<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SOURCE SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7363 36-2690960
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5580 LBJ FREEWAY, SUITE 300
DALLAS, TEXAS 75380
(214) 385-3002
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
D. LES WARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5580 LBJ FREEWAY, SUITE 300
DALLAS, TEXAS 75380
(214) 385-3002
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD M. HULL, ESQ. SIDNEY J. NURKIN, ESQ.
DAVID R. EARHART, ESQ. M. HILL JEFFRIES, ESQ.
J. CARTER MEYER, ESQ. R. BRANDON ASBILL, ESQ.
GARDERE & WYNNE, L.L.P. ALSTON & BIRD
1601 ELM STREET, SUITE 3000 1201 WEST PEACHTREE STREET
DALLAS, TEXAS 75201 ATLANTA, GEORGIA 30309
(214) 999-3000 (404) 881-7000
</TABLE>
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS TO BE PER OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.02 par value.......... 2,875,000 $17.00 $48,875,000 $16,854
=============================================================================================================
</TABLE>
(1) Includes 375,000 shares subject to an over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
---------------------
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.
================================================================================
<PAGE> 2
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING HEADING IN PROSPECTUS
--------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds.............................. Prospectus Summary; Use of Proceeds;
Capitalization
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... Risk Factors; Dilution
7. Selling Security Holders..................... Principal and Selling Stockholders
8. Plan of Distribution......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered... Dividend Policy; Management; Description
of Capital Stock
10. Interests of Named Experts and Counsel....... Not Applicable
11. Information with Respect to the Registrant... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal and
Selling Stockholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Experts; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
***************************************************************************
* *
* 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. *
* *
***************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED MAY 29, 1996
2,500,000 Shares
LOGO
SOURCE SERVICES CORPORATION
Common Stock
---------------------
Of the 2,500,000 shares of Common Stock, $0.02 par value per share ("Common
Stock"), of Source Services Corporation (the "Company") offered hereby (the
"Offering"), 1,562,500 shares are being offered by the Company and 937,500 are
being offered by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the sale
of the shares of Common Stock by the Selling Stockholders.
Prior to the 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 $15.00 and $17.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has applied to include the Common Stock for listing on the Nasdaq
National Market under the symbol "SRSV".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) PROCEEDS TO
SELLING
STOCKHOLDER(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an aggregate of 375,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
---------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1996.
<TABLE>
<S> <C>
THE ROBINSON-HUMPHREY RAUSCHER PIERCE
COMPANY, INC. REFSNES, INC.
</TABLE>
, 1996.
<PAGE> 4
EXPERIENCE ON DEMAND(SM)
[MAP]
[ ] Indicates that at least one Company office is located within the state
or province.
Source Services Corporation has a 34-year history
of providing EXPERIENCE ON DEMAND(SM) through
professional and highly skilled personnel. With offices
in 52 markets across the United States and one in
Canada, and a current national database of
more than one million potential candidates, Source consults
with clients to provide integrated
solutions for their specialty staffing needs.
[SOURCE SERVICES LOGO]
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes (i) a
2.9-for-one stock split in the form of a stock dividend which will be effected
immediately prior to the consummation of the Offering and (ii) no exercise of
the Underwriters' over-allotment option. This Prospectus contains certain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain of the factors set forth under
"Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Source Services Corporation (the "Company") is a specialty staffing
services firm that provides flexible staffing, traditionally known as temporary
staffing, and permanent placement of professional and highly skilled personnel
primarily in the areas of information technology, accounting and finance, and
engineering and manufacturing. The Company has recently expanded its service
offerings to include the staffing of professional and highly skilled personnel
in the areas of health care and legal services. The Company believes that the
ability to provide both flexible staffing and permanent placement of
professional and highly skilled personnel in a broad spectrum of fields enables
it to present integrated solutions to its clients' staffing needs and to attract
highly qualified candidates. It further believes that the staffing of
professional and highly skilled personnel in specialty niches generally includes
longer term assignments than typical clerical temporary placement and offers the
Company the opportunity for greater growth and higher profitability. The Company
has offices in 52 markets throughout the United States and one in Canada.
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. Using the
resources and relationships that it developed as a leading provider of permanent
placement services, the Company in 1991 shifted the focus of its service
offerings to flexible staffing services. Today, the Company's flexible staffing
business benefits greatly from the Company's experience in providing permanent
placement services.
Over its 34 years, the Company has developed expertise in the recruitment
and selection of professional and highly skilled personnel to satisfy client
requests. The Company currently maintains a database of over one million
potential candidates and uses proprietary technology to match these candidates
with its clients' specific needs. In addition, each of the Company's sales
associates has a background in one of the Company's areas of specialization,
thereby promoting a better understanding of the needs of the Company's clients
and providing the Company an advantage in its recruiting efforts.
The Company had net service revenue of $141.8 million in 1995, an increase
of 57.5% from 1994. The Company has experienced significant growth as net
service revenue has increased at a compounded annual rate of approximately 46.5%
over the past three years. This growth has resulted primarily from an increase
in the Company's net service revenue from flexible staffing, which has grown at
a compounded annual rate of approximately 70.0% for the past three years. During
1995, approximately 60.7% of the Company's net service revenue was derived from
its flexible staffing services. The Company also continues to benefit from its
expertise and experience in information technology. Information technology net
service revenue has grown at a compounded annual rate of approximately 54.7% for
the past three years and accounted for approximately 68.1% of total net service
revenue in 1995.
STRATEGY
The Company's strategy is to focus on providing flexible staffing of
professional and highly skilled personnel. While permanent placement will remain
an important part of the Company's business, the Company believes that specialty
flexible staffing offers greater growth and profit potential than other segments
of the staffing services industry due to changing practices of employers today.
The Company seeks to differentiate itself from other providers of specialty
staffing services by recruiting highly qualified candidates
3
<PAGE> 6
and focusing on client needs. The Company strives to achieve these service
objectives primarily by employing sales associates with backgrounds in the
Company's areas of specialization, developing and using proprietary technology
and maintaining a database of over one million professional or highly skilled
candidates.
The Company intends to expand its business by focusing on the following
growth strategies:
- Leveraging existing relationships by promoting the full range of its
service offerings to existing clients.
- Expanding service offerings in existing markets.
- Opening offices in new geographic markets.
- Introducing new areas of specialization.
- Pursuing strategic acquisitions.
THE STAFFING SERVICES INDUSTRY
The staffing industry has experienced rapid growth in the last decade with
industry revenues exceeding $60 billion in 1995, according to Staffing Industry
Analysts, a staffing services industry publication. Staffing Industry Analysts
estimated that the temporary help sector reached $41.2 billion in revenues for
1995, which represents an average annual growth rate of 17.7% over the past four
years. According to the National Association of Temporary and Staffing Services,
the flexible staffing industry's share of the total United States workforce has
grown significantly, with more than 90% of all United States businesses now
using flexible staffing services.
Information technology, which comprised 68.1% of the Company's 1995 net
service revenue, has become one of the fastest growing sectors of the staffing
services industry according to Staffing Industry Analysts. Staffing Industry
Analysts estimated that revenues from the information technology sector of the
staffing services industry reached $8.9 billion in 1995 and increased 25% from
1994. Over the last decade the increased use of technology has led to a dramatic
rise in demand for technical project support, software development and other
computer-related services. Businesses have outsourced many of these functions
and have used employees of specialty staffing firms in an attempt to meet the
increased demand for computer-skilled personnel.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....... 1,562,500 shares
Common Stock Offered by the Selling
Stockholders............................ 937,500 shares
Common Stock to be Outstanding after this
Offering................................ 8,759,363 shares
Use of Proceeds........................... The net proceeds will be used to repay certain
indebtedness, to make capital improvements, and
for general corporate purposes, including
possible future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.... SRSV
</TABLE>
4
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial data for each of the
fiscal years in the five-year period ended December 31, 1995 and the quarters
ended April 2, 1995 and March 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED(1) QUARTER ENDED(1)
-------------------------------------------------------- ---------------------
DEC. 31, DEC. 31, JAN. 2, JAN. 1, DEC. 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
-------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net service revenue....... $ 45,888 $ 45,109 $ 53,835 $ 90,067 $141,832 $ 29,942 $40,833
Gross profit.............. 37,897 32,503 33,908 54,656 78,780 16,245 22,298
Operating income (loss)... (5,731) (2,660) 1,679 5,414 7,262 1,055 1,454
Net income (loss)......... (4,371) (2,138) 817 3,247 4,175 614 802
Net income (loss) per
share.................. $ (1.31) $ (0.50)(2) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
Weighted average shares
outstanding............ 3,330 4,255 7,386 7,250 7,178 7,192 7,153
Other Data:
Net service revenue by
areas of
specialization:
Information
technology........... 56.9% 57.7% 58.9% 65.1% 68.1% 66.6% 67.4%
Accounting and
finance.............. 37.4 36.3 35.5 29.3 26.1 28.5 25.7
Other.................. 5.7..... 6.0..... 5.6..... 5.6 5.8 4.9 6.9
------- ------- ------- ------- -------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======== ======= =======
Net service revenue by
service type:
Flexible staffing...... 25.0% 38.5% 49.3% 54.7% 60.7% 62.5% 63.4%
Permanent placement.... 75.0 61.5 50.7 45.3 39.3 37.5 36.6
------- ------- ------- ------- -------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======== ======= =======
Number of markets at
period end............. 51 49 45 48 53 51 53
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital..................................................... $14,702 $ 35,352
Total assets........................................................ 31,744 51,644
Total long term debt................................................ 65 65
Stockholders' equity................................................ 18,108 40,758
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Sunday closest to December 31 and the
Company's fiscal quarters end on the Sunday closest to the end of each
calendar quarter.
(2) Includes net income per share of $0.02 attributed to cumulative effect on
prior years of change in accounting for income taxes.
(3) Adjusted to reflect the sale of 1,562,500 shares of Common Stock offered by
the Company hereby and the anticipated application of the net proceeds
therefrom. See "Use of Proceeds."
5
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for the Company's services is significantly affected by the general
level of economic activity in the country. When economic activity slows, many
companies hire fewer permanent employees and decrease their usage of flexible
staffing (i.e., personnel on long or short-term assignment) before undertaking
layoffs of their full-time employees. Therefore, a significant economic downturn
could have a material adverse effect on the Company's business. As economic
activity increases, flexible staffing personnel often have been added to the
workforce prior to permanent employees. During these periods of increased
economic activity and generally higher levels of employment, the competition
among specialty staffing firms for qualified flexible and, to a lesser extent,
permanent personnel is intense. Further, the Company may face increased pricing
pressures during such periods. There can be no assurance that during these
periods the Company will be able to recruit candidates necessary to fill its
clients' staffing needs or that such pricing pressures will not adversely affect
the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON AVAILABILITY OF QUALIFIED CANDIDATES
The Company depends upon its ability to attract and retain personnel for
flexible staffing and permanent placement positions, particularly technical and
professional personnel, who possess the skills and experience necessary to meet
the staffing requirements of its clients. The growth of the market for flexible
staffing services in the information technology area in recent years has been
driven largely by rapid technological advances, with businesses increasingly
turning to outside technical personnel to staff their information technology
operations. The Company must continually evaluate and upgrade its base of
available qualified personnel to keep pace with changing client needs and
emerging technologies. Competition for individuals with proven technical or
professional skills is intense and demand for such individuals is expected to
remain very strong for the foreseeable future. There can be no assurance that
qualified personnel will continue to be available to the Company in sufficient
numbers and upon economic terms that are acceptable to the Company. See
"Business -- Business Strategy."
ABILITY TO ACHIEVE AND MANAGE GROWTH
The Company has experienced growth driven primarily by internal expansion
of services, opening of new markets and industry trends toward the increased use
of flexible staffing of professional and highly skilled personnel. The Company's
continued growth depends on many factors, including the Company's ability to:
(i) maintain margins in the face of competitive pressures and changing
regulatory environments; (ii) hire, integrate and retain qualified managers in
existing markets as well as markets in which the Company has no prior operating
experience; (iii) apply its management practices to a significantly larger
organization; (iv) maintain and expand existing client relationships; (v)
develop new client relationships; (vi) develop new service offerings; (vii)
identify and expand into new markets; (viii) maintain sufficient working
capital; (ix) continue to improve the recruitment, motivation and retention of
its sales associates; and (x) expand its market presence in its current
locations. There can be no assurance that the Company will be able to implement
successfully any of the foregoing or that industry trends toward the increased
use of flexible staffing will continue.
DEPENDENCE ON MANAGEMENT
The success of the Company's business is highly dependent upon the
continued services of its management, including D. Les Ward, its President and
Chief Executive Officer; Richard Dupont, its Chief Financial Officer; and Jack
A. Causa, Joseph A. Gendron and Lawrence J. Stanczak, its Vice Presidents of
Operations. The loss of the services of one or more of such individuals could
have a material adverse effect
6
<PAGE> 9
upon the Company's business and development. The Company's continued growth also
will depend upon its ability to attract and retain additional skilled management
personnel. See "Management."
COMPETITION
The staffing industry is highly competitive and there are limited barriers
to entry by competitors. The Company faces significant competition in the
markets it serves and is likely to face significant competition in any new
markets that it may enter. The Company competes for potential clients with
providers of outsourcing services, systems integrators, computer systems
consultants, other providers of staffing services, temporary personnel agencies
and search firms. National clerical firms and accounting firms, among others,
also have begun to penetrate the Company's current and potential target markets
with competing services. A number of the Company's competitors possess
substantially greater resources than the Company. The Company also faces the
risk that certain of its current and prospective clients will decide to provide
similar services internally. Additionally, the Company faces significant
competition in recruiting candidates in many professional and technical
specialties. There can be no assurance that the Company will be able to continue
to compete effectively with existing or potential competitors. See
"Business -- Competition."
RELIANCE ON QUALIFIED SALES ASSOCIATES
The Company's success depends upon the continued service of its sales
associates and its ability to identify, hire, develop and retain additional
qualified sales associates. The Company expends significant resources in
recruiting and training its employees, and the pool of available applicants for
these positions is limited. There can be no assurance that the Company will
continue to be able to identify, hire, develop and retain qualified sales
associates.
RELIANCE ON INFORMATION PROCESSING SYSTEMS AND PROPRIETARY TECHNOLOGY
The Company's business depends upon its ability to store, retrieve, process
and manage significant databases, and periodically to expand and upgrade its
information processing capabilities. The Company's computer equipment and
software systems are maintained at its Dallas, Texas headquarters. Interruption
or loss of the Company's information processing capabilities through loss of
stored data, breakdown or malfunction of computer equipment and software
systems, telecommunications failure, conversion difficulties or damage to the
Company's headquarters and systems caused by fire, tornado, lightning,
electrical power outage or other disruption could have a material adverse effect
on the Company. See "Business -- Management Information Systems."
The Company's business depends upon continued use of its proprietary
software, databases and processing techniques. None of the Company's proprietary
software is copyrighted, although the Company attempts to protect its trade
secrets and other proprietary information through agreements with employees and
consultants. There can be no assurance that these precautions will be adequate
to deter misappropriation of the Company's proprietary software and information
processing and operating techniques.
EMPLOYMENT LIABILITY RISK
Providers of staffing services employ and place people in the workplaces of
other businesses. An inherent risk of such activity includes possible claims of
errors and omissions, misuse of client proprietary information, misappropriation
of funds, discrimination and harassment, employment of illegal aliens, theft of
client property, other criminal activity or torts and other claims. In some
instances the Company, pursuant to written contracts with certain clients, is
required to indemnify such clients against some or all of the foregoing matters.
A failure of any Company employee or personnel to observe the Company's policies
and guidelines intended to reduce exposure to these risks, relevant client
policies and guidelines or applicable federal, state or local laws, rules and
regulations, or other circumstances that cannot be predicted could result in
negative publicity, injunctive relief and the payment by the Company of monetary
damages, or fines, or have other material adverse effects upon the Company.
Moreover, the Company could be held responsible for the actions at a workplace
of persons not under the direct control of the Company. The Company is also
exposed to potential
7
<PAGE> 10
claims with respect to the permanent placement process. Because of legal
constraints and considerations, the Company has found it increasingly difficult
to perform background investigations. To reduce its exposure to the foregoing
risks, the Company maintains insurance and fidelity bonds covering general
liability, workers' compensation claims, errors and omissions and employee
theft. There can be no assurance that such insurance coverage will be available
economically in amounts adequate to cover any such liability. See "Business --
Legal Proceedings" and "Business -- Insurance."
ACQUISITION RISKS
The Company intends to evaluate the acquisition of other staffing services
firms. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses into its operations, or expand into new markets. Once
integrated, acquired firms may not perform as expected. Acquisitions involve a
number of special risks, such as diversion of management's attention,
difficulties in the integration of acquired operations and retention of
personnel, legal liabilities, maintenance of uniform standards, controls,
procedures and policies, impairment of relationships with clients of the
acquired firm, operating in markets in which the Company has little or no prior
experience, and tax and accounting issues, some or all of which could have a
material adverse effect on the Company's results of operations and financial
condition. The Company has not completed any acquisitions to date. The Company
is unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed.
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA and Medicare, among others, for its employees and personnel.
Unemployment taxes are a significant expense to the Company. Because the Company
employs a large number of personnel for relatively short durations, and because
it experiences significant turnover in its personnel, it is taxed at the highest
statutory rates for unemployment taxes. Significant increases in the effective
rates of any payroll related costs likely would have a material adverse effect
upon the Company. Workers' compensation costs could increase as a result of
changes in the Company's experience rating or applicable laws. In addition, the
Company could incur costs related to workers' compensation claims at a higher
rate in the future because of such factors as higher than expected losses from
known claims or an increase in the number and severity of new claims. See
"Business -- Insurance." The Company's costs could also increase as a result of
health care reforms or the possible imposition of additional requirements and
restrictions related to the placement of personnel. Recent federal and state
legislative proposals have included provisions extending health insurance
benefits to personnel who currently do not receive such benefits. There can be
no assurance that the Company will be able to increase the fees charged to its
clients in a timely manner and in a sufficient amount to cover increased costs
as a result of any of the foregoing. There is also no assurance that the Company
will be able to adapt to future regulatory changes made by the Internal Revenue
Service, the Department of Labor or other state and federal regulatory agencies.
As a provider of health care personnel, the Company is subject to extensive
federal, state and local laws and governmental regulations, including licensing
requirements, periodic examinations by governmental agencies and federal and
state anti-fraud, abuse and kickback statutes and regulations. Although such
regulations have not had a material adverse effect on the Company, there can be
no assurance that the Company will be able to continue to obtain or maintain
required government approvals or licenses or that in the future regulatory
changes will not have a material adverse effect on the Company.
MAINTENANCE OF PRICE LEVELS
From time to time, the Company has received requests from certain of its
largest clients for volume discounts or other preferred pricing, and at times
has agreed to such requests. There can be no assurance that the Company will be
able to maintain its current price levels. Any decrease in prices could
materially adversely affect the Company's results of operations.
8
<PAGE> 11
CONTROL OF THE COMPANY BY EXISTING STOCKHOLDERS
Upon the consummation of this Offering, those shares owned by the Company's
Profit Sharing Plan, officers, directors and employees are estimated to
constitute a majority of those shares outstanding. Although the holders of these
shares do not necessarily vote together, the holders of a majority of the
outstanding Common Stock can elect all of the directors of the Company and can
approve, delay or prevent certain fundamental corporate transactions, including
mergers, consolidations and the sale of substantially all of the Company's
assets. Purchasers in the Offering will become minority stockholders and will be
unable to control the management or business policies of the Company. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
LACK OF PRIOR PUBLIC MARKET, DETERMINATION OF OFFERING PRICE AND SUBSEQUENT
MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that after the Offering an active public
market for the Common Stock will develop or be sustained. The initial public
offering price for the Common Stock was determined by negotiation between the
Company and the Representatives of the Underwriters, and there can be no
assurance that the price at which the Common Stock will trade after completion
of the Offering will not be below the initial public offering price. From time
to time, the stock market experiences significant price and volume fluctuations
which may be unrelated to the operating performance of particular companies.
Factors such as quarterly changes in results of operations, analysts' estimates,
market conditions, announcements by competitors, regulatory actions and general
economic conditions may have a significant effect on market price. See
"Underwriting."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws (the "Bylaws")
include provisions that may have the effect of discouraging proposals by third
parties to acquire a controlling interest in the Company, which could deprive
stockholders of the opportunity to consider an offer that would be beneficial to
them. The Certificate of Incorporation contains certain provisions that may
reduce the likelihood of a change in management or voting control of the Company
without the consent of the Company's Board of Directors. These provisions could
have the effect of delaying, deterring or preventing tender offers or takeover
attempts. See "Description of Capital Stock -- Special Provisions of the
Certificate of Incorporation and Bylaws."
DILUTION
Purchasers of Common Stock offered hereby will experience immediate
dilution in the net tangible book value per share of Common Stock of $11.32 per
share, assuming an initial public offering price of $16.00 per share. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock.
Immediately following the Offering, the Company will have 8,759,363 shares of
Common Stock outstanding. In addition to the shares of Common Stock to be sold
in the Offering, currently outstanding shares will be freely tradeable
upon consummation of the Offering, and an additional shares will be
freely tradeable 180 days after the date of this Prospectus when certain
agreements by certain stockholders not to sell or otherwise transfer shares of
Common Stock expire. See "Management -- Executive Compensation -- Profit Sharing
Plan," "Shares Eligible for Future Sale" and "Underwriting."
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING PROCEEDS OF OFFERING
The Company has allocated approximately $4.8 million of the net proceeds of
the Offering for specific purposes, with the remaining net proceeds of
approximately $17.9 million to be used for the expansion of the Company's
operations, including opening new offices and possible acquisitions, funding
working capital and
9
<PAGE> 12
general corporate purposes. Accordingly, management will have substantial
discretion in spending a large part of the net proceeds to be received by the
Company. There can be no assurance that management will use such net proceeds in
a manner that enhances stockholder value. See "Use of Proceeds."
AVAILABILITY OF AUTHORIZED CAPITAL STOCK
Following the Offering, the Company will have 91,240,637 shares of Common
Stock authorized for issuance. In addition, the Certificate of Incorporation
authorizes the issuance of up to 2,000,000 shares of preferred stock (the
"Preferred Stock"). No shares of Preferred Stock are outstanding and the Company
has no present intention to issue any shares of Preferred Stock. The Board of
Directors, in its sole discretion, may establish the preferences, conversion or
other rights or voting powers of each series of Preferred Stock and may issue
Preferred Stock for such consideration and on such terms as it deems desirable.
The issuance of Preferred Stock or additional shares of Common Stock could
adversely affect the holders of Common Stock. See "Description of Capital
Stock."
THE COMPANY
With offices in 52 markets throughout the United States and one in Canada,
the Company is a leading provider of flexible staffing and permanent placement
services in the information technology, finance and accounting, and engineering
and manufacturing areas. The Company concentrates on the professional and
technical specialty niches within the staffing industry because it believes that
these niches require more highly skilled personnel and longer-term assignments,
thereby offering the opportunity for greater growth and higher profitability
than niches requiring less skilled personnel.
