such Participant is not married, in the form of
life annuity, the Administrator, pursuant to the election of the
Participant, shall direct the distribution to a Participant or his
Beneficiary any amount to which he is entitled under the Plan in one or
more of the following methods which are permitted pursuant to the Adoption
Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide such
installment payments, the Administrator may direct that the
Participant's interest in the Plan be segregated and invested
separately, and that the funds in the segregated account be used for
the payment of the installments. The period over which such payment
is to be made shall not extend beyond the Participant's life
expectancy (or the life expectancy of the Participant and his
designated Beneficiary);
(3) Purchase of or providing an annuity. However, such annuity
may not be in any form that will provide for payments over a period
extending beyond either the life of the Participant (or the lives of
the Participant and his designated Beneficiary) or the life expectancy
of the Participant (or the life expectancy of the Participant and his
designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity
derived from Employer and Employee contributions may not be paid without
his written consent if the value exceeds, or has ever exceeded at the time
of any prior distribution, $3,500. Further, the spouse of a Participant
must consent in writing to any immediate distribution. If the value of the
Participant's benefit derived from Employer and Employee contributions does
not exceed $3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator may immediately distribute such benefit
without such Participant's consent. No distribution may be made under the
preceding sentence after the "annuity starting date" unless the Participant
and his spouse consent in writing to such distribution. Any written
consent required under this paragraph must be obtained not more than 90
days before commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded at the time of any prior distribution, $3,500
shall require such Participant's consent if such distribution commences
prior to the later of his Normal Retirement Age or age 62. With regard to
this required consent:
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(1) No consent shall be valid unless the Participant has
received a general description of the material features and an
explanation of the relative values of the optional forms of benefit
available under the Plan that would satisfy the notice requirements of
Code Section 417.
(2) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to consent, it
shall be deemed an election to defer the commencement of payment of
any benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required under
Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
"annuity starting date".
(4) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and must not be
made more than 90 days before the "annuity starting date".
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent to the
distribution.
(c) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made on or after January 1, 1985,
whether under the Plan or through the purchase of an annuity Contract,
shall be made in accordance with the following requirements and shall
otherwise comply with Code Section 40l(a)(9) and the Regulations thereunder
(including Regulation Section 1.401(a)(9)-2), the provisions of which are
incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later of (i)
the calendar year in which the Participant attains age 70 1/2 or (ii)
the calendar year in which the Participant retires, provided, however,
that this clause (ii) shall not apply in the case of a Participant who
is a "five (5) percent owner" at any time during the five (5) Plan
Year period ending in the calendar year in which he attains age 70 1/2
or, in the case of a Participant who becomes a "five (5) percent
owner" during any subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the April 1st of the
calendar year following the calendar year in which such subsequent
Plan Year ends. Alternatively, distributions to a Participant must
begin no later than the applicable April 1st as determined under the
preceding sentence and must be made over the life of the Participant
(or the lives of the Participant and the Participant's designated
Beneficiary) or, if benefits are paid in the form of a Joint and
Survivor Annuity, the life expectancy of the Participant (or the life
expectancies of the Participant and his designated Beneficiary) in
accordance with Regulations. For Plan Years beginning after December
31, 1988, clause (ii) above shall not apply to any Participant unless
the Participant had attained age 70 1/2 before January 1, 1988 and was
not a "five (5) percent owner" at any time during the Plan Year ending
with or within the calendar year in which the Participant attained age
66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989, distributions
may also be made under an alternative method which provides that the
then present value of the payments to be made over the period of the
Participant's life expectancy exceeds fifty percent (50%) of the then
present value of the total payments to be made to the Participant and
his Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life annuity) shall
be redetermined annually in accordance with Regulations if permitted
pursuant to the Adoption Agreement. If the Participant or the
Participant's spouse may elect whether recalculations will be made, then
the election, once made, shall be irrevocable. If no election is made by
the time distributions must commence, then the life expectancy of the
Participant and the Participant's spouse
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shall not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in Tables
V and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable
when distributed. Furthermore, the terms of any annuity Contract purchased
and distributed to a Participant or spouse shall comply with all of the
requirements of this Plan.
(h) Subject to the spouse's right of consent afforded under the Plan,
the restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who has
not terminated employment is not fully Vested in his Participant's Account
and the Participant may increase the Vested percentage in such account:
(1) A separate account shall be established for the
Participant's interest in the Plan as of the time of the distribution,
and
(2) At any relevant time the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by the
formula:
X equals P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested percentage
at the relevant time, AB is the account balance at the relevant time,
D is the amount of distribution, and R is the ratio of the account
balance at the relevant time to the account balance after
distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant
who dies before the annuity starting date and who has a surviving spouse
shall have the Pre-Retirement Survivor Annuity paid to his surviving
spouse. The Participant's spouse may direct that payment of the Pre-
Retirement Survivor Annuity commence within a reasonable period after the
Participant's death. If the spouse does not so direct, payment of such
benefit will commence at the time the Participant would have attained the
later of his Normal Retirement Age or age 62. However, the spouse may
elect a later commencement date. Any distribution to the Participant's
spouse shall be subject to the miles specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before
the Participant's death must be made by the Participant in writing during
the election period and shall require the spouse's irrevocable consent in
the same manner provided for in Section 6.5(a)(2). Further, the spouse's
consent must acknowledge the specific nonspouse Beneficiary.
Notwithstanding the foregoing, the nonspouse Beneficiary need not be
acknowledged, provided the consent of the spouse acknowledges that the
spouse has the right to limit consent only to a specific Beneficiary and
that the spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity
shall begin on the first day of the Plan Year in which the Participant
attains age 35 and end on the date of the Participant's death. An earlier
waiver (with spousal consent) may be made provided a written explanation of
the Pre-Retirement Survivor Annuity is given to the Participant and such
waiver becomes invalid at the beginning of the Plan Year in which the
Participant turns age 35. In the event a Vested Participant separates from
service prior to the beginning of the election period, the election period
shall begin on the date of such separation from service.
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(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such Participant
(and consistent with Regulations), a written explanation of the Pre-
Retirement Survivor Annuity containing comparable information to that
required pursuant to Section 6.5(a)(5). For the purposes of this paragraph,
the term "applicable period" means, with respect to a Participant,
whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant attains age
35;
(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an individual who
becomes a Participant after age 32, the explanation must be provided
by the end of the three-year period beginning with the first day of
the first Plan Year for which the individual is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity with
respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
(5) A reasonable period after separation from service in the
case of a Participant who separates before attaining age 35. For this
purpose, the Administrator must provide the explanation beginning one
year before the separation from service and ending one year after
separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section
shall apply only to Participants who are credited with an Hour of Service
on or after August 23, 1984. Former Participants who are not credited with
an Hour of Service on or after August 23, 1984 shall be provided with
rights to the Pre-Retirement Survivor Annuity in accordance with Section
303(e)(2) of the Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity derived from
Employer and Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the Administrator
shall direct the immediate distribution of such amount to the Participant's
spouse. No distribution may be made under the preceding sentence after the
annuity starting date unless the spouse consents in writing. If the value
exceeds, or has ever exceeded at the time of any prior distribution,
$3,500, an immediate distribution of the entire amount may be made to the
surviving spouse, provided such surviving spouse consents in writing to
such distribution. Any written consent required under this paragraph must
be obtained not more than 90 days before commencement of the distribution
and shall be made in a manner consistent with Section 6.5(a)(2).
(g) (1) In the event there is an election to waive the Pre-Retirement
Survivor Annuity, and for death benefits in excess of the Pre-Retirement
Survivor Annuity, such death benefits shall be paid to the Participant's
Beneficiary by either of the following methods, as elected by the
Participant (or if no election has been made prior to the Participant's
death, by his Beneficiary) subject to the rules specified in Section 6.6(h)
and the selections made in the Adoption Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or annual
cash installments over a period to be determined by the
Participant or his Beneficiary. After periodic installments
commence, the Beneficiary shall have the right to reduce the
period over which such periodic installments shall be made, and
the cash amount of such periodic installments shall be adjusted
accordingly.
(iii) If death benefits in excess of the Pre-Retirement
Survivor Annuity are to be paid to the surviving spouse, such
benefits may be paid pursuant to (i) or (ii) above, or used to
purchase an annuity so as to increase the payments made pursuant
to the Pre-Retirement Survivor Annuity;
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(2) In the event the death benefit payable pursuant to Section
6.2 is payable in installments, then, upon the death of the
Participant, the Administrator may direct that the death benefit be
segregated and invested separately, and that the funds accumulated in
the segregated account be used for the payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January 1,
1985, shall be made in accordance with the following requirements and shall
otherwise comply with Code Section 401(a)(9) and the Regulations
thereunder.
(1) If it is determined, pursuant to Regulations, that the
distribution of a Participant's interest has begun and the Participant
dies before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to
Section 6.5 as of his date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before distributions are
deemed to have begun pursuant to Regulations, then his death benefit
shall be distributed to his Beneficiaries in accordance with the
following rules subject to the selections made in the Adoption
Agreement and Subsections 6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to the
Participant's Beneficiaries by December 31st of the calendar year
in which the fifth anniversary of the Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above shall
not apply to any portion of the deceased Participant's interest
which is payable to or for the benefit of a designated
Beneficiary. In such event, such portion shall be distributed
over the life of such designated Beneficiary (or over a period
not extending beyond & life expectancy of such designated
Beneficiary) provided such distribution begins not later than
December 31st of the calendar year immediately following the
calendar year in which the Participant died;
(iii) However, in the event the Participant's spouse
(determined as of the date of the Participant's death) is his
designated Beneficiary, the provisions of (ii) above shall apply
except that the requirement that distributions commence within
one year of the Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of:
(1) December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st
of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before distributions to
such spouse begin, then the 5-year distribution requirement of
this Section shall apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections
made in the Adoption Agreement, if a Participant's death benefits are
to be paid in the form of a Pre-Retirement Survivor Annuity, then
distributions to the Participant's surviving spouse must commence on
or before the later of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died;
or (2) December 3 1st of the calendar year in which the Participant
would have attained age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement (if
permitted in the Adoption Agreement) must be made no later than December
31st of the calendar year following the calendar year of the Participant's
death. Except, however, with respect to a designated Beneficiary who is
the Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately following
the calendar year in which the Participant died or, if later, the calendar
year in which the Participant would have attained age 70 1/2; or (2)
December 31st of the calendar year which contains the fifth anniversary of
the date of the Participant's death. An election by a designated
Beneficiary must be in writing and shall be irrevocable as of the last day
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of the election period stated herein. In the absence of an election by the
Participant or a designated Beneficiary, the 5-year distribution
requirement shall apply.
(j) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of a life
annuity) shall or shall not be redetermined annually as provided in the
Adoption Agreement and in accordance with Regulations. If the Participant
or the Participant's spouse may elect, pursuant to the Adoption Agreement,
to have life expectancies recalculated, then the election, once made shall
be irrevocable. If no election is made by the time distributions must
commence, then the life expectancy of the Participant and the Participant's
spouse shall not be subject to recalculation. Life expectancy and joint
and last survivor expectancy shall be computed using the return multiples
in Tables V and VI of Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in
the Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary Contribution
Account shall be in the same proportion that the Participant's Voluntary
Contribution Account bears to the Participant's total interest in the Plan.
(l) Subject to the spouse's right of consent afforded under the Plan,
the restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his death
benefits paid in an alternative method acceptable under Code Section 401(a)
as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6. whenever a distribution is to be
made, or a series of payments are to commence, on or as of an Anniversary Date,
the distribution or series of payments may be made or begun on such date or as
soon thereafter as is practicable, but in no event later than 180 days after the
Anniversary Date. However, unless a Former Participant elects in writing to
defer the receipt of benefits (such election may not result in a death benefit
that is more than incidental), the payment of benefits shall begin not later
than the 60th day after the close of the Plan Year in which the latest of the
following events occurs: (a) the date on which the Participant attains the
earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan; or (c) the date the Participant terminates his service with the Employer.
Notwithstanding the foregoing, the failure of a Participant and, if
applicable, the Participant's spouse, to consent to a distribution pursuant to
Section 6.5(d), shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or
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Beneficiary is located subsequent to his benefit being reallocated, such benefit
shall be restored, first from Forfeitures, if any, and then from an additional
Employer contribution if necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
If elected in the Adoption Agreement, at such time as a Participant shall
have attained the age specified in the Adoption Agreement, the Administrator, at
the election of the Participant, shall direct the Trustee to distribute up to
the entire amount then credited to the accounts maintained on behalf of the
Participant. However, no such distribution may be made to any Participant
unless his Participant's Account has become fully Vested. In the event that the
Administrator makes such a distribution, the Participant shall continue to be
eligible to participate in the Plan on the same basis as any other Employee.
Any distribution made pursuant to this Section shall be made in a manner
consistent with Section 6.5, including but not limited to, all notice and
consent requirements required by Code Sections 411(a)(11) and 417 and the
Regulations thereunder.
Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account and Qualified Non-Elective Account shall not be
permitted prior to the Participants attaining 59 1/2 except as otherwise
permitted under the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall
direct the Trustee to distribute to any Participant in any one Plan Year up
to the lesser of (1) 100% of his accounts as specified in the Adoption
Agreement valued as of the last Anniversary Date or other valuation date or
(2) the amount necessary to satisfy the immediate and heavy financial need
of the Participant. Any distribution made pursuant to this Section shall
be deemed to be made as of the first day of the Plan Year or, if later, the
valuation date immediately preceding the date of distribution, and the
account from which the distribution is made shall be reduced accordingly.
Withdrawal under this Section shall be authorized only if the distribution
is on account of one of the following or any other items permitted by the
Internal Revenue Service:
(1) Medical expenses described in Code Section 213(d) incurred
by the Participant, his spouse, or any of his dependents (as defined
in Code Section 152);
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition for the next semester or quarter of post-
secondary education for the Participant, his spouse, children, or
dependents; or
(5) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such other
facts as are known to the Administrator, determines that all of the
following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available
under all plans maintained by the Employer;
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(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and voluntary
Employee contributions will be suspended for at least twelve (12)
months after receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals for the
Participant's taxable year immediately following the taxable year of
the hardship distribution in excess of the applicable limit under Code
Section 402(g) for such next taxable year less the amount of such
Participant's elective deferrals for the taxable year of the hardship
distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this
Section shall be limited solely to the Participant's Deferred Compensation
and any income attributable thereto credited to the Participant's Elective
Account as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements of
Code Sections 41 1 (a)(11) and 417 and the Regulations thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a
Participant in a Profit Sharing Plan and to any distribution, made on or after
the first day of the first plan year beginning after December 31, 1988, from or
under a separate account attributable solely to accumulated deductible employee
contributions, as defined in Code Section 72(o)(5)(B), and maintained on behalf
of a participant in a money purchase pension plan, (including a target benefit
plan):
(a) The Participant shall be prohibited from electing benefits in the
form of a life annuity;
(b) Upon the death of the Participant, the Participant's entire
Vested account balances will be paid to his or her surviving spouse, or, if
there is no surviving spouse or the surviving spouse has already consented
to waive his or her benefit, in accordance with Section 6.6, to his
designated Beneficiary; and
(c) Except to the extent otherwise provided in this Section and
Section 6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding
spousal consent and the forms of distributions shall be inoperative with
respect to this Plan.
This Section shall not apply to any Participant if it is determined that
this Plan is a direct or indirect transferee of a defined benefit plan or money
purchase plan, or a target benefit plan, stock bonus or profit sharing plan
which would otherwise provide for a life annuity form of payment to the
Participant.
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ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer to invest, manage, and control the Plan assets subject, however,
to the direction of an Investment Manager if the Employer should appoint
such manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits required
under the Plan to be paid to Participants, or, in the event of their death,
to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to
the Employer and/or Administrator for each Plan Year a written annual
report per Section 7.7; and
(d) If them shall be more than one Trustee, they shall act by a
majority of their number, but may authorize one or more of them to sign
papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall, except as provided in the Adoption Agreement,
invest and reinvest the Trust Fund to keep the Trust Fund invested without
distinction between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee shall deem
advisable, including, but not limited to, stocks, common or preferred,
bonds and other evidences of indebtedness or ownership, and real estate or
any interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the short and
long-term financial needs of the Plan on the basis of information furnished
by the Employer. In making such investments, the Trustee shall not be
restricted to securities or other property of the character expressly
authorized by the applicable law for trust investments; however, the
Trustee shall give due regard to any limitations imposed by the Code or the
Act so that at all times this Plan may qualify as a qualified Plan and
Trust.
(b) The Trustee may employ a bank or trust company pursuant to the
term of its usual and customary bank agency agreement, under which the
duties of such bank or trust company shall be of a custodial, clerical and
record-keeping nature.
(c) Notwithstanding Section 7.2(a), the Employer, in writing to the
Trustee, any delegate investment responsibility to the Administrator. If
the Administrator has been delegated such authority, the Trustee shall
invest trust assets in accordance with the Administrator's direction,
unless the Trustee determines, in the exercise of its responsibility under
ERISA as a co-fiduciary of the Plan, that such investments are not
permitted under the terms of the Plan, Trust, or the Act. The Trustee
shall not be liable or responsible for losses or unfavorable results
arising from the Trustee's compliance with directions received from the
Administrator.
(d) The Trustee may from time to time transfer to a common,
collective, or pooled trust fund maintained by any corporate Trustee
hereunder pursuant to Revenue Ruling 81-100, all or such part of the Trust
Fund as the Trustee may deem advisable, and such part or all of the Trust
Fund so transferred shall be subject to all the terms and provisions of the
common, collective, or pooled trust fund which contemplate the commingling
for investment purposes of such trust assets with trust assets of other
trusts. The Trustee may withdraw from such common, collective, or pooled
trust fund all or such part of the Trust Fund as the Trustee may deem
advisable.
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(e) The Trustee, at the direction of the Administrator and pursuant
to instructions from the individual designated in the Adoption Agreement
for such purpose and subject to the conditions set forth in the Adoption
Agreement, shall ratably apply for, own, and pay all premiums on Contracts
on the lives of the Participants. Any initial or additional Contract
purchased on behalf of a Participant shall have a face amount of not less
than $1,000, the amount set forth in the Adoption Agreement, or the
limitation of the Insurer, whichever is greater. If a life insurance
Contract is to be purchased for a Participant, the aggregate premium for
ordinary life insurance for each Participant must be less than 50% of the
aggregate contributions and Forfeitures allocated to a Participant's
Combined Account. For purposes of this limitation, ordinary life insurance
Contracts are Contracts with both non-decreasing death benefits and non-
increasing premiums. If term insurance or universal life insurance is
purchased with such contributions, the aggregate premium must be 25% or
less of the aggregate contributions and Forfeitures allocated to a
Participant's Combined Account. If both term insurance and ordinary life
insurance are purchased with such contributions, the amount expended for
term insurance plus one-half of the premium for ordinary life insurance may
not in the aggregate exceed 25% of the aggregate Employer contributions and
Forfeitures allocated to a Participant's Combined Account. The Trustee
must distribute the Contracts to the Participant or convert the entire
value of the Contracts at or before retirement into cash or provide for a
periodic income so that no portion of such value may be used to continue
life insurance protection beyond retirement. Notwithstanding the above,
the limitations imposed herein with respect to the purchase of life
insurance shall not apply, in the case of a Profit Sharing Plan, to the
portion of a Participant's Account that has accumulated for at least two
(2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts credited
to a Participant's Qualified Voluntary Employee Contribution Account
pursuant to Section 4.14, shall not be applied to the purchase of life
insurance contracts.
(f) The Trustee will be the owner of any life insurance Contract
purchased under the terms of this Plan. The Contract must provide that the
proceeds will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the Contract to the Participant's
designated Beneficiary in accordance with the distribution provisions of
Article VI. A Participant's spouse will be the designated Beneficiary
pursuant to Section 6.2, unless a qualified election has been made in
accordance with Sections 6.5 and 6.6 of the Plan, if applicable. Under no
circumstances shall the Trust retain any part of the proceeds. However,
the Trustee shall not pay the proceeds in a method that would violate the
requirements of the Retirement Equity Act, as stated in Article VI of the
Plan, or Code Section 401(a)(9) and the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of this Plan, shall
have the following powers and authorities, except as provided in the
Adoption Agreement, to be exercised in the Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other property
and to retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase,
or otherwise dispose of any securities or other property held by the
Trustee, by private contract or at public auction. No person dealing with
the Trustee shall be bound to see to the application of the purchase money
or to inquire into the validity, expediency, or propriety of any such sale
or other disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights or
other options, and to make any payments incidental thereto; to oppose, or
to consent to, or otherwise participate in, corporate reorganizations or
other changes affecting corporate securities, and to delegate discretionary
powers, and to pay any assessments or charges in connection therewith; and
generally to exercise any of the powers of an owner with respect to stocks,
bonds, securities, or other property. However,
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the Trustee shall not vote proxies relating to securities for which it has
not been assigned full investment management responsibilities. In those
cases where another party has such investment authority or discretion, be
it the Administrator or an outside Investment Manager, the Trustee will
deliver all proxies to said party who will then have full responsibility
for voting those proxies;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's nominees,
and to hold any investments in bearer form, but the books and records of
the Trustee shall at all times show that all such investments are part of
the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustee, and to secure the repayment thereof by pledging all, or any part,
of the Trust Fund; and no person lending money to the Trustee shall be
bound to see to the application of the money lent or to inquire into the
validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances
as the Trustee may, from time to time, deem to be in the best interests of
the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as Trustee
hereunder, whether or not such securities or other property would normally
be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to represent the Plan in
all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be
agent or counsel for the Employer;
(k) To apply for and procure from the Insurer as an investment of the
Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at any
time or from time to time, whatever rights and privileges may be granted
under such annuity, or other Contracts; to collect, receive, and settle for
the proceeds of all such annuity, or other Contracts as and when entitled
to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank-,
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase and acquire put or call options if the options
are traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or, if
the options are not traded on a national securities exchange, are
guaranteed by a member firm of the New York Stock Exchange;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with
assets belonging to any other qualified employee pension benefit trust
created by the Employer or any Affiliated Employer, and to commingle such
assets and make joint or common investments and carry joint accounts on
behalf of this Plan
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and such other trust or trusts, allocating undivided shares or interests in
such investments or accounts or any pooled assets of the two or more trusts
in accordance with their respective interests;
(q) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
(r) Directed Investment Account. The powers granted to the Trustee
shall be exercised in the sole fiduciary discretion of the Trustee.
However, if elected in the Adoption Agreement, each Participant may direct
the Trustee to separate and keep separate all or a portion of his interest
in the Plan; and further each Participant is authorized and empowered, in
his sole and absolute discretion, to give directions to the Trustee in such
form as the Trustee may require concerning the investment of the
Participant's Directed Investment Account, which directions must be
followed by the Trustee subject, however, to restrictions on payment of
life insurance premiums. Neither the Trustee nor any other persons
including the Administrator or otherwise shall be under any duty to
question any such direction of the Participant or to review any securities
or other property, real or personal, or to make any suggestions to the
Participant in connection therewith, and the Trustee shall comply as
promptly as practicable with directions given by the Participant hereunder.
Any such direction may be of a continuing nature or otherwise and may be
revoked by the Participant at any time in such form as the Trustee may
require. The Trustee may refuse to comply with any direction from the
Participant in the event the Trustee, in its sole and absolute discretion,
deems such directions improper by virtue of applicable law, and in such
event, the Trustee shall not be responsible or liable for any loss or
expense which may result. Any costs and expenses related to compliance
with the Participant's directions shall be borne by the Participant's
Directed Investment Account.
Notwithstanding anything hereinabove to the contrary, the Trustee
shall not, at any time after December 31, 1981, invest any portion of a
Directed Investment Account in "collectibles" within the meaning of that
term as employed in Code Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee may, in the
Trustee's sole discretion, make loans to Participants or Beneficiaries
under the following circumstances: (1) loans shall be made available to all
Participants and Beneficiaries on a reasonably equivalent basis; (2) loans
shall not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Participants; (3) loans
shall bear a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for periodic repayment over a reasonable
period of time.
(b) Loans shall not be made to any Shareholder-Employee or Owner-
Employee unless an exemption for such loan is obtained pursuant to Act
Section 408 and further provided that such loan would not be subject to tax
pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal Retirement
Date.
(d) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the Participant)
shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant during
the one year period ending on the day before the date on which such
loan is made, over the outstanding balance of loans from the Plan to
the Participant on the date on which such loan was made, or
(2) one-half (1/2) of the present value of the non-forfeitable
accrued benefit of the Employee under the Plan.
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For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan rude prior to
January 1, 1987, the $50,000 limit specified in (1) above shall be
unreduced.
(e) No Participant loan shall take into account the present value of
such Participant's Qualified Voluntary Employee Contribution Account.