The Company is incorporated under the laws of Delaware. The Company's
principal executive offices are located at 5580 LBJ Freeway, Suite 300, Dallas,
Texas 75380 and its telephone number is (214) 385-3002.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
to be sold by the Company in the Offering are estimated to be $22.7 million
after deducting estimated underwriting discounts and commissions and estimated
offering expenses to be paid by the Company (assuming an initial offering price
of $16.00 per share). Of its net proceeds from the Offering, the Company intends
to use approximately $2.8 million to repay short-term bank borrowings (bearing
interest at a rate of 8.25% per annum and due in May 1997), approximately $2.0
million for capital improvements; and the balance for expansion of the Company's
lines of service in existing locations, opening new offices, possible
acquisitions of staffing-related businesses and other general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Growth Strategy."
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing investment
grade securities. The Company will not receive any proceeds from the sale of the
shares offered by the Selling Stockholders. See "Principal and Selling
Stockholders."
10
<PAGE> 13
DIVIDEND POLICY
The Company has not paid any dividends in recent years. The Company
currently intends to retain any earnings to provide for the operation and
expansion of its business and does not anticipate paying any cash dividends in
the foreseeable future.
DILUTION
The net tangible book value per share of the Common Stock at March 31, 1996
was $2.53. "Net tangible book value per share" represents the Company's total
tangible assets less total liabilities divided by the total number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of the
1,562,500 shares of Common Stock to be sold by the Company in the Offering (at
an assumed initial offering price of $16.00 per share, and after deducting
estimated underwriting discounts and commissions and expenses of the Offering to
be paid by the Company), and the application of the net proceeds as set forth
under "Use of Proceeds," the Company's net tangible book value per share of
Common Stock as of March 31, 1996, would have been $4.68, representing an
immediate increase of $2.15 in net tangible book value per share to existing
stockholders and an immediate dilution of $11.32 in net tangible book value per
share to persons purchasing shares in the Offering. The following table
illustrates this dilution per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $16.00
Net tangible book value per share before the Offering............... $2.53
Increase per share attributable to new investors.................... 2.15
-----
Pro forma net tangible book value per share after the Offering........ 4.68
------
Dilution of net tangible book value per share to new investors........ $11.32
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1996,
the difference between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company and the total
cash consideration and average price per share paid to the Company (based upon
an assumed initial offering price of $16.00 per share for new investors):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................. 7,153,363 82.1% $ 1,727,000 6.5% $ 0.24
New Investors......................... 1,562,500 17.9 25,000,000 93.5 $ 16.00
--------- ----- ----------- ------
8,715,863 100.0% $26,727,000 100.0%
========= ===== =========== ======
</TABLE>
11
<PAGE> 14
CAPITALIZATION
The following table sets forth the Company's capitalization at March 31,
1996 on a historical basis and as adjusted to give effect to the sale by the
Company of 1,562,500 shares of Common Stock offered hereby at an assumed initial
public offering price of $16.00 per share and the application of the net
proceeds therefrom as described in "Use of Proceeds." The data set forth below
should be read in conjunction with the other financial information presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Short-term debt.......................................................... $ 2,785 $ --
======= =========
Long-term debt, net of current portion................................... $ 65 $ 65
------- ---------
Stockholders' equity(1):
Preferred stock, $0.01 par value; 2,000,000 shares authorized; no
shares issued and outstanding....................................... -- --
Common stock, $0.02 par value; 100,000,000 shares authorized, 7,153,363
shares issued and outstanding; 8,715,363 shares issued and
outstanding as adjusted............................................. 144 175
Capital in excess of par............................................... 1,583 24,202
Retained earnings(2)................................................... 16,381 16,381
------- ---------
Total stockholders' equity..................................... 18,108 40,758
------- ---------
Total capitalization..................................................... $18,173 $40,823
======= =========
</TABLE>
- ---------------
(1) Excludes 1,000,000 and 30,000 shares of Common Stock reserved for future
issuance under the Company's Employees' Stock Option Plan and Directors
Stock Option Plan, respectively, and 87,000 shares subject to options
granted outside of such plans that were outstanding as of March 31, 1996.
(2) Reflects a combination of retained earnings and cumulative translation
adjustment.
12
<PAGE> 15
SELECTED FINANCIAL DATA
The following table contains certain selected financial data for the
Company. The balance sheet data as of January 1, 1995 and December 31, 1995, and
the income statement data for each of the three fiscal years in the period ended
December 31, 1995, have been derived from the audited financial statements of
the Company included elsewhere in this Prospectus. The balance sheet data as of
December 31, 1991 and 1992 and January 2, 1994, and the income statement data
for each of the fiscal years ended December 31, 1991 and 1992, have been derived
from the audited financial statements of the Company which are not included in
this Prospectus. The selected financial data as of and for the quarters ended
April 2, 1995 and March 31, 1996, have been derived from the unaudited financial
statements of the Company which have been prepared on the same basis as the
audited financial statements, and, in the opinion of the Company's management,
include all adjustments necessary, consisting only of normal recurring
adjustments, for a fair presentation. This financial data should be read in
conjunction with the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------------------------------------- --------------------
DECEMBER 31, DECEMBER 31, JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
------------ ------------ ---------- ---------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net service revenue........ $ 45,888 $ 45,109 $ 53,835 $ 90,067 $141,832 $ 29,942 $40,833
Cost of sales, flexible
staffing................. 7,991 12,606 19,927 35,411 63,052 13,697 18,535
-------- -------- -------- -------- -------- -------- -------
Gross profit............... 37,897 32,503 33,908 54,656 78,780 16,245 22,298
-------- -------- -------- -------- -------- -------- -------
Operating expenses:
Selling.................. 39,634 31,212 27,546 43,795 64,882 14,026 19,322
General and
administrative......... 3,994 3,951 4,683 5,447 6,636 1,164 1,522
-------- -------- -------- -------- -------- -------- -------
Total operating
expenses.......... 43,628 35,163 32,229 49,242 71,518 15,190 20,844
-------- -------- -------- -------- -------- -------- -------
Operating income (loss).... (5,731) (2,660) 1,679 5,414 7,262 1,055 1,454
Other income (expense),
net...................... (927) (556) (349) (403) (540) (81) (174)
-------- -------- -------- -------- -------- -------- -------
Income (loss) before income
taxes and cumulative
effect of change in
accounting
principle................ (6,658) (3,216) 1,330 5,011 6,722 974 1,280
Income tax (expense)
benefit.................. 2,287 1,013 (513) (1,764) (2,547) (360) (478)
-------- -------- -------- -------- -------- -------- -------
Net income (loss) before
cumulative effect of
change in benefit........ (4,371) (2,203) 817 3,247 4,175 614 802
Cumulative effect on prior
years of change in
accounting for income
taxes.................... -- 65 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income (loss).......... $ (4,371) $ (2,138) $ 817 $ 3,247 $ 4,175 $ 614 $ 802
======== ======== ======== ======== ======== ======== =======
Net income (loss) per share
before cumulative
effect................... $ (1.31) $ (0.52) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
Cumulative effect.......... -- .02 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income (loss) per
share.................... $ (1.31) $ (0.50) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
======== ======== ======== ======== ======== ======== =======
Weighted average shares
outstanding.............. 3,330 4,255 7,386 7,250 7,178 7,192 7,153
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
------------ ------------ ---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance Sheet Data:
Working capital............. $ 5,482 $ 3,015 $ 4,238 $ 6,419 $ 14,642 $ 7,007 $14,702
Total assets................ 13,251 13,895 13,031 22,434 30,624 22,105 31,744
Total long-term debt........ 5,372 1,566 1,179 179 135 39 65
Stockholders' equity........ 2,326 2,992 4,107 7,812 17,294 8,523 18,108
</TABLE>
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. The Company
expanded its specialty focus to include accounting and finance in 1976 and
engineering and manufacturing in 1980. The Company believes that by the late
1980's, it had become one of the largest providers of permanent placement
services in the information technology, accounting and finance, and engineering
and manufacturing areas.
In recent years, employers have shifted their hiring practices to include a
greater proportion of flexible, or temporary, employees. This hiring trend, in
combination with a downturn in the national economy beginning in 1990, resulted
in a significant reduction in permanent hiring that lasted through 1993, which
caused the Company to experience a significant reduction in net service revenue
from permanent placements. In response to this reduction in net service revenue,
the Company began a number of strategic initiatives to expand services, reduce
operating expenses and improve profitability.
As one of these initiatives, the Company shifted its focus to providing
flexible staffing services. In 1990, the Company established its Source
Consulting and Accountant Source Temps divisions to supply flexible staffing
personnel to clients in the information technology and accounting and finance
fields. Since then, the Company has introduced flexible staffing services in all
of its areas of specialization, and these services currently account for a
majority of the Company's net service revenue.
In recent years, substantially all of the Company's growth has come from
expansion of its flexible staffing services, adding staffing services in new
areas of specialization and entering new geographic markets. This internal
growth has occurred despite the Company's lack of access to outside capital.
The following table sets forth the number of markets, by service type and
area of specialization, for the indicated periods:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Flexible Staffing......................................... 11 21 30 43 47
Permanent Placement....................................... 51 49 45 46 51
Information Technology.................................... 49 47 43 46 51
Accounting and Finance.................................... 33 35 35 33 37
Engineering and Manufacturing............................. 5 5 5 7 11
Other..................................................... 0 0 0 2 4
</TABLE>
Flexible staffing net service revenue has grown from $17.5 million in 1992
to $86.1 million in 1995, a compounded annual rate of 70.0%, and accounted for
60.7% of total net service revenue in 1995. The increasing proportion of
flexible staffing net service revenue has had the effect of lowering the
Company's gross profit as a percentage of net service revenue. This decrease
occurs because, in accordance with industry practices, the Company classifies
all costs associated with permanent placement services as operating expense
whereas in flexible staffing, employee costs are treated as a cost of net
service revenue.
Flexible staffing net service revenue is recognized based on hours worked
by assigned personnel on a weekly basis. The Company bills its clients for a
negotiated hourly rate. Flexible staffing personnel generally are employees of
the Company; accordingly, the Company generally is responsible for all direct
costs associated with employing flexible staffing personnel including wages,
payroll taxes and payroll-related insurance. Because the Company generally pays
its flexible staffing personnel only for the hours they actually work, wages for
a majority of the Company's flexible staffing personnel are variable costs that
increase or decrease in proportion with net service revenue from flexible
staffing services.
14
<PAGE> 17
The Company's permanent placement services typically result in payment to
the Company when a candidate is hired by a client and the candidate is retained
for the duration of a guarantee period. Net service revenue from permanent
placements is recognized on the date the employer and candidate mutually agree
to an offer and acceptance of employment. The Company's fee is usually
structured as a percentage of the placed candidate's first-year annual
compensation. The primary costs associated with permanent placement are sales
commissions which increase in proportion with net service revenue from permanent
placements.
RESULTS OF OPERATIONS
The following table illustrates the percentage of net service revenue
generated within the Company's areas of specialization for the indicated
periods:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 2, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................ 58.9% 65.1% 68.1% 66.6% 67.4%
Accounting and Finance................ 35.5 29.3 26.1 28.5 25.7
Other................................. 5.6 5.6 5.8 4.9 6.9
------- ------- --------- ------ -------
Total Net Service Revenue... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ========= ====== =======
</TABLE>
The following table sets forth, as a percentage of net service revenue,
certain items in the Company's statement of operations for the indicated
periods:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Flexible Staffing..................... 49.3% 54.7% 60.7% 62.5% 63.4%
Permanent Placement................... 50.7 45.3 39.3 37.5 36.6
------- ------- --------- ------ -------
Total Net Service Revenue........... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ========= ====== =======
Gross Profit.......................... 63.0% 60.7% 55.5% 54.2% 54.6%
Operating Expenses.................... 59.9 54.7 50.4 50.7 51.0
------- ------- --------- ------ -------
Operating Income...................... 3.1% 6.0% 5.1% 3.5% 3.6%
======= ======= ========= ====== =======
Net Income............................ 1.5% 3.6% 2.9% 2.1% 2.0%
======= ======= ========= ====== =======
</TABLE>
Quarter Ended March 31, 1996 Compared with Quarter Ended April 2, 1995
Net Service Revenue. Net service revenue increased 36.4% to $40.8 million
in 1996 from $29.9 million in 1995. The growth in net service revenue resulted
from an increase in the number of sales associates to 403 in 1996 from 335 in
1995, and the Company's continued emphasis on expanding the number of service
offerings in all markets.
Net service revenue from flexible staffing services grew 37.8% to $25.9
million in 1996 from $18.8 million in 1995. The growth in flexible staffing net
service revenue was the result of a 26.8% increase in hours billed and a 9.6%
increase in average billing rates. Permanent placement net service revenue
increased 34.1% to $15.0 million in 1996 from $11.2 million in 1995. Permanent
placement net service revenue growth resulted primarily from an increase in the
number of permanent placements and, to a lesser extent, an increase in average
placement fees.
Net service revenue from information technology increased 37.8% to $27.5
million in 1996 from $20.0 million in 1995. Net service revenue from accounting
and finance increased 22.6% to $10.5 million in 1996 from $8.5 million in 1995.
Net service revenue from engineering, manufacturing and other professional
specialties increased 96.8% to $2.9 million in 1996 from $1.5 million in 1995.
The increase in net service revenue in each of the foregoing areas of
specialization was attributable to the increase in the number of sales
associates.
15
<PAGE> 18
Gross Profit. Gross profit increased 37.3% to $22.3 million in 1996 from
$16.2 million in 1995, primarily as a result of the factors set forth above. As
a percentage of net service revenue, gross profit remained consistent with the
prior period at approximately 54.6%.
Operating Expenses. Operating expenses increased 37.2% to $20.8 million in
1996 from $15.2 million in 1995. The increase was primarily a result of hiring
additional operations employees and increased expenses associated with the
expansion of the Company's business. The Company continued to invest in
improving general corporate communications and operating facilities. As a
percentage of net service revenue, Operating expenses increased to 51.0% in 1996
from 50.7% in 1995.
Operating Income. Operating income increased 37.8% to $1.5 million in 1996
from $1.1 million in 1995, primarily as a result of the factors set forth above.
Other (Income) Expense. Other (income) expense increased to $174,000 in
1996 from $81,000 in 1995.
Income Taxes. The effective income tax rate was 37.3% and 37.0% in 1996
and 1995, respectively.
Net Income. Net income increased to $802,000 in 1996 from $614,000 in
1995, as a result of the factors set forth above.
1995 Compared with 1994
Net Service Revenue. Net service revenue increased 57.5% to $141.8 million
in 1995 from $90.1 million in 1994. The growth in net service revenue was
primarily attributable to the opening of offices in five new geographic markets
and the continued growth of the Company's flexible staffing business.
Net service revenue from flexible staffing services grew 74.7% to $86.1
million in 1995 from $49.3 million in 1994. The growth in flexible staffing net
service revenue was the result of a 48.3% increase in the number of hours billed
and a 17.8% increase in average billing rates. In 1995, flexible staffing
services were offered in 47 markets as compared to 43 markets in 1994. Permanent
placement net service revenue increased 36.6% to $55.7 million in 1995 from
$40.8 million in 1994. Permanent placement net service revenue growth resulted
primarily from an increase in the number of permanent placements and, to a
lesser extent, an increase in average placement fees.
Net service revenue from information technology increased 64.9% to $96.6
million in 1995 from $58.6 million in 1994. Net service revenue from accounting
and finance increased 40.2% to $37.0 million in 1995 from $26.4 million in 1994.
The growth in net service revenue from information technology and accounting and
finance staffing services resulted from expansion of flexible staffing services
into new markets and an increase in the number of sales associates. Net service
revenue from engineering, manufacturing and other professional specialties
increased 61.6% to $8.2 million in 1995 from $5.1 million in 1994.
Gross Profit. Gross profit increased 44.1% to $78.8 million in 1995 from
$54.7 million in 1994. As a percentage of net service revenue, gross profit
decreased to 55.5% in 1995 from 60.7% in 1994. The decrease resulted from the
changing mix of the Company's net service revenue toward flexible staffing
services.
Operating Expenses. Operating expenses increased 45.2% to $71.5 million in
1995 from $49.2 million in 1994. The increase resulted primarily from the rapid
expansion of the Company's business including opening offices in five new
markets. In addition, the Company added corporate personnel and began upgrading
its management information system. As a percentage of net service revenue,
operating expenses decreased to 50.4% in 1995 from 54.7% in 1994.
Operating Income. Operating income increased 34.1% to $7.3 million in the
1995 from $5.4 million in 1994, primarily as a result of the above factors.
Other (Income) Expense. Other (income) expense increased to $540,000 of
expense in 1995 from $403,000 of expense in 1994.
Income Taxes. The effective income tax rate was 37.9% and 35.2% in 1995
and 1994, respectively.
16
<PAGE> 19
Net Income. Net income increased to $4.2 million in 1995 from $3.2 million
in 1994, as a result of the above factors.
1994 Compared with 1993
Net Service Revenue. Net service revenue increased 67.3% to $90.1 million
in 1994 from $53.8 million in 1993. The growth in net service revenue was
primarily attributable to management's efforts to expand information technology
flexible staffing services throughout the Company's existing markets and growth
in the number of sales associates to 360 from 254.
Net service revenue from flexible staffing services grew 81.6% to $49.3
million in 1994 from $27.2 million in 1993. The growth in flexible staffing net
service revenue was the result of a 67.3% increase in the number of hours billed
and a 10.9% increase in average billing rates. In 1994, flexible staffing
services were offered in 43 markets as compared to 30 markets in 1993. Permanent
placement net service revenue increased 52.8% to $40.8 million in 1994 from
$26.7 million in 1993. Permanent placement net service revenue growth resulted
primarily from an increase in the number of permanent placements and, to a
lesser extent, an increase in average placement fees.
Net service revenue from information technology increased 84.7% to $58.6
million in 1994 from $31.7 million in 1993. Net service revenue from accounting
and finance increased 38.2% to $26.4 million in 1994 from $19.1 million in 1993.
The growth in information technology and accounting and finance staffing net
service revenue resulted from expansion of flexible staffing services into new
markets and an increase in the number of sales associates. Net service revenue
from engineering, manufacturing and other professional specialties increased
68.8% to $5.1 million in 1994 from $3.0 million in 1993.
Gross Profit. Gross profit increased 61.2% to $54.7 million in 1994 from
$33.9 million in 1993. As a percentage of net service revenue, gross profit
decreased to 60.7% in 1994 from 63.0% in 1993. The decrease resulted from the
changing mix of the Company's net service revenue toward flexible staffing
services.
Operating Expenses. Operating expenses increased 52.8% to $49.2 million in
1994 from $32.2 million in 1993. The increase resulted primarily from hiring
additional sales associates and increased commissions and other variable
expenses associated with net service revenue growth. As a percentage of net
service revenue, operating expenses decreased to 54.7% in 1994 to 59.9% in 1993.
Operating Income. Operating income increased 222.5% to $5.4 million in
1994 from $1.7 million in 1993 for the reasons stated above.
Other (Income) Expense. Other (income) expense increased to $403,000 of
expense in 1994 from $349,000 of expense in 1993.
Income Taxes. The effective income tax rate was 35.2% and 38.6% in 1994
and 1993, respectively.
Net Income. Net income increased to $3.2 million in 1994 from $817,000 in
1993, as a result of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash
generated by operating activities and through various forms of external
financing, including operating leases, capital leases and bank lines of credit.
The principal use of cash is for financing working capital, particularly during
periods of growth. In addition, the Company has used a significant amount of its
cash resources to repurchase stock to provide liquidity to stockholders. Because
a public market in the Common Stock is expected to develop after the Offering,
the Company anticipates that it will no longer use its cash resources to fund
such stock repurchases.
Flexible staffing personnel are generally paid weekly for their services,
whereas customer payments are generally received within 30 to 90 days from date
of invoice. As new offices are established or acquired, or as existing offices
expand, there will be increasing requirements for cash resources to fund
operations. The start-up of services in a new market has generally required
expenditures of up to $200,000 before generating positive
17
<PAGE> 20
cash flow. Historically, such new operations have achieved operating
profitability within nine months of inception but have not contributed
significant net service revenues for the first 12-to-18 months.
As of March 31, 1996, the Company had a $4.0 million bank line of credit,
and borrowings outstanding under this facility were $2.8 million. On May 21,
1996, the Company replaced its $4.0 million credit facility with a $10.0 million
bank line of credit, which was used to repay amounts outstanding under the
previous facility. For the three months ended March 31, 1996, the Company had
negative cash flow from operations of approximately $2.7 million primarily as
the result of the Company's continued investment in accounts receivable and the
continued investment in computer hardware, communications equipment and office
automation software.
In 1995, the Company leased $4.5 million of computer hardware,
communications equipment and office automation software as part of its program
to enhance its management information systems. In 1995, the Company purchased
$2.2 million of fixed assets, consisting primarily of furniture, office
equipment and telephone systems using funds generated through operating
activities. The Company has purchased an additional $1.0 million of fixed assets
through March 31, 1996, consisting mainly of furniture and computer and
telephone equipment for new employees.
As the Company's flexible staffing business grows and accounts receivable
increase (which receivables generally are paid within 30-90 days), the Company's
need for capital will increase. With the exception of possible acquisitions, the
Company believes that its cash balance and funds from operations, combined with
the proceeds of this Offering and its line of credit, will be sufficient to fund
continued expansion of its services and office locations at least through the
next twelve months. The Company believes that any additional amounts that may be
necessary to fund any future acquisition will be available under the Company's
line of credit or from other sources on reasonable terms.
18
<PAGE> 21
BUSINESS
GENERAL
The Company is a specialty staffing services firm that provides flexible
staffing and permanent placement of professional and highly skilled personnel
primarily in the areas of information technology, accounting and finance, and
engineering and manufacturing. It recently expanded its service offerings to
include the staffing of professional and highly skilled personnel in the areas
of health care and legal services. The Company believes that the ability to
provide both flexible staffing and permanent placement of professional and
highly skilled personnel in a broad spectrum of fields enables it to present
integrated solutions to its clients' staffing needs. The Company further
believes that the staffing of professional and highly skilled personnel in
specialty niches generally includes longer term assignments than typical
clerical temporary placement and offers the Company the opportunity for greater
growth and higher profitability. The Company has offices in 52 markets
throughout the United States and one in Canada.
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. The Company
expanded its specialty focus to include accounting and finance in 1976 and
engineering and manufacturing in 1980. The Company believes that by the late
1980's, it had become one of the largest providers of permanent placement
services in the information technology, accounting and finance, and engineering
and manufacturing areas. Using the resources and relationships that it developed
as a leading provider of permanent placement services, the Company in 1991
shifted the focus of its service offerings to flexible staffing services,
traditionally known as temporary staffing, in its areas of specialization. For
the past three years, the Company's net service revenue from flexible staffing
has grown at a compounded annual rate of approximately 70.0%. During 1995,
approximately 60.7% of the Company's net service revenue was derived from its
flexible staffing services.