(f) Loans shall provide for level amortization with payments to be
made not less frequently than quarterly over a period not to exceed five
(5) years. However, loans used to acquire any dwelling unit which, within a
reasonable time, is to be used (determined at the time the loan is made) as
a principal residence of the Participant shall provide for periodic
repayment over a reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1, 1987 which
are used to acquire, construct, reconstruct or substantially rehabilitate
any dwelling unit which, within a reasonable period of time is to be used
(determined at the time the loan is made) as a principal residence of the
Participant or a member of his family (within the meaning of Code Section
267(c)(4)) may provide for periodic repayment over a reasonable period of
time that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
(g) An assignment or pledge of any portion of a Participant's
interest in the Plan and a loan, pledge, or assignment with respect to any
insurance Contract purchased under the Plan, shall be treated as a loan
under this Section.
(h) Any loan made pursuant to this Section after August 18, 1985
where the Vested interest of the Participant is used to secure such loan
shall require the written consent of the Participant's spouse in a manner
consistent with Section 6.5(a) provided the spousal consent requirements of
such Section apply to the Plan. Such written consent must be obtained
within the 90-day period prior to the date the loan is made. Any security
interest held by the Plan by reason of an outstanding loan to the
Participant shall be taken into account in determining the amount of the
death benefit or Pre-Retirement Survivor Annuity. However, no spousal
consent shall be required under this paragraph if the total accrued benefit
subject to the security is not in excess of $3,500.
(i) With regard to any loans granted or renewed on or after the last
day of the first Plan Year beginning after December 31, 1988, a Participant
loan program shall be established which must include, but need not be
limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or financial need if
selected in the Adoption Agreement;
(5) the procedure under the program for determining a reasonable
rate of interest;
(6) the types of collateral which may secure a Participant loan;
and
(7) the events constituting default and the steps that will be
taken to preserve plan assets.
Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by reference
and made a part of this plan. Furthermore, such Participant loan program
may be modified or amended in writing from time to time without the
necessity of amending this Section of the Plan.
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7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance with the terms of the Plan, make payments out of the Trust
Fund. The Trustee shall not be responsible in any way for the application of
such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in the
Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon in
writing by the Employer and the Trustee. An individual serving as Trustee who
already receives full-time pay from the Employer shall not receive compensation
from this Plan. In addition, the Trustee shall be reimbursed for any reasonable
expenses, including reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid or
advanced by the Employer. All taxes of any kind and all kinds whatsoever that
may be levied or assessed under existing or future laws upon, or in respect of,
the Trust Fund or the income thereof, shall be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date
or receipt of the Employer's contribution for each Plan Year, the Trustee, or
its agent, shall furnish to the Employer and Administrator a written statement
of account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or
other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator
deems appropriate. The Employer, forthwith upon its receipt of each such
statement of account, shall acknowledge receipt thereof in writing and
advise the Trustee and/or Administrator of its approval or disapproval
thereof. Failure by the Employer to disapprove any such statement of
account within thirty (30) days after its receipt thereof shall be deemed
an approval thereof. The approval by the Employer of any statement of
account shall be binding as to all matters embraced therein as between the
Employer and the Trustee to the same extent as if the account of the
Trustee had been settled by judgment or decree in an action for a judicial
settlement of its account in a court of competent jurisdiction in which the
Trustee, the Employer and all persons having or claiming an interest in the
Plan were parties; provided, however, that nothing herein contained shall
deprive the Trustee of its right to have its accounts judicially settled if
the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act
and the regulations thereunder for any Plan Year, the Administrator shall
direct the Trustee to engage on behalf of all Participants an independent
qualified public accountant for that purpose. Such accountant shall, after
an audit of the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the close of
the Plan Year, furnish to the Administrator and the Trustee a report of his
audit setting forth his opinion as to whether any statements, schedules or
lists, that are required by Act Section 103 or the Secretary of Labor to be
filed with the Plan's annual report, are presented fairly in conformity
with generally accepted accounting principles applied consistently.
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(b) All auditing and accounting fees shall be an expense of and may,
at the election of the Administrator, be paid from the Trust Fund.
(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised and
subject to periodic examination by a state or federal agency, it shall
transmit and certify the accuracy of that information to the Administrator
as provided in Act Section 103(b) within one hundred twenty (120) days
after the end of the Plan Year or such other date as may be prescribed
under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer,
at least thirty (30) days before its effective date, a written notice of
his resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address, at
least thirty (30) days before its effective date, a written notice of his
removal.
(c) Upon the death, resignation, incapacity, or removal of any
Trustee, a successor may be appointed by the Employer; and such successor,
upon accepting such appointment in writing and delivering same to the
Employer, shall, without further act, become vested with all the estate,
rights, powers, discretions, and duties of his predecessor with like
respect as if he were originally named as a Trustee herein. Until such a
successor is appointed, the remaining Trustee or Trustees shall have full
authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the
death, resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such designation,
the successor shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor with the
like effect as if he were originally named as Trustee herein immediately
upon the death, resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of account
with respect to the portion of the Plan Year during which he served as
Trustee. This statement shall be either (i) included as part of the annual
statement of account for the Plan Year required under Section 7.7 or (ii)
set forth in a special statement. Any such special statement of account
should be rendered to the Employer no later thin the due date of the annual
statement of account for the Plan Year. The procedures set forth in
Section 7.7 for the approval by the Employer of annual statements of
account shall apply to any special statement of account rendered hereunder
and approval by the Employer of any such special statement in the manner
provided in Section 7.7 shall have the same effect upon the statement as
the Employer's approval of an annual statement of account. No successor to
the Trustee shall have any duty or responsibility to investigate the acts
or transactions of any predecessor who has rendered all statements of
account required by Section 7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at
the direction of the Administrator shall transfer the Vested interest, if any,
of such Participant in his account to another trust forming part of a pension,
profit sharing, or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the requirements
of Code Section 401(a), provided that the trust to which such transfers are made
permits the transfer to be made.
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7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee against any
and all claims, losses, damages, expenses and liabilities the Trustee may incur
in the exercise and performance of the Trustee's powers and duties hereunder,
unless the same are determined to be due to gross negligence or willful
misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100% of the fair market value of all the
assets in the Trust Fund may be invested in "qualifying Employer securities" and
"qualifying Employer real property".
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any amendment which
affects the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and Administrator's
written consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to execute
any such amendment unless the amendment affects the duties of the Trustee
hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when such
language is necessary to satisfy Code Sections 415 or 416 because of the
required aggregation of multiple plans, and (3) add certain model
amendments published by the Internal Revenue Service which specifically
provide that their adoption will not cause the Plan to be treated as an
individually designed plan. An Employer that amends the Plan for any other
reason, including a waiver of the minimum funding requirement under Code
Section 412(d), will no longer participate in this Prototype Plan and will
be considered to have an individually designed plan.
Furthermore, an Employer may not use this Plan and will be deemed to
have an individually designed plan if the Employer does not maintain a
product of the sponsor of the Plan or any of its affiliates or
subsidiaries.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by submitting a
copy of the amendment to each Employer who has adopted this Plan after
first having received a ruling or favorable determination from the Internal
Revenue Service that the Plan as amended qualifies under Code Section
401(a) and the Act. For purposes of this Section, the mass submitter shall
be recognized as the agent of the sponsoring organization. If the
sponsoring organization does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a minor modifier of the
mass submitter plan.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is required to
pay taxes and administration expenses) to be used for or diverted to any
purpose other than for the exclusive benefit of the Participants or their
Beneficiaries or estates; or causes any reduction in the amount credited to
the account of any Participant; or causes or permits any portion of the
Trust Fund to revert to or become property of the Employer.
(e) Except as permitted by Regulations (including Regulation
1.411(d)(4), no Plan amendment or transaction having the effect of a Plan
amendment (such as a merger, plan transfer or similar transaction) shall be
effective if it eliminates or reduces any "Section 411(d)(6) protected
benefit" or adds or modifies
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conditions relating to "Section 411(d)(6) protected benefits" the result
of which is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the later of
the adoption date or effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section 411(d)(6)(A),
early retirement benefits and retirement-type subsidies, and optional forms
of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the
Plan by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination all amounts credited to
the affected Participants' Combined Accounts shall become 100% Vested and
shall not thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in accordance with
the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct
the distribution of the assets to Participants in a manner which is
consistent with and satisfies the provisions of Section 6.5. Distributions
to a Participant shall be made in cash (or in property if permitted in the
Adoption Agreement) or through the purchase of irrevocable nontransferable
deferred commitments from the Insurer. Except as permitted by Regulations,
the termination of the Plan shall not result in the reduction of "Section
411(d)(6) protected benefits" as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan only if the benefits which
would be received by a Participant of this Plan, in the event of a termination
of the plan immediately after such transfer, merger or consolidation, are at
least equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" as described in
Section 8.1(e).
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing
the Adoption Agreement in form satisfactory to the Trustee, and it shall
provide such additional information as the Trustee may require. The
consent of the Trustee to act as such shall be signified by its execution
of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate and
apart from that of any other employer and its participants hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
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9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall
be payable to any person (including a Participant or his Beneficiary) shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge the same
shall be void; and no such benefit shall in any manner be liable for, or
subject to the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized except to such
extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any provision of
this Plan. At the time a distribution is to be made to or for a
Participant's or Beneficiary's benefit, such proportion of the amount to be
distributed as shall equal such indebtedness shall be paid to the Plan, to
apply against or discharge such indebtedness. Prior to making a payment,
however, the Participant or Beneficiary must be given written notice by the
Administrator that such indebtedness is to be so paid in whole or part from
his Participant's Combined Account. If the Participant or Beneficiary does
not agree that the indebtedness is a valid claim against his Vested
Participant's Combined Account, he shall be entitled to a review of the
validity of the claim in accordance with procedures provided in Sections
2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic relations
orders permitted to be so treated by the Administrator under the provisions
of the Retirement Equity Act of 1984. The Administrator shall establish a
written procedure to determine the qualified status of domestic relations
orders and to administer distributions under such qualified orders.
Further, to the extent provided under a "qualified domestic relations
order", a former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act
and the laws of the State or Commonwealth in which the Employer's principal
office is located, other than its laws respecting choice of law, to the extent
not preempted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by
law, it shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any Trust Fund maintained
pursuant to the Plan or any funds contributed thereto to be
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used for, or diverted to, purposes other than the exclusive benefit of
Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a
mistake of fact pursuant to Section 403(c)(2)(A) of the Act, the Employer
may demand repayment of such contribution at any time within one (1) year
following the time of payment and the Trustees shall return such amount to
the Employer within the one (1) year period. Earnings of the Plan
attributable to the contributions may not be returned to the Employer but
any losses attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $ 1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.9 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or
to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those special powers, duties,
responsibilities, and obligations as are specifically given them under the Plan.
In general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the sole authority
to appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of the
Adoption Agreement or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
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Trust, except those assets, the management of which has been assigned to an
Investment Manager or Administrator, who shall be solely responsible for
the management of the assets assigned to it, all as specifically provided
in the Plan. Each named Fiduciary warrants that any directions given,
information furnished, or action taken by it shall be in accordance with
the provisions of the Plan, authorizing or providing for such direction,
information or action. Furthermore, each named Fiduciary may rely upon any
such direction, information or action of another named Fiduciary as being
proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended
under the Plan that each named Fiduciary shall be responsible for the
proper exercise of its own powers, duties, responsibilities and obligations
under the Plan. No named Fiduciary shall guarantee the Trust Fund in any
manner against investment loss or depreciation in asset value. Any person
or group may serve in more than one Fiduciary capacity.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to
a timely application filed by or in behalf of the Plan, the Commissioner of
Internal Revenue Service or his delegate should determine that the Plan
does not initially qualify as a tax-exempt plan under Code Sections 401 and
501, and such determination is not contested, or if contested, is finally
upheld, then if the Plan is a new plan, it shall be void ab initio and all
amounts contributed to the Plan, by the Employer, less expenses paid, shall
be returned within one year and the Plan shall terminate, and the Trustee
shall be discharged from all further obligations. If the disqualification
relates to an amended plan, then the Plan shall operate as if it had not
been amended and restated. In the event that a contribution is made to the
Plan conditioned upon qualification of the Plan as amended, such
contribution must be returned to Employer upon the determination that the
amended Plan fails to qualify under the Code.
(b) Notwithstanding any provisions to the contrary, except Sections
3.5, 3.6, and 4.1(f), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer
under the Code and, to the extent any such deduction is disallowed, the
Employer may within one (1) year following the disallowance of the
deduction, demand repayment of such disallowed contribution and the Trustee
shall return such contribution within one (1) year following the
disallowance. Earnings of the Plan attributable to the excess contribution
may not be returned to the Employer, but any losses attributable thereto
must reduce the amount so turned.
(c) If an Employer's Plan fails to attain or retain qualification,
then such Plan will no longer participate in this Prototype Plan and will
be considered an individually designed plan.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
9.16 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and Section
6.11 only upon death, Total and Permanent Disability, normal or early
retirement, termination of employment, or upon Plan Termination.
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ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any Affiliated Employer may adopt this Plan and all of the
provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those selected by the Employer other than
the Plan Year, the Fiscal Year, and such other items that must, by
necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the
same Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold
and invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer or a
Participating Employer, shall not affect such Participant's rights under
the Plan, and all amounts credited to such Participant's Combined Account
as well as his accumulated service time with the transferor or predecessor,
and his length of participation in the Plan, shall continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to the
credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating
Employers, and in the event of any such transfer, the Employee involved shall
carry with him his accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the Participating Employer to
which the Employee is transferred shall thereupon become obligated hereunder
with respect to such Employee in the same manner as was the Participating
Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan Year
shall be allocated among all Participants of all Participating Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs
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of each Participating Employer hereunder and as to the accounts and credits of
the Employees of each Participating Employer. The Trustee may, but need not,
register Contracts so as to evidence that a particular Participating Employer is
the interested Employer hereunder, but in the event of an Employee transfer from
one Participating Employer to another, the employing Employer shall immediately
notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer shall
be permitted to discontinue or revoke its participation in the Plan at any time.
At the time of any such discontinuance or revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be delivered to the
Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts
and other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate pension plan for its
Employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(e). If no successor is designated, the Trustee shall
retain such assets for the Employees of said Participating Employer pursuant to
the provisions of Article VII hereof. In no such event shall any part of the
corpus or income of the Trust Fund as it relates to such Participating Employer
be used for or diverted for purposes other than for the exclusive benefit of the
Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all Participants,
to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from making
a contribution which it would otherwise have made under the Plan by reason of
having no current or accumulated earnings or profits, or because such earnings
or profits are less than the contribution which it would otherwise have made,
then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which
such Participating Employer was so prevented from making may be made, for the
benefit of the participating employees of such Participating Employer, by other
Participating Employers who are members of the same affiliated group within the
meaning of Code Section 1504 to the extent of their current or accumulated
earnings or profits, except that such contribution by each such other
Participating Employer shall be limited to the proportion of its total current
and accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this paragraph which the total
prevented contribution bears to the total current and accumulated earnings or
profits of all the Participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is
made under this paragraph shall not be required to reimburse the contributing
Participating Employers.
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EXHIBIT 10.14
CLAREMONT TECHNOLOGY GROUP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
INDEX
Section Page
- ------- --------
1. Nature of Plan. . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Your Participation. . . . . . . . . . . . . . . . . . . . . 17
5. Employer Contributions. . . . . . . . . . . . . . . . . . . 22
6. Investment of Trust Assets. . . . . . . . . . . . . . . . . 25
7. Allocations to Your Accounts. . . . . . . . . . . . . . . . 37
8. Expenses of the Plan and Trust. . . . . . . . . . . . . . . 48
9. Voting Company Stock. . . . . . . . . . . . . . . . . . . . 48
10. Disclosure to Participants. . . . . . . . . . . . . . . . . 50
11. Your Plan Benefit . . . . . . . . . . . . . . . . . . . . . 51
12. Your Plan Benefit at Retirement or at Death . . . . . . . . 51
13. Other Termination of Service. . . . . . . . . . . . . . . . 52
14. When Your Plan Benefit will Be Distributed. . . . . . . . . 58
15. How Your Plan Benefit Will Be Distributed . . . . . . . . . 64
16. Rights and Options on Distributed Shares of Company
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
17. Intermediate and Partial Distribution . . . . . . . . . . . 73
18. Administration. . . . . . . . . . . . . . . . . . . . . . . 75
19. Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . 77
20. Future of the Plan. . . . . . . . . . . . . . . . . . . . . 77
21. Other Provisions. . . . . . . . . . . . . . . . . . . . . . 79
<PAGE>
22. Execution . . . . . . . . . . . . . . . . . . . . . . . . . 80
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. NATURE OF PLAN.
(a) The purpose of this Plan is to assist you over the course of your
years of employment with your Employer to accumulate capital ownership and
through that ownership to provide you economic security and an independent
income. The Plan is intended to do this without any deductions from your
paychecks and without calling upon you to invest your personal savings. A
primary purpose of the Plan is to enable you to acquire a proprietary interest
in the Company, and, consequently, the Plan is designed to be invested primarily
in Qualifying Employer Securities.
(b) This Plan, effective as of July 1, 1994, is a stock bonus plan
under Section 401(a) of the Code and an employee stock ownership plan as defined
in Section 4975(e)(7) of the Code. it consists of the Plan and the Trust
Agreement.
(c) All assets acquired under this Plan as the result of Employer
Contributions thereto and all income and other additions thereto will be
administered, distributed, forfeited or otherwise governed by the provisions of
this Plan, which is administered by the Committee for the exclusive benefit of
Participants in the Plan and their Beneficiaries. All such assets will be held
in the Trust by the Trustee in accordance with the provisions of the Trust
Agreement.
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(d) There is no initial eligibility computation period specified in
the Plan since an Employee automatically becomes a Participant after completing
certain periods of employment as specified in Section 3. The Participant will
then participate in the Plan as described in Section 4.
(e) It is intended that the vesting computation period will be the
Plan Year. The first Year of Service for vesting purposes will be the first
Plan Year, on or after the effective date, during which a Participant completes
1,000 or more Hours of Service.
(f) It is intended that the Plan Year will be the computation period
for determining whether a Participant has incurred a Break in Service. For any
Employee who has incurred a Break in Service, he will become an active
Participant as of his Reemployment Date and will participate in the Plan as
described in Section 4.
Section 2. DEFINITIONS.
In this Plan, unless the context clearly implies otherwise, the
singular includes the plural, the masculine includes the feminine, the terms
"you" and "yours" refer to Participants, and the capitalized words have the
following meaning:
Account. . . . . . . . One of several records maintained to record your
interest in the Plan.
Affiliated Company . . Any corporation which is a member of a controlled group
of corporations with an Employer, as defined in Section
414(b) of the Code, all trades and businesses (whether
or not incorporated) which are
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under common control, as defined in Section 414(c) of
the Code, any member of an affiliated service group, as
defined in Section 414(m) of the Code, and any other
entity which is required to be aggregated with an
Employer under Section 414(o) of the Code.
Aggregation Group. . . This Plan and every other qualified employee plan of
any Employer or Affiliated Company, including any
terminated plan that was maintained by any Employer or
Affiliated Company during the five Plan Years prior to
the particular Plan Year, (1) in which a Key Employee
is a participant and (2) which is required in order for
any qualified employee plan in which a Key Employee is
a participant to meet the coverage or
antidiscrimination requirements of Sections 401(a)(4)
or 410 of the Code. The Company may treat any
qualified employee plan not required to be included in
the Aggregation Group as part of the Aggregation Group
if such Group would continue to meet the requirements
of said Sections 401(a)(4) and 410.
Anniversary Date . . . June 30 of each year.
Annual Addition. . . . The sum for each Participant for each Plan Year of (a)
Employer Contributions, (b) Forfeitures, (C)
Participant's employee contributions, (d) amounts
allocated to an individual medical account (as defined
in Section 415(l) of the Code) which is part of a
pension or annuity plan maintained by the Employer, and
(e) amounts derived from contributions which are
attributable to post-retirement medical benefits
allocated to the separate account of a Key Employee
under a welfare benefit plan (as described in Sections
419A(d) and 419(e) of the Code, respectively). It
includes such amounts under this Plan and any other
defined contribution plan of the Employer and any
Affiliated Company. For purposes of applying Section
414(b) and (c) of the code to determine whether an
entity is an Affiliated Company, for purposes of this
definition only, the
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percentage of control referred to in Section 1563(a)(1)
of the Code shall be more than 50% (rather than
80%) or more) as provided in Section 415(h) of the
Code. For the foregoing purposes, employee
contributions shall not include any rollover
contributions (as defined in Section 402(c), 403(a)(4),
403(b)(8), 405(b)(3) and 408(d)(3) of the Code), or any
employee contributions to a simplified employee pension
plan allowable as a deduction under Section 219(a) of
the Code.
Beneficiary. . . . . . The person or persons or trust or estate named by you
to receive any benefits under the Plan in the event of
your death.
Break in Service . . . Any Plan Year in which you do not complete more than
500 Hours of Service for reasons other than those
specified in Section 4(e).
Code . . . . . . . . . Internal Revenue Code of 1986, as amended.
Committee. . . . . . . The Committee appointed by the Board of Directors of
the Company to administer the Plan and give
instructions to the Trustee. It is a named fiduciary
and is designated as agent for service of legal process
under the Plan.
Company. . . . . . . . Claremont Technology Group, Inc., an Oregon
corporation, and its successors and assigns. It is the
"administrator" as defined in Section 414(g) of the
Code and Section 3(16) of ERISA.
Company Stock. . . . . Shares of any class of stock, common or preferred,
voting or nonvoting, which are authorized by the
Company. However, in the case of a financed purchase
of Company Stock as described in Section 6(b) which
comes within the definition of a loan as described in
Section 4975(d)(3) of the Code and the regulations
thereunder, it shall mean Qualifying Employer
Securities.
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Company Stock
Account. . . . . . . . Your Account which is credited with the shares of
Company Stock purchased by the Trust or contributed to
the Trust.
Covered
Compensation . . . . . Wages, salaries, and fees for professional services and
other amounts received while a Participant (without
regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of
employment with an Employer to the extent that the
amounts are included in gross income including, but not
be limited to, commissions paid salesmen, compensation
for services based on a percentage of profits,
commissions on insurance premiums, tips, bonuses,
overtime payments, fringe benefits, and reimbursements
or other expense allowance under a non-accountable plan
(as described in Treas. Reg. 1.62-2(c)). This shall
include any salary reduction elected pursuant to any
employee benefit plan as defined in Section 401(k) of
the Code and any cafeteria plan as defined in Section
125 of the Code. Covered Compensation shall exclude
the following: (i) all earnings prior to you becoming a
Participant, all deferred compensation, (ii)
contributions to this or any other deferred
compensation plan except as specifically included
herein, amounts realized from the exercise of a non-
qualified stock option, or when restricted stock (or
property) held by the employer either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture, (iv) amounts realized from the
sale, exchange or other disposition of the stock,
acquired under a qualified stock option, and (v) any
other amounts which receive special tax benefits.
Covered Compensation is the amount actually paid or
made available during the limitation year or is
attributable to services performed by the Employee in
the Plan Year and received within two-and-one-half
months after the close of the Plan Year.
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Covered Compensation shall not exceed the sum of
$150,000; provided, that said amount shall be adjusted
for increases in the cost of living in accordance with
Section 401(a)(17) of the Code. In determining the
Covered Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the
Code shall apply, except that in applying such rules,
the term "Family" shall include only the spouse of the
Participant and any lineal descendants of the
Participant who have not attained age 19 before the
close of the year. If, as a result of the application
of the rules of Section 414(q)(6) of the Code, the
adjusted $150,000 limitation is exceeded with respect
to a Family, then, the limitation shall be prorated
among the affected individuals in proportion to each
individual's Covered Compensation as determined under
this Section 2 prior to the application of this
limitation.
Determination Date . . With respect to any Plan Year, the Anniversary Date of
the preceding Plan Year. However, for the first Plan
Year of the Plan, it is the Anniversary Date of such
Plan Year.
Domestic Relations
Order. . . . . . . . . A court decree or order issued pursuant to a state
domestic relations or community property law which
relates to child support, alimony or marital property
rights of a Participant's spouse, former spouse, child
or other dependent.
Employee . . . . . . . Any employee of an Employer or any Affiliated Company.
To the extent provided in the definition of the term
Leased Employee, it includes Leased Employees.
Employer . . . . . . . Claremont Technology Group, Inc., an Oregon
corporation, its successors and assigns and any
Subsidiary Corporation which has been designated by the
Board of Directors of the Company as an Employer
participating in the Plan and which has
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accepted such designation and agreed to be bound by the
terms of the Plan.
Employer Contribution . The shares of Company Stock, cash, other
property or any combination thereof which is
contributed to the Plan by an Employer.
Employment Date. . . . The first day on which you complete an Hour of Service
with an Employer.
Employment Year. . . . The twelve (12) consecutive month period beginning on
the first day in which you complete an Hour of Service
with an Employer. An additional Employment Year will
begin on the same day of each year thereafter.
Entry Date . . . . . . July 1 and January 1 of each Plan Year.
ERISA. . . . . . . . . Employee Retirement Income Security Act of 1974, as
amended.
Family Member. . . . . Any individual who is the spouse, lineal ascendant or
descendant, or the spouse of such lineal ascendant or
descendant of an Employee who either (i) owns more than
5% of the outstanding stock of the Company or any
Affiliated Company, or (ii) is one of the ten most
highly compensated of the Highly Compensated Employees.
This definition shall be applied in accordance with the
provisions of Section 414(q)(6) of the Code and the
Income Tax Regulations issued thereunder.
Forfeitures. . . . . . The portion of your Accounts which is forfeited and
does not become part of your Plan Benefit when your
Service ends. See Section 13.
Highly Compensated
Employee . . . . . . . Any Employee who performs Service during the
determination year and is described in one or more of
the following groups; (1) owns more than 5% of the
outstanding stock of the Company or any Affiliated
Company at any time during the determination year or
look-back year, (2) received annual compensation from
the Company and all Affiliated Companies in
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excess of $75,000 during the look-back year, (3)
received annual compensation from the Company and all
Affiliated Companies in excess of $50,000 and was in
the group of employees of the Company and all
Affiliated Companies consisting of the highest paid 20%
of the employees, other than Employees described in
Section 414(q)(8) of the Code during the look-back
year, (4) was during the look-back year an officer of
the Company or any Affiliated Company and received
annual compensation from the Company and all Affiliated
Companies in excess of 50% of the amount in effect
under Section 415(b)(1)(A) of the Code for the calendar
year in which the look-back year begins, other than
employees described in Section 414(q)(8) of the Code,
or (5) is both described in paragraph (2), (3) or (4)
above when these paragraphs are modified to substitute
the determination year for the look-back year and who
is one of the 100 Employees who receives the most
compensation from the Employer during the determination
year. For these purposes, annual compensation shall
have the same meaning as specified in Section 7(g)(5).
In addition, the compensation of any Family Member of
any Employee shall be included in the respective
amounts for each such Employee. The "determination
year" shall be the Plan Year for which the
determination of who is highly compensated is being
made. The "look-back year" shall be the twelve (12)
month period immediately preceding the determination
year or, if the Company so elects, the calendar year
ending with or within the determination year. For
purposes of (4) above, the maximum number of officers
considered shall be limited to the lesser of (i) 50, or
(ii) the greater of 3 Employees or 10% of all
Employees. For purposes of (4) above, if no officer
has annual compensation in excess of such amount, the
highest paid officer shall be treated as highly
compensated. The $50,000 and $75,000 amounts specified
in (2) and (3) above shall be adjusted annually for
increases in the cost of living in accordance with
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regulations issued under Section 415(d) of the Code.
The above provisions shall be applied in accordance
with Section 414(q) of the Code and the regulations
thereunder.
Hour of Service. . . . Each hour during a Plan Year for which you are directly
or indirectly paid or entitled to payment for
performing duties for an Employer or an Affiliated
Company. It includes each hour for which you are paid
or entitled to payment by an Employer or an Affiliated
Company for time during which no duties were performed
due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military
duty or Leave of Absence. Employees for whom a record
of actual hours worked is not maintained but who
complete at least one (1) actual Hour of Service during
the applicable pay period and Employees for whom
Service continues under the rules described in Section
4(e) shall be entitled to credit for Hours of Service
for each pay period as follows: 190 Hours if the pay
period is monthly; 95 Hours if the pay period is semi-
monthly; 45 Hours if the pay period is weekly; and 10
Hours if the pay period is daily. He is also entitled
to credit for an Hour of Service for each hour for
which back pay, irrespective of mitigation of damages,
has been awarded or agreed to by an Employer, and such
credit shall be for the Plan Year in which the work was
performed. The determination of Hours of Service will
be made in accordance with U.S. Department of Labor
Regulations Sections 2530.200b-2(b) and (c), which are
hereby incorporated by reference.
Inactive Participant . Any Participant who has ceased to be eligible to
receive an allocation of Employer Contributions and
Forfeitures and whose Plan Benefit has not been
completely distributed to him or his Beneficiary.
Key Employee . . . . . Any Employee, former Employee or beneficiary thereof
who is, at any time during the Plan Year, or was,
during any
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one of the four preceding Plan Years, any one or more
of the following: (1) an officer of any Employer or any
Affiliated Company having an annual compensation
therefrom greater than 50% of the amount in effect
under Section 415(b)(1)(A) of the Code for such Plan.
Year; provided that in no event will they include more
than 50 Employees or, if lesser, the greater of 3
Employees or 10% of all Employees. (2) One of the ten
Employees of an Employer or any affiliated Company
having annual compensation therefrom greater than the
dollar amount in effect under Section 7(g)(1), who owns
both more than a one-half percent ownership interest
and the largest percent ownership interests in the
Employer and Affiliated Companies; provided that if 2
Employees have the same percentage ownership interest,
the one with the greater annual compensation shall be
treated as having a larger interest. (3) Any person who
owns more than 5% of the Employer and Affiliated
Companies. (4) Any person who receives annual
compensation from an Employer and Affiliated Companies
in excess of $150,000 and who owns 1% or more of the
Employer and Affiliated Companies. For purposes of (1)
and (2) above, annual compensation shall have the same
meaning as specified in Section 7(g)(5) . For purposes
of (2), (3) and (4) above, any person shall be treated
as owning or possessing any interest, stock or voting
power in the Employer and Affiliated Company in
accordance with the meaning of sections 318 and
416(i)(1)(B) and (C) of the Code.
Leased Employee. . . . Any person (other than an employee of an Employer or
Affiliated Company, which are referred to as the
Recipient Employer) who, pursuant to an agreement
between the Recipient Employer and any employee leasing
organization, has performed services for the Recipient
Employer (or for the Recipient Employer and related
persons determined in accordance with Section 414(n)(6)
of the Code) on a substantially full-time basis for a
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<PAGE>
period of at least one (1) year and such services are
of a type historically performed by employees in the
business field of the Recipient Employer. A Leased
Employee, as defined above, shall not be treated as an
Employee of the Recipient Employer if: (i) Leased
Employees do not constitute more than twenty percent
(20%) of the Recipient Employer's Non-Highly
Compensated Employees, and (ii) the leasing
organization provides a non-integrated money purchase
pension plan with a fixed contribution rate of at least
ten percent (10%) of compensation as defined in Section
414(n)(5) of the Code, immediate participation and full
and immediate vesting. A Leased Employee, as defined
above, who otherwise would be treated as an Employee of
the Recipient Employer, shall not be treated as an
Employee hereunder unless the exclusion of such person
would cause the Plan to fail the minimum coverage
requirements of Sections 410(b) or 401(a)(26) of the
Code. If it is necessary to treat Leased Employees as
Employees in order to prevent Plan disqualification,
then such Leased Employees shall be included as
Employees of the Employer to the extent necessary to
prevent such disqualification using non-discriminatory
criteria established by the Committee. If Leased
Employees are treated as Employees under this
provision, then contributions or benefits provided for
such Leased Employees by the leasing organization which
are attributable to services performed for the
Recipient Employer shall be treated as provided by the
Recipient Employer and shall offset benefits or
contributions otherwise provided hereunder.
Leave of Absence . . . Any leave of absence granted to or approved for any
Employee as described in Section 4.
Maternity/Paternity
Leave of Absence . . . Any leave of absence granted to or approved for any
Employee described in Section 4(e)(2).
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Non-Allocation
Period . . . . . . . . With respect to a transaction described in Section
6(e), the period beginning on the date of purchase of
the Company Stock and ending on the later of (1) ten
years after said date, or (2) the Anniversary Date of
the Plan Year during which the final payment was made
on any indebtedness incurred in connection with said
purchase.
Non-Highly Compensated
Employee . . . . . . . Any Employee who is not a Highly Compensated Employee
and is not a Family Member.
Non-Key Employee . . . Any Employee who is not a Key Employee or who has
ceased to be a Key Employee.
Normal Retirement
Date . . . . . . . . . Your 65th birthday.
Other Investments
Account. . . . . . . . Your Account which is credited with the net income (or
loss) of the Trust and Employer Contributions and
Forfeitures in cash and which is debited with payments
made to pay for Company Stock.
Participant. . . . . . Any Employee or former Employee of an Employer who is
participating in this Plan or has any interest therein.
See Section 3.
Permanent Disability . A physical or mental disability which makes you totally
and permanently disabled to work as an Employee, as
determined by the Committee on the basis of a
certificate from a doctor approved by the Committee.
Plan . . . . . . . . . The Claremont Technology Group, Inc. Employee Stock
Ownership Plan, which includes the Plan and the Trust
Agreement, as it may be amended.
Plan Benefit . . . . . The amount of the distribution to which you or your
Beneficiary become entitled upon termination of your
participation.
Plan Year. . . . . . . The twelve (12) consecutive month period ending on the
Anniversary Date.
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Prohibited Allocation
Group. . . . . . . . . All persons who, for purposes of Section 7(i), are
within any one or more of the following categories:
(1) During the Non-allocation Period, the seller of
said shares.
(2) During the Non-allocation Period, any person who
is related to such seller (within the meaning of
Section 267(b) of the Code), except that it shall not
include any lineal descendant of such seller if 5% or
less of the shares of Company Stock or other assets of
the Plan in lieu thereof is allocated to all such
lineal descendants. If the allocation provisions of
Section 7 would result in more than said 5% being so
allocated, the Committee may limit said allocation to
said 5% so that such lineal descendants are not
included in the Prohibited Allocation Group; provided
that the resulting aggregate allocation to such lineal
descendants, if there is more than one, shall be
allocated among them in proportion to their respective
amounts of Covered Compensation.
(3) Any other person who owns (after the application
of Section 318(a) of the Code) more than 25% of (A) any
class of outstanding stock of the Company or any
Affiliated Company, or (B) the total value of any class
of outstanding stock of the Company or any Affiliated
Company. For this purpose, such person shall be deemed
to own all Company Stock allocated to him or her in
this or any other qualified employee benefit plan.
Such person shall be included in the Prohibited
Allocation Group if he or she meets said test either
(i) at any time during the 1 year period ending on the
date of purchase of the Company Stock by the Trust, or
(ii) on the Anniversary Date of the Plan Year for which
said Company Stock is allocated to Participants.
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Qualified Domestic
Relations Order. . . . A Domestic Relations Order that satisfies the
requirements of Section 414(p) of the Code that (1) it
specifies who is entitled to how much of a
Participant's Plan Benefit, and when it is to be paid,
and (2) it does not alter the amount and form of
benefit provided for in the Plan.
Qualified Election
Period . . . . . . . . The six (6) Plan Years beginning with the Plan Year in
which the Participant becomes a Qualified Participant.
See Section 6(f).
Qualified Participant. Any Participant who has attained age 55 and completed
10 or more years of participation. A year of
participation shall be counted for each Plan Year for
which the Employee was eligible to receive an
allocation of Employer Contributions and Forfeitures,
regardless of whether such an allocation was actually
made. See Section 6(f).
Qualifying Employer
Securities . . . . . . Shares of either (1) common stock which is issued by
the Company having a combination of voting power and
dividend rights equal to or in excess of (i) that class
of common stock of the Company having the greatest
voting power, and (ii) that class of common stock of
the Company having the greatest dividend rights, or (2)
noncallable preferred stock which is convertible at any
time into such common stock, provided that (i) the
conversion price is reasonable as of the date of
acquisition by the Trust and (ii) the preferred stock
will be treated as noncallable if after the call there
will be a reasonable opportunity to convert the
preferred stock into said common stock.
Reemployment Date. . . The first day on which you complete an Hour of Service
with an Employer in the Plan Year following the Plan
Year with respect to which there is a Break in Service.
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Required Beginning
Date . . . . . . . . . The first day of April of the calendar year following
the calendar year in which the Participant attains age
seventy and one-half (70-1/2).
Service. . . . . . . . Your employment as an Employee of an Employer as
described in Section 4.
Subsidiary
Corporation. . . . . . Any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company
provided that each of the corporations (other than the
last one) owns 50% or more of the total voting power of
all classes of stock of one of the other corporations.
Super Top Heavy
Plan . . . . . . . . . Any plan which would be a Top Heavy Plan if each of the
percentage tests in the definition of Top Heavy Plan
were changed from 60% to 90%.
Top Heavy Plan . . . . This Plan is a Top Heavy Plan for a Plan Year if, as of
the Determination Date, either (1) the sum of the
values of the Account balances of all Key Employees
exceeds 60% of the same sum for all Employees, or (2)
if the Plan is required to be included in an
Aggregation Group, the sum of (a) the present value of
the cumulative accrued benefits for all Key Employees
under all defined benefit plans included in such
Aggregation Group, and (b) the values of the Account
balances of all Key Employees under all defined
contribution plans included in such Aggregation Group,
exceeds (c) 60% of the same sum for all Employees.
Accrued benefits and Account balances shall include (1)
the aggregate distributions during the 5 year period
ending on the Determination Date made with respect to
an Employee or under a terminated plan which, if it had
not been terminated, would have been required to be
included in the Aggregation Group, and (2) amounts
attributable to both Employer and Employee
Contributions. Accrued benefits and Account balances
shall not include (1) any rollover contribution
15
<PAGE>
from a plan which is not sponsored by an Employer or an
Affiliated Company, (2) amounts attributable to any
person who is not a Key Employee for the Plan Year but
who was a Key Employee for any prior Plan Year, or (3)
amounts attributable to former employees who have not
performed any services for any Employer maintaining the
Plan during the 5 year period ending on the
Determination Date.
Total Distribution . . The distribution within one (1) taxable year of the
distributee of the entire balance of all of the
Participant's Accounts in the Plan.
Trust. . . . . . . . . The trust created by the Trust Agreement entered into
between the Company and the Trustee.
Trust Agreement. . . . The agreement between the Company and the Trustee or
any successor trustee establishing the Trust and
specifying the duties of the Trustee.
Trustee. . . . . . . . The bank, trust company or individuals chosen by the
Board of Directors of the Company and any successor
trustee chosen by the Board of Directors of the Company
which agrees to act by executing the Trust Agreement.
Year of Service. . . . Your first Year of Service is the first Plan Year
during which you complete 1,000 or more Hours of
Service. For this purpose, your Service begins on or
after the effective date of the Plan, which is July 1.
1994. Your second and succeeding Years of Service will
be each Plan Year thereafter during which you complete
1,000 or more Hours of Service. You do not have to be
employed by an Employer on the last day of a Plan Year
in order to receive credit for a Year of Service as
long as you complete 1,000 or more Hours of Service
during the Plan Year.
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<PAGE>
Section 3. ELIGIBILITY.
(a) All Employees who were employed by an Employer on June 30, 1995
are automatically Participants in this Plan, except as provided in Subsection
(c) below.
(b) All Employees who were not employed by an Employer on June 30,
1995 shall automatically become Participants in this Plan as of the first Entry
Date following their Employment Date, except as provided in Subsection (c)
below.
(c) Any Employee who is covered by a collective bargaining agreement
(provided retirement benefits were the subject of good faith bargaining between
an Employer and a union) is not eligible to participate in this Plan unless the
collective bargaining agreement provides to the contrary. If any such Employee
ceases to be ineligible under this subsection, he will automatically become a
Participant as of the day on which he ceases to be so ineligible or as soon
thereafter as he has satisfied the other eligibility requirements of this
Section 3.
Section 4. YOUR PARTICIPATION.
(a) Once you become a Participant, you are entitled as of each
Anniversary Date to the allocations provided in Section 7. Your participation
continues until it terminates as provided in Sections 12 and 13.
(b) Service is your employment as an Employee of an Employer and any
Affiliated Company. It includes all periods of
17
<PAGE>
such employment with any Employer and any Affiliated Company on and after July
1, 1994.
(c) If you are a Participant on an Anniversary Date and complete
1,000 or more Hours of Service with an Employer during a Plan Year ending on
such Anniversary Date, you will be entitled to an allocation of Employer
Contributions and Forfeitures as described in Section 7, and such Plan Year will
count as a Year of Service for purposes of the vesting provisions of Section 13.
If you complete 1,000 or more Hours of Service with an Employer during a Plan
Year, but are not employed on the Anniversary Date of such Plan Year, you will
not be entitled to an allocation of Employer Contributions and Forfeitures for
such Plan Year unless your termination of Service was on account of your death,
Normal Retirement, Disability Retirement, or Deferred Retirement. If you
complete more than 500 but less than 1,000 Hours of Service with an Employer
during a Plan Year, you will not be entitled to an allocation of Employer
Contributions and Forfeitures for the Plan Year, and such Plan Year will not be
counted as a Year of Service for purposes of the vesting provisions of Section
13. However, if your failure to complete 1,000 Hours of Service is due to one
or more of the reasons specified in Subsection (e) below, you will be entitled
to an allocation of Employer Contributions and Forfeitures as provided in
Section 7, and such Plan Year will be counted as a Year of Service for purposes
of the vesting provisions. Furthermore, notwithstanding anything herein to the
contrary, all Participants who have completed more than 500 Hours of Service in
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such Plan Year shall be deemed eligible to receive allocations under Section 7
if, but only if, the Plan would otherwise fail the minimum coverage rules of
Sections 410(b) or 401(a)(26) of the Code.
(d) In the event that you complete 500 or less Hours of Service with
an Employer during any Plan Year for reasons other than those specified in
Subsection (e) below, your Service will be broken as of the first day of such
Plan Year, and the Break in Service will continue throughout such Plan Year.
You will not be entitled to an allocation of Employer Contributions and
Forfeitures for that Plan Year, and such Plan Year will not be counted as a Year
of Service for purposes of the vesting provisions of Section 13. If your failure
to complete more than 500 Hours of Service in a Plan Year is due to one or more
of the reasons specified in Subsection (e) below, your Service will not be
broken. If you complete 1,000 or more Hours of Service with an Employer during
the Plan Year following the Plan Year with respect to which you had a one-year
Break in Service, without any termination of your employment, you will be
entitled to an allocation of Employer Contributions and Forfeitures for such
following Plan Year, and Years of Service before and after the Break in Service
will be added together to determine your total number of Years of Service under
the Plan.
(e) Once your Service begins, it will also be subject to the
following provisions:
(1) Your Service will continue during any Leave of Absence
authorized by your Employer in a
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<PAGE>
uniform nondiscriminatory manner. If you do not return to
work as an Employee at the end of your leave, your Service
will terminate as of the beginning of your leave.
(2) Your Service will continue during any period of absence due
to your pregnancy, the birth of or your adoption of a child,
including a reasonable period of time to care for such child
following such birth or adoption. The total number of Hours
of Service credited under this provision shall not exceed
501 hours. If necessary, in order to prevent a Participant
from incurring a Break in Service for the Plan Year during
which the absence began, Hours of Service credited under
this provision shall be credited only to the Plan Year in
which the absence began; otherwise, such Hours of Service
shall be credited only to the following Plan Year. The
Committee may require a written statement from a doctor
approved by the Committee before credit for such Hours of
Service is granted.
(3) Your Service will continue during any period of absence due
to your temporary disability. If you do not return to work
as an Employee at the conclusion of your temporary
disability, your Service will terminate as of the beginning
of your temporary disability.
(4) Your Service will continue during any military service so
long as your reemployment rights are protected by law. If
you do not return to work as an Employee while your
reemployment rights are protected by law, your Service will
terminate as of the date of expiration of the period when
your reemployment rights are protected by law.
(f) Your Service will continue in the event that your employment is
transferred from one Employer to another Employer. You will be entitled to an
allocation of Employer Contributions and Forfeitures as provided in Section 7
based upon the Covered Compensation that you receive from each Employer.
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<PAGE>
(g) Your Service will continue in the event that your employment is
transferred from one Employer to any Affiliated Company which is not an
Employer. In such event, you will become an Inactive Participant. If you
satisfy the requirements of Section 4(c), you will be entitled to an allocation
of Employer Contributions and Forfeitures as provided in Section 7 based upon
the Covered Compensation that you receive from the Employer, but not based upon
the compensation that you receive from the other corporation. However, you will
at all times be entitled to an allocation of Trust net income (or loss) as
provided in Section 7 and your Years of Service for vesting purposes will
continue to be calculated in the same manner as though you were an active
Participant. If your employment is thereafter transferred to an Employer without
a Break in Service, you will become an active Participant in the Plan as of the
date of transfer and will be entitled to an allocation of Employer Contributions
and Forfeitures as provided in Section 7.
(h) If you become covered by a collective bargaining agreement while
you are a Participant and are ineligible to participate under Section 3(c), your
Service will continue (subject to the provisions of Subsections (c) and (d)
above), but you will become an Inactive Participant as of that date unless the
collective bargaining agreement provides to the contrary. If you subsequently
cease to be ineligible to participate under Section 3(c), you will become an
active Participant as of the date on which you cease to be ineligible and will
be entitled to an allocation of
21
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Employer Contributions and Forfeitures for such Plan Year based upon your
Covered Compensation while an active Participant. Regardless of whether you are
entitled to an allocation of Employer Contributions and Forfeitures, your Years
of Service for vesting purposes will continue to be calculated in the same
manner as though you were an active Participant.
(i) If your employment by an Employer is terminated and you are
subsequently reemployed by an Employer, you will become a Participant as of your
Reemployment Date. Your Years of Service before and after the Break in Service
will be added together to determine your total number of Years of Service under
the Plan, unless you have no vested interest under the Plan and the number of
consecutive one-year Breaks in Service equals or exceeds the greater of (1) five
(5) consecutive one-year Breaks in Service, or (2) the aggregate number of
Years of Service earned before the Break in Service, in which case you will be
treated as a new Employee for all purposes under the Plan. For vesting
purposes, your first Year of Service after the Break in Service will be the
first Plan Year in which you complete 1,000 or more Hours of Service; your
second and succeeding Years of Service after the Break in Service will be each
Plan Year thereafter in which you complete 1,000 or more Hours of Service.
Section 5. EMPLOYER CONTRIBUTIONS.
(a) For each Plan Year, the amount of Employer Contribution shall be
in the discretion of your Employer's Board of
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Directors. However, the Employer Contribution for each Plan Year shall never be
less than the amount required to enable the Trust to discharge any indebtedness
payable in cash during the following Plan Year in connection with the financed
purchase of Company Stock.
(b) Employer Contributions will be paid to the Trust in cash, shares
of Company Stock or other property as your Employer's Board of Directors may
from time to time determine. Shares of Company Stock and other property will be
valued at their then fair market value. However, to the extent that the Trust
has obligations payable in cash during the Plan Year following the Plan Year for
which the Employer Contribution is due and the Trust does not have sufficient
cash or other assets readily convertible into cash to discharge such
obligations, the Employer Contribution will be paid to the Trust in cash. The
Employer Contribution will be paid to the Trust on or before the due date for
filing the Employer's federal income tax return for the year, including any
extensions of such due date.
(c) No Participant shall be required or permitted to make
contributions to the Plan and no plan-to-plan transfers (direct or indirect)
shall be permitted.
(d) In the event that any Employer Contribution is paid to the Trust
by reason of a mistake of fact, such Employer Contribution may, as directed by
the Committee, be returned to the Employer within one (1) year after the
Employer Contribution is paid to the Trust; provided that the amount of any
Employer
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Contribution so returned (i) shall be reduced by the amount of any net loss
sustained with respect thereto, and (ii) shall not include any net income earned
with respect thereto.
(e) All Employer Contributions are made on the condition that they
are deductible under Section 404 of the Code. In the event that any Employer
Contribution is disallowed as a deduction under said Section 404, such Employer
Contribution may, to the extent of the amount disallowed, as directed by the
Committee, be returned to the Employer within one (1) year after the
disallowance of the deduction; provided that the amount of any Employer
Contribution so returned (i) shall be reduced by the amount of any net loss
sustained with respect thereto, and (ii) shall not include any net income earned
with respect thereto.
(f) If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and the discovery of such
omission is not made until after an Employer Contribution for the Plan Year has
been made and allocated, the Employer shall make a subsequent Employer
Contribution with respect to the omitted Employee in the amount which the
Employer would have contributed. with respect to him or her had he or she not
been omitted. Such Employer Contribution shall be made regardless of whether or
not it is deductible in whole or in part in any taxable year under applicable
provisions of the Code by the Employer.
(g) If, in any Plan Year, any person who should not have been
included as a Participant in the Plan is erroneously included and discovery of
such incorrect inclusion is not made until after
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an Employer Contribution for the Plan Year has been made and allocated, the
Employer shall not be entitled to recover any portion of the Employer
Contribution made with respect to the ineligible person regardless of whether or
not a deduction is allowable with respect to such Employer Contribution. In
such event, the amount contributed with respect to the ineligible person shall
constitute a Forfeiture for the Plan Year in which the discovery is made and
shall be allocated in the same manner as provided in Section 7 for other
Forfeitures.