The Company's flexible staffing business benefits greatly from the
Company's experience in providing permanent placement services. Over its 34
years, the Company has developed expertise in the recruitment and selection of
professionals to satisfy client requests. Also, the Company currently maintains
a database of over one million potential professional or highly skilled
candidates from which it can match its clients' needs. In addition, each of the
Company's sales associates has a background in one of the Company's areas of
specialization, thereby promoting a better understanding of the needs of the
Company's clients and providing the Company an advantage in its recruiting
efforts.
INDUSTRY OVERVIEW
The staffing industry has experienced rapid growth in the last decade with
industry revenues exceeding $60 billion in 1995, according to Staffing Industry
Analysts, a staffing services industry publication. Staffing Industry Analysts
estimated that the temporary help sector reached $41.2 billion in revenues for
1995, which represents an average annual growth rate of 17.7% over the past four
years. According to the National Association of Temporary and Staffing Services,
the flexible staffing industry's share of the total United States workforce has
grown significantly, with more than 90% of all United States businesses now
using flexible staffing services. Flexible staffing personnel account for
approximately 2% of the total United States workforce.
The significant increase in demand for flexible staffing services has been
driven by the fundamental changes in the employer-employee relationship that
have occurred in recent years. Many employers have sought to control personnel
costs by reducing their permanent staff of employees and supplementing their
workforce with temporary employees for special projects, peak work loads and
other needs. Other employers have responded to new technology, increased
automation, shorter technology cycles, governmental regulation and global
competitive pressures by turning to flexible hiring practices to keep costs
variable, achieve maximum flexibility, outsource highly specialized skills and
avoid the negative effects of layoffs. Employers also use flexible staffing to
shift certain employment costs and risks from their business to staffing
companies which often are able to spread these risks and costs over a larger
number of employees.
19
<PAGE> 22
Information technology has become one of the fastest growing sectors of the
staffing services industry according to Staffing Industry Analysts. Over the
last decade the increased use of technology has led to a dramatic rise in demand
for technical project support, software development and other computer-related
services. Businesses have outsourced many of these functions and have used
employees of specialty staffing firms in an attempt to meet the increased demand
for computer-skilled personnel. Staffing Industry Analysts estimated that net
service revenue from the information technology sector of the staffing services
industry reached $8.9 billion in 1995 and increased approximately 25% from 1994.
The Company believes that the staffing services industry is highly
fragmented and is currently experiencing a trend towards consolidation due
primarily to demand by larger companies for centralized staffing services and
the increased difficulties of smaller staffing services firms resulting from
increased working capital requirements, limited management resources and a
highly competitive environment.
BUSINESS STRATEGY
The Company seeks to be a leading provider of specialty staffing services.
The Company's business strategy includes the following key elements.
Focus on Flexible Staffing. In recent years, employers have substantially
increased their utilization of flexible staffing services, a trend that the
Company expects to continue. As a result, the Company has focused, and intends
to continue to focus, on offering flexible staffing services in its areas of
specialization. The Company strives to become the vendor of choice to corporate
clients seeking flexible staffing solutions to their employment needs and the
employer of choice for highly skilled professionals seeking flexibility in
hours, project type and workplace.
Focus on Specialty Staffing Services. The Company focuses on providing
professional and highly skilled personnel for its clients' specialty staffing
needs. The Company believes that the specialty staffing segments offer greater
growth and profitability than other segments of the staffing services industry
requiring less skilled personnel. In addition, the Company believes that its
expertise and reputation in its areas of specialization provide a competitive
advantage in attracting highly qualified personnel.
Recruit Highly Qualified Candidates. Recruiting is critical to the
Company's business and growth strategy. The Company strives to maintain a
competitive advantage in the recruiting process by: (i) hiring sales associates
with experience in the Company's areas of specialization; (ii) cultivating the
Company's reputation as a leading provider of specialty staffing services
through its marketing efforts; (iii) maintaining a database with over one
million candidates coupled with using proprietary technology to match clients'
needs with candidates' skills; and (iv) offering candidates both flexible
staffing and permanent placement opportunities with a large and diverse client
base.
Focus on Client Needs. The Company focuses on providing integrated
staffing solutions to meet the needs of its clients. The Company emphasizes
building long-term relationships with its clients by assuming a consultative
role, rather than a project-oriented role, in addressing the overall specialized
staffing needs of its clients. The Company's sales associates are responsible
for maintaining a close working relationship with their clients including
developing a comprehensive understanding of the clients' business and specific
staffing needs. By providing on-going support of its sales associates through
training, advertising and its proprietary management information systems, the
Company seeks to retain its sales associates, who provide critical continuity in
maintaining relationships with its clients.
Utilize Proprietary Technology and Extensive Candidate Database. Through
its proprietary software, the Company believes that it is better able to match
client-specified criteria to the skills possessed by candidates. The Company's
management information system also contains a database with information on more
than one million potential candidates. The Company periodically updates its
database and identifies the employment status of candidates therein. Even if not
currently seeking employment opportunities, candidates included in this database
serve as an extensive source of referrals for the Company. The Company believes
that its proprietary software and candidate database enable it to more
successfully match candidates with client-specified criteria, thereby building
client confidence in its services.
20
<PAGE> 23
GROWTH STRATEGY
The Company intends to expand its business by focusing on the following
growth strategies.
Leveraging Existing Relationships. During its 34 years in the specialty
staffing industry, the Company has established relationships with numerous
clients and candidates. The Company's position as a leading provider of both
flexible staffing and permanent placement services in multiple areas of
specialization allows it to provide a wide range of staffing services to
existing clients, thereby expanding its business within its current client base.
The substantial increase in the Company's net service revenue from flexible
staffing over the last four years was derived in substantial part from providing
flexible staffing services to existing permanent placement clients. The Company
believes that the experience gained during that period in promoting its flexible
staffing services to existing clients will enable the Company more effectively
to increase the sale of its newer service offerings to existing clients.
Expand Services in Existing Markets. The Company offers the combination of
information technology, accounting and finance, and engineering and
manufacturing services in 11 of the 53 markets it serves. While information
technology services are offered through almost all of its offices, the Company
believes that the opportunity exists to expand accounting and finance,
engineering and manufacturing, as well as its other professional staffing
services in most of its existing locations, as local market considerations
dictate.
Open Offices in New Markets. The Company plans to expand by opening
offices to serve new geographic markets. The Company opened offices in five new
markets during 1995. In selecting new locations, the Company analyzes various
information, including availability and quality of placement candidates, market
demand and local hiring practices in order to determine which of its services
are appropriate for that geographic location. The Company has identified
numerous domestic markets that satisfy its criteria for geographic expansion,
including at least 12 metropolitan areas with populations of greater than
800,000 in which the Company currently does not have an office. The Company may
also consider additional markets in Canada and Mexico.
Introduce New Services. The Company plans to introduce new staffing
services in an effort to meet client demands. The Company recently began to
offer the placement of nurses and other licensed health care professionals
through one of its offices. The Company also is evaluating its ability to
provide outsourcing services, such as managing a complete information technology
function. While the Company's focus will continue to be in professional
staffing, management believes that offering less skilled personnel would
complement its current service offerings and allow it to attract certain larger
clients who desire to obtain such services from a single source. Because the
existing staffing infrastructure is already in place, management believes that
adding the less highly skilled service line can be done with little additional
cost and at attractive profit margins.
Pursue Strategic Acquisitions. Substantially all of the Company's growth
has been through internal expansion. In recent years, the Company has not had
the financial resources to complete the acquisition of additional staffing
businesses. The Company believes that the opportunity exists to expand its
service offerings and geographic presence through strategic acquisitions.
THE COMPANY'S SPECIALTY STAFFING SERVICES
Overview. The Company is a staffing services firm that specializes in
providing flexible staffing and permanent placement of professional and highly
skilled personnel primarily in the areas of information technology, accounting
and finance, and engineering and manufacturing. It has offices in 52 markets
throughout the United States and one in Canada. The Company has recently
expanded its service offerings to include the staffing of professional and
highly skilled personnel in the areas of health care and legal services. The
Company believes that providing a broad range of specialty staffing services
allows it to capitalize on its name recognition and reputation initially
developed as a provider of personnel to the information technology industry.
The Company seeks to develop an understanding of its clients' staffing
needs through its sales associates, each of which has a background in an area in
which the Company specializes. For example, sales associates in
21
<PAGE> 24
the Company's information technology divisions have technical experience in
various computer-related fields, while most sales associates in the Company's
accounting and finance divisions are certified public accountants. The
specialized background of each of the Company's sales associates, coupled with
the Company's emphasis on developing and maintaining long-term relationships
with its clients, fosters the development of a consultative relationship which
enhances the Company's ability to offer integrated staffing solutions to meet
the needs of its clients.
Due to its position as a provider of flexible staffing and permanent
placement staffing services in its primary areas of specialization, the Company
has developed access to a large number of highly qualified candidates. The
Company maintains a database of qualified candidates containing more than one
million names. The Company seeks to assure the high quality of its candidates
through personal screening interviews with each candidate. These screening
interviews are conducted by sales associates having a background in the
candidate's area of specialty thereby further enabling the Company to offer to
its clients candidates which best meet the clients' staffing needs. The
Company's policy is to replace, without additional charge, flexible staffing
personnel who fail to perform to the client's satisfaction and candidates placed
in permanent positions whose employment terminates within the guarantee period.
Flexible Staffing. Flexible staffing involves the placement of Company
employees and independent contractors on short and long-term assignments with
clients. The Company's flexible staffing services offer its clients a reliable
and cost-effective way of obtaining professional and highly skilled personnel
for special projects or to balance uneven or peak workloads. Because of its
reputation and expertise in the segments of the staffing industry in which it
specializes, the Company has access to a large number of highly qualified
candidates to meet its clients' flexible staffing needs. The Company believes
that many professional and highly skilled personnel are attracted to flexible
staffing positions because of their desire to maintain flexible work schedules,
obtain different and challenging work experiences and familiarize themselves
with an employer prior to considering permanent employment. Additionally, the
Company believes that its ability to offer both flexible staffing and permanent
placement options to candidates gives the Company a competitive advantage in
attracting highly skilled and qualified flexible staffing placement candidates.
Typically, the duration of flexible assignments ranges from days or weeks
to months, or in some cases years. During a typical week, the Company has more
than 1,600 persons in flexible positions with clients. The Company charges
hourly fees for personnel placed in flexible staffing assignments. For 1995 and
the quarter ended March 31, 1996, flexible staffing accounted for approximately
60.7% and 63.4%, respectively, of the Company's net service revenue.
The following table sets forth the number of markets in which the Company
offered flexible staffing services in its areas of specialization during the
years indicated:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Information Technology................................. 6 12 23 35 43 46
Accounting and Finance................................. 8 13 20 22 24 39
Engineering and Manufacturing.......................... 0 0 3 7 11 12
Other.................................................. 0 0 0 2 4 5
</TABLE>
Set forth below are the percentages of the Company's net service revenue
derived from its flexible staffing services for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................... 31.2% 38.1% 44.1% 43.4% 46.2%
Accounting and Finance................... 17.7 15.4 14.6 17.0 14.9
Other.................................... .4 1.2 2.0 2.1 2.3
----- ----- ----- ------ -------
Total Flexible Staffing........ 49.3% 54.7% 60.7% 62.5% 63.4%
===== ===== ===== ====== =======
</TABLE>
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<PAGE> 25
Permanent Placement. During 1995 and the quarter ended March 31, 1996,
permanent placements accounted for 39.3% and 36.6%, respectively, of the
Company's net service revenue. The Company currently offers permanent placement
services in 52 markets in 29 states and one in Canada.
Permanent placement services include placement of candidates in permanent
positions with clients. The Company believes that many businesses, in an effort
to manage their cost structures and focus on their core business, have generally
reduced the number of permanent, full-time employees as well as the size and
capability of their human resources functions. Accordingly, companies rely more
heavily on permanent placement providers for their hiring needs. The Company
further believes that the increasing demand for specialized employee skills has
enhanced its clients' dependence on its ability to more effectively identify and
understand specialized and technical candidate skills. In addition, utilizing
permanent placement providers allows companies to access a broader range of
professional and highly skilled candidates. The Company believes its 34 year
history in permanent placement services, its database containing information on
over one million qualified potential placement candidates, its national presence
and its practice of employing sales associates with backgrounds in the areas in
which they recruit enable it to provide permanent placement staffing solutions
that meet clients' needs.
The Company's permanent placement services typically result in payment to
the Company when a candidate is hired by a client and the candidate is retained
for the duration of the guarantee period. The Company's fee is usually
structured as a percentage of the placed candidate's first-year annual
compensation.
Set forth below are the percentages of the Company's net service revenue
derived from its permanent placement services for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................... 27.7% 27.0% 24.0% 23.2% 21.2%
Accounting and Finance................... 17.8 13.9 11.5 11.5 10.8
Other.................................... 5.2 4.4 3.8 2.8 4.6
----- ----- ----- ------ -------
Total Permanent Placement...... 50.7% 45.3% 39.3% 37.5% 36.6%
===== ===== ===== ====== =======
</TABLE>
AREAS OF SPECIALIZATION
The Company specializes in providing flexible staffing and permanent
placement of professional and highly skilled personnel in the areas of
information technology, accounting and finance, engineering and manufacturing,
health care and legal services through eight divisions. The Company regularly
reviews its areas of specialization to determine whether new areas can be added
to better serve its clients' needs. Although the Company will continue to focus
on providing professional and highly skilled personnel, it may expand into less
skilled areas in order to meet the needs of clients who desire to obtain their
staffing services from one source.
Information Technology. The Company provides persons highly skilled in
computer-related fields for flexible staffing and permanent positions. Staffing
of information technology personnel accounted for approximately 68.1% of the
Company's net service revenue in 1995 and approximately 67.4% in the quarter
ended March 31, 1996.
The Company meets clients' information technology staffing needs through
two divisions. SOURCE CONSULTING provides experienced professionals in all
information technology disciplines for flexible staffing assignments. SOURCE EDP
provides information systems professionals on a contingency fee and retainer
basis for permanent employment.
Due to the rapid development of information technology, many companies'
computer systems incorporate a variety of hardware and software components which
may span a number of technology generations. For example, a company may operate
concurrently on mainframe, midrange and client/server hardware platforms running
a variety of operating systems and relational databases. Systems applications
development has become much more important in this environment as information
technology departments strive to integrate a
23
<PAGE> 26
company's information processing capabilities into a single system while
providing for ever-changing functionality. In addition, in order to facilitate
communication within organizations, there is a greater need for information
technology personnel with specific expertise in the rapidly evolving
location-wide networking and communications technologies.
The substantial increase in the use of sophisticated information
technologies has coincided with economic factors that have led to reductions in
corporate work forces and a return by businesses to a focus on their core
competencies. Faced with the challenge of implementing and operating more
complex information systems without enlarging their corporate staffs, businesses
are increasingly using specialty staffing services companies to augment their
information technology operations.
At the same time, an increasing number of technical professionals are
choosing to operate as consultants, motivated by a desire for more flexible work
schedules and an opportunity to work with emerging and challenging technologies
in a variety of industries and work environments. Such consultants generally are
able to maintain compensation levels comparable to or higher than that of
similarly skilled, full-time employees. These factors have caused information
technology services to be one of the fastest growing segments of the specialty
staffing services industry.
The Company's information technology consultants provide computer
programming assistance, systems analysis and design, software engineering,
network support and personal computer help desk services. The projects on which
these consultants are placed range in duration from weeks or months to over one
year.
Because technical needs are diverse and technology advances occur
frequently, information technology consultants are in high demand. As a result,
the Company focuses heavily on recruiting persons highly skilled in a variety of
computer-related fields. The Company believes that building a large base of
personnel highly skilled in computer-related fields who are available for
assignment is as integral to its success as are its client relationships. To
recruit such personnel, the Company uses targeted telephone recruiting, obtains
referrals from its existing consultants and clients and places newspaper
advertisements. To foster loyalty and commitment from its existing information
technology consultants, the Company maintains frequent contact and offers
competitive wages, flexible schedules and exposure to a variety of information
technology systems.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Chief Information Officers - Directors of Systems Development
- Systems Analysts - Systems Programmers
- Office Automation Analysts - Telecommunications Analysts
- Software Quality Assurance
- Application Programmers Personnel
- Database Architects and Administrators - Data Administration Personnel
- Database Support Personnel - Computer Operators
- Software Maintenance Personnel - Systems Auditors
- Database Architecture Personnel - Programmer Analysts
- Data Security/Disaster Recovery Personnel - Systems Designers
- Data Communication Architecture Personnel - Operating System Support Personnel
- Network Design and Administration Personnel - Production Control Personnel
- Client Server Support Personnel - Project Managers
- Help Desk Support and Training Personnel - Project Leaders
- Data/Voice Communications Personnel - Software Engineers
- Software Designers - Systems Integration Specialists
- Datacenter Managers - Training Specialists
</TABLE>
Accounting and Finance. For 1995 and the quarter ended March 31, 1996,
staffing of accounting and finance personnel accounted for approximately 26.1%
and 25.7%, respectively, of the Company's net service revenue. The Company meets
clients' accounting and finance staffing needs through two divisions. ACCOUNTANT
SOURCE TEMPS provides accounting and financial personnel for flexible staffing
assignments in 39 markets. SOURCE FINANCE provides experienced accounting and
finance professionals on a contingency fee and retainer basis for permanent
employment in 37 markets.
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<PAGE> 27
Fundamental changes in the accounting profession have resulted from the
increased use of information technology to automate routine transactions. For
example, sophisticated software prepares information and reports formerly
prepared by larger accounting staffs. Therefore, the role of accountants is
changing from preparing to analyzing information and reports. These changes
require that accounting and finance personnel have greater analytical abilities
and skills consistent with the increased utilization of technology. The Company
believes that its emphasis on specialty staffing better allows it to attract
accounting and finance professionals with these more advanced skills.
The use of accounting and finance professionals in flexible staffing
assignments offers clients a reliable and cost-effective means of handling
uneven or peak workloads caused by events such as periodic financial reporting
deadlines, tax deadlines, special projects, systems conversions and unplanned
staffing fluctuations. The Company meets such clients' needs with personnel who
have an extensive range of financial and accounting experience, including
corporate taxation, budget preparation and analysis, financial reporting,
regulatory filings, payroll preparation, cost analysis, and audit services.
Through the use of the Company's services, clients are able to avoid the cost
and inconvenience of hiring and terminating permanent employees. Typically, the
duration of flexible staffing assignments of accounting and finance personnel is
six to eight weeks.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Chief Financial Officers - Treasurers
- Controllers and Assistant Controllers - Financial Analysts
- Tax Accountants - Financial Reporting Specialists
- Staff and Senior Accountants - Cost Accountants
- Internal Audit Personnel - Accounting Managers
- Credit and Collections Personnel - Budget Analysts
- General Accounting Administrative Personnel - Full Charge Bookkeepers
</TABLE>
Engineering and Manufacturing. The Company provides professional personnel
in the fields of engineering and manufacturing in 12 of the Company's markets in
six states. For 1995 and the quarter ended March 31, 1996, staffing of
engineering and manufacturing personnel accounted for approximately 5.8% and
6.9%, respectively, of the Company's net service revenue.
The Company meets clients' engineering and manufacturing staffing needs
through two divisions. SOURCE ENGINEERING provides personnel highly skilled in a
variety of engineering disciplines for both flexible staffing and permanent
placement. SOURCE MANUFACTURING provides both flexible staffing and permanent
placement of persons highly skilled in a variety of manufacturing and industry
management disciplines.
The demand for engineering and manufacturing professionals has increased
with the general increase in activity in the industrial and manufacturing
sectors of the national economy. Additionally, as a result of increased use of
automation, shorter production cycles and an increased emphasis on quality
assurance and quality control in manufacturing processes, and the emergence of
management techniques emphasizing team development, the skills required of
engineering and manufacturing professionals have changed. The Company has
recognized these trends, and through screening of candidates has emphasized
placement of engineering and manufacturing professionals having the skills
necessary in today's market.
25
<PAGE> 28
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Quality Engineers - Quality Managers and Directors
- ISO 9000 Personnel - Quality Assurance Personnel
- Information Engineers - Human Resources Personnel
- Purchasing and Materials Management
Personnel - Sales Engineers
- Systems Engineers - Software Engineers
- Systems and Software Design Specialists - Equipment Testers
- Civil Engineers - Industrial Engineers
- Electrical Engineers - Mechanical Engineers
- Design Engineers - Product Managers
- Production Managers - Production Controllers
- Production Schedulers - Product Designers
- Inventory Control Managers
</TABLE>
Legal Services. Through its SOURCE LEGAL division, the Company recently
has started to provide legal services personnel for flexible staffing and
permanent placement in five markets.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Attorneys - Firm Administrators
- Legal Assistants - Litigation Support Personnel
- Document Coding Specialists - Legal Secretarial Personnel
- Legal Fileclerks - Legal Computer Professionals
</TABLE>
Health Care. Commencing in January 1996, the Company, through its SOURCE
HEALTHCARE STAFFING division, began to provide licensed professionals to health
care institutions through one of its offices.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Physicians - Radiologists
- Physician Assistants - Registered Nurses
- Licensed Practical Nurses - Licensed Vocational Nurses
- Nursing Assistants - Medical Technicians
- X-Ray Technicians - Physical Therapists
</TABLE>
ORGANIZATIONAL STRUCTURE
The Company currently operates offices in 52 markets throughout the United
States and one in Toronto, Canada. The Company's operations are divided into
three geographic regions, each of which is under the management of a Vice
President of Operations who is responsible for the overall profitability of his
region. Each market served by the Company in a region is managed by a Managing
Director who reports directly to the Vice President of Operations of that region
and is responsible for sales of the Company's services in that market. Each of
the service offerings in a market is supervised by a Sales Manager for that
service. Each of the service offerings in each market is served by sales
associates who report to a Sales Manager.
The Company believes that the current business environment requires service
providers to be responsive to the ever-changing needs of their clients. To meet
this requirement, in 1996 the Company implemented an organizational structure
and compensation policy that is designed to promote an entrepreneurial spirit
among its employees. To this end, the Company permits its managers considerable
discretion, within overall Company policies, in hiring, pricing, training and
marketing decisions at the local level. The Company's compensation policy is
designed to reward contributions at all operating levels to the increased
profitability of the Company's business. Since its inception, the Company has
been substantially owned by its employees. The Company believes that its
employee owners have an incentive to enhance the profitability of the Company's
business in order to promote growth and an increase in the value of their equity
interest in the Company.