Section 6. INVESTMENT OF TRUST ASSETS.
(a) All Employer Contributions to this Plan in cash and any other cash
received by the Trust will, as directed by the Committee, first be used to pay
outstanding current obligations of the Trust, and any excess will be used to buy
Company Stock from holders of outstanding stock or newly issued or treasury
stock from the Company. If no current obligations of the Trust are outstanding
and unpaid and the Committee determines that there is no Company Stock available
for purchase, the Committee may direct the Trustee to invest such funds of the
Trust in savings accounts, certificates of deposit, short-term commercial paper,
stocks; bonds or other investments deemed by the Committee to be desirable for
the Trust, or such funds may be held temporarily in cash.
(b) The Committee may direct the Trustee to borrow funds from any
lender for the purpose of purchasing Company Stock or to enter into contracts
for the purchase of Company Stock pursuant to
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which the purchase price is paid in installments. Any such loan or contract
must be primarily for the benefit of Participants and their Beneficiaries. Any
such loan or contract shall be for a specific term and may not be payable upon
demand of any person, except in the event of default. The proceeds of any such
loan or contract must be used, within a reasonable time, either to purchase
Company Stock or to repay an indebtedness of the Trust, provided that any such
indebtedness was incurred for the purpose of acquiring Company Stock. Any such
loan or contract shall provide for no more than a reasonable rate of interest.
If any collateral is given by the Trust, such collateral shall consist of only
the Company Stock thus purchased, and the creditor shall have no recourse
against the Trust except with respect to such collateral. In the event of a
default by the Trust under the terms of the loan or contract, (i) the amount of
Plan assets transferred in satisfaction of the obligation shall not exceed the
amount of the default, and (ii) if the creditor is a "disqualified person" as
defined in Section 4975(e)(2) of the Code, Plan assets may be transferred only
upon and to the extent of the failure of the Trust to meet the payment schedule
of the loan or contract. The loan shall be repaid only from those amounts
contributed by the Employers to the Trust and from amounts earned on Trust
investments. The Employers shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on the debt as it is due.
Company Stock purchased with
26
<PAGE>
the proceeds of such a loan or under such a contract will be subject to the
following provisions:
(1) All Company Stock acquired with the proceeds of a loan or
under a contract as described above, whether or not pledged
as collateral for payment of the indebtedness, shall be
initially allocated to a suspense account.
(2) The terms of any such loan or contract pursuant to which
Company Stock is pledged as collateral shall provide for the
release of such Company Stock from pledge for each Plan Year
during the financing period. The number of shares of
Company Stock to be so released from pledge shall be the
number of shares determined according to the formula
described in Paragraph (3).
(3) As of each Anniversary Date, a portion of the Company Stock
in the suspense account shall be withdrawn and allocated to
the Company Stock Accounts of the Participants as described
in Section 7. The number of shares to be withdrawn and
allocated shall be determined in the sole discretion of the
Committee pursuant to either the general rule or the special
rule described in this Paragraph (3). Once the Committee
has exercised its discretion in this regard, the specific
rule selected shall be used exclusively for the allocation
of shares of Company stock purchased with the proceeds of
any such loan or contract.
(i) If the Committee selects the general rule, the number
of shares to be withdrawn and allocated shall be the
number of shares in the suspense account as of that
Anniversary Date multiplied by a fraction. The
numerator is the amount of principal and interest
paid for the Plan Year, and the denominator is the
sum of the numerator and the amount of principal and
interest to be paid during the remainder of the
financing period.
(ii) If the Committee selects the special rule, the number
of shares to be withdrawn and allocated shall be the
number of shares in the suspense account
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<PAGE>
as of that Anniversary Date multiplied by a fraction.
The numerator shall be the amount of principal paid
for the Plan Year, and the denominator is the sum of
the numerator plus the principal to be paid during
the remainder of the financing period.
Notwithstanding the foregoing, the Committee in its
discretion may select the special allocation rule
only if the loan or contract provides for annual
payments of principal and interest at a cumulative
rate which is not less rapid at any time than level
annual payments over a period of ten years and the
interest included in any payment is disregarded only
to the extent that it would be determined to be
interest under standard loan amortization tables. In
addition, the special allocation rule shall not be
applicable from the time that, whether by reason of a
renewal, extension or refinancing, the sum of the
expired duration of the loan or contract, the renewal
period, the extension period and the duration of a
new loan or contract exceeds ten years.
(iii) Irrespective of whether the Committee selects the
general or special allocation rule, in the event that
more than one class of Company Stock has been
allocated to the suspense account, the fraction shall
be applied to the number of shares of each class of
Company Stock in determining the number of shares of
each class to be withdrawn and allocated to the
Company Stock Accounts of Participants.
(4) If any cash dividend on Company Stock is used to make
payments of principal and/or interest on such a loan or
contract, then
(i) the amount of such payment shall be included in the
numerator of the above described fraction,
(ii) the number of shares to be released from the suspense
account which are attributable to Employer
Contributions shall be allocated to Participants'
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Company Stock Accounts as provided in Section 7(d),
(iii) the number of shares to be released from the suspense
account which are attributable to cash dividends on
Company Stock which has been allocated to
Participants' Company Stock Accounts shall be
allocated to the respective Participants' Company
Stock Account in the same proportion as the Company
Stock on which the cash dividend was declared was
allocated to their Company Stock Accounts,
(iv) the number of shares to be released from the suspense
account which are attributable to cash dividends on
Company Stock which has not been allocated to
Participants' Company Stock Accounts shall be
allocated in the same manner as Employer
Contributions as provided in Section 7(d), provided,
that
(v) if the fair market value of the Company Stock to be
allocated as a result of the cash dividend on Company
Stock which has been allocated to Participants'
Company Stock Accounts (Clause (iii) above) is not at
least equal to the amount of said cash dividend, then
prior to the allocation of any Company Stock so
released from the suspense account, Company Stock
with a fair market value at least equal to the amount
of the cash dividend on Company Stock which has been
allocated to Participants' Company Stock Accounts
(Clause (iii) above) shall be credited to the Company
Stock Accounts of those Participants and the
remaining shares of Company Stock shall be allocated
as described in Clauses (ii) and (iv) above.
(5) Any loan or contract described above and the operation of
the Plan shall in all respects comply with the provisions of
the Department of Labor Regulations, as amended, under
Sections 407 and 408 of ERISA and the Income Tax
Regulations, as amended, under Section 4975 of the Code as
they pertain to employee
29
<PAGE>
stock ownership plans, all of which are incorporated herein
by reference.
(c) Purchases of Company Stock by the Trust will be made at a price
which, in the judgment of the Committee, does not exceed the fair market value
of such Company Stock as of the Anniversary Date immediately preceding the date
of purchase. However, in the event that the fair market value is determined
after such Anniversary Date but prior to the date of such purchase, the fair
market value will be the more recent valuation. In the case of a financed
purchase of Company Stock as described in Section 6(b) which comes within the
definition of a loan as described in Section 4975(d)(3) of the Code and the
regulations thereunder, if the purchase of Company Stock is from a "disqualified
person" as defined in Section 4975(e)(2) of the Code, the fair market value
shall be determined as of the date of purchase. The determination of fair
market value of Company Stock for all purposes under the Plan shall be made by
an independent appraiser who meets the requirements established by Section
401(a)(28)(C) of the Code and the Income Tax Regulations under Section 170(a)(1)
of the Code.
(d) The Committee may direct the Trustee to sell shares of Company
Stock to any person, including the Company or any Employer, at a price which, in
the judgment of the Committee, is not less than the fair market value of such
Company Stock as of the Anniversary Date immediately preceding the date of sale.
In addition, no commission may be charged on such sale. However, if the sale of
Company Stock is to a "disqualified person" as defined in Section 4975(e)(2) of
the Code, the fair market value shall be
30
<PAGE>
determined as of the date of the sale. Subject to a determination by the
Committee that such sale is for the primary benefit of the Participants and
their Beneficiaries, any such sale may include shares that have been allocated
to Participants' Company Stock Accounts, shares that have not been so allocated,
or any combination thereof. In the event of any such sale, shares of Company
Stock that have been allocated to Participants' Company Stock Account will be
acquired from such Accounts pro rata with the number of shares in such Accounts
and the proceeds of the sale will be credited to the respective Participants'
Other Investments Accounts. If shares of Company Stock which have not been
allocated to the Company Stock Accounts of Participants are sold, the proceeds
of such sale shall first be applied to the repayment of any debt incurred by the
Trust in connection with its acquisition, or the refinancing thereof, and any
remaining proceeds will be credited to the Other Investments Accounts of all
Participants (and their Beneficiaries) in proportion to the combined value of
their Company Stock and Other Investments Accounts immediately prior to said
sale. Notwithstanding anything herein to the contrary, if shares of Company
Stock are sold to the Company or to any other person or entity to enable the
Trust to distribute cash under either Section 6(f) or Section 15(a)(2) or (3),
said shares will be acquired from the respective Company Stock Accounts of the
Participants involved at the fair market value of said shares as determined as
of the Anniversary Date coinciding with or immediately preceding the date of
said cash distribution and the
31
<PAGE>
respective Other Investments Accounts of said Participants will be credited with
the proceeds of the sale. However, in any case where the use of the fair market
value as of an Anniversary Date is provided for hereunder and the fair market
value is determined after such Anniversary Date but prior to the date of the
sale, the fair market value shall be the more recent valuation.
(e) Provided that the requirements of this subsection (e) are
satisfied or will be satisfied as of the applicable time, the Committee may
direct the Trustee to purchase shares of Company Stock in a transaction that
qualifies under Section 1042 of the Code. In such event, the allocation of the
shares of Company Stock acquired in such transaction shall be in accordance with
the provisions of Section 7(i) For this purpose, Company Stock shall have the
meaning specified in the second sentence of the definition of Company Stock in
Section 2. The requirements of this subsection are as follows:
(1) The Trust must own, immediately after said purchase, at
least 30% of (i) each class of outstanding stock of the
Company (other than preferred stock described in Section
1504(a)(4) of the Code), or (ii) the total value of all
outstanding stock of the Company (other than such preferred
stock).
(2) Company Stock which is purchased by the Trust must have been
held by the seller for at least three (3) years and must not
have been received by the seller as a distribution from a
plan qualified under Section 401(a) of the Code or pursuant
to an option or other right to acquire stock to which
Section 83, 422, 422A, 423 or 424 of the Code applies.
(3) The Company has taken action to consent to the application
of Section 4978 of the Code with respect to the Company
whereby, in the event
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<PAGE>
that, during the three (3) year period from the date of
purchase, the Trust disposes of any of said Company Stock
other than as a distribution to Participants or otherwise as
described in said Section 4978, a tax equal to 10% of the
amount realized on the disposition is imposed on the
Company.
(4) The Company has taken action to consent to the application
of Section 4979A of the Code with respect to the Company
whereby, in the event that the prohibited allocation rules
of Section 7(i) of the Plan and Section 409(n) of the Code
are violated, a tax equal to 50% of the amount involved is
imposed on the Company.
(5) The seller, at or prior to the time of the purchase of
Company Stock by the Trust, states in writing to the
Committee that (i) the requirements of paragraph (2) above
are satisfied, (ii) the seller will elect in a timely manner
the application of said Section 1042 with respect to said
transaction, and (iii) the seller will purchase qualified
replacement property within the replacement period, as those
terms are defined in said Section 1042.
(f) Each Qualified Participant shall have the right to diversify the
investment of a portion of the shares of Company Stock which have been allocated
to his or her Company Stock Account. This diversification provision applies
only to those shares of Company Stock in his or her Company Stock Account which
satisfies the requirements specified in the second sentence of the definition of
Company Stock in Section 2. During the ninety (90) day period after the end of
each of the first five (5) Plan Years during the Qualified Election Period, said
Participant shall have the right to diversify up to 25% of said Account balance.
During the ninety (90) day period after the end of the sixth Plan Year of the
Qualified Election Period, said Participant shall have the
33
<PAGE>
right to diversify up to 50% of said Account balance. Upon receipt of a written
diversification instruction from a Qualified Participant, the Committee will
either (A) offer to said Participant three (3) alternative investment options in
accordance with regulations issued under Section 401(a)(28)(B) of the Code none
of which will be the investment in Company Stock, (B) distribute to the
Participant the portion of the Participant's Account balances that he or she
elects to diversify, or (C) upon direction from the Participant, transfer the
portion of his or her Account balance which he or she has elected to diversify
to any other qualified employee benefit plan of an Employer, provided that such
plan then satisfies the requirements of Section 401(a)(28)(B) of the Code.
However, subject to Paragraph (3) of this Subsection (f), the Committee may
distribute to the Qualified Participant the amount which is subject to
diversification without giving to such Participant the right to elect such
diversification; provided, that, if said Paragraph (3) applies and the Qualified
Participant is notified in writing of the proposed distribution, and said
Qualified Participant fails or refuses to consent to the distribution, then the
diversification requirements of this Subsection (f) are satisfied. If the
Committee offers to Qualified Participants any of the foregoing three
alternatives or makes a distribution to a Qualified Participant under this
Subsection (f) said offer or distribution will be made within ninety (90) days
after the end of the ninety (90) day election period during which
34
<PAGE>
the election can be made. These diversification requirements shall be subject
to the following provisions:
(1) With respect to each of the six (6) ninety (90) day election
periods, the amount which shall be subject to
diversification shall be:
(i) The number of shares of Company Stock which have been
allocated to his or her Company Stock Account as of
the most recent Anniversary Date for which such
Account balance is available; plus
(ii) The number of shares of Company Stock which have been
distributed under this diversification provision with
respect to all prior ninety (90) day election
periods, and the sum thereof multiplied by (iii) The
applicable percentage, and that amount reduced by
(iv) The number of shares of Company Stock that said
Participant has elected to diversify during all prior
ninety (90) day election periods.
(2) Notwithstanding the foregoing, if the value (as of the
applicable date) of the number of shares of Company Stock
determined under Subparagraph (i) and (ii) of Paragraph (1)
above is $500 or less, the diversification election shall
not be required to be given to the Qualified Participant.
(3) If the value of a Qualified Participant's Plan Benefit
(including any prior distributions from the Plan) exceeds
$3,500, no distribution under this Subsection (f) may be
made unless the Participant consents in writing to said
distribution.
(4) If a distribution is made to a Qualified Participant
pursuant to this Subsection (f), such distribution may be
made, in the sole discretion of the Committee, in cash, in
Company Stock, or in any combination thereof. Any Company
Stock that is so
35
<PAGE>
distributed will be subject to the put option provisions of
Section 16(b). To the extent that distribution is made in
cash, shares of Company Stock in your Company Stock Account
will be acquired from you, as determined by the Committee,
(i) with funds in the Trust that have not been allocated to
Participants' Other Investments Accounts, (ii) with funds in
other Participants' Other Investments Accounts, or (iii) by
the sale of such shares to the Company or to any other
person or entity pursuant to the provisions of Section 6(d).
(g) Any Employer Contributions to this Plan in cash and any other
cash in the Trust may be invested, as directed by the Committee, in one or more
life insurance contracts (hereinafter "Contracts") issued by any legal reserve
life insurance company. Any such investment will be subject to the following
limitations:
(1) The aggregate premiums paid on all Contracts on the life of
any Participant, as a percentage of the aggregate of the
Employer Contributions allocated to the Participant's
Accounts at any particular time, shall be less than 50% in
the case of ordinary life insurance and 25% in the case of
term life insurance.
(2) Premiums on any Contracts shall be charged to the Other
Investments Account of the Participant covered by the
Contract and said Contract shall be held as part of the
Account so charged.
(3) All incidents of ownership of any Contract shall be in the
Trustee for the exclusive benefit of the Participant, except
that the Participant covered by the Contract shall have the
right to designate the beneficiary or beneficiaries thereof.
The Committee shall instruct the Trustee as to any
beneficiary designation or mode of settlement requested by
the Participant.
(4) At or before retirement under the Plan (or upon termination
of the employment of any Participant before retirement under
the
36
<PAGE>
Plan), the Committee shall, in accordance with instructions
from the Participant, instruct the Trustee either (A) to
distribute the Contract to the Participant or (B) to convert
the Contract into cash or to provide periodic income, so
that no portion of the value of the Contract will be used to
continue life insurance protection under the Plan beyond
that date and provided that no portion of the value of the
Contract will be distributed or paid in a manner having the
effect of a life annuity. If the Participant's Plan Benefit
under Section 12 or 13 is less than the cash surrender value
of the Contract, the Committee shall permit the Participant
to pay to the Trust the difference between the cash
surrender value and the value of the Plan Benefit and the
Trustee shall thereupon distribute the Contract to the
Participant.
(5) Each year the Employer shall report as additional income to
each Participant, the amount of the term cost which is
applicable to the life insurance of each such insured
Participant. Such term cost means the PS-58 cost as
established under the IRS Regulations from time to time.
Section 7. ALLOCATIONS TO YOUR ACCOUNTS.
(a) IN GENERAL. If you are a Participant on an Anniversary Date and
have completed 1,000 or more Hours of Service during the Plan Year ending on
said Anniversary Date, you are entitled to the allocations provided in this
Section 7. For new Employees, see Section 3 to see when you become a
Participant. For Employees whose Service has terminated, see Sections 12 and 13
to see when your participation terminates. However, notwithstanding any
contrary Plan provision, all Participants who have completed more than 500 Hours
of Service in such Plan Year shall be deemed eligible to receive an allocation
under the Plan if, but only if,
37
<PAGE>
the Plan would otherwise fail the minimum coverage rules of Sections 410(b) or
401(a)(26) of the Code.
(b) COMPANY STOCK ACCOUNT. Your Company Stock Account will be
credited at least once each year with your allocable share of Company Stock
purchased and paid for by the Trust or contributed in kind by your Employer,
with Forfeitures of Company Stock and with stock dividends on Company Stock held
in your Company Stock Account. It is maintained in shares of Company Stock.
(c) OTHER INVESTMENTS ACCOUNT. Your Other Investments Account will
be credited at least once each year with your allocable share of Employer
Contributions and Forfeitures in cash and other property and with cash dividends
on Company Stock in your Company Stock Account; it will also be credited (or
debited) with your share of the net income (or loss) of the Trust attributable
to it. Your Other Investments Account will also be debited for any cash payments
on purchases of Company Stock and for repayment of debt (including principal and
interest) incurred for the purchase of Company Stock. It is maintained in
dollars and cents.
(d) EMPLOYER CONTRIBUTIONS.
(1) Employer Contributions will be allocated as of each
Anniversary Date among the Company Stock and Other
Investments Accounts of Participants in the ratio which the
Covered Compensation of each Participant bears to the
aggregate Covered Compensation of all Participants.
(2) For any Plan Year for which the Plan is a Top Heavy Plan,
the minimum Employer Contribution to be allocated to each
Participant who is not a Key Employee shall be the lesser of
the following percentages of compensation, as defined in
Section
38
<PAGE>
7(g)(5): (i) 3%, or (ii) the highest percentage allocation
made to any Key Employee. For purposes of determining the
percentage allocation to Key Employees, Forfeitures shall be
included with Employer Contributions and, for any Plan Year
beginning after December 31, 1984, any Employer Contribution
attributable to a salary reduction or a cash or deferred
arrangement shall be included as an Employer Contribution.
(3) Notwithstanding anything herein to the contrary, for any
Plan Year during which the Plan is a Top Heavy Plan, the
minimum allocation described above in Section 7(d)(2) shall
be made to any Participant who is not a Key Employee and who
is employed by an Employer on the Anniversary Date even
though the Participant fails to complete 1,000 or more Hours
of Service during such Plan Year.
(e) FORFEITURES. Forfeitures will be allocated as of each
Anniversary Date among the Company Stock and Other Investments Accounts of the
remaining Participants in the ratio which the Covered Compensation of each
Participant bears to the aggregate Covered Compensation of all Participants.
Any such Forfeitures will come first from the terminated Participant's Other
Investments Account to the extent of the balance of such Account, and the
balance of any such Forfeiture will come out of said Participant's Company Stock
Account. In addition, where there is any Company Stock in a Participant's
Company Stock Account which was acquired in a financed purchase as described in
Section 6(b) which comes within the definition of a loan as described in Section
4975(d)(3) of the Code and the regulations thereunder and a portion of the
Company Stock in such Account is to be forfeited, the following
39
<PAGE>
rules shall apply to the Company Stock which was acquired in the financed
purchase:
(1) Any Forfeiture of Company Stock will come first from Company
Stock which was not acquired in such a financed purchase, to
the extent thereof, and the balance of the Forfeiture will
come from Company Stock which was acquired in such a
financed purchase.
(2) If more than one class of Company Stock acquired in a
financed purchase has been allocated to a Participant's
Company Stock Account, any Forfeiture of such Company Stock
shall be in equal proportions from each such class.
(f) NET INCOME (OR LOSS) OF THE TRUST. The net income (or loss) of
the Trust will be determined annually as of each Anniversary Date and allocated
to the Accounts of Participants as follows:
(1) The net income (or loss) attributable to the balance in your
Other Investments Account includes the increase (or
decrease) in the fair market value of assets of the Trust
(other than Company Stock), interest, dividends, other
income and expenses attributable to such assets other than
Company Stock since the preceding Anniversary Date. It does
not include the interest paid under any installment contract
for the purchase of Company Stock by the Trust or on any
loan used by the Trust to purchase Company Stock.
(2) The net income (or loss) attributable to the balance in the
Other Investments Accounts of all Participants will be
allocated to your Other Investments Account in the ratio
which the balance of your Other Investments Account on the
preceding Anniversary Date bears to the sum of such balances
for all Participants as of the same date. In the event that
there are no balances in the Participants' Other Investments
Accounts as of such preceding Anniversary Date or the
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Committee determines in a uniform nondiscriminatory manner
that such balances are not representative of the Trust
assets on which the net income (or loss) was earned, the
Committee may allocate such net income (or loss) according
to some other fair and equitable method, which may be on the
basis of the Other Investments Account balances as of the
current Anniversary Date prior to the allocation of such net
income (or loss).
(3) Cash dividends on Company Stock in your Company Stock
Account will be (i) credited to your Other Investments
Account, (ii) distributed to you in accordance with Section
17(b) or (iii) used to pay the principal and/or interest on
a loan or contract described in Section 6(b), in which case
shares of Company Stock shall be allocated as provided in
Section 6(b)(4). Stock dividends on Company Stock in your
Company Stock Account will be credited to your Company Stock
Account. Cash dividends received on Company Stock prior to
its allocation will be allocated to your Other Investments
Account in the same manner as other net income (or loss) of
the Trust, provided, however, that said cash dividend may be
used to pay the principal and/or interest on a loan or
contract described in Section 6(b), in which case shares of
Company Stock released from the suspense account as provided
in Section 6(b)(3) and (4) shall be allocated to the Company
Stock Accounts of Participants as provided in Section 6(b)
(4). Stock dividends received on Company Stock prior to its
allocation will be allocated to the Participants' Company
Stock Accounts in the same manner as the shares with respect
to which they are received.
(4) The Committee may determine the net income (or loss) of the
Trust at any time between Anniversary Dates. The adjustment
to the Accounts of Participants as of each Anniversary Date
shall take into account any adjustment made to the Accounts
of Participants between Anniversary Dates.
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(g) LIMITATIONS ON ANNUAL ADDITIONS.
(1) The Annual Addition to the Accounts of any Participant for
any Plan Year under this Plan and under any other qualified
defined contribution plan of an Employer may not exceed the
lesser of $30,000 or 25% of the Participant's compensation
from the Employer for the Plan Year. However, to reflect
increases in the cost of living, the foregoing $30,000 limit
shall be adjusted annually to the greater of (i) $30,000, or
(ii) one-fourth of the dollar limitation in effect under
Section 415(b)(l)(A) of the Code. Notwithstanding the
foregoing, the compensation limitation expressed as a
percentage and referred to above in this Paragraph (1) shall
not apply to any contribution for medical benefits within
the meaning of Section 401(h) or Section 419A(f)(2) of the
Code which is otherwise treated as Annual Additions under
Section 415(l)(1) or Section 419A(d)(2) of the Code. The
"limitation year" for purposes of Section 415 of the Code,
is the Plan Year. In the event that the allocation of
Annual Additions as provided in this Section would result in
an allocation to a Participant in excess of the foregoing
limit on Annual Additions, any such excess to the extent of
any voluntary employee contributions or elective deferrals
(within the meaning of Section 402(g)(3) of the Code) to
this or any other defined contribution plan of an Employer,
shall be returned to the Participant; to the extent that
such excess exceeds the amount of such voluntary employee
contributions or elective deferrals, such excess will be
reallocated among the Accounts of the other Participants
(subject to such limit on Annual Additions) as provided in
this Section for the allocation of Forfeitures; to the
extent that such excess exceeds the amount of Forfeitures,
any additional excess will be reallocated among the Accounts
of the other Participants (subject to such limit on Annual
Additions) as provided in this Section for the allocation of
Employer Contributions. Any such amounts that cannot be
allocated to Participants' Accounts within the foregoing
limits will be credited
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to a suspense account and reallocated as of the next
Anniversary Date among the then Participants as provided in
this Section for Forfeitures. In the event the Plan is
terminated and there are amounts which cannot be allocated
to Participants' Accounts due to the foregoing limits, such
amounts will be returned to the Employer. The excess Annual
Additions will be limited to any allocation of Forfeitures
and a reasonable error in establishing a Participant's
compensation.