In order to provide further focus on its flexible staffing services, the
Company has created national executive management positions for the Company's
areas of specialization. The Company has filled the
26
<PAGE> 29
position of National Director of Flexible Staffing Services for the accounting
and finance area and is seeking to fill similar positions for its other flexible
staffing service offerings. These managers will support operational management
and will be charged with developing comprehensive plans encompassing market
expansion, emerging services, marketing strategies and operational performance
objectives for their area of specialization. The Company believes that these
managers, working closely with operational management, can develop integrated
staffing strategies that increase the likelihood of cross-selling of services
and greater customer penetration.
RECRUITING AND TRAINING
Recruiting candidates is critical to the Company's business and growth
strategy. The Company believes it has an advantage over its competitors in
recruiting highly qualified personnel for the following reasons:
- The background and experience of the Company's sales associates in
each of its areas of specialization;
- The Company's reputation as a leading provider of specialty staffing
services;
- The Company's database of over one million candidates; and
- The Company's ability to offer candidates both flexible staffing
assignments and permanent placement opportunities.
The Company attracts more than half of its candidates through referrals and
repeat business. Additional candidates are identified through a comprehensive
Candidate Attraction Program which includes the use of a proprietary, on-line
database containing the names, qualifications and other relevant information on
more than one million professional or highly skilled candidates; using
proprietary and purchased lists of prospects; the use of the Internet, including
a Company home page; national advertising campaigns; attendance at trade shows
and career conferences; speaking engagements and professional association
memberships; local media advertising; and college campus promotional activities
and speaking engagements. Because of its national geographic presence, the
Company has the ability to recruit highly qualified personnel in certain of its
areas of specialization, such as engineering and manufacturing and health care,
that require a regional or national focus.
The Company relies heavily on the recruitment efforts of its sales
associates. The majority of the Company's sales associates first contact the
Company as applicants for the Company's placement services. Therefore, most of
the Company's sales associates have personally experienced and benefitted from
the ability of the Company to place its candidates in attractive flexible
staffing or permanent placement positions. This personal experience benefits the
sales associate and the Company in recruiting qualified candidates and in
understanding the staffing needs of the Company's clients. During the first four
months of 1996, the Company hired a net 100 additional sales associates. While
it typically takes four to six months for a new sales associate to become
profitable, the Company believes that these additions are an investment for
future growth.
The Company's sales associates are trained by the Company. Each newly-hired
sales associate attends a one week initial training program administered by the
corporate training department which employs field personnel as trainers. When
sales associates return to their assigned office, they undergo an additional
nine weeks of training by local office management. This "Certification Program"
is unique for each service of the Company and is formal in its execution,
including both qualitative and quantitative training events with formal sign-off
by local management. Additionally, regularly scheduled meetings in each branch
office include training events based on specific needs in that office. Audio
visual training aids are developed and disseminated by the corporate training
department to support field management with ongoing training.
Before a candidate is placed with a client in either a flexible staffing or
permanent position, a sales associate with a background in the candidate's area
of specialty will conduct a personal interview with that candidate in order to
evaluate qualifications and level of skills. This screening process allows the
sales associate to match candidates who can satisfy the needs of individual
clients as well as direct the prospective candidates toward opportunities that
are well suited to their career goals.
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<PAGE> 30
The Company offers all of its candidates the opportunity to develop or
enhance their skills as technological or other changes occur through a variety
of training aids. In connection with an upgrade to its management information
systems, the Company is installing training software licensed from a third-party
supplier. Candidates for the Company's flexible staffing and permanent placement
services also have the opportunity to increase their technical and business
skills through the use of an on-line discussion database and chat line. See
"Business -- Management Information System."
SALES AND MARKETING
The Company markets to local accounts through its sales associates, thereby
permitting the Company to capitalize on their expertise and relationships in
local markets. Marketing activities at the local level are conducted within
guidelines established by the Company and are supervised through the Vice
Presidents of Operations, Managing Directors and Sales Managers.
The Company's national marketing strategy, which is largely based on
attracting clients who desire to work with a limited number of vendors for their
staffing needs, is developed and coordinated at the corporate level and is
implemented through regional and local management. This enables the Company to
develop a focused national marketing strategy that is consistent throughout all
of its markets.
Clients are solicited through personal sales presentations, presentations
at trade shows, telephone marketing, direct mail solicitation, Company-sponsored
technical seminars and training, and referrals from clients and candidates. In
addition, as a result of its history of providing permanent placement services,
the Company has developed and strives to maintain a network of persons who were
placed using the Company's services, are now in positions to affect hiring
decisions and rely on the Company's services in filling their flexible staffing
and permanent placement needs. The Company advertises in a variety of local and
national media, including the Yellow Pages, local and national newspapers and
trade publications. The Company also operates a Web page on the Internet which
provides both clients and candidates with information about the Company and its
services as well as employment opportunities. Each year, the Company publishes
national salary surveys for professionals in the information technology,
accounting and finance, and engineering and manufacturing industries because the
Company recognizes the need for candidates to have timely information regarding
hiring trends and skills currently in demand. In addition, the Company maintains
information regarding the hiring status of employers and the skills they
require.
The Company's marketing plan incorporates a continual review of its
clients' anticipated future staffing needs to enable the Company to respond to
changes in "in-demand" skills. The quality of the relationship with client
personnel is a key component of this strategy, and the Company seeks to develop
long-term consultative relationships with each of its clients to more fully
understand and anticipate their flexible staffing and permanent placement needs.
MANAGEMENT INFORMATION SYSTEMS
The Company relies heavily on its management information systems in the
conduct of its business. The Company principally uses a proprietary, mainframe
based system called SCORE. The Company believes that SCORE's unique system of
coding skills and qualifications of the Company's candidates provides the
Company an advantage in matching such skills and qualifications with clients'
needs. For example, SCORE enables the Company to include within the coding of
the skills and qualifications of a candidate various sub-sets of the candidate's
skills and other related qualifications. Thus, a search of the Company's
database for candidates possessing a group of skills and qualifications,
including, for example, a high level of skill in a particular computer program,
will also identify candidates possessing most of the required qualifications and
having skills in related or similar computer programs. This enables the Company
to respond to specific client needs by searching for candidates possessing
highly specialized skills or a broad grouping of skills as the circumstances
require.
In 1995, the Company began upgrading its management information systems.
This upgrade program, which involves both the acquisition of new equipment and
the adaptation of the SCORE system to the new equipment, is based on the use of
client-server technology, the increased use of personal computers in each of
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<PAGE> 31
its offices, the inter-connection of all of its computer systems over a
high-speed frame relay network, and the use of third-party software to manage
daily documentation and correspondence with clients and to provide training for
the Company's candidates. As part of this upgrade, the SCORE system is being
enhanced to work in the new client-server based network environment. The Company
believes that the enhanced system will:
- Support a broader range of staffing services offerings and will provide
substantially increased support for the Company's flexible staffing
services;
- Integrate back office financial and accounting functions with front
office operations using industry standard third-party software;
- Be able to accommodate larger databases and perform larger and more
complex searches;
- Contain additional productivity features;
- Have a graphical user interface promoting ease of use; and
- Accommodate the expansion of the Company's business for the foreseeable
future.
The present SCORE system will be retained and will continue to be operable
until the enhanced system is fully implemented, which is expected by late 1996.
Although the Company believes the enhancement program is proceeding on schedule,
no assurance can be given that the enhancements will be implemented within the
planned time or that, if implemented, the enhanced system will provide expected
benefits.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are limited barriers to entry and new competitors frequently
enter the market. A number of the Company's competitors possess substantially
greater resources than the Company. The Company faces substantial competition
from local and national specialty staffing firms. National specialty staffing
firms that offer staffing services in some or all of the Company's areas of
specialization include AccuStaff Incorporated, Alternative Resources
Corporation, COREStaff, Inc., Robert Half International, Inc. and Romac
International, Inc. In addition, in each of the Company's markets, one or more
local firms compete with the Company.
The Company believes that the availability and quality of candidates, the
level of service, the effective monitoring of job performance and the price of
service are the principal elements of competition in the staffing industry. The
Company believes that the availability of qualified candidates is especially
important. In order to attract qualified candidates, the Company places emphasis
upon its ability to provide both flexible staffing and permanent placement
opportunities, and must offer competitive compensation, quality and varied
assignments and scheduling flexibility. Additionally, in certain markets the
Company has experienced significant pricing pressure from some of its
competitors. Although the Company believes it competes favorably with respect to
these factors, it expects competition to increase and there can be no assurance
that the Company will remain competitive.
PROPERTIES
The Company owns no real estate. It leases its headquarters as well as its
branch offices. The leases generally have terms of five years. The Company
believes that its facilities are adequate for its needs and does not anticipate
difficulty replacing any of its facilities or locating additional facilities.
INSURANCE
The Company maintains insurance in such amounts and with such coverages and
deductibles as management believes are reasonable. The principal risks that the
Company insures against are workers' compensation, personal injury, bodily
injury, property damage, professional malpractice, errors and omissions and
fidelity losses. See "Risk Factors -- Employment Liability Risk."
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TRADEMARKS
The Company has registered the following trademarks: ACCOUNTANT SOURCE
TEMPS, SOURCE ENGINEERING, SOURCE, SOURCE CONSULTING, SOURCE EDP, SOURCE
FINANCE, SOURCE TEMPS, SOURCE LEGAL and SOURCE SERVICES. The Company also has
registered the SOURCE EDP logo. The Company vigorously defends its rights
pursuant to these trademarks. The Company believes that the loss of one or more
of such trademarks could have a material adverse effect on its business.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 2,600 persons. Of
such persons, approximately 50 were engaged in corporate management and support
functions, approximately 800, including approximately 400 sales associates, were
involved in functions related to customer service, and the balance of 1,750 (of
which approximately 150 were independent contractors) were available for or were
on assignment in temporary staffing positions. As the employer, the Company is
responsible for the permanent and temporary payrolls and employer's share of
social security taxes (FICA), federal and state unemployment taxes, workers'
compensation insurance and other direct labor costs relating to its employees.
The Company offers access to various insurance programs and benefits for its
flexible employees. The Company has no collective bargaining agreements covering
any of its employees and has never experienced any material labor disruption.
The Company considers its relations with its employees to be good.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company is not
currently involved in any material litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their ages as of
May 15, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ------------------------------------------------
<S> <C> <C>
D. Les Ward(1)..................... 42 President, Chief Executive Officer and Director
Richard Dupont..................... 41 Chief Financial Officer and Secretary
Jack A. Causa...................... 47 Vice President of Operations -- Eastern Division
Joseph A. Gendron.................. 45 Vice President of Operations -- Western Division
Lawrence J. Stanczak............... 47 Vice President of Operations -- Central Division
John N. Allred(2).................. 49 Director
Adrian Alter(2)(3)................. 70 Director
Paul M. Bass, Jr.(1)(3)............ 61 Director
Wayne D. Emigh(1)(2)............... 62 Chairman of the Board of Directors
John Sifonis(3).................... 55 Director
Karl Vogeler(2).................... 53 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
D. Les Ward has served as President and Chief Executive Officer of the
Company since September 1994. From December 1989, when he joined the Company,
until September 1994, Mr. Ward served as Chief Financial Officer of the Company.
From November 1988 until joining the Company, Mr. Ward served as Controller of
Muratec Incorporated, a telecommunications company. Mr. Ward has fifteen years
of financial management experience, including management positions with
companies in the telecommunications, oil and gas and insurance industries. Mr.
Ward has served as a director since September 1994.
Richard Dupont joined the Company in December 1989 as its Controller and
has served as its Chief Financial Officer and Secretary since September 1994.
From November 1988 until joining the Company, Mr. Dupont served in various
capacities, including Assistant Controller, of Muratec Incorporated. Mr. Dupont
has fifteen years of financial management experience, including positions with
companies in the telecommunications, retail and insurance industries.
Jack A. Causa has served as Vice President of Operations -- Eastern
Division since October 1995. From 1985 until that time, Mr. Causa served as
Regional Vice President of the Company. Prior to that time, Mr. Causa held
various management positions with the Company, beginning in 1981. Prior to
joining the Company, Mr. Causa served as Director of Financial Services of
Carter-Wallace, Inc., a consumer products and pharmaceutical manufacturer. Mr.
Causa is a Certified Public Accountant and has six years of audit experience
with Price Waterhouse LLP.
Joseph A. Gendron has served as Vice President of Operations -- Western
Division since October 1995. From April 1992 until that time, Mr. Gendron served
as Regional Vice President after having served as Managing Director from October
1991. From October 1990 until October 1991, Mr. Gendron served as a search
consultant for Innovative Technology, a personnel search firm specializing in
the placement of data communication and software professionals. Prior to that
time, Mr. Gendron served in various capacities with the Company from March 1983.
Lawrence J. Stanczak was named Vice President of Operations -- Central
Division in December 1995. From January 1994 until that time, he served as
Managing Director of the Company's Chicago market. From
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July 1993 through December 1993, Mr. Stanczak was a branch manager of Data
Performance, Inc., a provider of temporary personnel. Prior to that, Mr.
Stanczak served in various capacities with the Company, including Chicago Area
Manager of Source Edp from May 1983 until October 1993.
John N. Allred has served as President of A.R.G., Inc., a provider of
temporary and permanent physicians located in Kansas City area since January
1994. Prior to that time, Mr. Allred served in various capacities with the
Company. Beginning in 1976 he was named Branch Manager of the Kansas City
branch, and was promoted to Regional Vice President in 1983 and Vice President
in 1987. Prior to joining the Company, Mr. Allred held various positions,
including Manager of Data Processing Services and Systems Analyst with Systec
Data Management. Mr. Allred served as a director of the Company from August 1992
until November 1993 and was again elected as a director in September 1994.
Adrian Alter served as Managing Partner of the Dallas/Fort Worth office of
Ernst & Young until his retirement in 1986. From 1986 until 1988, he was a
Senior Vice President and Managing Director of Corporate Finance of Lovett,
Underwood, Neuhaus & Webb, an investment banking firm. Since 1988, Mr. Alter has
been President of Alter and Associates, a financial consulting firm located in
Dallas, Texas. Mr. Alter has served as director of the Company since 1991.
Paul M. Bass, Jr. has been Vice Chairman of First Southwest Company, a
regional investment banking firm, since 1988. He has served as director of the
Company since 1992. Mr. Bass is also affiliated with First Nationwide Bank
F.S.B. (Director and Chairman of the Audit Committee), Keystone Consolidated
Industries, Inc., a wire manufacturing company (Director and Chairman of the
Audit Committee), and MACC Private Equities, Inc., a small business investment
company (Director and Chairman of the Board).
Wayne D. Emigh has served as a director of the Company since 1983. He has
served as Chairman of the Board intermittently from 1985 to 1991, and
continuously since 1993. Mr. Emigh joined the Company in 1968 and served in
various management positions until retiring in 1985. Mr. Emigh also served as
President of the Company on an interim basis from January 1991 until September
1991. Prior to joining the Company, Mr. Emigh held various positions, including
Director of Corporate Management Information Systems, with Rexall Drug and
Chemical Company, a pharmaceutical company, and System Analyst with UNIVAC,
Inc., a computer technology firm.
John Sifonis has been a Principal with Siberg Associates, an information
technology consulting firm in New York, New York, for more than five years.
Prior to that time, Mr. Sifonis has served as Vice President of Mercer
Management Consultants, as Partner with Ernst & Young LLP and in various
development positions with Unisys, Inc., a computer technology firm, and General
Electric Corp. Mr. Sifonis is the author of two books on corporate management,
Dynamic Planning and Corporation on a Tightrope. Mr. Sifonis has served as a
director of the Company since 1992.
Karl Vogeler has been an attorney with the firm of Thompson, Coe, Cousins &
Irons in Dallas, Texas since 1990. Mr. Vogeler's previous business experience
includes serving as Branch Manager of the Dallas, Texas office of Source Edp, as
Project Manager and Senior Systems Analyst of Republic National Bank of Dallas,
N.A., and Systems Engineer for Electronic Data Systems, Inc. Mr. Vogeler has
served on the Board of Directors of the Company since 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors is composed of Messrs.
Emigh, Ward and Bass. Subject to statutory limitations, the Executive Committee
is authorized to exercise the powers of the Board of Directors between regular
meetings.
The Audit Committee is composed of Messrs. Allred, Alter, Emigh and
Vogeler. The Audit Committee reviews the scope of the independent accountants'
examinations of the Company's financial statements and receive and review their
reports. The Audit Committee also meets with the independent accountants,
receives recommendations or suggestions for changes in accounting procedures,
and initiates and supervises any special investigations it may choose to
undertake.
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The Compensation Committee consists of Messrs. Alter, Bass and Sifonis. The
Compensation Committee determines the nature and amount of all compensation of
the Company's officers. In addition, the Compensation Committee oversees
administration of the Company's Employees' Stock Option Plan.
DIRECTOR COMPENSATION
Fees and Other Arrangements. The Chairman of the Board receives an annual
fee of $12,000, and all other directors who are not employees of the Company
receive an annual fee of $9,600. Each non-employee director also receives $1,000
for each meeting of the Board of Directors attended and $500 for each meeting of
a committee of the Board of Directors attended or participation in other Board
activities, plus reimbursement of out-of-pocket expenses incurred in connection
with such attendance or participation. Mr. Emigh also receives medical insurance
under the Company's group insurance plan. See "Compensation Committee Interlocks
and Insider Participation."
During 1994 and 1995, the Company granted options to purchase an aggregate
of 87,000 shares of Common Stock to current members of the Board of Directors
who are not employees of the Company.
Non-Employee Directors Stock Option Plan. Pursuant to the Company's
Non-Employee Directors Stock Option Plan (the "Directors Stock Option Plan"),
nonqualified stock options are granted to non-employee directors, assuming there
is an adequate number of shares available for grant under the Directors Stock
Option Plan at a specified grant date, under a formula whereby (i) each
non-employee director elected to the Board after April 3, 1996 at an annual
stockholders' meeting who has not previously served as a director of the Company
will be granted an option to purchase 1,000 shares of Common Stock of the
Company, (ii) each non-employee director appointed after such date to fill a
vacancy in the Board who has not previously served as a director of the Company
will be granted an option to purchase 1,000 shares of Common Stock of the
Company, and (iii) each other non-employee director of the Company elected at,
or continuing to serve following, each annual stockholders meeting after such
date will be granted an option to purchase 1,000 shares of Common Stock of the
Company. The aggregate number of shares of Company Stock that may be granted
during the five year term of the Directors Stock Option Plan is 30,000 shares.
Unless sooner terminated by action of the Board of Directors, the Directors
Stock Option Plan will terminate in April 2001, and no options may thereafter be
granted under the Directors Stock Option Plan.
The Directors Stock Option Plan requires that the exercise price of each
option must not be less than 100% of the fair market value of the Common Stock
at the time of the grant of the option. The period during which each option is
exercisable will commence six months after the date the option is granted and
will expire five years from such date or, if earlier, three months following the
non-employee director's death or disability or 30 days following the date a
nonemployee director ceases to be a director of the Company. Options are not
assignable.
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EXECUTIVE COMPENSATION
Compensation. The following table summarizes the compensation paid to the
Company's chief executive officer and its four other most highly compensated
executive officers for services rendered for the fiscal year ended December 31,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------- RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS COMPENSATION(1)
- ----------------------------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
D. Les Ward.................................... $200,000 $100,000 $ 22,500 $ 5,062
President and Chief Executive Officer
Richard Dupont................................. 112,000 50,000 22,500 5,062
Chief Financial Officer and Secretary
Jack A. Causa.................................. 140,000 150,000 22,500 5,062
Vice President of Operations --
Eastern Division
Joseph A. Gendron.............................. 125,000 150,000 22,500 5,062
Vice President of Operations --
Western Division
Lawrence J. Stanczak(2)........................ 21,000 199,000 22,500 5,062
Vice President of Operations --
Central Division
</TABLE>
- ---------------
(1) Consists of $4,032 of medical insurance premiums and $1,030 of life
insurance premiums paid on behalf of each executive officer.
(2) Mr. Stanczak became an executive officer of the Company in December 1995.
Employees' Stock Option Plan. Pursuant to the Source Services Corporation
1996 Stock Option Plan (the "Employees' Stock Option Plan"), options may be
granted to eligible employees of the Company or its subsidiaries for the
purchase of an aggregate of 1,000,000 shares of Common Stock of the Company.
Employees eligible under the Employees' Stock Option Plan are those employees
whose performance and responsibilities are determined by the Compensation
Committee to be influential to the Company's success. The Employees' Stock
Option Plan is administered by the Compensation Committee which determines, in
its discretion, the number of shares subject to each option granted and the
related exercise price and option period. The Compensation Committee may grant
either nonqualified stock options or incentive stock options ("ISOs"), as
defined by the Internal Revenue Code of 1986, as amended (the "Code").
The Employees' Stock Option Plan requires that the exercise price of each
option that is intended to constitute an ISO must not be less than 100% of the
fair market value of the Common Stock at the time of the grant of the option.
The option period may not be more than ten years from the date the option is
granted. No ISO, however, may be granted to an employee who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company or its subsidiaries unless the option price is at least 110% of the fair
market value of the Common Stock at the date of the grant and the option period
does not exceed five years. Options may be exercised in annual installments as
specified by the Compensation Committee, and all installments that become
exercisable are cumulative and may be exercised at any time after they become
exercisable until expiration of the option. Options are not assignable.
There is no limit on the fair market value of ISOs that may be granted to
an employee in any calendar year, but no employee may be granted ISOs that first
become exercisable during a calendar year for the purchase of stock with an
aggregate fair market value (determined as of the date of grant of each option)
in
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excess of $100,000. An ISO (or an installment thereof) counts against the annual
limitations only in the year it first becomes exercisable. Options are not
assignable.
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise, and no shares may be issued until full payment is made.
The Employees Stock Option Plan provides that an option agreement may include a
provision permitting an optionee the right to tender previously owned shares of
Common Stock in partial or full payment for shares to be purchased on exercise
of an option. Unless sooner terminated by action of the Board of Directors, the
Employees Stock Option Plan will terminate in April 2006 and no options may
thereafter be granted under the Employees Stock Option Plan. The Employees Stock
Option Plan may be discontinued, altered or amended in certain respects by the
Board of Directors without the approval of the stockholders. However, the
Employees Stock Option Plan may not be amended without the approval of the
stockholders (i) to materially increase benefits, (ii) to materially increase
the number of shares of Common Stock that may be issued under the Employees
Stock Option Plan, or (iii) to materially modify the requirements for
participation in the Employees Stock Option Plan.
As of June 15, 1996, an aggregate of options had been granted
under the Employee Stock Option Plan.