(2) In the event that any Participant is also a participant in
one or more defined benefit plans or one or more defined
contribution plans maintained by the Employer, then with
respect to any Plan Year, the sum of the defined benefit
fraction and the defined contribution plan fraction may not
exceed one (1.0). The defined benefit plan fraction is a
fraction the numerator of which is the projected annual
benefit of the Participant under such plan as of the end of
the Plan Year and the denominator of which is the lesser of
(i) 1.25 multiplied by $90,000 (subject to adjustment for
increases in the cost of living under Section 415(d) of the
Code) and (ii) 1.4 multiplied by 100% of the Participant's
average compensation for his high 3 years ending with such
year. The defined contribution plan fraction is a fraction
the numerator of which is the sum of all Annual Additions
for the Plan Year and each preceding Plan Year during which
the person was a Participant and the denominator of which is
the sum for all Plan Years during which the person was a
Participant of the lesser of (1) 1.25 multiplied by $30,000
(subject to adjustment for increases in the cost of living
under Section 415(d) of the Code) and (ii) 1.4 multiplied by
25% of the Participant's compensation for all such years.
In the event that amounts cannot be allocated to
Participants' Accounts due to the foregoing limitation, such
amounts will be reallocated as provided in paragraph (1)
above.
(3) In the case of an allocation of Annual Addition for any Plan
Year in which the Trust engages in a financed purchase of
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Company Stock as described in Section 6(b) or with respect
to which any part or all of the Employer Contribution for
such Plan Year is used to pay a portion or all of the
indebtedness incurred in connection with such purchase,
Annual Addition shall not include (i) Forfeitures of Company
Stock which were acquired in a financed purchase of Company
Stock as described in Section 6(b), or (ii) Employer
Contributions which are used to pay interest expense on such
a financed purchase of Company Stock provided that such
interest expense is deductible under Section 404(a)(9)(B) of
the Code. Notwithstanding anything herein to the contrary,
for any Plan Year to which this Paragraph (3) applies, no
more than one-third (1/3) of the Employer Contribution for
such Plan Year shall be allocated to Highly Compensated
Employees.
(4) For any Plan Year during which the Plan is a Top Heavy Plan
and the Employer Contribution allocated to each Participant
who is not a Key Employee is not at least 4% of compensation
as defined in Section 7(g)(5), the definition of the defined
benefit plan fraction and the defined contribution plan
fraction in Section 7(g)(2) shall be modified by changing
"1.25" to "1.0". For any Plan Year during which the Plan is
a Super Top Heavy Plan, the definition of the defined
benefit plan fraction and the defined contribution plan
fraction in Section 7(g)(2) shall be modified by changing
"1.25" to "1.0".
(5) For purposes of this Section 7(g), the term "compensation"
shall mean a Participant's earned income, wages, salaries
and fees for professional services and other amounts
received for personal services actually rendered in the
course of employment with an Employer maintaining the Plan
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips and
bonuses), and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not
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included in the Employee's gross income for the
taxable year in which contributed or Employer
contributions under a simplified employee pension
plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of
deferred compensation;
(ii) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(iv) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity contract described in Section
403(b) of the Code (whether or not the contributions
are actually excludable from the gross income of the
Employee).
(v) Notwithstanding the foregoing, "compensation" shall
not exceed the sum of $150,000 (as adjusted for
increases in the cost of living under Section
401(a)(17) of the Code).
(h) The Committee shall establish and maintain separate Company Stock
and Other Investments Accounts for each Participant in the Plan. Separate sets
of Accounts will be maintained for the Employees of each Employer, and in the
event of a transfer of a Participant from the employment of one Employer to that
of another Employer, the Accounts of such Participant will be transferred to the
Accounts maintained for the Employees of the other Employer; in such event, the
Participant's Service,
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participation, vesting rights and Plan Benefit will not be affected. Separate
Accounts shall be maintained for all Inactive Participants who have an interest
in the Plan. In addition, separate records will be maintained for Company Stock
acquired in a financed purchase as described in Section 6(b) and for Company
Stock acquired otherwise; and, in the event of such a financed purchase of
Company Stock, separate records will be maintained to reflect the amount of
Employer Contributions in cash and earnings on Trust investments used by the
Trust to pay on any such loan or contract. Separate subaccounts will be
maintained within each Company Stock Account for Company Stock which is a
Qualifying Employer Security and for Company Stock which is not a Qualifying
Employer Security. Such separate Accounts shall not require a segregation of
the Trust assets. No Participant shall acquire any right to or interest in any
specific asset of the Trust as a result of the allocations provided for in the
Plan. All allocations, except for adjustments made under Section 7(f)(4) above,
will be made as of the Anniversary Date referred to in this Section.
(i) In the event that shares of Company Stock are purchased by the
Trust in a transaction described in Section 6(e), none of such shares, nor any
other assets of the Plan in lieu thereof, shall accrue for the benefit of or be
allocated, directly or indirectly, under this Plan or any other qualified
employee benefit plan of the Company or any Affiliated Company, to the Accounts
of any member of the Prohibited Allocation Group. In the event that any member
of the Prohibited Allocation Group is a
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Participant in the Plan, (i) if there are no Employer Contributions or
Forfeitures to be allocated as of an Anniversary Date other than shares of
Company Stock and/or other assets which are subject to this provision, said
Participant shall receive no allocation thereof, (ii) no portion of the Other
Investments Account balance of said Participant may be used to acquire shares of
Company Stock and/or other assets which are subject to this provision, and (iii)
if there are Employer Contributions and/or Forfeitures to be allocated as of an
Anniversary Date and such includes both shares of Company Stock and/or other
assets which are subject to this provision and shares and/or other assets which
are not subject to this provision, the allocation shall be made so that said
Participant receives no allocation of Company Stock or other assets whatsoever
to the extent of the percentage of Covered Compensation received by the other
Participants attributable to Company Stock and/or other assets which are subject
to this provision, provided that if there is additional Company Stock and/or
other assets to be allocated, then such additional allocations shall be made to
all Participants in proportion to Covered Compensationas provided in Section 7.
In the event that a Participant is not a "25% shareholder" (as described in
Clause (3) of the definition of Prohibited Allocation Group) but would become
such a 25% shareholder as a result of either (i) an allocation of shares of
Company Stock and/or other assets which are subject to this provision, or (ii)
use of a portion or all of the Other Investments Account of such Participant to
acquire shares of Company Stock
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and/or other assets which are subject to this provision, then shares of Company
Stock and/or other assets which are subject to this provision may be allocated
to such Participant, but only up to the point at which the Participant would own
25% or less of the stock described in Clause (3) of the definition of Prohibited
Allocation Group. All allocations of Company Stock and other assets shall in
all respects comply with the provisions of Section 409(n) of the Code and the
Income Tax Regulations thereunder, all of which are incorporated herein by
reference.
Section 8. EXPENSES OF THE PLAN AND TRUST.
All costs of administering the Plan and any expenses of the Trustee
other than normal brokerage charges which are included in the cost of securities
purchased (or charged to proceeds in the case of sales) shall be paid either by
the Company or out of the assets of the Trust, as determined by the Company. If
said costs and expenses are paid by the Company, each Employer, other than the
Company, shall reimburse the Company for that portion of each Plan Year's costs
and expenses as the amount of Employer Contribution from each such Employer for
such Plan Year bears to the aggregate Employer Contribution from all Employers
for that Plan Year.
Section 9. VOTING COMPANY STOCK.
All shares of Company Stock held in the Trust shall be voted by the
Trustee at such time and in such manner as the Committee shall direct. However,
the Committee may instruct the
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Trustee to execute a proxy in favor of one or more of the members of the
Committee. In either case, the Company Stock shall be voted by the Trustee or
by the holder of the proxy as the Committee shall direct. If the Committee
shall fail or refuse to give the Trustee timely instructions as to how to vote
any Company Stock which the Trustee otherwise has the right to vote, the Trustee
shall not exercise its power to vote such Company Stock. However, as to any
matter which involves the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business or similar transaction,
each Participant (or the Participant's Beneficiary in the event of his or her
death) will have the right to direct the voting of any Company Stock allocated
to his or her Company Stock Account. In the event that shares of Company Stock
are acquired by the Plan with the proceeds of a loan which qualifies for the
partial interest exclusion under Section 133 of the Code ("Section 133 Loan"),
each Participant (or the Participant's Beneficiary in the event of his or her
death) shall have the right in all matters to direct the voting of any Company
Stock allocated to his or her Company Stock Account that was acquired by the
Trust with the proceeds of the Section 133 Loan. In the event that a
Participant (or the Participant's Beneficiary) is entitled to direct the voting
of Company Stock, (i) the Committee shall be responsible for obtaining the
instructions from each Participant (or the Participant's Beneficiary) as to the
exercise of such voting rights, utilizing procedures that will
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<PAGE>
assure the confidentiality of each Participant's (or the Participant's
Beneficiary's) instruction, (ii) the Committee shall notify the Trustee of such
instructions, (iii) with respect to any allocated Company Stock as to which the
Committee does not receive voting instructions, such shares shall not be voted,
and (iv) any Company Stock not allocated to Participants' Company Stock Accounts
shall be voted as the Committee shall direct. The determination as to whether
Company Stock is allocated to Participants' Company Stock Accounts shall be
determined as of the record date for determining the shareholders entitled to
vote.
Section 10. DISCLOSURE TO PARTICIPANTS.
(a) SUMMARY PLAN DESCRIPTION. Participants will be furnished with a
summary plan description within the later of (i) 90 days after they become
Participants; or (ii) such later time as may be provided under the Department of
Labor Regulations.
(b) SUMMARY ANNUAL REPORT. Participants will be furnished with a
summary annual report within the later of (i) 9 months after the end of each
Plan Year, or (ii) such later time as may be provided under the Department of
Labor Regulations.
(c) ANNUAL STATEMENT. As soon as possible after each Anniversary
Date you will receive a written statement showing as of that Anniversary Date:
(1) The balance in each of your Accounts as of the preceding
Anniversary Date.
(2) The amount of Employer Contributions and Forfeitures
allocated to each of your Accounts.
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(3) The adjustment to your Accounts to reflect your share of the
net income (or loss) of the Trust for the Plan Year.
(4) The new balances in each of your Accounts.
Section 11. YOUR PLAN BENEFIT.
When your participation in the Plan terminates, you then become
entitled to all, a part or none of the final balances in your Accounts in
accordance with the provisions of the Plan. The total amount to which you or
your Beneficiary are entitled is called your Plan Benefit.
Section 12. YOUR PLAN BENEFIT AT RETIREMENT OR AT DEATH.
(a) RETIREMENT. If your participation ends by retirement under the
Plan, you will be 100% vested and your Plan Benefit will be all of the final
balances in your Accounts. If you have not completed 1,000 Hours of Service in
the Plan Year in which your Service terminates, your participation will
terminate on the Anniversary Date coinciding with or immediately preceding your
termination of Service. However, if you have completed 1,000 or more Hours of
Service in such Plan Year, your participation will terminate on the Anniversary
Date coinciding with or next following the date on which your Service
terminates. You will be treated as having retired under the Plan if your
participation ends through one of the following:
(1) NORMAL RETIREMENT. If your Service terminates on or after
your Normal Retirement Date, you will be entitled to a
Normal Retirement.
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(2) DEFERRED RETIREMENT. If your Service continues beyond your
Normal Retirement Date, you will continue to be a
Participant in the Plan. Upon termination of your Service,
you will be entitled to a Deferred Retirement.
(3) DISABILITY RETIREMENT. If the Committee determines in a
uniform nondiscriminatory manner that you have incurred a
Permanent Disability, you will be given a Disability
Retirement without regard to your age or length of Service.
(b) DEATH. If your participation ends by your death, you will be
100% vested and your Plan Benefit will be all of the final balances in your
Accounts. If you have not completed 1,000 Hours of Service in the Plan Year in
which your Service terminates, your participation will terminate on the
Anniversary Date coinciding with or immediately preceding your death. However,
if you have completed 1,000 or more Hours of Service in such Plan Year, your
participation will terminate on the Anniversary Date coinciding with or next
following the date of your death.
Section 13. OTHER TERMINATION OF SERVICE.
(a) If your Service terminates for any reason other than your death
before you are eligible to retire under the Plan, your Plan Benefit will be
determined under this Section 13. Your participation will terminate on the
Anniversary Date coinciding with or immediately preceding your termination of
Service. Your Plan Benefit will be determined on the basis of your total number
of Years of Service as of the date that your Service terminates in accordance
with the following vesting schedule:
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Years of Service at Percent of Account
Date of Termination Balances Vested in You
------------------- ----------------------
Less than 1 Year 0
1 Year 10%
2 Years 20%
3 Years 30%
4 Years 40%
5 Years 60%
6 Years 80%
7 Years or more 100%
(b) Any part of the final balances in your Accounts which does not
become part of your Plan Benefit is called a Forfeiture. If a Participant
receives a distribution from the Plan equal to the entire nonforfeitable benefit
derived from his Accounts not later than the close of the second Plan Year
following the Plan Year in which the Participant terminated Service, then the
Accounts distributed shall be considered cashed out and eligible for the
forfeiture and repayment rules set forth herein. If such rules apply, then the
Forfeiture will be disposed of as provided in Section 7 as of the Anniversary
Date following the Participant's termination of Service. Additionally, if the
value of a Participant's vested Account balances is zero (0), then the
Participant shall be deemed to have received a distribution of the entire vested
portion of said Account balance as of the date of his termination of Service.
(c) If the Participant is reemployed and repays to the Trust within
the time period set forth herein the total amount
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distributed to him from such Accounts, the non-vested portion of his Accounts
shall be added to the amount repaid and credited to his Accounts. The repayment
referenced above on account of termination of Service must be made before the
earlier of (i) five years after the first date on which the Participant is
subsequently reemployed by the Employer or (ii) the Anniversary Date of the last
Plan Year in a period of five (5) consecutive one-year Breaks in Service
commencing with the Plan Year in which the distribution occurs.
(d) If the non-vested portion of a Participant's Accounts is treated
as a Forfeiture, if such Participant is reemployed by an Employer prior to
incurring his fifth consecutive one-year Break in Service, and if the
Participant makes the repayment required by Subsection (c) within the time
period set forth therein, then the non-vested portion of his Accounts shall be
immediately reinstated. The portion reinstated shall not be allocated gain,
loss, or income during the period it was forfeited. If a Participant is deemed
to have received a distribution under Subsection (b) and such, Participant is
reemployed by an Employer prior to incurring five (5) consecutive one-year
Breaks in Service, then the Account balances of such Participant will be
restored to the balance that existed on the date of such deemed distribution.
Restoration hereunder shall be funded, in the following order of priority, out
of Forfeitures, Employer Contributions made for the express purpose of restoring
the Account balance, or out of the Trust income for the Plan Year in which
restoration occurs.
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(e) If a Participant receives a distribution which is not qualified
for the cash out and buy back rules described in Subsections (c) and (d), then
the non-vested portion of his Accounts will become a Forfeiture and be disposed
of in accordance with the provisions of Section 7, as of the Anniversary Date of
the first Plan Year with respect to which he or she incurs five (5) consecutive
one-year Breaks in Service. If a Participant who is not eligible under said
cash out and repayment rules and who is not 100% vested receives a distribution
of his Account balances and said Participant is reemployed by the Employer
prior to having incurred five (5) consecutive one-year Breaks in Service, the
nonvested portion of his or her Accounts will be reinstated. In addition, new
Accounts will be set up for the Participant to record his or her interest in the
Plan after reemployment. The new Accounts will be subject to the vesting
provisions in Subsection (a) above. However, the other Accounts will be subject
to different vesting provisions. As to these Accounts, the Participant's vested
amount as of any subsequent date will be determined by the following formula,
which has been prescribed by the Internal Revenue Service: P (AB + (RxD)) -
(RxD). P is the vested percentage under Subsection (a) above at any subsequent
date. D is the value of the earlier distribution. R is the ratio of (i) the
value of the Account balances at the subsequent date, to (ii) the value of the
Accounts immediately after the earlier distribution.
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(f) If your Service terminates before you are 100% vested and you are
reemployed after you incur five (5) consecutive one-year Breaks in Service but
before all of your Plan Benefit is distributed to you, separate Company Stock
and Other Investments Accounts will be set up and the vested portion of your
Account balances will be credited to them. You will always be 100% vested as
to the balances in these Accounts. However, new Company Stock and Other
Investments Accounts will be set up for you to record your interest in the Plan
after your reemployment. The new Accounts will be subject to the vesting
provisions of Subsection (a) above.
(g) Notwithstanding the provisions of Subsection (a) above, with
respect to any Plan Year for which the Plan is a Top Heavy Plan, your Plan
Benefit will be determined in accordance with the following vesting schedule:
Years of Service at Percentage of Account
Date of Termination Balances Vested in You
------------------- ----------------------
Less than 1 Year 0
1 Year 10%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years 80%
6 Years or More 100%
If the Plan is a Top Heavy Plan with respect to a Plan Tear and ceases to be a
Top Heavy Plan with respect to a subsequent Plan
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<PAGE>
Year, your vested percentage in your Account balances as of the Anniversary Date
of the last Plan Year for which the Plan was a Top Heavy Plan will never be less
than the vested percentage provided for above in this Subsection (g).
Furthermore, if you had completed 3 or more Years of Service as of such
Anniversary Date, your vesting shall continue to be determined according to the
above vesting schedule. However, if you had not completed 3 or more Years of
Service as of such Anniversary Date, your Account balances as of such
Anniversary Date shall be subject to the following rules:
(1) Your Account balance as of the Anniversary Date of the last
Plan Year for which the Plan was a Top Heavy Plan will be
frozen as of that date. Your vested percentage with respect
to these Account balances will never be less than your
vested percentage determined under the vesting schedule
provided in this Subsection (g) as of said Anniversary Date.
However, any increase in your vested percentage will be in
accordance with the vesting schedule provided in Subsection
(a). No further Employer Contributions or Forfeitures will
be allocated to these Accounts. However, they will be
credited (or debited) with their share of any net income
(or loss) of the Trust. If the Plan again becomes a Top
Heavy Plan with respect to a subsequent Plan Year, these
Account balances will be subject to the vesting schedule
provided in this Subsection (g).
(2) New Company Stock and Other Investments Accounts will be set
up for you to record your interest in the Plan attributable
to Plan Years during which the Plan is not a Top Heavy Plan.
These new Accounts will be subject to the vesting provisions
in Subsection (a). However, if the Plan subsequently
becomes a Top Heavy Plan, these Account balances will become
subject to the
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vesting schedule provided in this Subsection (g)
Section 14. WHEN YOUR PLAN BENEFIT WILL BE DISTRIBUTED.
(a) IN GENERAL. Your Plan Benefit will be computed as soon as
possible after your Service terminates.
(b) DEATH. In the event of your death, your Plan Benefit will be
distributed as provided in accordance with this Subsection (b). If your death
occurs before distribution of your Plan Benefit has commenced under this Section
14, unless your Beneficiary or other distributee elects further deferral in
writing, distribution of your Plan Benefit will begin not later than one (1)
year after the end of the Plan Year in which your death occurs. Distribution
will be made, as determined by the Committee in its sole discretion, either as a
Total Distribution or in substantially equal annual installments over a period
of time which will enable the entire Plan Benefit to be distributed within five
(5) years after the date of your death. However, the Committee may establish a
uniform nondiscriminatory distribution policy under which distribution begins
and/or is completed at an earlier date. Furthermore, once such a policy is
established the Committee may change such policy as to any undistributed Plan
Benefits, provided that distribution will begin and be completed within the time
period described above. These distribution requirements will also be subject to
the rules described in Section 14(c)(3) and (4). If your death occurs after
distribution of your Plan Benefit has commenced under Subsection (c) below, any
portion of your Plan
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Benefit remaining in the Trust as of the date of your death shall be distributed
at least as rapidly as under the method of distribution in effect as of the date
of death.
(c) RETIREMENT AND OTHER TERMINATIONS. If your Service terminates as
a result of your Normal Retirement, Deferred Retirement or Disability
Retirement, unless you elect further deferral in writing, distribution of your
Plan Benefit will begin not later than one (1) year after the end of the Plan
Year in which your Service terminates. If your Service terminates for any other
reason, unless you elect further deferral in writing, distribution will begin
not later than the end of the sixth Plan Year after the Plan Year in which your
Service terminates. Distribution will be made, as determined by the Committee
in its sole discretion, either as a Total Distribution or in substantially equal
annual installments over a period of time not to exceed five (5) years.
However, the Committee may establish a uniform nondiscriminatory distribution
policy under which distribution begins and/or is completed at an earlier date.
Any such distribution policy shall be consistent with the distribution rules of
Section 409(o) of the Code and shall apply equally to all Participants who are
similarly situated. Furthermore, once such a policy is established, the
Committee may change such policy as to any undistributed Plan Benefits, provided
that distribution will begin and be completed within the time period described
herein. These distribution requirements will be subject to the following
additional rules:
(1) If the value of your Plan Benefit (including any prior
distributions from the Plan)
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exceeds $3,500, it may not be distributed prior to your
Normal Retirement Date unless you consent in writing to said
distribution. Any such consent must satisfy the
requirements of Section 14(g). Your failure to consent to
said distribution will be deemed to be an election to defer
distribution to your Normal Retirement Date.
(2) Provided that you so elect in writing, the beginning of the
distribution of your Plan Benefit may be deferred up to the
date specified in Section 14(e) and/or the period of
payment may be extended beyond five (5) years but not longer
than the period specified in Section 14(e).
(3) With respect to shares of Company Stock that were originally
acquired in a financed purchase of Company Stock as
described in Section 6(b), provided that any part of the
indebtedness incurred by the Trust in connection with said
purchase is outstanding, distribution of such Company Stock
may be deferred until the end of the Plan Year in which such
indebtedness is paid in full. However, such distribution
may not be deferred under this Paragraph (3) beyond the
dates specified in Section 14(e).
(4) If the value of your Plan Benefit exceeds $500,000, the five
(5) year maximum payment period described above may be
increased by one (1) additional year (but not more than five
(5) additional years) for each $100,000 or fraction thereof
by which such value exceeds $500,000. These $500,000 and
$100,000 amounts will be adjusted for increases in the cost
of living under Section 415(d) of the Code.
(d) Notwithstanding anything herein to the contrary, unless you elect
otherwise in writing, payment of your Plan Benefit will begin not later than the
60th day following the latest Plan Year in which the latest of the following
events occur:
(1) You reach your 65th birthday;
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(2) Ten (10) years elapse from the time your participation in
the Plan began; or
(3) Your Service with the Employer is terminated.
(e) Notwithstanding anything herein to the contrary, distributions
will be made in accordance with Section 401(a)(9) of the Code and the Income
Tax Regulations thereunder, including the incidental benefit requirement of
Section 1.401(a)(9)-2 of the Income Tax Regulations. If a Participant's Plan
Benefit is to be distributed in a lump sum, it must be paid no later than the
Participant's Required Beginning Date. If the Participant's Plan Benefit is to
be distributed in other than a lump sum, distribution must commence on or before
the Required Beginning Date and the following distribution rules shall apply:
(1) The Plan Benefit (as adjusted below) must be distributed
over a period not extending beyond the life expectancy of
the Participant or the joint life and last survivor
expectancy of the Participant and the Participant's
designated beneficiary. The amount to be distributed during
each calendar year, beginning with the first distribution
calendar year (as adjusted below) shall be determined for
each such year for which a minimum distribution is required
and said amount shall not be less than the quotient obtained
by dividing the Plan Benefit (as adjusted below) by the
lesser of (a) the applicable life expectancy or (b) if the
Participant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in
Q&A-4 of Section 1.401(a)(9)-2 of the Income Tax
Regulations.
(2) The minimum distribution required for the Participant's
first distribution calendar year (as defined below) must be
made on or before the Participant's Required Beginning Date.
The minimum distribution for each
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subsequent distribution calendar year, including the minimum
distribution for the distribution calendar year in which the
Employee's Required Beginning Date occurs, must be made on
or before December 31 of that distribution calendar year.
(3) Life expectancy and joint and last survivor expectancy mean
the value calculated by the use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Income
Tax Regulations. Once these values are calculated and
distribution commenced, recalculation shall not be
permitted. Applicable life expectancy means either of the
above expectancies calculated using the attained age of the
Participant or designated beneficiary as of such
individual's birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed
since the date that the life expectancy was first
calculated.