401(k) Plan. The Company established the Source Services Corporation
401(k) Profit Sharing Plan (the "401(k) Plan"), effective generally as of
January 1, 1996 and effective as of April 30, 1996 with respect to the 401(k)
Plan's elective deferral provisions, pursuant to which eligible employees of the
Company who complete one year of service and attain age 21 may elect to defer on
a before-tax basis up to 15% of their compensation to the 401(k) Plan, subject
to certain restrictions and limitations applicable to the 401(k) Plan under the
Code. The maximum amount of compensation that may be considered under the 401(k)
Plan for any participant for 1996 may not exceed $150,000. The maximum amount a
participant may elect to defer for 1996 on a before-tax basis to the 401(k) Plan
and any similar plan may not exceed $9,500 for 1996, and nondiscrimination
requirements apply to the before-tax deferrals (and Company matching
contributions described below) of certain "highly compensated employees" as
defined in the Code. The Company may, in its discretion, contribute a matching
contribution to the 401(k) Plan based on each participant's annual deferrals of
up to 6% of his or her compensation. For 1996, the Company intends to make a
matching contribution at the rate of 100% of the first 2% of each participant's
compensation deferred, 75% of the next 2% or each participant's compensation
deferred, and 50% of the next 2% of each participant's compensation deferred.
The Company's matching contribution will become fully vested after a participant
completes five years of service with the Company. In addition, the Company may,
in its discretion, make a non-matching contribution to the 401(k) Plan in any
year solely on behalf of non-highly compensated employees.
Profit Sharing Plan. The Company maintains the Source Services Corporation
Employees' Profit Sharing Plan (the "Profit Sharing Plan") to enable eligible
employees of the Company and their beneficiaries to share in the profits of the
Company through Profit Sharing Plan contributions and the investment of such
contributions in Common Stock and other investments. The Profit Sharing Plan is
intended to constitute a tax-qualified plan as described in Section 401(a) of
the Code, and has received a determination to that effect with respect to the
form of the Profit Sharing Plan from the Internal Revenue Service. Each employee
of the Company is eligible to participate in the Profit Sharing Plan upon
completion of a twelve-month period ending on the anniversary of the employee's
date of hire, during which any such employee who is an hourly employee has
completed at least 1,000 hours of service or during which any such employee who
is a salaried employee has been employed for at least six calendar months. The
Company may, at the discretion of the Board of Directors, make contributions to
the Profit Sharing Plan in such amount as it deems appropriate (subject to
limitations imposed on the amount of such contributions under the Code) from its
current net profits for such year or its accumulated earnings and profits.
Contributions made for any year are allocated to the Profit Sharing Plan
accounts of active participants who are hourly employees and who have completed
501 or more hours of service during the year or who are salaried employees and
who have completed three months or more of employment during the year in
proportion to their eligible compensation paid for such year. For 1996, the
maximum amount of compensation that may be considered under the Profit Sharing
Plan for any participant may not exceed $150,000. This amount is subject to
future cost-of-living adjustments.
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Contributions to the Profit Sharing Plan may be made in the form of cash or
Common Stock. Contributions in the form of cash may be used to purchase Common
Stock from stockholders at its appraised value as determined pursuant to an
independent valuation. Accounts are established under the Profit Sharing Plan
for each participant to reflect shares of Common Stock and other investments
held by the Profit Sharing Plan's trust on behalf of such participant. The
Profit Sharing Plan is designed to invest primarily in Common Stock. Under
certain limited circumstances, participants may elect to sell shares of Common
Stock allocated to their Profit Sharing Plan Common Stock accounts. In such
cases, participants are given the right to direct the investment of the proceeds
from such sales among various investment funds available under the Profit
Sharing Plan. All amounts held on behalf of a participant under the Profit
Sharing Plan are fully vested upon the participant's attainment of normal
retirement age, death or total disability. If a participant's employment
terminates for reasons other than normal retirement, death or total disability,
such participant will become fully vested after five years of credited service.
Under certain circumstances, including situations involving a participant who
competes with the Company following termination of employment, the vested
percentage of the benefits payable to the participant is determined under an
alternative five year cliff vesting schedule. Participants who are employed and
who have completed at least ten years of service with the Company may elect to
withdraw a portion of their Profit Sharing Plan accounts, based on their years
of service with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Alter, Bass and Sifonis. The
members of the Board of Directors who served on the Compensation Committee
during 1995 were Messrs. Allred, Bass, Emigh and Sifonis. Messrs. Allred and
Emigh formerly served in various management positions with the Company.
Pursuant to a consulting agreement between Mr. Sifonis and the Company, Mr.
Sifonis performed certain consulting services for the Company from October 1995
through March 1996. Pursuant to the terms of the consulting agreement, Mr.
Sifonis was paid an aggregate of $60,000 for services rendered to the Company.
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PRINCIPAL AND SELLING STOCKHOLDERS
Record Ownership. Historically, the Company has been owned primarily by
its current and former employees. At May 24, 1996, there were 7,196,863 shares
of the Company's Common Stock outstanding. Mercantile Bank of Joplin, as Trustee
of the trust created pursuant to the Profit Sharing Plan (the "Trustee"), owned
of record 4,807,338 shares, or 66.8%, which are held for the benefit of
approximately 811 persons. The balance of the shares are owned by approximately
345 persons (some of whom are also beneficiaries under the Company's Profit
Sharing Plan). None of such participants beneficially holds more than 5% of the
Company's shares. The address of the Trustee is 402 Main Street, Joplin,
Missouri, 64802-0008.
Executive Officers and Directors. The following table sets forth certain
information concerning the ownership of Common Stock as of May 24, 1996, by (a)
each executive officer named in the Summary Compensation Table, (b) each
director and (c) all executive officers and directors as a group. The Company
believes that each of such stockholders has sole voting and dispositive power
over the shares held by such stockholder except as otherwise indicated.
<TABLE>
<CAPTION>
OTHER SHARES TOTAL SHARES
SHARES OWNED BENEFICIALLY BENEFICIALLY PERCENT
NAME OF RECORD OWNED OWNED OF CLASS
- -------------------------------------------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
D. Les Ward(1).................................... 17,748 32,782 50,530 *
Richard Dupont(1)................................. 8,874 22,139 31,013 *
Jack A. Causa(2).................................. 17,748 53,802 71,550 1.0
Joseph A. Gendron(1)(2)........................... 17,748 37,242 54,990 *
Lawrence J. Stanczak(1)........................... -- 40,977 40,977 *
John Allred(1)(2)(3).............................. 3,550 79,560 83,110 1.2
Adrian Alter(4)................................... -- 14,500 14,500 *
Paul M. Bass, Jr.(4).............................. -- 14,500 14,500 *
Wayne D. Emigh(4)................................. -- 32,334 32,334 *
John Sifonis(3)................................... -- 14,500 14,500 *
Karl Vogeler(3)................................... -- 7,250 7,250 *
All executive officers and directors, as a group
(11 persons).................................... 65,668 349,586 415,254 5.7
</TABLE>
- ---------------
* less than 1%
(1) Shares beneficially owned includes the number of shares of Common Stock
held by the Profit Sharing Plan for the benefit of the following persons:
Mr. Ward -- 32,782; Mr. Dupont -- 22,139; and Mr. Gendron -- 6,412; Mr.
Stanczak -- 40,977; and Mr. Allred -- 3,550.
(2) Shares beneficially owned includes the number of shares of Common Stock
held in individual retirement accounts for the benefit of the following
persons: Mr. Causa -- 53,802; Mr. Gendron -- 30,830; and Mr. Allred --
68,760.
(3) Shares beneficially owned includes currently exercisable options to
purchase the number of shares of Common Stock indicated for the following
persons: Mr. Allred -- 7,250; Mr. Sifonis -- 14,500; and Mr. Vogeler --
7,250.
(4) Shares beneficially owned includes 14,500 shares of Common Stock held in
the Adrian and Sue Alter Family Trust, 32,334 shares of Common Stock held
in the Wayne D. and Glenda L. Emigh Family Trust, and 14,500 shares of
Common Stock held in the P.M. Bass Family Trust. Under the rules and
regulations of the Securities and Exchange Commission, Messrs. Alter,
Emigh and Bass may be deemed the beneficial owner of such shares.
37
<PAGE> 40
Selling Stockholders. The following table sets forth certain information
concerning the beneficial ownership of Common Stock, as of May 24, 1996, by each
Selling Stockholder. The Company believes that each of such stockholders has the
sole voting and dispositive power over the shares held by such stockholder
except as otherwise indicated. See "Risk Factors -- Control of the Company by
Existing Stockholders."
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE AFTER
THE OFFERING THE OFFERING
------------------- NUMBER OF SHARES -------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------------------------------ -------- ------- ---------------- -------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,759,363 shares of
Common Stock outstanding. Of these shares, the 2,500,000 shares sold in the
Offering (2,875,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable in the public market without
restriction by persons other than affiliates of the Company. Officers, directors
and certain stockholders of the Company (including the Trustee) have
contractually agreed with the Underwriters not to sell, offer to sell, contract
to sell, solicit an offer to buy, grant any option for the purchase or sale of,
assign, pledge, distribute or otherwise transfer, dispose of or encumber (or
make any announcement with respect to any of the foregoing), directly or
indirectly, any of their shares of Common Stock (other than those being sold
pursuant to this Offering) or any options, rights, warrants or other securities
convertible into or exercisable or exchangeable for Common Stock or evidencing
any right to purchase or subscribe for shares of Common Stock for a period of up
to 180 days following the date of this Prospectus without the written consent of
the Representatives (the "Contractual Lock-up). These contractual restrictions
cover shares and will be applicable to any shares of Common Stock
distributed by the Trustee during the Contractual Lock-up period. In addition to
the shares sold in the Offering, the Company estimates that the following shares
would be available to be sold in the public market:
(i) 2,346,025 shares held outside of the Profit Sharing Plan have been
held for more than two years and may be sold immediately following the
Offering pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended the "Securities Act");
(ii) shares held outside of the Profit Sharing Plan have
been held for more than two years and may be sold upon the expiration of
the Contractual Lock-up period pursuant to Rule 144; and
(iii) shares held by the Profit Sharing Plan have been held
for more than two years are distributable by the Trustee pursuant to the
terms of the Profit Sharing Plan and may be sold upon the expiration of the
Contractual Lock-up period pursuant to Rule 144.
Of the remaining shares, 3,075,201 held by the Profit Sharing
Plan are not distributable pursuant to the terms thereof, and 625,585 shares are
"restricted securities" within the meaning of Rule 144. See "Underwriting." In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are required to be aggregated) who has beneficially owned, for at least
two years, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the
38
<PAGE> 41
greater of (a)1% of the then-outstanding shares of Common Stock (87,594 shares
upon completion of the Offering) and (b) the average weekly reported trading
volume in the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 also are subject to certain notice and manner-of-sale
requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who has not been an
"affiliate" of the Company (in general, a person who is not a director, officer
or principal stockholder of the Company) during the three months prior to resale
and who has beneficially owned restricted securities for at least three years is
entitled to sell such restricted securities under Rule 144 without regard to the
requirements discussed above.
The Company is unable to estimate the number of shares of Common Stock that
may be sold in the future by its stockholders since this will depend on the
market price for the Common Stock, the personal circumstances of the
stockholders and other factors. Any sale of substantial amounts of shares of
Common Stock in the open market may significantly reduce the market price of the
Common Stock offered hereby.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Common Stock originally
purchased from the Company by its employees, directors and officers prior to the
date the Company becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons. Shares of Common Stock issued in reliance on Rule 701 are
"restricted securities" and, beginning 90 days after the Company becomes subject
to the reporting requirements of the Exchange Act, may be sold by persons other
than affiliates, subject to the provisions regarding manner-of-sale under Rule
144, and by affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Employees Stock Option Plan and the Directors'
Plan. After the effective date of those registration statements, shares
purchased upon exercise of options granted pursuant to the Employees Stock
Option Plan and the Directors Stock Option Plan will be available for resale in
the public market without restriction by persons who are not affiliates of the
Company, and to the extent they are held by affiliates, pursuant to Rule 144,
without observance of the holding period requirements. As of June 15, 1996,
there were options outstanding pursuant to these plans to purchase a total of
shares of Common Stock, none of which are presently exercisable. See
"Risk Factors -- Control of the Company by Existing Stockholders,"
"Management -- Employee Benefit Plans -- Employees Stock Option Plan" and
"Management -- Director Compensation -- Non-Employee Directors Stock Option
Plan."
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 100,000,000 shares
of Common Stock, $0.02 par value, and 2,000,000 shares of Preferred Stock, $0.01
par value. Prior to this Offering, there were outstanding 7,196,863 shares of
Common Stock, and no shares of Preferred Stock outstanding. A total of 1,030,000
shares of Common Stock are reserved for issuance upon the exercise of options
granted or which may be granted under the Employees Stock Option Plan and the
Directors Stock Option Plan. See "Management -- Director Compensation" and
"Management -- Employee Benefit Plans."
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby when issued and paid for will be, fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights. The Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions.
Holders of Common Stock are entitled to dividends when, as and if declared by
the Board of Directors from
39
<PAGE> 42
funds legally available therefor and are entitled, upon liquidation, to share
ratably in all assets remaining after payment of liabilities. See "Dividend
Policy." The rights of holders of Common Stock will be subject to any
preferential rights of any Preferred Stock which may be issued in the future.
The transfer agent and registrar for the Common Stock is ChaseMellon,
L.L.C.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences of any series established by the Board of
Directors, and to increase or decrease the number of shares within each such
series. The Board of Directors may issue Preferred Stock for such consideration
and on such terms as it deems desirable. Satisfaction of any dividend
preferences of outstanding Preferred Stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of Common Stock. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. The Board of Directors of the Company, without stockholder
approval, may issue Preferred Stock with voting and conversion rights which
could adversely affect the holders of Common Stock. The Company has no present
intention to issue any shares of Preferred Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Anti-takeover Provisions. The Certificate of Incorporation contains
certain provisions, some of which are described below, that in addition to the
authorization of the Preferred Stock may reduce the likelihood of a change in
management or voting control of the Company without the consent of the Company's
Board of Directors. These provisions could have the effect of delaying,
deterring or preventing tender offers or takeover attempts that some or a
majority of the Company's stockholders might consider to be in the stockholders'
best interest, including offers or attempts that might result in a premium over
the market price for the Common Stock.
Staggered Board of Directors. The Certificate of Incorporation
provides that, commencing with the 1997 annual meeting of stockholders, the
Board of Directors will be divided into three classes that are elected to
staggered three year terms. The Company believes that a staggered Board of
Directors will help assure the continuity and stability of the Company's
Board of Directors and the Company's business strategies and policies. The
staggered board provision could increase the likelihood that, in the event
of a takeover of the Company, incumbent directors will retain their
positions. In addition, the staggered board provision will help ensure that
the Company's Board of Directors, if confronted with an unsolicited
proposal from a third party that has acquired a block of the voting stock
of the Company, will have sufficient time to review the proposal and
appropriate alternatives and to seek the best available result for all
stockholders. The affirmative vote of holders of at least 80% of the
Company's outstanding voting stock will be required to amend this
provision.
Removal of Directors During Their Terms. Under the Certificate of
Incorporation, a director may be removed during his or her term of service
only "for cause" and only by the affirmative vote of a majority of the
stockholders entitled to vote. As defined "for cause" means: (i) commission
of an act of fraud or embezzlement against the Company; (ii) conviction of
a felony or a crime involving moral turpitude; (iii) gross negligence or
willful misconduct in performing the director's duties to the Company or
its stockholders; or (iv) breach of fiduciary duty owed to the Company. The
Bylaws also provide that vacant directorships may be filled by the Board of
Directors. The affirmative vote of holders of at least 80% of the Company's
outstanding voting stock will be required to amend this provision.
40
<PAGE> 43
Stockholder Action. Unless limited by the Certificate of
Incorporation of a corporation, the Delaware General Corporation Law
permits stockholder action without a meeting, without prior notice and
without a vote upon the written consent of the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. The Certificate of Incorporation
prohibits stockholder action without a meeting, except when there are ten
or fewer stockholders. The affirmative vote of holders of at least 80% of
the Company's outstanding voting stock will be required to amend this
provision.
Fair Price Provision. The Certificate of Incorporation includes a
"fair price" provision that requires the affirmative vote of the holders of
at least 80% of the outstanding voting stock of the Company to approve a
merger with, or disposition of assets or the issuance of securities having
a fair market value of $5 million or more to, an interested stockholder (as
defined below), a liquidation proposed by an interested stockholder or the
reclassification of the Company's securities or a similar transaction that
increases the interested stockholder's proportionate ownership in the
Company. An "interested stockholder" is anyone who owns or controls,
directly, indirectly or together with others, 10% or more of the Company's
voting stock. However, a transaction with an interested stockholder will
not require stockholder approval if a majority of disinterested directors
(as defined in the Certificate of Incorporation) approves the transaction
or if the transaction involves the distribution to the stockholders of cash
or other consideration that satisfies the "fair price" criteria set forth
in the Certificate of Incorporation, which generally require that all
stockholders receive equal treatment, an adequate price, and adequate
disclosure. The fair price provision of the Certificate of Incorporation
may not be amended without the affirmative vote of at least 80% of all
shares entitled to vote.
Evaluation Factors. The Certificate of Incorporation contains a
provision that allows the Board of Directors to evaluate factors other than
the price offered when considering a proposed acquisition of the Company.
The Certificate of Incorporation permits the Board of Directors to consider
the social, legal and economic effects of the proposed acquisition upon the
Company's employees, suppliers, customers and the communities in which the
Company operates. The Board of Directors can also consider any other
factors it deems relevant, including not only the consideration offered in
the proposed transaction relative to the market price of the Common Stock
but also the value of the Company in a freely negotiated transaction and in
relation to the estimate by the Board of Directors of the future value of
the Company as an independent entity. The affirmative vote of the holders
of two-thirds or more of the outstanding voting stock of the Company will
be required to amend this provision.
Limitations on Liability of Directors. The Certificate of Incorporation
limits the liability of directors to the extent allowed by the Delaware General
Corporation Law. Specifically, directors will not be held liable to the Company
or its stockholders for an act or omission in such capacity as a director,
except for liability as a result of: (i) a breach of the duty of loyalty to the
Company or its stockholders, (ii) actions or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
payment of an improper dividend or improper repurchase of the Company's stock
under Section 174 of the Delaware General Corporation Law, or (iv) actions or
omissions pursuant to which the director will receive an improper personal
benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Certificate of Incorporation does not eliminate the directors' duty of
care. The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
41
<PAGE> 44
duty of care. Once adopted, the affirmative vote of the holders of two-thirds or
more of the outstanding voting stock of the Company will be required to amend
this provision.
Indemnification. The Certificate of Incorporation and Bylaws provide that
the Company is generally required to indemnify its directors and officers for
all judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them to
defend against such proceedings. To receive indemnification, the director or
officer must have been successful in the legal proceeding or acted in good faith
and in what was reasonably believed to be a lawful manner and in the Company's
best interest. Once adopted, the affirmative vote of the holders of two-thirds
or more of the outstanding voting stock of the Company will be required to amend
this provision.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and
Rauscher Pierce Refsnes, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders, and the Company and the Selling Stockholders have agreed
to sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
The Robinson-Humphrey Company, Inc........................................
Rauscher Pierce Refsnes, Inc..............................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly 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 not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share in sales to certain other
dealers. After the Offering, the public offering price and other selling terms
may be changed.
The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to an additional 375,000 shares of Common Stock at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them as shown in the table above bears to the 2,500,000 shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 2,500,000 shares of
Common Stock offered hereby.
The Company, together with each of its executive officers and directors and
certain stockholders beneficially owning in the aggregate shares of
Common Stock, have agreed not to, directly or
42
<PAGE> 45
indirectly, sell, offer to sell, contract to sell, solicit an offer to buy,
grant any option for the purchase or sale of, assign, pledge, distribute or
otherwise transfer, dispose of or encumber (or make any announcement with
respect to any of the foregoing) any shares of Common Stock or any options,
rights, warrants or other securities convertible into or exchangeable for Common
Stock or evidencing any right to purchase or subscribe for shares of Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of the Representatives.
The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives and will not be
based upon any independent appraisal or valuation of the Company. Among the
factors to be considered in determining the initial public offering price are
the economic outlook for the industry in which the Company operates, the
Company's position in the industry, the Company's earnings prospects, the
Company's financial position, the ability and experience of the Company's
management, the prevailing conditions of the securities market at the time of
the Offering and the stock prices of publicly traded companies which the Company
and the Representatives believe to be comparable to the Company.
Application has been made to approve the Common Stock for listing on the
Nasdaq National Market under the symbol SRSV.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Alston & Bird, Atlanta, Georgia.