(4) Distribution calendar year is each calendar year for which a
minimum distribution is required. The first distribution
calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's Required
Beginning Date.
(5) Designated beneficiary means the individuals who are
designated as Beneficiary under the Plan in accordance with
Section 401(a)(9) of the Code and the Income Tax
Regulations thereunder.
(6) For purposes of these minimum distribution requirements and
the determination of the minimum distribution for each
distribution calendar year, Plan Benefit means the value of
the Participant's Account balances as of the last day of the
Plan Year which ends in the calendar year immediately
preceding the particular distribution calendar year
increased by the amount of any contributions or Forfeitures
allocated to the Participant's Accounts and decreased by
distributions made from said Accounts during such
distribution calendar Year. If any portion of the minimum
distribution for the first distribution calendar year is
made in
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the second distribution calendar year on or before the
Required Beginning Date, the amount of the minimum
distribution made in the second distribution calendar year
shall be treated as if it had been made in the first
distribution calendar year.
(f) If any part of your Plan Benefit is retained in the Trust after
the Anniversary Date on which your participation ends, it will continue to be
treated as a Company Stock Account or as an Other Investments Account, as the
case may be. Your Other Investments Account will be credited (or debited) with
its share of any net income (or loss). However, neither Account will be
credited with any further Employer Contributions or Forfeitures. At the
discretion of the Committee, your Accounts may be segregated from the Accounts
of other Participants and invested as directed by the Committee.
(g) Any required consent by a Participant to receive a distribution
prior to his or her Normal Retirement Date shall be in writing and may be
given only after the Participant has received a general explanation of his or
her options in accordance with Section 1.411(a)-11(c) of the Income Tax
Regulations. Said notice shall be given at least 30 days prior to making the
distribution unless (i) the Committee clearly informs the Participant of his
or her right to at least 30 days to consider his or her decision, (ii) the
Participant, after receiving the notice, affirmatively elects the
distribution and (iii) the distribution is not one to which Sections
401(a)(11) and 417 of the Code apply.
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Section 15. HOW YOUR PLAN BENEFIT WILL BE DISTRIBUTED.
(a) Distribution of your Plan Benefit will be made by the Trustee in
cash or Company Stock. The Committee will initially determine whether the
distribution is to be in cash or Company Stock or some combination thereof.
(1) If the Committee decides to make distribution only in
Qualifying Employer Securities, distribution will be made
entirely in whole shares of Qualifying Employer Securities
except that the value of any fractional share may be paid in
cash. Any balance in your Other Investments Account will be
used to acquire for distribution to you the maximum number
of whole shares of Qualifying Employer Securities at the
then fair market value, and any unexpended balance will be
distributed to you in cash.
(2) If the Committee decides to make distribution in cash or in
some combination of cash or other securities and shares that
constitute Qualifying Employer Securities, it will notify
you prior to making distribution of the value of your Plan
Benefit and of its intention to distribute entirely or
partially in cash or other securities. At that time, you
will have the right to have your Plan Benefit distributed
entirely in Qualifying Employer Securities as described
above in Paragraph (1). The notice from the Committee will
tell you how to exercise this right. If you fail to notify
the Committee of your desire to receive Qualifying Employer
Securities within twenty (20) days from the date of the
Committee's notice to you, distribution will be made in cash
or other securities, or in a combination of cash or other
securities and shares that constitute Qualifying Employer
Securities, as determined by the Committee. Shares in your
Company Stock Account will be acquired from you, as
determined by the Committee, (i) with funds in the Trust
that have not been allocated to Participants' Other
Investments Accounts, (ii) with funds in other Participants'
Other Investments
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Accounts, or (iii) by the sale of such shares to the Company
or to any other person or entity pursuant to the provisions
of Section 6(d).
(3) If the charter or bylaws of the Company restrict the
ownership of substantially all outstanding Qualifying
Employer Securities to Employees or a qualified employees'
trust, the Committee may decide to make distribution only in
cash or other securities, in which case the distributes will
not have the right to have any portion of his or her Plan
Benefit distributed in Qualifying Employer Securities. In
such a case, shares in your Company Stock Account will be
acquired from you, as determined by the Committee, (i) with
funds in the Trust that have not been allocated to
Participants' Other Investments Accounts (ii) with funds in
other Participants' Other Investments Accounts, or (iii) by
the sale of such shares to the Company or to any other
person or entity pursuant to the provisions of Section 6(d).
(4) If more than one class of shares of Company Stock acquired
in a financed purchase has been allocated to a Participant's
Company Stock Account and any of said shares is to be
distributed hereunder, the distribution shall be made in the
shares of each class in the same proportion as such shares
are in the Company Stock Account.
(5) Any shares of Company Stock distributed pursuant to the
provisions of paragraphs (1) or (2) above will be subject to
the put option provisions of Section 16(b).
(b) The Trustee will make distribution from the Trust only on
instructions from the Committee. Distribution will be made at the times
specified in Section 14.
(c) Distribution will be made to you if living, and if not, to your
Beneficiary. If you fail to designate a Beneficiary, or if you have no
Beneficiary living at the time of your death, or if your designation of a
Beneficiary is not effective for any
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reason as determined by the Committee, distribution will be made in the
following order of priority: (1) to your spouse, (2) to the surviving children
of the Participant in equal shares; and (3) to the person or persons who would
be the heirs of the Participant under the laws of the state of the Participant's
residence at the time of death. The determination in a community property state
shall be made in accordance with the law relating to the succession of separate
property not acquired from a predeceased spouse. In the event a Beneficiary
dies prior to the receipt of the entire death benefit the balance of the death
benefit shall be payable to the secondary Beneficiary designated by the
Participant or, if none, to the person in the next order of priority hereunder.
A Beneficiary may disclaim all or any portion of the benefits under the Plan in
favor of the Beneficiary(ies) in the next order of priority.
(d) You should designate your Beneficiary as soon as you become a
Participant and keep your designation current by filing a new written
designation with the Committee whenever you want to change your Beneficiary. If
you are married, your Beneficiary must be your spouse unless your spouse
consents in writing to some other Beneficiary. Your designation of a
Beneficiary may be changed or revoked by you at any time. However, your
designation may be changed or revoked only with the written consent of your
spouse. If the spouse who consented to some other Beneficiary or to a change or
revocation of a Beneficiary designation is not your spouse at the time of your
death, spousal
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consent shall not be deemed to have been given unless the new spouse gives
consent as provided in this subsection. Such designation and any change or
revocation thereof (1) shall be made on forms made available to you by the
Committee, (2) if your spouse's consent IS required, such written consent must
acknowledge that the spouse has a right to limit consent to a specific
beneficiary or specific form of benefit, be witnessed by a representative of the
Committee or a notary public, and (3) shall become effective at the time that
they are filed with the Committee. If the Committee determines that a person
entitled to any distribution is physically unable or mentally incompetent to
handle such distribution, it may direct the Trustee to apply such distribution
for such person's benefit.
(e) The Committee shall make a reasonable effort to locate you, your
Beneficiary, spouse, next of kin or other heir. If the Committee cannot locate
any of the foregoing within three (3) years after such distribution is due, such
distribution shall be treated as a Forfeiture and disposed of as provided in
Section 7 as of the Anniversary Date next following the end of the three (3)
year period. However, if, after such disposition is made, the person entitled
to such distribution makes a claim for it, said forfeited amount shall be
reinstated and paid to such person as soon possible after such person
establishes his or her right to such distribution. In such event, the Company
shall contribute to the Trust any funds necessary in order for the Trust to
distribute said reinstated amount.
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(f) Transactions involving shares of Company Stock, including
distribution, purchases and sales, shall be made only in compliance with
applicable federal and state securities laws. Where necessary in order to comply
with such laws or the provisions of the Plan, (i) shares of Company Stock
distributable hereunder must be acquired for investment and not with a view to a
public distribution thereof, (ii) the distributee shall make a written
representation to such effect, and (iii) an appropriate legend shall be placed
on any stock certificate delivered to the distributee.
(g) Notwithstanding any provision of the Plan to the contrary, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover. The terms used in this Subsection are defined as follows:
(i) An "eligible rollover distribution" is any distribution of
all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series
of substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint
life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
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(ii) An "eligible retirement plan" is an individual retirement
account described in Section 408 (a) of the Code, an
individual retirement annuity described in Section 408(b)
of the Code, an annuity plan described in Section 403(a) of
the Code, or a qualified trust described in Section 401(a)
of the Code, that accepts the distributee's eligible
rollover distribution. However in the case of an eligible
rollover distribution to the surviving spouse of a
distributes, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(iii) A "distributee" includes an Employee or former
Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's former spouse who is the alternate
payee under a Qualified Domestic Relations Order are
distributees with regard to the interest of the
spouse or former spouse.
(iv) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
Section 16. RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK.
(a) Shares of Company Stock distributed to you may, as determined by
the Company or the Committee in a uniform nondiscriminatory manner, be subject
to a "right of first refusal." Such a "right" shall provide that prior to any
sale, transfer, pledge or other disposition of such shares to a prospective
buyer or transferee other than the Trust or an Employer by either you, your
Beneficiary, spouse, next of kin or other heir, or by any transferee or
successor transferee of any of the foregoing, the shares must first be offered
by written offer to the Company and
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then, if refused by the Company, to the Trust at the selling price. The "right
of first refusal" will be subject to the following provisions:
(1) In the case of a prospective buyer, the selling price and
other terms shall be the greater of (i) the fair market
value of the Company Stock, as determined under Section
6(c), and (ii) the purchase price and other terms offered by
the prospective buyer in a good faith written offer. The
selling price in the event of a prospective transferee for
less than a fair consideration, as determined by the
Committee in a uniform nondiscriminatory manner, shall be
the fair market value of such Company Stock, as determined
by the Committee as provided in Section 6(c).
(2) The "right" shall also provide that the Company or the
Trust, as the case may be, may purchase all or part of such
shares at such selling price, upon written notice given to
you within a period of fourteen (14) days after you give
written notice to the Committee as described above.
However, the Trust may not purchase such shares where the
selling price is in excess of said fair market value. Any
shares which are not purchased by either the Company or the
Trust within the fourteen (14) day period may be sold,
transferred, pledged or otherwise disposed of upon the terms
and conditions specified in the written offer to the Company
and Trust during the thirty (30) day period following the
end of the fourteen (14) day period.
(3) After the shares are sold, transferred, pledged or otherwise
disposed of or the expiration of the thirty (30) day period,
the shares will again be subject to the "right of first
refusal" described above.
(b) At the time when the shares of Company Stock are distributed, the
distributee will have an option to "put" the shares to the Company. The "put"
option will provide that the
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distributee will have the right to require the Company to purchase such shares
from the distributee at their fair market value. Instead of the Company
purchasing the shares, the Trustee, as directed by the Committee, may offer to
purchase the shares from the distributee and agree to pay the purchase price.
Regardless of who offers to buy the shares, the "put" option will be exercisable
by written notice from the distributee to the Committee. The "put" option will
be administered according to the following provisions:
(1) A distributee will be deemed to be any Participant and his
Beneficiaries, a Participant's donees, any person to whom
the Company Stock passes by reason of a Participant's death
and any trustee of an individual retirement account (IRA) or
other qualified retirement trust.
(2) The "put" option period shall be for sixty (60) days after
such shares are distributed. However, the sixty (60) day
period will be extended to the extent of any time during
which the Company is prohibited by state or federal law from
honoring the "put" option. If the distributee does not
exercise the "put" option within the sixty (60) day period,
the option will temporarily lapse. After the end of the
Plan Year in which the option lapses, the fair market value
of Company Stock will be determined as provided in Section 6
(c). After the fair market value has been determined, all
distributees who did not exercise the "put" option during
the sixty (60) day option period will be notified of the new
fair market value. Each of these distributees will have an
additional "put" option for sixty (60) days beginning as of
the date that such notice is delivered or mailed to the
distributee. During this sixty (60) day period, the
distributee will have the right to require the Company to
purchase the shares at the new fair market value.
(3) Fair market value will be determined by the Committee, as
described in Section 6 (c), as
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Stock which was originally acquired by the Trust as a financed purchase of
Company Stock, as described in Section 6(b) which comes within the definition
of a loan as described in Section 4975(d) (3) of the Code and the regulations
thereunder, shall not be subject to any put, call or other option, or buy-sell
or similar arrangement. This requirement applies to such Company Stock while
held by and after it is distributed from the Trust. In addition, this
requirement is non-terminable and will continue to apply to such Company Stock
even after the financing is paid and even if the Plan ceases to be an employee
stock ownership plan as described in Section 4975(e)(7) of the Code.
Section 17. INTERMEDIATE AND PARTIAL DISTRIBUTION.
(a) Except as otherwise provided in this Section 17, you are not
entitled to any payment, withdrawal or distribution under the Plan during your
participation; nor may your interest in the Plan as a Participant, or after your
participation has ended, or that of your Beneficiary, be assigned or alienated,
whether voluntarily or involuntarily, or by operation of law.
(b) Any cash dividends on Company Stock held of record by the Trust
and allocated to your Company Stock Account may, as determined in the sole
discretion of the Committee be distributed in cash to you at any time after
receipt thereof by the Trust but not later than 90 days after the end of the
Plan Year during which said cash dividends were received by the Trust.
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(c) To mitigate any financial hardship to you after your Service has
ended and before your Plan Benefit is distributable, the Committee may direct
the Trustee to advance to you or to your Beneficiary a partial distribution not
to exceed one-half of your Plan Benefit as then estimated by the Committee. If
any such partial distribution is made, it will be made in Company Stock or cash,
as described in Section 15, and your Plan Benefit when computed will be reduced
by the amount of any such advance.
(d) If the Committee receives a Domestic Relations order with respect
to the Plan Benefit of a Participant, the Committee shall determine whether it
is a Qualified Domestic Relations Order as defined in Section 414(p) of the
Code. If it satisfies said definition, the Committee shall instruct the Trustee
as to payment and shall take any other appropriate action necessary to comply
with said Order. Notwithstanding anything contained in this Plan to the
contrary, a Qualified Domestic Relations Order can specifically state that
benefits shall be paid at a time when such benefits are not payable to a
Participant because the Participant has not retired or separated from Service.
In the case of any payment before the Participant has separated from Service, a
Domestic Relations Order will not be treated as failing the requirement for a
Qualified Domestic Relations Order merely because the payments must begin on or
after the date on which the Participant reaches the earliest retirement age
under the Plan.
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Section 18. ADMINISTRATION.
(a) The Plan will be administered by a Committee composed of three
(3) individuals appointed by the Board of Directors of the Company (or such
other number as may be determined from time to time by the Board of Directors of
the Company) to serve at its pleasure and without compensation. The Committee
may employ investment advisors, accountants, legal counsel, consultants and any
other person or organizations to assist it in the performance of its duties
under the Plan. All reasonable expenses thereof shall be paid as provided in
Section 8.
(b) Committee action shall be by vote of a majority of its members at
a meeting or in writing without a meeting. Minutes of each meeting shall be
kept. The Committee may establish such rules as may be necessary or desirable
for its own operations.
(c) The Committee shall administer the Plan in a uniform
nondiscriminatory manner for the exclusive benefit of the Participants and their
Beneficiaries. The Committee shall establish and maintain Accounts and records
to record the interest of each Participant, Inactive Participant and their
respective Beneficiaries in the Plan. The Committee shall administer the Plan
in accordance with its terms and shall have the power and discretion to construe
the terms of the Plan and determine all questions arising in connection with the
administration, interpretation and application of the Plan. The Committee shall
make such rules, regulations, interpretations, discussions and computations as
may be necessary. Its decision on all individual
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matters will be final. It shall be a "named fiduciary" within the meaning of
Section 402 of ERISA; however, the Company is the "plan administrator" within
the meaning of Section 414 (g) of the Code and Section 3(16) of ERISA.
(d) In the event that a Participant or Beneficiary makes an
application for payment of benefits under the Plan, such application shall be
acted upon by the Committee within sixty (60) days after its receipt. In the
event that any application is denied, in whole or in part, the Committee shall
notify the applicant in writing of such denial and of his right to review by the
Committee. Such written notice shall contain the specific reasons for the
denial, specific references to pertinent Plan provisions, a description of any
additional material or information necessary to perfect the claim, an
explanation of why such material or information is needed and an explanation of
the Plan's review procedure. The written notice shall be written in a manner
reasonably calculated to be understood by the applicant. The applicant shall
have sixty (60) days after receipt of such written notice in which to request a
review. The decision by the Committee upon review must be issued within sixty
(60) days after receipt of the request for review.
(e) The Committee shall have all powers which are reasonably
necessary to carry out its responsibilities under the Plan. It may act as
provided herein and shall give instructions to the Trustee on all matters within
its discretion as provided in the Plan and Trust Agreement.
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(f) The Company shall indemnify each member of the Committee and any
other fiduciary of the Plan duly appointed by the Board of Directors of the
Company against any personal liability or expense except for his own gross
negligence or wilful misconduct. The Company shall obtain and maintain in
effect fiduciary liability insurance covering each member of the Committee in
amounts as determined by the Committee sufficient to cover any liability or
costs which could arise from their serving as members of the Committee.
Section 19. GUARANTEES.
All Plan Benefits will be paid only from the Trust assets, and neither
the Company nor any Employer nor the Committee nor the Trustee shall have any
duty or liability to furnish the Trust with any funds, securities or other
assets except as expressly provided in the Plan. Nothing herein shall be
construed to obligate any Employer, Affiliated Company or Subsidiary Corporation
to continue to employ any Employee.
Section 20. FUTURE OF THE PLAN.
(a) The Company reserves the right to terminate the Plan and Trust in
the event of failure of the Internal Revenue Service, after application
initially, to determine that the Plan and the Trust meet the requirements of
Section 401(a) of the Code. In that event, provided that the rejected
application for a determination letter was made during the time prescribed by
law for
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filing the Company's U.S. income tax return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the Treasury may
prescribe, all contributions, together with any income received or accrued
thereon, less any benefits or expenses paid, shall, upon written direction of
the Company, be returned to the Company, notwithstanding the provision of the
Trust Agreement, and the Trust shall then terminate.
(b) The Company specifically reserves the right to amend the Plan and
Trust Agreement retroactively to their effective dates in order initially to
meet the requirements of Section 401 (a) of the Code.
(c) As future conditions cannot be foreseen, the Company reserves the
right to amend or terminate this Plan at any time. Any amendment or termination
of this Plan shall be accomplished by written resolution of the Board of
Directors of the Company. Neither amendment nor termination shall retroactively
reduce the rights of Participants nor permit any part of the Trust assets to be
diverted or used for any purpose other than for the exclusive benefit of the
Participants and their Beneficiaries.
(d) In the event that the Plan is merged or consolidated with, or the
assets or liabilities of the Plan are transferred to, any other plan, your Plan
Benefit immediately after the merger, consolidation or transfer will (if the
Plan is then terminated) be equal to or greater than the Plan Benefit which you
would have been entitled to receive immediately before the merger, consolidation
or transfer (if the Plan was then terminated).
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(e) If the Plan is completely terminated, or partially terminated as
it affects you, your participation will end on the Anniversary Date coinciding
with or next following such termination. In the event of a complete termination
of the Plan, or a partial termination of the Plan which affects you, or in the
event of a complete discontinuance of Employer Contributions to the Plan, your
entire interest in the Plan will become nonforfeitable. In the event of a
termination of the Plan or a conversion of the Plan into a type of qualified
employee benefit plan which is not designed to be invested in Company Stock,
provided that the Committee determines that a sale of Company Stock is for the
primary benefit of the Participants and their Beneficiaries, the Committee may
direct the Trustee to sell shares of Company Stock under the provisions of
Section 6(d). After termination of the Plan, the Committee and the Trust will
continue until the Plan Benefit of each Participant has been distributed. Plan
Benefits will be distributed promptly after they are computed or distribution
will be deferred as provided in Section 14, as the Committee may direct.
Section 21. OTHER PROVISIONS.
(a) The provisions of this Plan shall be construed, administered and
enforced according to the laws of the United States and the State of Oregon.
All contributions to the Trust shall be deemed to take place in the State of
Oregon.
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(b) It is intended that this Plan be a qualified stock bonus plan
under Section 401(a) of the Code and an employee stock ownership plan as defined
in Section 4975(e)(7) of the Code. Any interpretation or construction hereto
shall be made so as to effectuate such intent.
Section 22. EXECUTION.
To record the adoption of this Plan, the Company has caused its
appropriate officers to affix its corporate name and seal hereto this 29 day of
June, 1995.
CLAREMONT TECHNOLOGY GROUP, INC.
By Paul G. Mardesich
------------------------------
Vice President
[SEAL]
By William. C. Campbell
------------------------------
Secretary
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Exhibit 10.15
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[Logo] BANK OF AMERICA OREGON BUSINESS LOAN AGREEMENT
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This Agreement dated as of April 24, 1995 is between Bank of America Oregon (the
"Bank") and Claremont Technology Group, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 1 Commitment") is Two Million Dollars ($2,000,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Facility 1 Commitment.
1.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and August 1,
1996 (the "Facility 1 Expiration Date") unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Reference Rate plus .25 percentage point.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by Bank of America National Trust and Savings Association ("BofA
California") in San Francisco, California, as its Reference Rate. The
Reference Rate is set based on various factors, including BofA California's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. The Bank may
price loans to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the
Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1995, and then monthly thereafter
until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Facility 1 Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the first day of
every month and on the last day of each
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interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
1.6 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the LIBOR Rate plus 2
percentage points.
Designation of a LIBOR Rate portion is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in effect will be
30, 60, 90, 180, or 365 days. The last day of the interest period will be
determined by the Bank using the practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than One Hundred
Thousand Dollars ($100,000).
(c) The Borrower shall irrevocably request a LIBOR Rate portion no later than
9:00 a. m. San Francisco time three (3) banking days before the
commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
LIBOR Rate = London Rate
___________________________
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the nearest
1/16th of one percent) at which the Bank of America NT & SA'S London
Branch, London, Great Britain, would offer U.S. dollar deposits for
the applicable interest period to other major banks in the London
inter-bank market at approximately 11:00 a. m. London time two (2)
banking days before the commencement of the interest period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will be expressed
as a decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.
(e) The Borrower may not elect a LIBOR Rate with respect to any portion of the
principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(f) Any portion of the principal balance of the line of credit already bearing
interest at the LIBOR Rate will not be converted to a different rate during
its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the London inter-bank
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such portion.
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(h) The Bank will have no obligation to accept an election for a LIBOR Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of a LIBOR Rate portion are not available in
the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
portion.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 2 Commitment") is Five Hundred Thousand Dollars ($500,000). Each
advance shall be used to purchase equipment for use in the Borrower's
business. All equipment acquired with the proceeds of such advances shall
be free and clear of any security interests, liens, encumbrances or rights
of others except the security interests of the Bank under any security
agreements required under this Agreement. Each request for an advance
shall be accompanied by a copy of the purchase order or invoice for the
equipment to be purchased with the proceeds of the advance. The amount of
each advance shall not exceed 80% of the purchase price of such equipment.
(b) This is a non-revolving line of credit with a term repayment option. Any
amount borrowed, even if repaid before the end of the availability period,
permanently reduces the remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Facility 2 Commitment.
2.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and
August 1, 1996 (the "Facility 2 Expiration Date") unless the Borrower is in
default.
2.3 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Reference Rate plus .5 percentage
point.
2.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1995, and then monthly thereafter
until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay principal in 36 successive equal monthly
installments starting September 1, 1996. On August 1, 1999, the Borrower
will repay the remaining principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this subparagraph (b) above.
2.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period and during the term repayment period)
bear interest at the rate(s) described below during an interest period agreed to
by the Bank and the Borrower. Each interest rate is a rate per year. Interest
will be paid on the first day of every month and on the last day of each
interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
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2.6 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Long Term Rate,
subject to the following requirements:
(a) The interest period during which the Long Term Rate will be in effect will
be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One Hundred
Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the line of credit already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking days
in advance of the prepayment. All prepayments of principal on the Long
Term Rate portion will be applied on the most remote principal installment
or installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all accrued
interest on the amount of the prepayment and the prepayment fee described
below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following
rate:
(A) If the Original Payment Date is more than 5 years after the
date of prepayment: the Treasury Rate plus one-quarter of one
percentage point;
(B) If the Original Payment Date is 5 years or less after the date
of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than zero,
the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the prepayment fee for that
Prepaid Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by the
Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid Installment
in the Money Market from the date of prepayment through the Original
Payment Date.
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"Original Payment Dates" mean the dates on which principal of the Long Term
Rate portion would have been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the Long
Term Rate portion which would have been paid on a single Original Payment
Date.
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect the
compounding, accrual basis, or other costs of the Long Term Rate portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be based on
information from either the TELERATE or REUTERS information services,
THE WALL STREET JOURNAL, or other information sources the Bank deems
appropriate.
3. FACILITY NO. 3: LINE OF CREDIT AMOUNT AND TERMS
3.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 3 Commitment") is Two Million Dollars ($2,000,000). Each advance
shall be provided to Nominee Borrowers, each of whom shall be an officer of
the Borrower. The Nominee Borrowers shall execute documents evidencing
their indebtedness directly to the Bank in form and content satisfactory to
the Bank. The Borrower shall guaranty the indebtedness of the Nominee
Borrowers. The Borrower's guaranty shall be approved by appropriate action
of the Borrower's Board of Directors. The proceeds shall be used solely
for the purchase of common stock of the Borrower.
(b) This is a non-revolving line of credit with an option to repay in multiple
term loans. Any amount borrowed, even if repaid before the end of the
availability period, permanently reduces the remaining available line of
credit.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Facility 3 Commitment.
3.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and August 1,
1995 (the "Facility 3 Expiration Date") unless the Borrower is in default.
3.3 INTEREST RATE.
(a) The interest rate is the Reference Rate plus 1 percentage point.
3.4 REPAYMENT TERMS.
(a) The Borrower will repay principal, interest and any other amounts due, upon
demand by the Bank, in the event of any default by a Nominee Borrower.
(b) The Borrower may prepay each term loan in full or in part at any time.
Each prepayment will be applied to the most remote installment of principal
due under such term loan.
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3.5 NOMINEE BORROWERS. At the Bank's sole option, during the availability
period described in 3.2 above, the Borrower may designate certain individuals,
each of whom shall be an Executive or officer of the Borrower, to whom the Bank
may provide a 36 month term loan. The amount of any extension of credit to a
Nominee Borrower shall reduce the amount of the Facility 3 Commitment. Each
such Nominee Borrower shall execute a note and any other documents required by
the Bank, all in form and substance satisfactory to the Bank, evidencing each
term loan. Each note and term loan shall be guaranteed by the Borrower.
3.6 NOMINEE BORROWER TERMS. The Bank and each Nominee Borrower shall execute a
note and any other documents required by the Bank. The documents shall provide
that the term of each term loan shall not exceed 36 months. The Borrower will
be required to make periodic interest payments and periodic defined principal
reductions. The term loans to the Nominee Borrowers shall be unsecured but will
be supported by a guaranty of the Borrower.
4. FEES AND EXPENSES
4.1 FEES.
(a) LOAN FEE. The Borrower agrees to pay:
(i) a Two Thousand Five Hundred Dollar ($2,500) fee for Facility 1, due
upon execution of this Agreement;
(ii) a Two Thousand Five Hundred Dollar ($2,500) fee for Facility 2 due
upon execution of this Agreement; and
(iii) if the total amount advanced under Facility 3 is less than One
Million Five Hundred Thousand Dollars ($1,500,000) in the aggregate, a fee
equal to .75% of the aggregate amount advanced or if the total amount
advanced under Facility 3 is more than One Million Five Hundred Thousand
Dollars ($1,500,000) in the aggregate, a fee equal to .65% of the aggregate
amount advanced. Such fee shall be due upon the day funds are advanced.
4.2 EXPENSES.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(c) The Borrower agrees to reimburse the Bank for the cost of periodic audits
and appraisals of the personal property collateral securing this Agreement,
at such intervals as the Bank may reasonably require. The audits and
appraisals may be performed by employees of the Bank or by independent
appraisers.
5. COLLATERAL
5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will
own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other
present and future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the federal Truth in Lending law, unless the
Borrower has otherwise agreed in writing). All personal property collateral
securing any other present or future obligations of the Borrower to the Bank
shall also secure this Agreement.
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(a) Machinery and equipment.
(b) Receivables.
5.2 CASH COLLATERAL (FACILITY 3). If the aggregate principal balance
outstanding on the term loans described in 3.1 above on August 10, 1996 exceeds
80% of the original aggregate balance of the term loans or if the aggregate
principal balance outstanding on the term loans on August 10, 1997 exceeds 60%
of the original aggregate balance of the term loans, the Borrower shall provide
the Bank with cash collateral equal to the amount of the difference. The
Borrower agrees to execute any documents which the Bank may require in order to
perfect the Bank's security interest in such collateral.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
6.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or for
the designation of optional interest rates given by the individual
signer(s) of this Agreement or a person or persons authorized by the
signer(s) of this Agreement on Facility 1 and Facility 2.
(b) Advances on Facility 1 and Facility 2 will be deposited in and repayments
will be withdrawn from the Borrower's account number_________, or such
other accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) for, from and against all liability, loss, and costs
in connection with any act resulting from telephone instructions it
reasonably believes are made by a signer of this Agreement or a person
authorized by a signer. This indemnity and excuse will survive this
Agreement's termination.
6.4 DIRECT DEBIT (PRE-BILLING)
(a) The Borrower agrees that the Bank will debit the Borrower's deposit account
number__________(the "Designated Account") on the date each payment of
principal and interest and any fees from the Borrower becomes due (the "Due
Date"). If the Due Date is not a banking day, the Designated Account will
be debited on the next banking day.
(b) Approximately 5 days prior to each Due Date on the Facility 1 and Facility
2 Commitments, the Bank will mail to the Borrower a statement of the
amounts that will be due on that Due Date (the "Billed Amount"). The
calculation will be made on the assumption that no new extensions of credit
or payments will be made between the date of the billing statement and the
Due Date, and that there will be no changes in the applicable interest
rate.
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<PAGE>
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following Due Date will be increased by the amount of
the discrepancy. The Borrower will not be in default by reason of
any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The
Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this Agreement,
the debit will be reversed.
6.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for business in California. For amounts
bearing interest at a LIBOR rate (if any), a banking day is a day other than a
Saturday or a Sunday on which the BofA California is open for business in New
York, London and California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day. All payments received on a day which is not a banking
day will be applied to the credit on the next banking day.
6.6 TAXES. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes or charges on any
payments made by the Borrower, the Borrower will pay the taxes or charges. Upon
request by the Bank, the Borrower will confirm that it has paid the taxes by
giving the Bank official tax receipts (or notarized copies) within 30 days after
the due date. However, the Borrower will not pay the Bank's net income taxes.
6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
6.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
6.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Reference Rate plus 1 percentage point. This
may result in compounding of interest.
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6.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 1 percentage point higher
than the rate of interest otherwise provided under this Agreement. This will
not constitute a waiver of any event of default.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
7.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
7.2 SECURITY AGREEMENTS. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
7.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
7.4 INSURANCE. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
7.5 BORROWER'S GUARANTY. Guaranty signed by the Borrower for each Nominee
Borrower in the amount of the extension of credit to each Nominee Borrower.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in fall,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, including the guaranty of loans to Nominee Borrowers, are within the
Borrower's powers, have been duly authorized, and do not conflict with any of
its organizational papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in existence and in good standing, and, where required, in
compliance with fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information that has been
or will be supplied to the Bank, including the Borrower's financial statement
dated as of January 31,1995, is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
financial condition.
(b) in form and content required by the Bank.
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(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the
Borrower.
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
8.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
8.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict with the rights
of others.
8.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
8.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
8.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
9.1 USE OF PROCEEDS.
(a) To use the proceeds of the Facility 1 credit only for working capital.
(b) To use the proceeds of the Facility 2 credit only for equipment purchases.
(c) To use the proceeds of the Facility 3 credit only for Nominee Borrower term
loans.
9.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to
the Bank. The statements shall be prepared on a consolidated basis and
shall be accompanied by the Borrower's certificate of compliance in form
and content acceptable to the Bank.
(b) Within 30 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated basis and shall be
accompanied by the Borrower's certificate of compliance in form and content
acceptable to the Bank.
(c) Statements showing an aging and reconciliation of the Borrower's
receivables within 30 days after the end of each quarter.
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(d) A statement showing an aging of accounts payable within 30 days after the
end of each quarter.
9.3 CURRENT RATIO. To maintain on a consolidated basis a ratio of current
assets to current liabilities of at least 1.45:1.00.
For the purposes of this paragraph current assets shall consist of (i) cash,
(ii) trade receivables, (iii) revenue earned in excess of billings and (iv)
prepaid expenses.
9.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net worth
equal to at least Two Million Five Hundred Thousand Dollars ($2,500,000).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
9.5 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank.
9.6 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
9.7 LOANS TO OFFICERS. Not to make any loans, advances or other extensions of
credit (excluding those term loans provided for under the Facility 3 Commitment)
to any of the Borrower's executives, officers, or directors or shareholders (or
any relatives of any of the foregoing) in an amount which exceeds Twenty
Thousand Dollars ($20,000) in the aggregate.
9.8 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars ($250,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the Borrower's name, address or legal structure.
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9.9 BOOKS AND RECORDS. To maintain adequate books and records.
9.10 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
9.11 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
9.12 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
9.13 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
9.14 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
9.15 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
9.16 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss
of use and occupancy) to any of the Borrower's properties, public liability
insurance including coverage for contractual liability, product liability
and workers' compensation, and any other insurance which is usual for the
Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.17 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market value, or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
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10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement will
automatically become due immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
10.2 NON-COMPLIANCE. The Borrower fails to meet the conditions of, or fails to
perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower has with the Bank or any affiliate of the
Bank.
10.3 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower has obtained from anyone else or which the Borrower has
guaranteed.
10.4 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
10.5 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
10.6 BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower, or the Borrower makes a general
assignment for the benefit of creditors.
10.7 RECEIVERS. A receiver or similar official is appointed for the Borrower's
business, or the business is terminated.
10.8 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more in excess of any insurance coverage.
10.9 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower; or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more in excess of any insurance coverage.
10.10 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's financial condition or
ability to repay.
10.11 DEFAULT UNDER GUARANTY OR SUBORDINATION AGREEMENT. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
10.12 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition, properties or prospects, or ability to repay the
loan.
10.13 NOMINEE BORROWER DEFAULT. Any Nominee Borrower fails to make any payment
when due under any term loan as described in Article 3 of this Agreement.
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11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 OREGON LAW. This Agreement is governed by Oregon law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration..
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
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(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for provisional, interim, additional
or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.6 COSTS. If the Bank incurs any expenses in connection with enforcing this
Agreement or administering this Agreement (including in connection with
extending, amending, renewing or modifying this Agreement), or if the Bank takes
collection action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
11.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator
(and not by a jury). Such costs and attorneys' fees shall include, without
limitation, those incurred on any appeal, as determined by the appellate court,
and any anticipated costs and attorneys' fees to pursue or collect any
judgement.
11.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 EXCHANGE OF INFORMATION. The Borrower agrees that the Bank may exchange
financial information about the Borrower with BankAmerica Corporation affiliates
and other related entities.
11.10 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
11.11 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
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11.12 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.13 WRITTEN AGREEMENTS. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY THAT BANK TO BE ENFORCEABLE.
This Agreement is executed as of the date stated at the top of the first page.
[Logo]
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By: Terry D. Murphy
Title: Assistant Vice President Title: Assistant Secretary
X
----------------------------------
By: Kurt Wollenberg
Title: Senior Vice President
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER
ARE TO BE SENT ARE TO BE SENT
Oregon Commercial Banking #2090 1600 NW Compton Drive
P. O. Box 6400 Beaverton, Oregon 97006
Portland, Oregon 97228
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[Logo] BANK OF AMERICA AMENDMENT TO DOCUMENTS
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AMENDMENT NO. 1 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of August 1, 1995, is
between Bank of America Oregon (the "Bank") and Claremont Technology Group, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 24, 1995 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 To add Paragraph l.7 for a within line facility for a Standby
Letter of Credit.
1.7 LETTERS OF CREDIT. At the request of Borrower, between the
date of this Agreement and August 1, 1996 (the "Expiration
Date"), the Bank will issue a standby letter of credit with
a maximum maturity of 180 days beyond the Expiration Date.
2.2 To add Paragraph 1.8.
1.8 AMOUNT. The amount of the letter of credit may not exceed
One Hundred Twenty Five Thousand Dollars ($125,000).
2.3 To add Paragraph 1.9.
1.9 OTHER TERMS. The Borrower agrees:
(a) if there is a default under this Agreement, to
immediately prepay and make the Bank whole for any
outstanding letters of credit.
(b) the issuance of any letter of credit is subject to the
Bank's express approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(c) to sign the Bank's form Application and Agreement for
Standby Letter of Credit.
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(d) to pay any issuance and/or other fees that the Bank
notifies the Borrower will be charged for issuing and
processing letters of credit for the Borrower.
(e) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other
charges.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By: Terry D. Murphy
Title: Vice President Title: V.P. Finance, CFO
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[Logo] BANK OF AMERICA AMENDMENT TO DOCUMENTS
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AMENDMENT NO. 2 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of September 1, 1995, is
between Bank of America Oregon (the "Bank") and Claremont Technology Group, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 24, 1995, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 A new Article 3A is hereby added to the Agreement as follows:
3A. FACILITY NO. 4: LINE OF CREDIT AMOUNT AND TERMS
3A.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 4 Commitment") is Five Hundred Thousand Dollars ($500,000). Each
advance shall be used to purchase equipment for use in the Borrower's
business. All equipment acquired with the proceeds of such advances shall
be free and clear of any security interests, liens, encumbrances or rights
of others except the security interests of the Bank under any security
agreements required under this Agreement. Each request for an advance
shall be accompanied by a copy of the purchase order or invoice for the
equipment to be purchased with the proceeds of the advance. The amount of
each advance shall not exceed 80% of the purchase price of such equipment.
(b) This is a non-revolving line of credit with a term repayment option. Any
amount borrowed, even if repaid before the end of the availability period,
permanently reduces the remaining available line of credit.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Facility 4 Commitment.
3A.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and August 1,
1996 (the "Expiration Date") unless the Borrower is in default.
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3A.3 INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate as described below,
the interest rate is the Reference Rate plus .5 percentage point.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by Bank of America National Trust and Savings Association ("BofA
California") in San Francisco, California, as its Reference Rate. The
Reference Rate is set based on various factors, including BofA California's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. The Bank may
price loans to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the
Reference Rate.
3A.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on October 1, 1995, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay the principal amount outstanding on the Expiration
Date in 36 successive equal monthly installments starting September 1,
1996. On August 1, 1999, the Borrower will repay the remaining principal
balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this Agreement.
3A.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period and during the term repayment period)
bear interest at the rate(s) described below during an interest period agreed to
by the Bank and the Borrower. Each interest rate is a rate per year. Interest
will be paid on the first day of every month and on the last day of each
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
3A.6 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Long Term Rate,
subject to the following requirements:
(a) The interest period during which the Long Term Rate will be in effect will
be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One Hundred
Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the line of credit already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking
days in advance of the prepayment. All prepayments of principal on the
Long Term Rate portion will be applied on the most remote principal
installment or installments then unpaid.
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(f) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all accrued
interest on the amount of the prepayment and the prepayment fee described
below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would have
accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following
rate:
(A) If the Original Payment Date is more than 5 years after the date
of prepayment: the Treasury Rate plus one-quarter of one
percentage point;
(B) If the Original Payment Date is 5 years or less after the date
of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than zero,
the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the discounted
monthly differences is the prepayment fee for that Prepaid
Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by the
Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid Installment
in the Money Market from the date of prepayment through the Original
Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long Term
Rate portion would have been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the Long
Term Rate portion which would have been paid on a single Original Payment
Date.
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect the
compounding, accrual basis, or other costs of the Long Term Rate portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be based on
information from either the Telerate or Reuters information services, The
Wall Street Journal, or other information sources the Bank deems
appropriate.
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2.2 Add subparagraph 4.1(a)(iv) to the Agreement to read as follows:
(iv) a Two Thousand Five Hundred Dollar ($2,500) loan fee due on the day
funds are advanced under this Agreement.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the terms
and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By: Terry D. Murphy
Title: Vice President Title: VP Finance, CFO
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<PAGE>
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[Logo] BANK OF AMERICA AMENDMENT TO DOCUMENTS
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AMENDMENT NO. 3 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 3 (the "Amendment") dated as of 2/23/96, 1995, is between
Bank of America Oregon (the "Bank) and Claremont Technology Group, Inc. (the
"Borrower).
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 24, 1995, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Paragraph 9.2 of the Agreement is amended to read in its entirety
as follows.
9.2 FINANCIAL INFORMATION. To provide the following financial
information and statements and such additional information as
requested by the Bank from time to time;
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements, These financial statements must be
audited (with an unqualified opinion) by a Certified Public Accountant
("CPA") acceptable to the Bank. The statements shall be prepared on a
consolidated basis.
(b) Within 30 days of the period's end, the Borrower's quarterly
financial statements. These financial statements may be Borrower
prepared. The statements shall be prepared on a consolidated basis.
(c) Statements showing an aging and reconciliation of the Borrower's
receivables within 30 days after the end of the quarter.
(d) A statement showing an aging of accounts payable within 30 days
after the end of each quarter.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
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This Amendment is executed as of the date stated at the beginning of this
Amendment.
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By:
Title: Vice President Title:
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<PAGE>
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[Logo] BANK OF AMERICA AMENDMENT TO DOCUMENTS
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AMENDMENT NO. 4 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of March 19, 1996, is
between Bank of America Oregon (the "Bank") and Claremont Technology Group, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 24, 1995, as previously amended
(the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.1(a) of the Agreement the amount "Four Million
Dollars ($4,000,000)" is substituted for "Two Million Dollars
($2,000,000)".
2.2 In Paragraph 1.2 of the Agreement the date "August 1, 1997" is
substituted for the date "August 1, 1996".
2.3 In Paragraph 1.7 of the Agreement the date "August 1, 1997" is
substituted for the date "August 1, 1996".
2.4 A new Article 3B is hereby added to the Agreement as follows:
3B. FACILITY NO. 5: LINE OF CREDIT AMOUNT AND TERMS
3B.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount
of the line of credit (the "Facility 5 Commitment") is Two
Million Dollars ($2,000,000). Each advance shall be used to
purchase equipment for use in the Borrower's business. All
equipment acquired with the proceeds of such advances shall
be free and clear of any security interests, liens,
encumbrances or rights of others except the security
interests of the Bank under any security agreements required
under this Agreement. Each request for an advance shall be
accompanied by a copy of the purchase order or invoice for
the equipment to be purchased with the proceeds of the
advance.
(b) This is a non-revolving line of credit with a term repayment
option. Any amount borrowed, even if repaid before the end
of the availability period, permanently reduces the
remaining available line of credit.
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<PAGE>
to exceed Facility 5 Commitment.
3B.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this
Agreement and March 31, 1997 (the "Expiration Date") unless the
Borrower is in default.
3B.3 INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate as
described below, the interest rate is the Reference Rate
plus .5 percentage point.
(b) The Reference Rate is the rate of interest publicly
announced from time to time by Bank of America National
Trust and Savings Association ("BofA California") in San
Francisco, California, as its Reference Rate. The Reference
Rate is set based on various factors, including BofA
California's costs and desired return, general economic
conditions and other factors, and is used as a reference
point for pricing some loans. The Bank may price loans to
its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the
opening of business on the day specified in the public
announcement of a change in the Reference Rate.
3B.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on April 1, 1996, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
(b) The Borrower will repay the principal amount outstanding on
the Expiration Date in 36 successive equal monthly
installments starting May 1, 1997. On March 31, 2000, the
Borrower will repay the remaining principal balance plus any
interest then due.
(c) The Borrower may prepay the loan in full or in part at any
time. The prepayment win be applied to the most remote
installment of principal due under this Agreement.
3B.5 OPTIONAL INTEREST RATES. Instead of the interest rate based
on the Reference Rate, the Borrower may elect to have all or
portions of the line of credit (during the availability
period and during the term repayment period) bear interest
at the rate(s) described below during an interest period
agreed to by the Bank and the Borrower. Each interest rate
is a rate per year. Interest will be paid on the first day
of every month, the interest rate will revert to the rate
based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
3B.6 LONG TERM RATE. The Borrower may elect to have all or
portions of the principal balance of the line of credit bear
interest at the Long Term Rate, subject to the following
requirements:
(a) The interest period during which the Long Term Rate will be
in effect will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank
and the Borrower agree win apply to the portion during the
applicable interest period.
(c) Each Long Term Rate portion will be for an amount not less
than One Hundred Thousand Dollars ($100,000).
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(d) Any portion of the principal balance of the line of credit
already bearing interest at the Long Term Rate will not be
converted to a different rate during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole
or in part in the minimum amount of One Hundred Thousand
Dollars ($100,000). The Borrower will give the Bank
irrevocable written notice of the Borrower's intention to
make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at
least 5 banking days in advance of the prepayment. All
prepayments of principal on the Long Term Rate portion will
be applied on the most remote principal installment or
installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether
voluntary, by reason of acceleration or otherwise, will be
accompanied by payment of all accrued interest on the amount
of the prepayment and the prepayment fee described below.
(g) The prepayment fee will be the sum of fees calculated
separately for each Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest
which would have accrued each month for the Prepaid
Installment had it remained outstanding until the
applicable Original Payment Date, using the Long Term
Rate;
(ii) The Bank will then subtract from each monthly interest
amount determined in (i), above, the amount of
interest which would accrue for that Prepaid
Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using
the following rate:
(A) If the Original Payment Date is more than 5 years
after the date of prepayment: the Treasury Rate
plus one-quarter of one percentage point;
(B) If the Original Payment Date is 5 years or less
after the date of prepayment: the Money Market
Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is
greater than zero, the Bank will discount the monthly
differences to the date of prepayment by the rate used
in (ii) above. The sum of the discounted monthly
differences is the prepayment fee for that Prepaid
Installment.
(h) The following definitions will apply to the calculation of
the prepayment fee:
"Money Market" means the domestic certificate of deposit
market, the eurodollar deposit market or other appropriate
money market selected by the Bank.
"Money Market Rate" means the fixed interest rate per annum
which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in the Money Market from the
date of prepayment through the Original Payment Date.
"Original Payment Dates" mean the dates on which principal
of the Long Term Rate portion would have been paid if there
had been no prepayment. If a portion of the principal would
have been paid later than the end of the interest period in
effect at the time of prepayment, then the Original Payment
Date for that portion will be the last day of the interest
period.
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portion which would have been paid on a single Original
Payment Date.
"Treasury Rate" means the interest rate yield for U.S.
Government Treasury Securities which the Bank determines
could be obtained by reinvesting a specified Prepaid
Installment in such securities from the date of prepayment
through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate
to reflect the compounding, accrual basis, or other costs of
the Long Term Rate portion. Each of the rates is the Bank's
estimate only and the Bank is under no obligation to
actually reinvest any prepayment. The rates will be based
on information from either the TELERATE or REUTERS
information services, THE WALL STREET JOURNAL, or other
information sources the Bank deems appropriate.
2.5 Add subparagraph 4.1(a)(v) to the Agreement to read as follows:
(v) UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on
any difference between the Facility 1 Commitment and the
amount of credit it actually uses, determined by the
weighted average loan balance maintained during the
specified period. The fee will be calculated at .20% per
year. This fee is due on March 31, 1996, and on the last
day of each following quarter until the expiration of the
availablity period.
2.6 Add subparagraph 4.1(a)(vi) to the Agreement to read as follows:
(iv) a Five Thousand Dollar ($5,000) loan fee for Facility No. 5
due on the day funds are advanced under this Agreement.
2.7 Subparagraphs 9.2(c) and 9.2(d) are deleted in their entirety.
2.8 In Paragraph 9.3 the ratio "1.15:1.0" is substituted for the
ratio "1.45:1.0".
2.9 In Paragraph 9.4 the amount "Five Million Dollars ($5,000,000)"
is substituted for the amount "Two Million Five Hundred Thousand
Dollars ($2,500,00)".
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By: Terry D. Murphy
Title: Vice President Title: V.P. Finance
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[Logo] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 5 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 5 (the "Amendment") dated as of March 19, 1996, is
between Bank of America Oregon (the "Bank") and Claremont Technology Group, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 24, 1995, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 3B.4 of the Agreement is amended to read in its
entirety as follows:
3B.4 REPAYMENT TERMS.
(a) The Borrower will repay principal and interest in Thirty Seven
successive monthly installments of Sixty Thousand Six Hundred Fifty
Nine and 47/100 Dollars ($60,659.47) starting April 1, 1996. On April
1, 1999, the Borrower will repay the remaining principal balance plus
any interest then due.
(b) The Borrower may prepay the loan in full or in part at any time.
The prepayment will be applied to the most remote installment of
principal due under this Agreement.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
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<PAGE>
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This Amendment is executed as of the date stated at the beginning of this
Amendment.
BANK OF AMERICA OREGON CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ David Reichle X /s/ Terry D. Murphy
---------------------------------- --------------------------------------
By: David Reichle By: Terry D. Murphy
Title: Vice President Title: Vice President Finance
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<PAGE>
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND AS SUCH
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
WARRANT OR SECURITIES, OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144
PROMULGATED UNDER THE ACT OR UNLESS THE COMPANY SHALL RECEIVE AN OPINION FROM
COUNSEL TO HOLDER, REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
CLAREMONT TECHNOLOGY GROUP, INC.