EXPERTS
The financial statements of the Company as of January 1, 1995 and December
31, 1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. For further information
concerning the Company and the Common Stock, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, copies
of which may be inspected at the Commission's principal office, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, or copies of which may be
obtained from the Commission at such office upon payment of the fees prescribed
by the Commission. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit filed with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
43
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets as of January 1, 1995 and December 31, 1995 and March 31, 1996
(unaudited).......................................................................... F-3
Statements of Revenues and Expenses for the Years Ended January 2, 1994, January 1,
1995 and December 31, 1995, and for the Three Months Ended April 2, 1995 and March
31, 1996 (unaudited)................................................................. F-4
Statements of Stockholders' Equity for the Years Ended January 2, 1994, January 1, 1995
and December 31, 1995, and for the Three Months Ended March 31, 1996 (unaudited)..... F-5
Statements of Cash Flows for the Years Ended January 2, 1994, January 1, 1995 and
December 31, 1995, and for the Three Months Ended April 2, 1995 and March 31, 1996
(unaudited).......................................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Source Services Corporation
The stock split described in Note 11 to the financial statements has not been
consummated at May 29, 1996. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of revenues and expenses, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Source
Services Corporation at December 31, 1995 and January 1, 1995, and the
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1996
F-2
<PAGE> 48
SOURCE SERVICES CORPORATION
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,211 $ 1,388 $ 434
Accounts receivable, less allowance for doubtful
accounts and fee adjustments of $1,052, $1,357 and
$1,482, respectively............................... 17,984 25,299 26,407
Deferred tax asset, net............................... 450 745 780
Prepaid expenses and other............................ 217 405 569
------- ------- -------
Total current assets.......................... 20,862 27,837 28,190
Investments............................................. 147 -- --
Deferred tax asset, net................................. 66 7 --
Property and equipment, net............................. 1,359 2,780 3,554
------- ------- -------
Total assets.................................. $ 22,434 $ 30,624 $31,744
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................. $ -- $ -- $ 2,785
Accounts payable and accrued expenses................. 4,208 3,608 4,780
Accrued commissions and payroll....................... 5,496 9,241 5,497
Accrued 401(k) plan contribution...................... -- -- 251
Accrued contribution to profit sharing plan........... 3,242 6 6
Income taxes payable.................................. 1,497 340 169
------- ------- -------
Total current liabilities..................... 14,443 13,195 13,488
Deferred tax liability................................ -- -- 83
Other liabilities..................................... 179 135 65
------- ------- -------
14,622 13,330 13,636
------- ------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par; 2,000 shares authorized, no
shares issued and outstanding...................... -- -- --
Common stock, $.02 par; 100,000 shares authorized,
2,269, 7,153 (includes 618 shares issued in 1996 to
the profit sharing plan and 4,684 shares issued in
1996 as a stock dividend) and 7,153 shares
outstanding, respectively.......................... 48 144 144
Capital in excess of par.............................. 124 1,655 1,583
Retained earnings..................................... 11,755 15,520 16,406
Deferred compensation................................. (412) -- --
Cumulative translation adjustment..................... (21) (25) (25)
------- ------- -------
11,494 17,294 18,108
Less common stock in treasury at cost, 126 shares
(1994)............................................. 3,682 -- --
------- ------- -------
Total stockholders' equity.................... 7,812 17,294 18,108
------- ------- -------
Total liabilities and stockholders' equity.... $ 22,434 $ 30,624 $31,744
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 49
SOURCE SERVICES CORPORATION
STATEMENTS OF REVENUES AND EXPENSES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED --------------------
---------------------------------------- APRIL
JANUARY 2, JANUARY 1, DECEMBER 31, 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net service revenue..................... $ 53,835 $ 90,067 $141,832 $29,942 $40,833
Cost of sales, flexible staffing........ 19,927 35,411 63,052 13,697 18,535
-------- -------- -------- ------- -------
Gross profit.................. 33,908 54,656 78,780 16,245 22,298
Operating expenses:
Selling............................... 27,546 43,795 64,882 14,026 19,322
General and administrative............ 4,683 5,447 6,636 1,164 1,522
-------- -------- -------- ------- -------
Total operating expenses...... 32,229 49,242 71,518 15,190 20,844
--------- -------- -------- ------- -------
Operating income.............. 1,679 5,414 7,262 1,055 1,454
Other income (expense):
Interest expense on payable to
stockholders....................... (357) (163) -- -- --
Interest expense...................... (38) (32) (61) (10) (29)
Interest income....................... 99 10 99 36 20
Other, net............................ (53) (218) (578) (107) (165)
--------- -------- -------- ------- -------
Income before income taxes.... 1,330 5,011 6,722 974 1,280
--------- -------- -------- ------- -------
Income tax (expense) benefit:
Current............................... (783) (2,064) (2,764) (391) (423)
Deferred.............................. 270 300 217 31 (55)
--------- -------- -------- ------- -------
(513) (1,764) (2,547) (360) (478)
--------- -------- -------- ------- -------
Net income.............................. $ 817 $ 3,247 $ 4,175 $ 614 $ 802
======== ======== ======== ======= =======
Net income per share.................... $ .11 $ .45 $ .58 $ .09 $ .11
======== ======== ======== ======= =======
Weighted average shares outstanding..... 7,386 7,250 7,178 7,192 7,153
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 50
SOURCE SERVICES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL CUMULATIVE TREASURY STOCK TOTAL
---------------- IN EXCESS RETAINED DEFERRED TRANSLATION ----------------- STOCKHOLDERS'
SHARES AMOUNT OF PAR EARNINGS COMPENSATION ADJUSTMENT SHARES COST EQUITY
------ ------ --------- -------- ------------ ----------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31,
1992........... 2,356 $ 48 $ -0- $ 5,547 $ (1,402) $ 2 39 $(1,203) $ 2,992
Net income..... 817 817
Foreign
currency
translation
adjustment... (20) (20)
Deferred
compensation... (57 ) 81 1,395 456 57 (1,614) 318
----- ---- ------ ------- -------- ----- ---- ------- -------
JANUARY 2,
1994........... 2,299 48 81 7,759 (946) (18) 96 (2,817) 4,107
----- ---- ------ ------- -------- ----- ---- ------- -------
Net income..... 3,247 3,247
Foreign
currency
translation
adjustment... (3) (3)
Deferred
compensation... (30 ) 43 749 534 30 (865) 461
----- ---- ------ ------- -------- ----- ---- ------- -------
JANUARY 1,
1995........... 2,269 48 124 11,755 (412) (21) 126 (3,682) 7,812
----- ---- ------ ------- -------- ----- ---- ------- -------
Net income..... 4,175 4,175
Foreign
currency
translation
adjustment... (4) (4)
Stock
contribution
to profit
sharing
plan......... 213 2 1,606 (679 ) (139) 4,063 4,992
2.9-for-1 stock
split........ 4,684 94 (94)
Deferred
compensation... (13 ) 19 269 412 13 (381) 319
----- ---- ------ ------- -------- ----- ---- ------- -------
DECEMBER 31,
1995........... 7,153 144 1,655 15,520 -0- (25) -0- -0- 17,294
----- ---- ------ ------- -------- ----- ---- ------- -------
Net income
(Unaudited)... 802 802
Stock
contribution
to profit
sharing plan
(Unaudited)... (72) 84 12
----- ---- ------ ------- -------- ----- ---- ------- -------
MARCH 31, 1996
(UNAUDITED).... 7,153 $144 $ 1,583 $16,406 $ -0- $ (25) -0- $ -0- $18,108
===== ==== ====== ======= ======== ===== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 51
SOURCE SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 817 $ 3,247 $ 4,175 $ 614 $ 802
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 620 406 570 124 216
Profit sharing plan stock
contribution.......................... -- -- 4,992 -- 12
Deferred compensation................... 318 461 288 93 --
Deferred tax asset, net................. (77) (231) (236) -- (28)
Deferred tax liability, net............. (273) (111) -- -- 83
Loss on asset sales..................... 8 9 52 -- 6
Decrease (increase) in assets:
Accounts receivable..................... (2,322) (8,122) (7,315) (1,103) (1,108)
Income taxes receivable................. 1,723 -- -- -- --
Prepaid expenses........................ 297 (141) (188) (23) (164)
Investments............................. (5) (5) 147 147 --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses... 192 1,072 (600) 291 1,172
Accrued commissions and payroll......... 398 3,085 3,745 (1,363) (3,744)
Accrued 401(k) plan contribution........ -- -- -- -- 251
Accrued contribution to profit sharing
plan.................................. -- 3,242 (3,236) 1,010 --
Income taxes payable.................... 783 714 (1,157) (837) (171)
Accrued interest on payable to
stockholders.......................... 59 (190) -- -- --
Other liabilities....................... (173) (69) (44) (136) (70)
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities............. 2,365 3,367 1,193 (1,183) (2,743)
-------- -------- -------- -------- -------
Cash flows from investing activities:
Expenditures for property and equipment.... (157) (874) (2,168) (254) (1,002)
Proceeds from sales of property and
-------- -------- -------- -------- -------
Net cash (used in) provided by
investing activities............. (148) (871) (2,016) (254) (996)
Cash flows from financing activities:
Borrowings from (repayments of) revolving
line of credit, net..................... 1,415 (1,415) -- -- 2,785
Repayments of principal and interest on
payable to stockholders................. (4,380) (630) -- -- --
-------- -------- -------- -------- -------
Net cash provided by (used in)
financing activities............. (2,965) (2,045) -- -- 2,785
-------- -------- -------- -------- -------
Net increase (decrease) in cash and cash
equivalents................................ (748) 451 (823) (1,437) (954)
Cash and cash equivalents, beginning of the
year....................................... 2,508 1,760 2,211 2,211 1,388
-------- -------- -------- -------- -------
Cash and cash equivalents, end of the year... $ 1,760 $ 2,211 $ 1,388 $ 774 $ 434
======== ======== ======== ======== =======
Supplemental disclosure of cash flow
activity:
Income taxes paid.......................... $ 33 $ 1,556 $ 3,447 $ 1,537 $ 592
======== ======== ======== ======== =======
Interest paid.............................. $ 1,096 $ 385 $ 61 $ 10 $ 29
======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 52
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Source Services Corporation (the Company) places experienced personnel in
the fields of information technology, accounting, finance, engineering, law and
health care through its divisions: Source Edp, Source Finance, Source
Engineering, Source Manufacturing, Source Consulting, Source Temps, Source
HealthCare and Source Legal divisions.
MANAGEMENT ESTIMATES
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 liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL PERIODS
The Company utilizes 4-4-5 (week) quarterly accounting periods with the
fiscal year ending on the Sunday nearest the last day of December. Fiscal 1995
ended December 31, 1995, fiscal 1994 ended January 1, 1995, and fiscal 1993
ended January 2, 1994.
REVENUE RECOGNITION
Revenue for the placement of personnel on a permanent basis is recognized
on the date the employer and individual mutually agree to an offer and
acceptance of employment. If the individual fails to continue employment for a
period of time as specified in the placement agreement, generally a thirty- to
ninety-day period, the Company is not entitled to collect the placement fee.
Revenue from permanent placements is shown on the Statement of Revenues and
Expenses net of amounts written off for adjustments due to placed candidates not
remaining in employment for the Company's guarantee period. Net adjustments were
$4,408, $2,808, and $2,385 in 1995, 1994, and 1993, respectively. Revenue
derived from flexible staffing is recognized as services are performed by the
Company's employees. Revenue from flexible staffing on the Statement of Revenues
and Expenses represents gross billings less amounts written off. The Company
maintains an allowance for potential fee adjustments and uncollectible accounts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks and overnight
investments. Overnight investments in Eurodollars were $1,730 and $1,165 at
January 1, 1995 and December 31, 1995, respectively.
TREASURY STOCK
Treasury shares acquired are held for future reissuance to employees.
Treasury shares are recorded at cost of acquisition. Reissued shares are
relieved using the average cost method.
PROPERTY AND EQUIPMENT
Furniture and equipment is stated at cost and is depreciated on a
straight-line basis over estimated useful lives, ranging from five to seven
years. Leasehold improvements are stated at cost and are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the improvements.
F-7
<PAGE> 53
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELF-INSURANCE
The Company offers an employee benefit program for which it is self-insured
for a portion of the cost. The Company is liable for claims up to $100 per
employee and aggregate claims up to a defined yearly payment limit. All
full-time employees and salaried consultants are eligible to participate in the
program. Self-insurance costs are accrued using actuarial estimates to
approximate the liability for reported claims and claims incurred but not
reported.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure
About Fair Value of Financial Instruments," requires the disclosure, to the
extent practicable, of the fair value of financial instruments which are
recognized or unrecognized in the balance sheet. The carrying amounts of the
Company's financial instruments, primarily cash, investments, and short-term
trade receivables and payables, approximate fair value.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board SFAS No. 109, "Accounting for Income Taxes." Under
SFAS 109, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from activities of
the Company's Canadian operations. Results of operation are translated using the
average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current rates. Resulting foreign currency
translation adjustments are recorded in stockholders' equity.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common stock and common stock equivalents outstanding. Stock
options outstanding for each of three years ended December 31, 1995 and for the
three month periods ended April 2, 1995 and March 31, 1996 were found to have
either no dilutive effect or to have an anti-dilutive effect under the treasury
stock method of calculating such dilutive effect. However, pursuant to
Securities and Exchange Commission regulations, common stock and common stock
equivalents issued by the Company during the twelve month period prior to the
offering have been included in the calculation of earnings per share as if they
were outstanding for all periods presented using the treasury stock method and
the estimated initial public offering price.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principle Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees", to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25 method is continued, pro forma disclosures are required as if SFAS
123 accounting provisions were followed. Management has elected not to
F-8
<PAGE> 54
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
adopt the accounting recognition provisions of SFAS No. 123 and will continue to
use the accounting method under APB No. 25. In the opinion of management, SFAS
No. 123 is not expected to have a material impact on the Company's financial
statements.
INTERIM FINANCIAL INFORMATION
The interim financial data included in these financial statements is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of interim periods.
2. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Furniture and fixtures....................................... $ 3,853 $ 4,235
Computer equipment........................................... 2,877 1,820
Computer equipment under capital lease....................... 945 --
Leasehold improvements....................................... 192 267
-------- --------
7,867 6,322
Accumulated depreciation and amortization.................... (6,508) (3,542)
-------- --------
$ 1,359 $ 2,780
======== ========
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Trade accounts payable....................................... $2,578 $2,302
Self-insurance accrual for employee benefits................. 410 499
Accrued sales meeting........................................ 470 398
Other........................................................ 750 409
------ ------
$4,208 $3,608
====== ======
</TABLE>
4. PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees.
Under provisions of the plan, the Company has no obligation beyond declared
contributions and has no rights to the assets of the profit sharing plan. During
fiscal 1995, the Company declared a contribution that was funded from treasury
shares and common shares on March 31, 1996 in the amount of $4,998. During
fiscal 1994, the Company declared a contribution funded in cash in the amount of
$3,242. The Company made no contribution to the plan in fiscal 1993.
At January 1, 1995 and December 31, 1995, the profit sharing plan held
1,584 (pre-split) and 4,904 shares, respectively, of the Company's common stock,
which includes 618 shares contributed to the profit sharing plan on March 31,
1996. The shares held by the profit sharing plan represented approximately 68%
and 70%, respectively, of the outstanding shares.
F-9
<PAGE> 55
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. REVOLVING LINE OF CREDIT
The Company has a $4,000 revolving line of credit agreement dated November
30, 1994. The revolving line of credit is collateralized by accounts receivable.
The commitment period extends to November 28, 1996. Commitment fees are payable
on the unused balance at a rate of .5% per annum, payable quarterly. Interest
accrues on outstanding amounts at a rate of prime plus .5%. The prime rate was
8.5% and 8.0% at January 1, 1995 and December 31, 1995, respectively. Under the
terms of the agreement, the Company agreed to comply with certain financial
covenants and restrictions on indebtedness, liens, sales of assets, investments,
dividends and contributions to the Plan. There were no amounts outstanding under
the line of credit at January 1, 1995 and December 31, 1995, however, the
Company borrowed against the line of credit at various times during fiscal 1994
and fiscal 1995 for working capital purposes on an as needed basis.
6. INCENTIVE STOCK BONUS PROGRAM
On December 10, 1992, certain employees were awarded cash and shares of the
Company's common stock previously held in treasury. Total shares awarded were
369. The shares were restricted such that ownership and voting rights vested
over three years: 20% at December 31, 1993, 40% at December 31, 1994 and 40% at
December 31, 1995. Any unvested shares are forfeited and returned to the Company
if an employee terminates prior to the vesting dates. Shares forfeited were 31
and 13, respectively, as of December 31, 1994 and 1995. Shares vested were 168
(pre-split) and 774 as of December 31, 1994 and 1995, respectively.
The cost of the stock bonus, determined as the fair market value of the
shares ($3.80 as determined by an independent valuation) at the date of grant,
has been recorded as deferred compensation and is presented as a separate
component of stockholders' equity. Deferred compensation is expensed ratably
over the vesting period. Compensation expense relative to the value of shares
awarded was $237, $419 and $361 in fiscal years 1993, 1994 and 1995,
respectively. At December 31, 1995, there was no remaining deferred
compensation.
7. STOCK OPTION PLAN (PRE-SPLIT)
On March 3, 1994, the Company issued 25 nonstatutory stock options to five
outside directors of the Company at an exercise price of $4.84, which was
management's best estimate of market value at the date of grant. On July 13,
1995, the Company issued 10 nonstatutory stock options to two outside directors
of the Company at an exercise price of $10.15, which was management's best
estimate of market value at the date of grant. There was no compensation expense
recorded in connection with the issuance of the options. The 1994 options vest
over two years: 50% at January 1, 1995 and 50% at January 1, 1996. The 1995
options also vest over two years: 50% at January 1, 1996 and 50% at January 1,
1997. The options are exercisable for ten years from the date of grant. During
1994, 5 options were forfeited due to the termination of a director. At December
31, 1995, 30 options were outstanding and 10 options were vested.
F-10
<PAGE> 56
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Current provision/(benefit):
Federal................................................. $ 720 $2,100 $2,540
State and other......................................... 63 (36) 224
----- ------ ------
783 2,064 2,764
Deferred provision/(benefit):
Federal and state....................................... (270) (300) (217)
----- ------ ------
$ 513 $1,764 $2,547
===== ====== ======
</TABLE>
The Company's income tax expense was computed in accordance with SFAS 109.
Deferred benefit represents the change in the deferred tax asset and is
discussed further below.
At January 2, 1994, the Company had available unused foreign tax credit
carryforwards of approximately $252, for regular tax and AMT purposes, which
expired in fiscal 1994. The full amount of this potential benefit was offset by
a valuation allowance and no benefit was reflected for any carryforward of
credits as the Company did not anticipate utilizing them.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. The principal sources
of temporary differences, tax effected at statutory rates, are reduced by
unrecognized tax benefits in arriving at the deferred tax. The deferred tax
provision or benefit is recognized for the change in deferred tax liabilities or
assets between periods.
Deferred tax assets/(liabilities) are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Deferred tax assets
Depreciation................................................. $ 29 $ --
Employee insurance claims.................................... 152 185
Accrued rent................................................. 40 52
Allowance for doubtful accounts.............................. 389 499
Accrued vacation............................................. 59 59
Other........................................................ -- 24
----- ----
Gross deferred tax assets...................................... 669 819
Deferred tax liabilities
Deferred compensation........................................ (153) --
Depreciation................................................. -- (67)
----- ----
Net deferred tax asset/(liability)........................... $ 516 $752
===== ====
</TABLE>
F-11
<PAGE> 57
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table reconciles the federal income tax provision at the
statutory rate to actual taxes reflected in the accompanying financial
statements:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Statutory U.S. tax rates................................... $452 $1,785 $2,213
Increase (decrease) in taxes resulting from:
Permanent differences.................................... 19 40 116
State taxes, net of federal benefit...................... 42 166 224
Other.................................................... -- (227) (6)
---- ------ ------
Income tax expense....................................... $513 $1,764 $2,547
==== ====== ======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office facilities and various equipment under
noncancellable leases expiring at various dates through 2002. Certain leases are
subject to escalation clauses based upon changes in the Consumer Price Index.
The minimum future annual operating lease commitments for leases with
noncancellable terms in excess of one year, exclusive of escalation, are as
follows:
<TABLE>
<CAPTION>
YEAR OPERATING
------------------------------------------------- ---------
<S> <C>
1996............................................. $ 3,552
1997............................................. 3,384
1998............................................. 3,240
1999............................................. 2,663
2000............................................. 1,708
Thereafter....................................... 310
-------
$14,857
=======
</TABLE>
Rental expense for the years ended January 2,1994, January 1, 1995 and
December 31, 1995 was $2,631, $2,426 and $3,063, respectively.
LITIGATION
The Company is a defendant in various lawsuits arising in the normal course
of business. The ultimate outcome of these matters cannot presently be
determined; however, it is management's belief that these matters will not
result in significant exposure to the Company. Accordingly, no provision for any
liability that may result has been made in the financial statements.
10. SUBSEQUENT EVENTS (UNAUDITED)
SOURCE SERVICES CORPORATION 401(K) PLAN
On April 29, 1996, the Company established the Source Services Corporation
defined contribution 401(k) Profit Sharing Plan (the 401(k) Plan) to help
supplement retirement income of employees who complete one year of service and
attain age 21. The 401(k) Plan is effective generally as of January 1, 1996 and
effective as of April 30, 1996 with respect to the 401(k) Plan's elective
deferral provisions, whereby eligible employees may elect to defer on a before
tax basis up to 15% of their compensation to the 401(k) Plan. The maximum amount
a participant may elect to defer for 1996 may not exceed $9.5. For 1996, the
Company intends to make a matching contribution at a rate of 100% of the first
2% of each participant's
F-12
<PAGE> 58
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
compensation deferred, 75% of the next 2% of each participant's compensation
deferred, and 50% of the next 2% of each participant's compensation deferred.
The Company's matching contribution will become fully vested after a participant
completes four years of service with the Company. Under the 401(k) Plan, the
Company will make contributions to a Trust Fund, which will pay benefits upon
retirement. Eligible employees may contribute amounts through payroll
deductions. The employee contributions and employer contributions are invested
in funds available under the 401(k) Plan.
1996 STOCK OPTION PLAN
On April 30, 1996, the Company approved the 1996 Stock Option Plan (the
Employees' Stock Option Plan). Under the Employees' Stock Option Plan, options
may be granted to eligible employees of the Company or its subsidiaries for the
purchase of an aggregate 1,000 shares of Common Stock of the Company. Employees
eligible under the Employees' Stock Option Plan are those employees whose
performance and responsibilities are determined by the Compensation Committee of
the Board of Directors to be influential to the Company's success. The
Employees' Stock Option Plan requires that the exercise price of each option
that is intended to constitute an incentive stock option must not be less than
100% of the fair value of the Common Stock at the time of the grant of the
option. No options have been granted under the Employees' Stock Option Plan
(Note 7).
REVOLVING LINE OF CREDIT AGREEMENT
Effective May 21, 1996, the Company negotiated a new revolving line of
credit agreement with another financial institution to replace the existing
revolving credit agreement dated November 30, 1994. The new $10,000 agreement is
collateralized by accounts receivable and other property of the Company. The
commitment period extends to May 21, 1997. Commitment fees are payable on the
unused balance at a rate of 3/8% per annum, payable quarterly. Interest accrues
on outstanding amounts at the prime rate. Restrictive covenants under the new
agreement include tangible net worth levels, current ratio limitations, and
interest coverage requirements in addition to restrictions on indebtedness,
liens, and sale of assets. Proceeds from new borrowings under the new agreement
were used to payoff and cancel the old credit facility. The line of credit
agreement will be used going forward to fund working capital requirements. At
the date the new credit facility was entered into, $1,625 was drawn under this
new revolving line of credit agreement (Note 5).
11. RECAPITALIZATION
Effective immediately prior to the consummation of the Company's initial
public offering, the Company declared a 2.9-for-1 stock split in the form of a
stock dividend distributable to stockholders of record at the close of business
. All per share amounts and number of shares presented in the
financial statements have been restated to reflect the stock split.
F-13
<PAGE> 59
[PICTURE]
Source Services Corporation is a specialty staffing firm with expertise in the
information technology, accounting and finance, engineering and manufacturing,
legal services and health care professions. Our sales associates possess
in-depth knowledge of these industries and our candidates are highly skilled
and experienced individuals.
[PICTURE]
OUR DIVISIONS
SOURCE CONSULTING - Provides IT consultants for short- or long-term
assignments.
SOURCE EDP - Provides IT professionals for permanent positions.
ACCOUNTANT SOURCE TEMPS - Provides temporary accounting and financial
professionals.
SOURCE FINANCE - Provides accounting and financial professionals for permanent
positions.
SOURCE ENGINEERING - Provides multidisciplined engineers for temporary and
permanent positions.
SOURCE MANUFACTURING - Provides manufacturing professionals for temporary and
permanent positions.
SOURCE LEGAL - Provides attorneys and paralegals for temporary and permanent
positions.
SOURCE HEALTHCARE STAFFING - Provides physicians, RNs, LPNs/LVNs and nursing
assistants for temporary and permanent positions.
[SOURCE SERVICES LOGO]
<PAGE> 60
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALES 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 TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 10
Use of Proceeds....................... 10
Dividend Policy....................... 11
Dilution.............................. 11
Capitalization........................ 12
Selected Financial and Operating
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 19
Management............................ 31
Principal and Selling Stockholders.... 37
Shares Eligible for Future Sale....... 38
Description of Capital Stock.......... 39
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS 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.
================================================================================
================================================================================
2,500,000 SHARES
LOGO
SOURCE SERVICES
CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
THE ROBINSON-HUMPHREY
COMPANY, INC.
RAUSCHER PIERCE
REFSNES, INC.
, 1996
================================================================================
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the SEC registration fee, NASD fee and the Nasdaq National Market listing
fee are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------- -------
<S> <C>
SEC registration fee............................................................. $16,854
NASD fee......................................................................... 5,388
Nasdaq National Market listing fee...............................................
Legal fees and expenses..........................................................
Accounting fees and expenses.....................................................
Printing expenses................................................................
Fees and expenses for qualification under state securities laws (including legal
fees)..........................................................................
Transfer agent's and registrar's fees and expenses...............................
Miscellaneous....................................................................
-------
Total.................................................................. $ *
=======
</TABLE>
- ---------------
* None of this amount is to be borne by the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the Delaware General Corporation Law provides that a Delaware corporation may
indemnify any person against expenses, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened, pending
or completed action, suit or proceeding in which he is involved by reason of the
fact that he is or was a director, officer, employee or agent of such
corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim,issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless and only to the extent that the Delaware Court
of Chancery or the court in which the action or suit is brought determines upon
application that, despite the adjudication of liability but in light of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
As permitted by the Delaware General Corporation Law, the Certificate of
Incorporation provides that the directors and officers of the Registrant shall
be indemnified by the Registrant against certain liabilities that those persons
may incur in their capacities as directors or officers. The Certificate of
Incorporation eliminates the liability of directors of the Registrant, under
certain circumstances, to the maximum extent permitted by the Delaware General
Corporation Law. See "Description of Capital Stock -- Special Provisions of the
Certificate of Incorporation and Bylaws" included in the Prospectus.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and in certain circumstances provides
for indemnification of the Registrant's directors and officers.
II-1
<PAGE> 62
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the previous three years, the Registrant has issued and sold the
following securities (all such amounts having been adjusted to reflect the
2.9-for-one stock split effected in April 1996) without registration under the
Securities Act (none of which sales were underwritten):
In March 1996, the Company issued 625,585 shares of Common Stock to
the Company's Profit Sharing Plan for the accounts of participants therein
in consideration for services rendered to the Company valued at
approximately $5,003,162. There was no public offering in such
transactions, and the Registrant believes that such transactions were
exempt from the registration requirements of the Securities Act by reason
of Section 4(2) thereof.
In March 1994 and July 1995, the Registrant issued options to purchase
72,500 and 29,000 shares of Common Stock, respectively, to members of the
Board of Directors (14,500 of which options have been forfeited). No
payment was made by the recipients for such options. Options to purchase
29,000 shares of Common Stock were exercised in May 1996 for aggregate cash
consideration of $72,600. No underwriters participated in any of such
transactions. The Registrant believes that these transactions were exempt
from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant
3.2 -- Amended and Restated Bylaws of the Registrant
4.1* -- Form of certificate representing shares of the Registrant's Common Stock
5.1* -- Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of securities being
registered
10.1 -- Office Lease dated January 23, 1995 by and between Massachusetts Mutual Life
Insurance Company and the Registrant
10.2 -- Source Services Corporation 1996 Stock Option Plan
10.3 -- Source Services Corporation Employees' Profit Sharing Plan
10.4 -- Amendment No. 1 to Source Services Corporation Employees' Profit Sharing Plan
10.5 -- Source Services Corporation Non-Employee Directors Stock Option Plan
10.6 -- Loan Agreement dated May 21, 1996 between the Registrant and Bank One, Texas,
N.A.
10.7 -- Security Agreement dated as of May 21, 1996 between the Registrant and Bank One,
Texas, N.A.
10.8 -- Promissory Note dated May 21, 1996 payable to Bank One, Texas, N.A.
10.9 -- Form of Director Incentive Stock Option Bonus Agreement
10.10 -- Source Services Corporation 401(k) Plan
23.1 -- Consent of Price Waterhouse LLP
23.2* -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1 -- Power of attorney (set forth on page II-4)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
II-2
<PAGE> 63
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Part II of the
Registration Statement:
II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act 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, 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.
(b) The undersigned Registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreements certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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, 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.
(d) If the Underwriters do not exercise their option to purchase additional
shares of Common Stock to cover over-allotments, if any, or if such option is
partially exercised, the Registrant hereby undertakes to file a post-effective
amendment to the Registration Statement deregistering all such shares as to
which such option shall not have been exercised.
II-3
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 29th day of May, 1996.
SOURCE SERVICES CORPORATION
By: /s/ D. LES WARD
------------------------------------
D. Les Ward
President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints D. Les Ward and Richard Dupont and
each of them (with full power to act alone) as attorneys and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 this Registration Statement, any
related Registration Statement pursuant to Rule 462(b) of the Securities and
Exchange Commission, any and all amendments and exhibits to this or such other
Registration Statement and any and all applications, instruments and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby and thereby, with full power
and authority to do and perform any and all acts and things whatsoever requisite
or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- -------------
<C> <S> <C>
/s/ D. LES WARD President, Chief Executive May 29, 1996
- --------------------------------------------- Officer and Director
D. Les Ward (Principal Executive Officer)
/s/ RICHARD DUPONT Chief Financial Officer and May 29, 1996
- --------------------------------------------- Secretary (Principal Financial
Richard Dupont and Accounting Officer)
/s/ JOHN ALLRED Director May 29, 1996
- ---------------------------------------------
John Allred
/s/ ADRIAN ALTER Director May 29, 1996
- ---------------------------------------------
Adrian Alter
/s/ PAUL M. BASS, JR. Director May 29, 1996
- ---------------------------------------------
Paul M. Bass, Jr.
/s/ WAYNE D. EMIGH Director May 29, 1996
- ---------------------------------------------
Wayne D. Emigh
/s/ JOHN SIFONIS Director May 29, 1996
- ---------------------------------------------
John Sifonis
/s/ KARL VOGELER Director May 29, 1996
- ---------------------------------------------
Karl Vogeler
</TABLE>
II-4
<PAGE> 65
SCHEDULE II
SOURCE SERVICES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
(AMOUNTS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
----------------------
COLUMN B ADDITIONS
--------------- ---------------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO COLUMN D -------------
- ----------------------------------- BEGINNING OF COSTS AND OTHER ---------- BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------------------------------- --------------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance reserve.................. 1993 $ 603 $351 $ -- $111 $ 843
1994 843 482 -- 273 1,052
1995 1,052 887 -- 582 1,357
</TABLE>
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ----------- -------------------------------------------------------------------------------------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant
3.2 -- Amended and Restated Bylaws of the Registrant
4.1* -- Form of certificate representing shares of the Registrant's Common
Stock
5.1* -- Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of
securities being registered
10.1 -- Office Lease dated January 23, 1995 by and between Massachusetts Mutual
Life Insurance Company and the Registrant
10.2 -- Source Services Corporation 1996 Stock Option Plan
10.3 -- Source Services Corporation Employees' Profit Sharing Plan
10.4 -- Amendment No. 1 to Source Services Corporation Employees' Profit
Sharing Plan
10.5 -- Source Services Corporation Non-Employee Directors Stock Option Plan
10.6 -- Loan Agreement dated May 21, 1996 between the Registrant and Bank One,
Texas, N.A.
10.7 -- Security Agreement dated as of May 21, 1996 between the Registrant and
Bank One, Texas, N.A.
10.8 -- Promissory Note dated May 21, 1996 payable to Bank One, Texas, N.A.
10.9 -- Form of Director Incentive Stock Option Bonus Agreement
10.10 -- Source Services Corporation 401(k) Plan
23.1 -- Consent of Price Waterhouse LLP
23.2* -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1 -- Power of attorney (set forth on page II-4)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SOURCE SERVICES CORPORATION
Source Services Corporation (the "Corporation"), a corporation duly
organized under the General Corporation Law of the State of Delaware, does
hereby certify as follows:
ARTICLE ONE
The name of the Corporation is Source Services Corporation. The date
of the filing of its original Certificate of Incorporation with the Secretary
of State was May 7, 1969.
ARTICLE TWO
This Restated Certificate of Incorporation restates, integrates and
further amends the Certificate of Incorporation of the Corporation.
ARTICLE THREE
The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated and further amended hereby to read
in full as follows:
FIRST. The name of the corporation is Source Services Corporation (the
"Corporation").
SECOND. The Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name and address of its registered agent is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH.
Section 1. Capitalization. The Corporation is authorized to
issue One Hundred and Two Million (102,000,000) shares of capital stock. One
Hundred Million (100,000,000) of the authorized shares shall be common stock,
two cents ($0.02) par value each ("Common Stock"), and Two Million (2,000,000)
of the authorized shares shall be preferred stock, one cent ($0.01) par value
each ("Preferred Stock").
Each holder of shares of capital stock of the Corporation shall at
every meeting of the stockholders be entitled to one vote in person or by proxy
for each share of the capital stock of the Corporation held by the stockholder,
unless otherwise specifically provided pursuant to this Certificate of
Incorporation.
<PAGE> 2
Section 2. Preferred Stock.
A. The Preferred Stock may, from time to time, be divided into
and issued in one or more series with each series to be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
The shares of each series may have such powers, designations, preferences,
relative rights, qualifications, limitations or restrictions as are stated
herein and in one or more resolutions providing for the issue of such series
adopted by the Board of Directors as provided below.
B. To the extent that this Certificate of Incorporation does not
fix and determine the variations in the relative rights and preferences of the
Preferred Stock, both in relation to the Common Stock and as between series of
Preferred Stock, the Board of Directors of the Corporation is expressly vested
with the authority to divide the Preferred Stock into one or more series and,
within the limitations set forth in this Certificate of Incorporation, to fix
and determine the relative rights and preferences of the shares of any series
so established, and, with respect to each such series, to fix by one or more
resolutions providing for the issue of such series, the following:
(i) The maximum number of shares to constitute such
series and the distinctive designation thereof;
(ii) The annual dividend rate, if any, on the shares of
such series and the date or dates from which dividends shall commence to accrue
or accumulate as herein provided, and whether dividends shall be cumulative;
(iii) The price at and the terms and conditions on which
the shares of such series may be redeemed, including, without limitation, the
time during which shares of the series may be redeemed, the premium, if any,
over and above the par value thereof and any accumulated dividends thereon that
the holders of shares of such series shall be entitled to receive upon the
redemption thereof, which premium may vary at different dates and may also be
different with respect to shares redeemed through the operation of any
retirement or sinking fund;
(iv) The liquidation preference, if any, over and above
the par value thereof, and any accumulated dividends thereon, that the holders
of shares of such series shall be entitled to receive upon the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation;
(v) Whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund, and, if so, the
extent and manner in which any such retirement or sinking fund shall be applied
to the purchase or redemption of the shares of such series for retirement or
for other corporate purposes, and the terms and provisions relative to the
operations of such retirement or sinking fund;
(vi) The terms and conditions, if any, on which the
shares of such series shall be convertible into, or exchangeable for, shares of
any other class or classes of capital stock of the Corporation or any series of
any other class or classes, or of any other series of the same class, including
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, provided that shares of such series may
not be convertible into shares of a series or class that has prior or superior
rights and preferences as to dividends or distribution of assets of the
Corporation upon voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation;
-2-
<PAGE> 3
(vii) The voting rights, if any, on the shares of such
series; and
(viii) Any or all other preferences and relative,
participating, optional or other special rights, or qualifications, limitations
or restrictions thereof, as shall not be inconsistent with the law or with this
Article Fourth.
C. All shares of any one series of Preferred Stock shall be
identical with each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if any, shall be cumulative; and all series shall rank equally and be
identical in all respects, except as provided in Paragraph A or Paragraph B of
this Section 2.
D. Except to the extent restricted or otherwise provided in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of any series of Preferred Stock, no dividends (other than dividends
payable in Common Stock) on any class or classes of capital stock of the
Corporation ranking, with respect to dividends, junior to the Preferred Stock,
or any series thereof, shall be declared, paid or set apart for payment, until
and unless the holders of shares of Preferred Stock of each senior series shall
have been paid, or there shall have been set apart for payment, cash dividends,
when and as declared by the Board of Directors out of funds of the Corporation
legally available therefor, at the annual rate, and no more, fixed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series.
E. To the extent provided in the resolution or resolutions
adopted by the Board of Directors providing for the issue of any series of
Preferred Stock, upon the voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation before any payment or distribution
of the assets of the Corporation (whether capital or surplus) shall be made to
or set apart for the holders of any class or classes of capital stock of the
Corporation ranking junior, as to liquidation rights, to the Preferred Stock,
or any series thereof, the holders of the shares of the Preferred Stock shall
be entitled to receive payment at the rate fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of the
respective series. Unless otherwise provided in the resolution or resolutions
adopted by the Board of Directors providing for the issue of any series of
Preferred Stock, for the purposes of this Paragraph E and Paragraph B(iv) of
this Section 2, neither the consolidation nor merger of the Corporation with
one or more other corporations shall be deemed to be a liquidation, dissolution
or winding up.
F. The Corporation, at the option of the Board of Directors, may
redeem, unless otherwise provided in the resolution establishing a series of
Preferred Stock, at such time as is fixed (and if not so fixed, at any time) in
the resolution or resolutions adopted by the Board of Directors providing for
the issue of a series, the whole or, from time to time, any part of the
Preferred Stock of any series then outstanding, at the par value thereof, plus
in every case an amount equal to all accumulated dividends, if any (whether or
not earned or declared), with respect to each share so redeemed and, in
addition thereto, the amount of the premium, if any, payable upon such
redemption fixed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series. The Board of Directors shall
have full power and authority, subject to the limitations and provisions
contained herein and in the Delaware General Corporation Law, to prescribe the
terms and conditions upon which the Preferred Stock shall be redeemed from time
to time.
G. Shares of Preferred Stock that have been redeemed, purchased
or otherwise acquired by the Corporation or that, if convertible or
exchangeable, have been converted into or exchanged for shares of capital stock
of any other class or classes or any series of any other class or classes or of
any other
-3-
<PAGE> 4
series of the same class, shall be cancelled and such shares may not under any
circumstances thereafter be reissued as Preferred Stock, and the Corporation
shall from time to time cause all such acquired shares of Preferred Stock to be
cancelled in the manner provided by law.
H. Nothing herein contained shall limit any legal right of the
Corporation to purchase any shares of the Preferred Stock.
Section 3. Common Stock.
A. Shares of Common Stock may be issued by the Corporation from
time to time for such consideration as may lawfully be fixed by the Board of
Directors.
B. Subject to the prior rights and preferences of the Preferred
Stock set forth in this Article Fourth, or in any resolution or resolutions
providing for the issuance of a series of Preferred Stock, and to the extent
permitted by the laws of the State of Delaware, the holders of Common Stock
shall be entitled to receive such cash dividends as may be declared and made
payable by the Board of Directors.
C. After payment shall have been made in full to the holders of
any series of Preferred Stock having preferred liquidation rights, upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the remaining assets and funds of the Corporation shall be
distributed among the holders of the Common Stock according to their respective
shares.
FIFTH.
Section 1. Number, Election and Terms of Directors; Board
Action. The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors. The number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors. Commencing
with the 1997 annual meeting of stockholders, the directors shall be divided,
with respect to the time for which they severally hold office, into three
classes, Class I, Class II and Class III, as nearly equal in number as
reasonably possible, with the term of office of Class I directors to expire at
the 1998 annual meeting of stockholders, the term of office of Class II
directors to expire at the 1999 annual meeting of stockholders and the term of
office of Class III directors to expire at the 2000 annual meeting of
stockholders, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1997 annual meeting of stockholders, (i)
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
Section 2. Stockholder Nomination of Director Candidates and
Introduction of Business. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the By-Laws of the Corporation.
Section 3. Newly Created Directorships and Vacancies. Subject
to applicable law and unless the Board of Directors otherwise determines, newly
created directorships resulting from any
-4-
<PAGE> 5
increase in the authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled only by a majority vote of
the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the numbers of authorized directors
constituting the entire Board of Directors shall shorten the term of any
incumbent director.
Section 4. Removal. Any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the a majority of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (referred to in this Certificate of Incorporation as the "Voting
Stock"), voting together as a single class. For this purpose, "cause" means
(A) the director's commission of an act of fraud or embezzlement against the
Corporation; (B) conviction of the director of a felony or a crime involving
moral turpitude; (C) the director's gross negligence or wilful misconduct in
performing the director's duties to the Corporation; or (D) the director's
breach of fiduciary duty owed to the Corporation.
Section 5. Stockholders' Meetings. Meetings of stockholders
of the Corporation may be called only by the Chief Executive Officer or by the
Board of Directors pursuant to a resolution approved by a majority of the
entire Board of Directors.
Section 6. Stockholder Actions. All actions of the
stockholders of the Corporation must be taken at an annual or special meeting
of stockholders duly called by or under the authority of the Chief Executive
Officer or the Board of Directors of the Corporation and may not be taken by a
consent or consents in writing; provided, however, that if at any time the
Corporation has ten or less stockholders, any action by stockholders may be
taken by a consent in writing signed by the holders of shares of Voting Stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action.
Section 7. Amendment of Article Fifth. Notwithstanding any
other provision of this Certificate of Incorporation, including Article
Fourteenth hereof, or the By-Laws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws), but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock required by law or this
Certificate of Incorporation, the affirmative vote of the holders of 80% or
more of the outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal, or adopt any provision
inconsistent with, this Article Fifth or any provision hereof.
SIXTH. Cumulative voting for the election of directors
shall not be permitted.
SEVENTH. No stockholder shall by reason of his holding
shares of any class have a preemptive or preferential right to purchase or
subscribe to any shares of any class of stock of the Corporation, or any notes,
debentures, bonds, warrants, rights, options or other securities of the
Corporation, now or hereafter to be authorized, other than such rights, if any,
as the Board of Directors, in its discretion, may fix.
EIGHTH. The Board of Directors of the Corporation shall
have the power to make, alter or repeal the By-Laws of the Corporation, subject
to such restrictions upon the exercise of such powers as may be imposed by the
stockholders in any by-laws adopted by them from time to time.
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<PAGE> 6
NINTH. It shall be a proper corporate purpose, reasonably
calculated to benefit stockholders, for the Board of Directors to base the
response of the Corporation to any "Acquisition Proposal" on the evaluation by
the Board of Directors of what response is in the best interests of the
Corporation, and for the Board of Directors, in evaluating what response is in
the best interests of the Corporation, to consider: (i) the best interests of
the stockholders and, for this purpose, the Board of Directors shall consider,
among other factors, not only the consideration being offered in the
Acquisition Proposal, in relation to the market price, but also in relation to
the value of the Corporation in a freely negotiated transaction and in relation
to the estimate by the Board of Directors of the future value of the
Corporation as an independent entity; and (ii) such other factors as the Board
of Directors determines to be relevant, including, among other factors, the
social, legal and economic effects upon the Corporation's employees, suppliers,
customers and business and the communities in which the Corporation operates.
For purposes of this Article Ninth, "Acquisition Proposal" means any proposal
of any person or entity (a) for a tender offer or exchange offer for any equity
security of the Corporation, (b) to merge or consolidate the Corporation with
another corporation, or (c) to purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation.
TENTH.
Section 1. Approval of Certain Business Combinations. A
Business Combination (as hereinafter defined) shall require (i) only such
affirmative vote as is required by law and any other provision of this
Certificate of Incorporation, if all of the conditions specified in either of
Paragraph A or Paragraph B of this Section 1 are met or (ii) in addition to any
affirmative vote required by law or this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the outstanding shares of
the Voting Stock, voting together as a single class (it being understood that
for the purposes of this Article Tenth, each share of the Voting Stock shall
have the number of votes granted to it pursuant to Article Fourth of this
Certificate of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law.
A. Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors (as
hereinafter defined).
B. Price and Procedure Requirements. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of shares of Common Stock in such Business Combination shall be at
least equal to the higher of the following:
(a) (if applicable) the highest price per share
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder (as hereinafter defined) for any
shares of Common Stock or the common stock of any Predecessor Corporation (as
hereinafter defined) acquired by it (1) within the two-year period immediately
prior to the first public announcement of the terms of the proposed Business
Combination (the "Announcement Date") or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher; or
(b) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such later date
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<PAGE> 7
is referred to in this Article Tenth as the "Determination Date"), whichever is
higher.
(ii) The aggregate amount of the cash and Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of shares of
any other class of outstanding Voting Stock shall be at least equal to the
highest of the following (it being intended that the requirements of this
Paragraph B(ii) shall be required to be met with respect to every class of
outstanding Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of Voting Stock);
(a) (if applicable) the highest price per share
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of such class of Voting
Stock or a substantially identical class of stock of any Predecessor
Corporation acquired by it (1) within the two-year period immediately prior to
the Announcement Date or (2) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(b) (if applicable) the highest preferential
amount per share to which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(c) the Fair Market Value per share of such class
of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder has previously paid
for shares of such class of Voting Stock or stock of a Predecessor Corporation.
If the Interested Stockholder has paid for shares of any class of Voting Stock
or stock of a Predecessor Corporation with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class of Voting
Stock or stock of a Predecessor Corporation previously acquired by it. The
price determined in accordance with Paragraphs B(i) and B(ii) of this Section 1
shall be subject to appropriate adjustment in the event of any special dividend
or other disposition of material assets other than in the ordinary course of
business, stock dividend, stock split, combination of shares or similar event.
Whether specific consideration satisfies this subsection shall be determined by
vote of a majority of the Disinterested Directors.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to dividends or
upon liquidation; (b) there shall have been (1) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Disinterested Directors, and (2) an increase in such annual rate of dividends
as necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of the Common Stock,
unless the failure so to increase such annual rate is approved by a majority of
the Disinterested Directors; and (c) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of Voting Stock except as
part of the transaction that results in such Interested Stockholder's becoming
an Interested Stockholder.
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<PAGE> 8
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder), of
any loans, advances, guaranties, pledges or other financial assistance or any
tax credits or other tax advantages provided to or by the Corporation, whether
in anticipation of or in connection with such Business Combination or
otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, rules or regulations) shall be
mailed to public stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Section 2. Certain Definitions. For purposes of this Article
Tenth:
A. "Business Combination" shall mean any transaction that is
referred to in any one or more of the following clauses (i) through (v):
(i) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder or
(b) any other corporation (whether or not itself an Interested Stockholder)
that is, or after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value of $5 million or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market Value
of $5 million or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of Equity Security
(as hereinafter defined) of the Corporation or any Subsidiary that is directly
or indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder.
B. "Person" shall mean any individual, firm, corporation or other
entity.