Common Stock Purchase Warrant
May 20, 1996
THIS CERTIFIES THAT, for value received, DLJ Capital Corporation (the
"Holder") is entitled to purchase shares (the "Shares") of Common Stock of
Claremont Technology Group, Inc., an Oregon corporation (the "Company"), at a
price per share of $10.33 (such price and such other price as shall result, from
time to time, from adjustments specified below is referred to herein as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, the term "Common Stock" shall mean the
Company's duly authorized Common Stock, no par value, and the term "Grant Date"
shall mean the date set forth above.
1. TERM. Subject to the terms hereof, the purchase rights represented by
this Warrant are exercisable, in whole or in part, at any time and from time to
time, until the five (5) year anniversary after the Grant Date.
2. NUMBER OF SHARES. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled to purchase up to Four Hundred Thousand (400,000)
shares of Common Stock of the Company.
3. METHOD OF EXERCISE; NET ISSUE EXERCISE.
a. METHOD OF EXERCISE: PAYMENT: ISSUANCE OF NEW WARRANT. The
purchase right represented by this Warrant may be exercised by the Holder, in
whole or in part, at any time or from time to time, at the election of the
Holder, by the surrender of this Warrant (with the notice of exercise form
attached hereto as EXHIBIT A duly executed) at the principal office of the
Company and by the payment to the Company, by cash, check or wire transfer, of
an amount equal to the then applicable Warrant Price per share multiplied by the
number of Shares then being purchased.
b. NET ISSUE EXERCISE. In lieu of exercising this Warrant under
Section 3(a) above, the Holder may elect to receive shares equal to the value of
this Warrant (or the portion
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thereof being canceled) by surrender of this Warrant at the principal office of
the Company, together with notice of such election, in which event the Company
shall issue to the Holder a number of Shares computed using the following
formula:
X= Y(A-B)
_______
A
Where: X= The number of Shares to be issued to the Holder
Y= the number of Shares to be exercised under this Warrant at the
time of such exercise (which number shall not exceed the
total number of Shares exercisable under this Warrant at the
time of such tender.)
A= the fair market value of one share of Common Stock at the time of
such exercise.
B= the per share Warrant Price (as adjusted through the date of such
exercise.)
For purposes of this Paragraph 3(b), the fair market value of the Common Stock
shall be determined as follows:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's registration
statement relating to such public offering has been declared effective by the
Securities and Exchange Commission ("SEC"), then the fair market value per share
shall be the initial "Price to Public" specified in the final prospectus with
respect to the offering, or:
(ii) if this Warrant is exercised after, and not in connection
with, the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be the average of the closing prices over the ten (10) day trading
period immediately preceding three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the average of the closing bid and asked prices
quoted on the Nasdaq system (or similar system) over the ten (10) day trading
period immediately preceding three days before the day the current fair market
value of the securities is being determined.
The person or persons in whose name(s) any certificate(s) representing
Shares shall be issuable upon exercise of this Warrant shall be deemed to have
become the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the Holder as soon as possible and
in any event within fifteen (15) days of receipt of such exercise and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder as soon as possible and
in any event within such fifteen (15)-day period.
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<PAGE>
4. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of Shares to
provide for the exercise of the rights represented by this Warrant.
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of the Warrant and the Warrant Price
shall be subject to adjustment form time to time upon the occurrence of certain
events as follows:
a. RECLASSIFICATION OR MERGER. In case of any recapitalization,
reclassification, change or conversion of Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the continuing and surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall execute a new Warrant (in form and substance satisfactory to
the Holder) providing that the Holder shall have the right to exercise such new
Warrant and upon such exercise to receive, in lieu of each share of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one share of Common Stock.
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Paragraph 5. The provisions of this subparagraph 5(a) shall similarly apply to
successive reclassification, changes, mergers and transfers.
b. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price and the number of shares of Common Stock
issuable upon exercise hereof shall be proportionately adjusted such that the
aggregate exercise price of this Warrant shall at all time remain equal.
c. STOCK DIVIDENDS. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend payable in shares of Common
Stock (except any distribution specifically provided for in the foregoing
subparagraphs 5(a) and 5(b), then (i) the Warrant Price shall be adjusted, from
and after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(x) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (y) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution and (ii) the number
of shares of Common Stock subject to this Warrant shall be proportionately
adjusted.
d. NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer or assets, consolidation,
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<PAGE>
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Paragraph 5 and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder as the holder of this Warrant against
impairment.
e. NOTICES OF SIGNIFICANT EVENTS. At any time while this Warrant is
outstanding and unexpired, in the event the Company undertakes the payment of
any dividend or other distribution or a merger or consolidation of the Company
with or into any other corporation, or any proposed sale, lease or conveyance of
all or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, or any proposed amendment
to the Company's Articles of Incorporation, or any public offering of its Common
Stock excluding the proposed initial public offering of its common stock that is
being prepared as of the date hereof, the Company shall mail to the Holder, at
least twenty (20) days prior to the date of consummating such event, a notice
specifying the event and the date on which such event is then proposed to be
consummated, and before which it will not be consummated.
6. NOTICE OF ADJUSTMENTS. Whenever, while this Warrant is outstanding
and unexpired, the Warrant Price shall be adjusted pursuant to the provisions
hereof, the Company shall within thirty (30) days of such adjustment deliver a
certificate signed by its chief financial officer to the Holder as the
registered holder hereof setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price after giving effect to such
adjustment.
7. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares, the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
8. TRANSFERS. This Warrant, and all rights herein, are transferable in
whole or in part by the Holder and by any transferee thereof upon written notice
to the Company, provided that such transfer shall be in compliance with all
applicable federal and state securities laws. Any such transferee shall be
deemed a "Holder" under this Warrant.
9. RIGHTS AS SHAREHOLDER. The Holder, as the holder of the Warrant,
shall not be entitled to vote or receive dividends and shall not be deemed the
holder of Common Stock, nor shall anything contained herein be construed to
confer upon the Holder as the holder of this Warrant, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised and the shares of Common Stock
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Holder as follows:
a. The Company is a corporation duly organized and active under the
laws of the State of Oregon and has all requisite corporate power and authority
to carry on its business as now conducted.
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<PAGE>
b. This Warrant has been duly authorized by all necessary corporate
action by the Company and has been duly executed by the Company, and this
Warrant represents the valid and binding obligation of the Company enforceable
in accordance with the terms set forth herein, except as may be limited by
bankruptcy or other similar laws related to creditors' rights or equitable
remedies.
c. The Shares purchasable upon the exercise hereof have been duly
authorized and reserved for issuance by the Company and when issued in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and will be issued in compliance with all applicable federal and
state securities laws.
d. The execution and delivery of this Warrant does not, and the
issuance of the shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof will not violate or be inconsistent with the
Company's Articles of Incorporation and the Company's Bylaws, does not and will
not contravene any law, governmental rule or regulation, judgment or order
currently applicable to the Company, and does not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract,
or other instrument of which the Company is a party or by which it is bound or
require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any federal state or local
governmental authority or agency or other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder hereby
represents and warrants to the Company the following:
a. The Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant and the
Shares issuable upon exercise of this Warrant. The Holder is acquiring this
Warrant and the Shares issuable upon exercise of this Warrant for its own
account for investment purposes only and not with a view to any "distribution"
thereof that would not otherwise be in compliance with the Act.
b. The Holder understands that neither this Warrant nor the Shares
have been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Holder's investment intent as expressed herein.
c. The Holder understands that this Warrant and the Shares issuable
upon the exercise of this Warrant must be held indefinitely unless subsequently
registered under the Act and any applicable state securities laws, or unless
exemptions from registration are otherwise available.
d. The Holder is aware of the provisions of Rule 144, promulgated
under the Act, which, in substance, permits limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions.
e. Holder is an accredited investor, as that term is defined in Rule
501(a) promulgated under the Act. With respect to any offer, sale or other
disposition of this Warrant or any Shares acquired pursuant to the exercise of
this Warrant prior to registration of such Warrant or
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<PAGE>
Shares, the Holder hereof and each subsequent holder of this Warrant agrees to
(i) give written notice to the Company prior thereto, describing the manner
thereof and (ii) if requested by the Company, an opinion of counsel, reasonably
satisfactory to the Company, confirming that such offer, sale or other
disposition may be effected without registration or qualification under the Act
as then in effect or any federal or state law then in effect.
12. REGISTRATION RIGHTS. The Holder shall have the following registration
rights:
a. DEFINITIONS. For purposes of this Section 12, (i) the term
"Registrable Securities" means (x) the Shares, and (y) any Common Stock issued
as a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Shares or any Common Stock issuable upon exercise,
conversion or exchange of the Share s or any other securities issuable upon
exercise hereof, and (ii) the term "Holder" shall mean all persons or entities
owning or having the right to acquire Registrable Securities or any assignee
thereof.
b. REQUEST FOR REGISTRATION.
(i) If the Company shall receive at any time after the earlier
of (x) the second anniversary after the Grant Date, or (y) 180 days after the
effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holder that the Company file a registration statement
under the Act covering the registration of an aggregate of at least 100,000
shares of the Registrable Securities then outstanding then the Company shall
effect as soon as practicable, and in any even within 60 days of the receipt of
such request, the registration under the Act of all Registrable Securities which
the Holder requests to be registered, subject to the limitations of subsection
(b)(ii) below.
(ii) If the Holder intends to distribute the Registrable
Securities, covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to subsection (b)(i)
above. The underwriter or underwriters will be selected by the Company and
shall be reasonably acceptable to the Holder. In such event, the right of the
Holder to include its Registrable Securities in such registration shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 12(b), if the underwriter advises the Holder in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
underwriting shall be reduced; provided, however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
(iii) Notwithstanding the foregoing, if the Company shall
furnish to the Holder a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking
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<PAGE>
action with respect to such filing for a period of not more than 90 days after
receipt of the request of the Holder; provided, however, that the Company may
not utilize this right more than once in any twelve-month period.
(iv) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section
12(b):
(A) After the Company has effected two registrations
pursuant to this Section 12(b) and such registrations have been declared or
ordered effective; or
(B) The Company commits to initiate on its own the
registration of Common Stock to be issued by the Company under Section 12(c)
below within 15 days after receiving Holder's written request under subsection
(b)(i) above ("Notice"), and holds within thirty days of such Notice an
organizational meeting for such registration and effects such registration of
all such Registrable Securities covered by such Notice within 120 days of the
Notice (a "Conversion Registration").
c. COMPANY REGISTRATION. If the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holder) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan), the Company shall, at such time, promptly
give the Holder written notice of such registration. Upon the written request
of the Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 14 hereof, the Company shall, subject to the
provisions of Section 12(h), cause to be registered under the Act all of the
Registrable Securities that the Holder has requested to be registered.
Notwithstanding the foregoing, the Holder waives its notice and registration
rights under this subsection (c) with respect to the proposed initial public
offering of the Company's Common Stock that is being prepared as of the date
hereof.
d. OBLIGATIONS OF THE COMPANY. Whenever required under this Section
12 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its good faith efforts to cause
such registration statement to become effective, and upon the request of the
Holder, keep such registration statement effective for a period of up to one
hundred twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Registrable Securities owned by it.
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<PAGE>
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such U.S. jurisdictions as shall be reasonably requested by the Holder;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(v) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder at any time when a prospectus is required
to be delivered under the Act of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(vii) Cause all such Registrable Securities registered
pursuant thereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(viii) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(ix) Furnish, at the request of the Holder requesting
registration of Registrable Securities pursuant to this Section 12, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 12, if such securities
are being sold through underwriters, or if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (x) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, and (y) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holder.
e. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 12 with
respect to the Registrable Securities that the Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
reasonably required to effect the registration of the Holder's Registrable
Securities.
f. EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 12(b), including
(without limitation) all registration, filing and
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qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for the selling Holder shall be borne by the Company if such counsel is the same
as counsel for the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 12(b) if the registration request is subsequently withdrawn at the
request of the Holder (in which case Holder shall bear such expenses), unless
the Holder agrees to forfeit its right to one demand registration pursuant to
Section 12(b); provided further, however that if at the time of such withdrawal,
the Holder has learned of a material adverse change in the condition, business,
or prospects of the Company from that known to the Holder at the time of its
request and has withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holder shall
not be required to pay any of such expenses and shall retain its rights pursuant
to Section 12(b).
g. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 12(c) for the Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of one counsel
for the selling Holder provided such counsel is the same as counsel for the
Company, but excluding any underwriting discounts and commissions relating to
Registrable Securities.
h. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 12(b) to include any of the Holder's
Registrable Securities in such underwriting unless such Holder accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by the Company (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders), provided further, that in a
Conversion Registration if such reduction on the basis of underwriters'
determination does take place and has the effect of reducing the total number of
shares sold by Holder below the number as to which a request for registration
was tendered under Section 12(b)(i) hereof, the inclusion of Holder's shares in
the Company registration shall not count as one of the two registrations allowed
under Section 12(b)(iv)(A) hereof.
i. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 12:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, any underwriter (as defined in the Act) for the
Holder and each person, if any, who controls the Holder or underwriter within
the meaning of the Act or the Securities Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several)
9
<PAGE>
to which they may become subject under the Act, or the 1934 Act or other federal
or state law, or any rule or regulation promulgated under the Act, or under the
1934 Act or any state security law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (C) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, or the 1934 Act or any state securities law; and the
Company will pay to the Holder, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
i(i) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation with
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the Holder,
underwriter or controlling person, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation arising from a preliminary
Prospectus which the Holder delivered to the person alleging such loss, claim,
damage, liability or action if the Holder failed to deliver a copy of the final
Prospectus as amended or supplemented if it is amended or supplemented to
correct such misstatement or omission, to such person at or prior to the written
confirmation of the sale to such person.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, or the 1934 Act or other federal or state law, or any rule or
regulation promulgated under the Act, or under the 1934 Act or any federal or
state law, or any rule or regulation promulgated under the Act or any state
securities law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the Holder
expressly for use in connection with such registration; and the Holder will pay,
as incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection i(ii), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
i(ii) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection i(ii) exceed the gross
proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 12(i) of notice of commencement of any action (including any
governmental action), such indemnified
10
<PAGE>
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 12(i), deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel selected by the indemnifying party and reasonably
acceptable to the indemnified party; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such an action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 12(i), but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 12(i).
(iv) If the indemnification provided for in this Section 12(i) is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(v) Notwithstanding the foregoing, to the extend that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(vi) The obligations of the Company and the Holder under this
Section 12(i) shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 12, and otherwise.
j. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holder the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in SEC rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
11
<PAGE>
(ii) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holder to utilize Form S-3 for the sale of its Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(iii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(iv) furnish to the Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (A) a written statement by the
Company that it has complied with the reporting requirements of SEC rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (B) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (C) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
k. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 12 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities provided: (i) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned, (ii) such transferee or assignee agrees
in writing to be bound by a nd subject to the terms and conditions of this
Section 12, including without limitation the provision of Section 12(l) below;
(iii) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act; and (iv) such assignment or transfer is of
a Warrant that is exercisable for a minimum of 50,000 Shares, or of at least
50,000 Shares (each adjusted to reflect subsequent stock dividends, stock
splits, conversions or recapitalizations).
l. "MARKET STAND OFF" AGREEMENT. Holder hereby agrees that, during
the period of duration specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(i) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(ii) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities.
12
<PAGE>
13. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only if expressly set forth in an
instrument in writing signed by the Company and the Holder.
14. NOTICES. Unless otherwise provided, any notice required or permitted
herein shall be given in writing and shall be deemed effectively given upon
personal delivery or fax to the party to be notified or three (3) days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or such other address as
such party may designate by 10 days advance written notice to the other party.
15. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company concerning registration rights or otherwise relating to the Common
Stock or other securities issuable upon the exercise of this Warrant shall
survive the exercise and termination of this Warrant, and all of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof, subject to the limitations on transfer of
registration rights contained in Section 12(k). The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights to which the holder
hereof shall continue to be entitle d after such exercise in accordance with
this Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
16. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed, or mutilated
Warrant or stock certificate.
17. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
under, the laws of the State of Oregon as applied to agreements among Oregon
residents entered into and to be performed entirely within Oregon.
IN WITNESS WHEREOF, the Company has caused this warrant to be executed
effective as of the date first above written.
CLAREMONT TECHNOLOGY GROUP, INC.
By:
--------------------------------------
13
<PAGE>
Paul J. Cosgrave
Chairman and Chief Executive Officer
By:
---------------------------------------
Terry D. Murphy
Secretary
Address: 1600 N.W. Compton Drive
Suite 210
Beaverton, Oregon 97006
DLJ Capital Corporation
3000 Sand Hill Road
Bldg 4, Suite 270
Menlo Park, Ca. 94025
Attn: Keith B. Geeslin
by:
-----------------------
14
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: Claremont Technology Group, Inc.
----------------------------------------
----------------------------------------
Attn:
----------------------------------------
1. The undersigned hereby elects to purchase __________shares of Common
Stock of Claremont Technology Group, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below.
Name:
---------------------------------------------
Address:
-------------------------------------
-------------------------------------
15
<PAGE>
Exhibit 10.17
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (this "Agreement") is entered into by
and between DLJ Capital Corporation 3000 Sand Hill Road, Bldg. 4, Suite 270,
Menlo Park, CA 94025 (Attn: Keith Geeslin) ("DLJ Capital"), on behalf of itself
and each constituent fund in the Sprout "A" Group of Funds identified on Exhibit
A below, for each of which DLJ Capital serves as General Partner, Managing
General Partner, General Partner of General Partner, or Parent Corporation of
Sub-Manager, and each constituent fund in the Sprout "B" Group of Funds
identified on Exhibit A below, for each of whom Keith Geeslin serves as General
Partner, (all entities listed on Exhibit A collectively referred to as
"Sprout"), on the one hand, and Claremont Technology Group, Inc., (Claremont),
1600 N.W. Compton Drive, Suite 210, Beaverton, Oregon 97006 (Attn: Paul
Cosgrave) on the other.
On December 5, 1995, Claremont's president, Paul Cosgrave, and Keith
Geeslin, signing for the "Sprout Group", executed a Summary Term Sheet (the
Summary Term Sheet). Disputes have arisen between the parties as to whether
that Summary Term Sheet was binding. The parties wish to settle that dispute,
and all other matters between them. Accordingly, the parties agree as follows:
1. WARRANT AND WARRANT ADJUSTMENT AGREEMENTS.
1.1 WARRANT. Claremont will issue the Common Stock Purchase Warrant in
form attached hereto, with an effective issue date of May 20, 1996. Sprout
confirms and accepts the terms of the Warrant, and directs that it be so issued.
1.2 WARRANT ADJUSTMENT AGREEMENT. Claremont and DLJ Capital Corporation
will enter into the Warrant Adjustment Agreement in form attached hereto (the
Warrant Adjustment Agreement), effective May 20, 1996.
2. RELEASE.
2.1 CLAREMONT'S RELEASE OF SPROUT. Claremont hereby releases Sprout and
DLJ Capital, and their respective shareholders, partners, investors, directors,
employees, agents, attorneys, officers, funds associated with DLJ Capital, and
assigns, from any and all claims, demands, damages, liabilities, costs,
expenses, causes of action or causes of suit of whatsoever kind and nature
arising before the date of this settlement, known and unknown, reserving only
those rights Claremont retains under this Agreement or the Warrant and Warrant
Adjustment Agreement.
2.2 SPROUT'S RELEASE OF CLAREMONT. DLJ Capital, on its own behalf and on
behalf of Sprout, hereby releases Claremont, its shareholders, partners,
investors, officers, directors, employees, agents, attorneys, and assigns, from
any and all claims, demands, damages, liabilities, costs, expenses, causes of
action or causes of suit of whatsoever kind and nature arising before the date
of this settlement, known and unknown, reserving only those rights DLJ Capital,
on its own behalf and on behalf of Sprout, retains under this Agreement or
under the accompanying Warrant and Warrant Adjustment Agreement.
1 - Settlement Agreement and Release
<PAGE>
2.3 STATEMENT OF INTENT TO WAIVE. Each party after being advised by
counsel intends to waive to the fullest extent permitted by law all rights and
benefits it may have under section 1542 of the Civil Code of the State of
California. Section 1542 reads as follows:
A general release does not extend to claims which the creditor does not
know or expect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
3. REPRESENTATIONS AND ACKNOWLEDGEMENTS OF PARTIES.
3.1 CLAREMONT. Claremont represents and warrants to Sprout that Mr. Paul
Cosgrave, as President of Claremont Technology Group, Inc., is fully authorized
and empowered to execute and enter into this Agreement, and to cause to be
issued the Warrants and to execute and bind the company to the Warrant
Adjustment Agreement, and that all corporate actions necessary to grant that
authority have been duly taken and approved by the Board of Directors of
Claremont, and that Claremont intends to be bound hereby.
3.2 SPROUT. Sprout represents and warrants to Claremont that it is the
"Sprout Group" referred to in the Term Sheet of December 5, 1995; that Mr. Keith
Geeslin, attorney in fact or General Partner, is fully authorized and empowered
to execute and enter into this Settlement Agreement and Release and to execute
the Warrant and the Warrant Adjustment Agreement, and that all corporate and
partnership actions necessary to grant that authority have been duly taken and
approved by the Board of Directors and partners of Sprout, and that Sprout
intends to be bound hereby. Sprout further represents and warrants that the
funds identified on Exhibit A who would have been investors in Claremont under
the Summary Term Sheet have assigned or otherwise conveyed their claims under
the original Summary Term Sheet to DLJ Capital Corporation and do hereby request
that Claremont execute and issue the warrant in the name of DLJ Capital
Corporation.
3.3 BOTH PARTIES. Each party represents and acknowledges that this
Settlement and Release Agreement is in settlement of disputed claims; that the
parties hereto by entering into this settlement do not intend to admit to the
merits of any claim hereby settled and in fact Claremont vigorously disputes all
such claims.
4. OTHER MATTERS.
4.1 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.
4.2 ASSIGNMENT. This agreement may not be assigned without the express
written consent of each party, which consent will not be unreasonably withheld.
4.3 GOVERNING LAW, JURISDICTION. This agreement is governed by the laws
of the state of Oregon. Each party consents to service of process through the
method prescribed for notice in this agreement.
2 - Settlement Agreement and Release
<PAGE>
4.4 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees.
4.5 INTEGRATION. This agreement, including all exhibits and attachments
hereto, is the complete agreement between the parties as of the date hereof, and
supersedes all prior agreements, written or oral. It may be modified only in
writing signed by the original parties hereto, or by their successors or
superiors in office.
4.6 COUNTERPARTS, EXECUTION BY FAX. This agreement may be exercised in
counterparts, all of which together shall constitute one original. Transmittal
of signed copies by facsimile shall be treated as delivery of original executed
copies of this Agreement, and the parties agree to be bound thereby.
DLJ CAPITAL CORPORATION, FOR ITSELF AND CLAREMONT TECHNOLOGY GROUP, INC.
AS GENERAL PARTNER, MANAGING GENERAL
PARTNER, GENERAL PARTNER OF THE GENERAL
PARTNER, OR PARENT CORPORATION OF SUB-
MANAGER, AS THE CASE MAY BE, OF EACH
ENTITY IN THE SPROUT "A" GROUP OF FUNDS,
AS IDENTIFIED ON EXHIBIT A, EXCEPT THOSE
SPECIFICALLY IDENTIFIED BELOW:
By:______________________________________ By:_________________________________
Keith Geeslin, its Paul Cosgrave
Attorney-in-Fact President
May 20, 1996 May 20, 1996
DLJ VENTURE CAPITAL FUND AND DLJ VENTURE
CAPITAL FUND II:
By:______________________________________
Keith Geeslin, General Partner
May 20, 1996
I, Terry Murphy, Corporate Secretary of Claremont Technology Group, Inc., do
hereby certify that the foregoing settlement agreement and the issuance of the
warrants it contemplates through the Warrant and Warrant Adjustment Agreement
were approved by necessary majorities of the Board of Directors of Claremont
Technology Group, Inc. at a meeting held for the purpose on May 19, 1996, by
conference telephone.
_____________________________________________________
TERRY MURPHY, SECRETARY, CLAREMONT TECHNOLOGY GROUP, INC.
3 - Settlement Agreement and Release
<PAGE>
4 - Settlement Agreement and Release
<PAGE>
Exhibit A
SPROUT GROUP OF FUNDS
Sprout "A" Group of Funds:
Sprout Capital V
Sprout Technology Fund
Sprout Growth, L.P.
Sprout Capital VI, L.P.
Sprout Growth II, L.P.
ML Venture Partners II, L.P.
Sprout Capital VII, L.P.
Sprout CEO Fund, L.P.
Sprout "B" Group of Funds:
DLJ Venture Capital Fund, L.P.
DLJ Venture Capital Fund II, L.P.
5 - Settlement Agreement and Release
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Claremont Technology Group, Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Portland, Oregon
June 10, 1996
II-5