C. "Interested Stockholder" shall mean any Person (other than the
Corporation or any
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<PAGE> 9
Subsidiary or employee benefit plan of the Corporation or any Subsidiary) that:
(i) is the beneficial owner, directly or indirectly, of
10% or more of the voting power of the outstanding Voting Stock; or
(ii) at any time within the two-year period immediately
prior to the date in question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock or of capital stock of any Predecessor Corporation that
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
D. A person shall be a "beneficial owner" of any stock that:
(i) such Person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns directly or indirectly; or
(ii) such Person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) is beneficially owned, directly or indirectly, by
any other Person with which such Person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of such stock.
E. For the purpose of determining whether a Person is an
Interested Stockholder pursuant to Paragraph C of this Section 2, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of Paragraph D of this Section 2 but shall not
include any other shares of Voting Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
F. "Affiliate" and "Associate" shall have the meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect on April 1, 1996.
G. "Subsidiary" means any corporation of which a majority of any
class of Equity Security is owned, directly or indirectly, by the Corporation,
provided, however, that for purposes of the definition of Interested
Stockholder set forth in Paragraph C of this Section 2, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of Equity
Security is owned, directly or indirectly, by the Corporation.
H. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors immediately before the time
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<PAGE> 10
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is unaffiliated with the Interested
Stockholder and is recommended to succeed a Disinterested Director by a
majority of Disinterested Directors then on the Board of Directors.
I. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of stock (a) on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, (b) if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on The Nasdaq
Stock Market or any system then in use, or, (c) if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Disinterested Directors in good faith;
or (ii) in the case of property other than cash or stock, the fair market value
of such property on the date in question as determined by a majority of the
Disinterested Directors in good faith.
J. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in Paragraphs B(i) and B(ii) of Section 1 of this Article Tenth shall
include the shares of Common Stock and the shares of any other class of
outstanding Voting Stock retained by the holders of such shares.
K. "Equity Security" shall have the meaning ascribed to such term
in Section 3(a)(11) of the Securities Exchange Act of 1934, as amended, as in
effect on April 1, 1996.
L. A "Predecessor Corporation" includes any corporation of which
the Corporation was at one time a wholly-owned subsidiary, or of which the
Corporation would be deemed to be a legal successor in interest (by contract or
by merger or other operation of law).
Section 3. Powers of the Board of Directors. A majority of
the Disinterested Directors shall have the power and duty to determine for the
purposes of this Article Tenth, on the basis of information known to them after
reasonable inquiry, (i) whether a Person is an Interested Stockholder, (ii) the
number of shares of Voting Stock beneficially owned by any Person, (iii)
whether a Person is an Affiliate or Associate of another, (iv) whether the
assets that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Business Combination has, an aggregate
Fair Market Value of $5 million or more. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms and
provisions of this Article Tenth.
Section 4. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article Tenth shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
Section 5. Amendment of Article Tenth. Notwithstanding any
other provisions of this Certificate of Incorporation, including Article
Fourteenth hereof, or the By-Laws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-Laws), the affirmative vote of the holders of 80% or more of the outstanding
shares of the Voting Stock, voting together as a single class, shall be
required to alter, amend or repeal, or adopt any provision inconsistent with,
this Article Tenth or any provision hereof.
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ELEVENTH. No contract or other transactions between the
Corporation and any other corporation, firm or individual shall be affected or
invalidated by the fact that any one or more of the directors or officers of
the Corporation is or are interested in or is a director or officer of such
other corporation, or a member of such firm, and any director or officer,
individually or jointly, may be a party to or may be interested in any contract
or transaction with this Corporation, or in which this Corporation is
interested, and no contract, act or transaction of this Corporation with any
person or persons, firms or corporations, shall be affected or invalidated by
the fact that any director or officer of this Corporation is a party to or
interested in such contract, act or transaction, or in any way connected with
such person or persons, firms or corporations, and each and every person who
may become a director or officer of this Corporation is hereby relieved from
any liability that might otherwise exist from contracting with the Corporation
for the benefit of himself or any firm or corporation in which he may be in any
way interested.
TWELFTH. To the fullest extent permitted by Delaware
statutory or decisional law, as the same exists or may hereafter be amended or
interpreted, including but not limited to, Section 102(b)(7) of the Delaware
General Corporation Law or any successor provision, a director of the
Corporation shall not be liable to the Corporation or its stockholders for any
act or omission in such director's capacity as a director. Any amendment or
repeal of this Article Twelfth, or adoption of any other provision of this
Certificate of Incorporation inconsistent with this Article Twelfth, by the
stockholders of the Corporation shall be prospective only and shall not
adversely affect any limitation on the liability to the Corporation or its
stockholders of a director of the Corporation existing at the time of such
repeal, amendment or Adoption of an inconsistent provision.
THIRTEENTH.
Section 1. Actions Other Than by or in the Right of the
Corporation. To the fullest extent permitted by law, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise (all
of such persons being hereafter referred to in this Article as a "Corporate
Functionary"), against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation or, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
Section 2. Actions by or in the Right of the Corporation. To
the fullest extent permitted by law, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Corporate Functionary against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he acted in good faith and in a manner he reasonably
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believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Determination of Right to Indemnification. Any
indemnification under Sections 1 or 2 of this Article Thirteenth (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the Corporate
Functionary is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article Thirteenth.
Such determination shall be made (i) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion or (iii) by the stockholders.
Section 4. Right to Indemnification. Notwithstanding the
other provisions of this Article Thirteenth, to the extent that a Corporate
Functionary has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 or 2 of this Article
Thirteenth (including the dismissal of a proceeding without prejudice or the
settlement of a proceeding without admission of liability), or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 5. Prepaid Expenses. Expenses incurred by a Corporate
Functionary in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Corporate Functionary to repay such amount
if it shall ultimately be determined he is not entitled to be indemnified by
the Corporation as authorized in this Article Thirteenth.
Section 6. Right to Indemnification upon Application;
Procedure upon Application. Any indemnification of a Corporate Functionary
under Sections 1, 2 and 4, or any advance of expenses under Section 5, of this
Article Thirteenth shall be made promptly upon, and in any event within 60 days
after, the written request of the Corporate Functionary, unless with respect to
applications under Sections 1, 2, 4 or 5 of this Article Thirteenth, a
determination is reasonably and promptly made in accordance with Section 3 of
this Article Thirteenth by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, that such
Corporate Functionary acted in a manner set forth in such Sections as to
justify the Corporation in not indemnifying or making an advance of expenses to
the Corporate Functionary. If there are no such directors, the Board of
Directors shall promptly direct that independent legal counsel shall decide
whether the Corporate Functionary acted in a manner set forth in such Sections
as to justify the Corporation's not indemnifying or making an advance of
expenses to the Corporate Functionary. The right to indemnification or advance
of expenses granted by this Article Thirteenth shall be enforceable by the
Corporate Functionary in the Court of Chancery or court of competent
jurisdiction if the Board of Directors or independent legal counsel denies his
claim, in whole or in part, or if no disposition of such claim is made within
60 days. The expenses of the Corporate Functionary incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation.
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Section 7. Other Rights and Remedies. The indemnification and
advancement of expenses provided by or granted pursuant to this Article
Thirteenth shall not be deemed exclusive of any other rights to which any
person seeking indemnification and/or advancement of expenses may be entitled
under any other provision of this Certificate of Incorporation, or any
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a Corporate
Functionary and shall inure to the benefit of the heirs, executors and
administrators of such a person. Any repeal or modification of this
Certificate of Incorporation or relevant provisions of the General Corporation
Law of Delaware and other applicable law, if any, shall not affect any then
existing rights of a Corporate Functionary to indemnification or advancement of
expenses.
Section 8. Insurance. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article Thirteenth or the General Corporation Law of
Delaware.
Section 9. Mergers. For purposes of this Article Thirteenth,
references to "the Corporation" shall include, in addition to the resulting or
surviving corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article Thirteenth with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
Section 10. Savings Provision. If this Article Thirteenth or
any portion hereof shall be invalidated on any ground by a court of competent
jurisdiction, the Corporation shall nevertheless indemnify each Corporate
Functionary as to expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, including a grand
jury proceeding or action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article Thirteenth that shall not have been invalidated.
FOURTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws (and notwithstanding the fact that
a lesser percentage may be specified by law, this Certificate of Incorporation
or the By-Laws), the affirmative vote of the holders of two-thirds or more of
the outstanding shares of the Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt any provision inconsistent with,
Articles Ninth, Twelfth, Thirteenth or this Article Fourteenth of this
Certificate of Incorporation. Except as provided in Article Fifth, Article
Tenth and this Article Fourteenth, this Certificate of Incorporation may be
amended in the manner provided by the General Corporation Law of the State of
Delaware. The By-Laws of the Corporation may be altered, amended or repealed,
or new By-Laws adopted, only at any regular or special meeting of the Board of
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<PAGE> 14
Directors or upon the affirmative vote of the holders of two-thirds or more of
the outstanding shares entitled to vote at any regular or special meeting of
stockholders, and only if such proposed alteration, amendment, repeal or
adoption be contained in the notice of such regular or special meeting.
ARTICLE FOUR
This Restated Certificate of Incorporation was duly adopted in
accordance with the applicable provisions of Section 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President on May , 1996.
SOURCE SERVICES CORPORATION
By:/s/ D. Les Ward
----------------------------
D. Les Ward, President
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SOURCE SERVICES CORPORATION
(a Delaware corporation)
Effective: April 30, 1996
<PAGE> 2
ARTICLE I
<TABLE>
<S> <C> <C>
OFFICES
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 3. Notice of Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 5. Notice of Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 7. Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
Section 8. New Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
Section 10. List of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
Section 11. Inspectors of Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
Section 12. Actions Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 2. Number, Tenure and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 3. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 4. Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 5. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 6. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
MEETINGS OF THE BOARD OF DIRECTORS
Section 7. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 8. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 9. Regular Meetings--Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 10. Special Meetings--Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Section 11. Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 12. Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
</TABLE>
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COMMITTEES OF DIRECTORS
Section 13. Executive Committee; How Constituted and Powers . . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 15. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 16. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 17. Minutes of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 18. Alternate Members of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
GENERAL
Section 19. Actions Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 20. Presence at Meetings by Means of Communications Equipment . . . . . . . . . . . . . . . . . . . -8-
ARTICLE IV
NOTICES
Section 1. Type of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 2. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 3. Authorized Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
ARTICLE V
OFFICERS
Section 1. Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 3. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
Section 5. Duties of the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
Section 6. Duties of the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
Section 7. Duties of Vice President--Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
Section 8. Duties of Vice Presidents and Assistant Vice Presidents . . . . . . . . . . . . . . . . . . . -10-
Section 9. Duties of Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . -10-
Section 10. Duties of Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . -11-
Section 11. Duties of Controller and Assistant Controllers . . . . . . . . . . . . . . . . . . . . . . . . -11-
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the Corporation
Section 2. Actions by or in the Right of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . -12-
Section 3. Determination of Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Section 4. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Section 5. Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Section 6. Right to Indemnification upon Application; Procedure upon Application . . . . . . . . . . . . -13-
Section 7. Other Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
</TABLE>
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<TABLE>
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Section 8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Section 9. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 10. Savings Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 2. Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 3. New Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 4. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 6. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 3. Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 4. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 5. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Section 6. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Section 7. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
ARTICLE IX
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
</TABLE>
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ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Source
Services Corporation (the "Corporation"), shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at
such other place or places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the
stockholders shall be held at such time and place, either within or without the
State of Delaware, as the Board of Directors shall designate and as shall be
stated in the notice of the meeting.
Section 2. Annual Meetings. Annual meetings of the stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors of the Corporation and stated in the notice of
the meeting. At the annual meeting, the stockholders shall elect by a
plurality vote by written ballot a Board of Directors and transact such other
business as may properly be brought before the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting, stating the place, date and hour of the meeting, shall be given to
each stockholder of record entitled to vote at such meeting not less than 10
nor more than 60 days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by the Chief Executive
Officer, or by order of the Board of Directors, and shall be called by the
Chairman of the Board, the Chief Executive Officer or the Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed special meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 5. Notice of Special Meetings. Written notice of a special
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 nor more than 60 days
before the date of the meeting.
Section 6. Quorum. The holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in
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<PAGE> 6
person or represented by proxy, shall have power to adjourn the meeting from
time to time without notice (other than announcement at the meeting at which
the adjournment is taken of the time and place of the adjourned meeting) until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted that
might have been transacted at the meeting as originally notified. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.
Section 7. Order of Business. The order of business at annual
meetings of stockholders and, so far as practicable, at other meetings of
stockholders shall be determined by the Chief Executive Officer.
Section 8. New Business. At an annual meeting of stockholders,
only such new business shall be conducted, and only such proposals shall be
acted upon, as shall have been properly brought before the annual meeting. For
any new business proposed by the Board of Directors to be properly brought
before the annual meeting, such new business shall be approved by the Board of
Directors and shall be stated in writing and filed with the Secretary of the
Corporation at least five days before the date of the annual meeting, and all
business so approved, stated and filed shall be considered at the annual
meeting. Any stockholder may make any other proposal at the annual meeting,
but unless properly brought before the annual meeting such proposal shall not
be acted upon at the annual meeting. For a proposal to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
proper and timely notice thereof in writing to the Secretary of the Corporation
as specified herein. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation
not later than the date that corresponds to 120 days prior to the date the
Corporation's proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the stock that are held of record, beneficially
owned and represented by proxy on the date of such stockholder notice and on
the record date of the meeting (if such date shall have been made publicly
available) by the stockholder and by any other stockholders known by such
stockholder to be supporting such proposal on such dates, (d) any financial
interest of the stockholder in such proposal, and (e) all other information
that would be required to be filed with the Securities and Exchange Commission
if, with respect to any such item of business, such stockholder or stockholders
were a participant in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934, as amended.
The Board of Directors may reject any stockholder proposal not
made strictly in accordance with the terms of this Section 8. Alternatively,
if the Board of Directors fails to consider the validity of any stockholder
proposal, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that the stockholder
proposal was not made in strict accordance with the terms of this section and,
if he should so determine, he shall so declare at the annual meeting and any
such business or proposal not properly brought before the annual meeting shall
not be acted upon at the annual meeting. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of Directors, but, in
connection with such reports, no new business shall be acted upon at such
annual meeting unless stated, filed and received as herein provided.
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Section 9. Voting. Except as otherwise provided in the Certificate
of Incorporation, each stockholder shall, at each meeting of the stockholders,
be entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of
Article VII of these By-Laws as the record date for the determination of
stockholders who shall be entitled to notice of and to vote at such meeting.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held directly or indirectly by the Corporation, shall
not be entitled to vote. Any vote by stock of the Corporation may be given at
any meeting of stockholders by the stockholder entitled thereto, in person or
by his proxy appointed by an instrument in writing subscribed by such
stockholder or by his attorney thereunto duly authorized and delivered to the
Secretary of the Corporation or to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from its
date, unless said proxy shall provide for a longer period. Each proxy shall be
revocable unless expressly provided therein to be irrevocable and unless
otherwise made irrevocable by law. At all meetings of the stockholders, all
matters, except where other provision is made by law, the Certificate of
Incorporation, or these By-Laws, shall be decided by the vote of a majority of
the votes cast by the stockholders present in person or by proxy and entitled
to vote thereat, a quorum being present. Unless demanded by a stockholder of
the Corporation present in person or by proxy at any meeting of the
stockholders and entitled to vote thereat, or so directed by the presiding
officer of the meeting, the vote thereat on any question other than the
election or removal of directors need not be by written ballot. Upon a demand
of any such stockholder for a vote by written ballot on any question or at the
direction of such presiding officer that a vote by written ballot be taken on
any question, such vote shall be taken by written ballot. On a vote by written
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
Section 10. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its
stock ledger, either directly or through another officer of the Corporation
designated by him or through a transfer agent appointed by the Board of
Directors, to prepare and make, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
before said meeting, either at a place within the city where said meeting is to
be held, which place shall be specified in the notice of said meeting, or, if
not so specified, at the place where said meeting is to be held. The list
shall also be produced and kept at the time and place of said meeting during
the whole time thereof, and may be inspected by any stockholder of record who
shall be present thereat. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, such list or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 11. Inspectors of Votes. The presiding officer of the
meeting may appoint two inspectors of votes to act at each meeting of the
stockholders, unless the Board of Directors shall have theretofore made such
appointments. Each inspector of votes shall first subscribe an oath or
affirmation faithfully to execute the duties of an inspector of votes at the
meeting with strict impartiality and according to the best of his ability.
Such inspectors of votes, if any, shall take charge of the ballots, if any, at
the meeting, and after the balloting on any question, shall count the ballots
cast and shall make a report in writing to the secretary of the meeting of the
results of the balloting. An inspector of votes need not be a stockholder of
the Corporation, and any officer of the Corporation may be an inspector of
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votes on any question other than a vote for or against his election to any
position with the Corporation or on any other question in which he may be
directly interested.
Section 12. Actions Without a Meeting. Unless otherwise limited by
the Delaware General Corporation Law or the Certificate of Incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereat were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors, which shall have and may exercise
all powers of the Corporation and take all lawful acts as are not by statute,
the Certificate of Incorporation or these By-Laws directed or required to be
exercised or taken by the stockholders.
Section 2. Number, Tenure and Qualification. The number of
directors shall be fixed from time to time exclusively pursuant to a resolution
adopted by a majority of the Board of Directors. The number of directors which
shall constitute the whole Board of Directors shall not be less than one.
Commencing with the 1997 annual meeting of stockholders, the directors shall be
divided, with respect to the time for which they severally hold office into
three classes, Class I, Class II and Class III, as nearly equal in number as is
reasonably possible, with the term of office of Class I directors to expire at
the 1998 annual meeting of stockholders, the term of office of Class II
directors to expire at the 1999 annual meeting of stockholders and the term of
office of Class III directors to expire at the 2000 annual meeting of
stockholders, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1997 annual meeting of stockholders,
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified. Directors
need not be stockholders. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy and entitled to
vote on the election of directors at any annual or special meeting of
stockholders. Such election shall be by written ballot.
Section 3. Resignations. Any director may resign at any time by
giving written notice of his resignation to the Corporation, effective at the
time specified therein or, if not specified, immediately upon its receipt by
the Corporation. Unless otherwise specified in the notice, acceptance of a
resignation shall not be necessary to make it effective.
Section 4. Nominations. If a person is to be elected to the Board
of Directors because of a vacancy existing on the Board, nomination shall be
made only by the Board of Directors or of a nominating committee of the Board
of Directors (the Board of Directors as a whole or such committee
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of the Board being referred to herein as the "nominating committee") pursuant
to the affirmative vote of the majority of the entire membership of the
nominating committee. The nominating committee shall also make nominations for
the directors to be elected by the stockholders of the Corporation at an annual
meeting of the stockholders as provided in this section.
Only persons nominated in accordance with the procedures set forth
in this Section 4 shall be eligible for election as directors at an annual
meeting. The nominating committee shall select the Board of Directors nominees
for election as directors. Except in the case of a nominee substituted as a
result of the death, incapacity, disqualification or other inability to serve
as a Board of Directors nominee, the nominating committee shall deliver written
nominations to the Secretary at least 30 days prior to the date of the annual
meeting. Board of Directors nominees substituted as a result of the death,
incapacity, disqualification or other inability to serve as a Board of
Directors nominee shall be delivered to the Secretary as promptly as
practicable. Provided the nominating committee selects the Board of Directors
nominees, no nominees for directors except those made by the nominating
committee shall be voted upon at the annual meeting unless other nominations by
stockholders are made in accordance with the provisions of this Section 4.
Ballots bearing the names of all the persons nominated for election as
directors at an annual meeting in accordance with the procedures set forth in
this Section 4 by the nominating committee and by stockholders shall be
provided for use at the annual meeting. However, except in the case of a Board
of Directors nominee substituted as a result of the death, incapacity,
disqualification or other inability to serve as a Board of Directors nominee,
if the nominating committee shall fail or refuse to nominate a slate of
directors at least 30 days prior to the date of the annual meeting, nominations
for directors may be made at the annual meeting by any stockholder entitled to
vote and shall be voted upon. No person shall be elected as a director of the
Corporation unless nominated in accordance with the terms set forth in this
Section 4.
Nominations of individuals for election to the Board of Directors
of the Corporation at an annual meeting of stockholders may be made by any
stockholder or stockholders of the Corporation entitled to vote for the
election of directors at that meeting who (i) in the aggregate own at least 2%
of the voting power of the Corporation as of the date the nomination is made by
the stockholder and (ii) complies with the procedures set forth in this Section
4. To be timely, a stockholder's notice shall be delivered to, or mailed and
received at, the principal executive offices of the Corporation not less than
50 days prior to the date of the annual meeting of stockholders nor more than
60 days prior to the date of such annual meeting; provided, however, that if
less than 50 days' notice or prior public disclosure of the date of the annual
meeting is given or made, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the 10th day
following the earlier of (a) the day on which such notice of the date of the
annual meetings was mailed or (b) the day on which such public disclosure was
made. Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or re-election as a director (A)
the name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the classes and number
of shares of capital stock of the Corporation that are owned of record and
beneficially owned by such person on the date of such stockholder notice and
(D) any other information relating to such person that is required to be
disclosed in solicitations of proxies with respect to nominees for election as
directors pursuant to Section 14 under the Securities Exchange Act of 1934, as
amended; and (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees,
and (B) the classes and number of shares of capital stock of the Corporation
that are owned of record and beneficially owned by such stockholder on the date
of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such nominees on the
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date of such stockholder notice.
The Board of Directors may reject any nomination by a stockholder
not made in strict accordance with the terms of this Section 4. Alternatively,
if the Board of Directors fails to consider the validity of any nominations by
a stockholder, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that a nomination was not
made in strict accordance with the terms of this Section 4, and, if he should
so determine, he shall so declare at the annual meeting and the defective
nomination shall be disregarded.
Section 5. Removal. Any director may be removed, with cause, at
any time, by the affirmative vote by written ballot of 80% of the voting
interest of the stockholders of record of the Corporation entitled to vote,
given at an annual meeting or at a special meeting of the stockholders called
for that purpose. The vacancy in the Board of Directors caused by any such
removal shall be filled by the Board of Directors as provided in Section 6 of
this Article III.
Section 6. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
only by a majority of the directors then in office though less than a quorum or
by a sole remaining director. Directors so chosen shall hold office until the
annual meeting next after their election or until their successors are elected
and qualified, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
MEETINGS OF THE BOARD OF DIRECTORS
Section 7. Time and Place of Meetings. The Board of Directors of
the Corporation may hold meetings, both regular and special, at such time and
places as it determines.
Section 8. Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held immediately following the annual
meeting of stockholders, and no notice of such meeting to the newly elected
directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present. If such meeting is not held immediately
following the annual meeting of stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 9. Regular Meetings--Notice. Regular meetings of the Board
of Directors may be held without notice.
Section 10. Special Meetings--Notice. Special meetings of the Board
of Directors may be called by the Chairman of the Board, Chief Executive
Officer or two directors on 12 hours' notice to each director, either
personally or by telephone or by mail, telegraph, telex, cable, wireless or
other form of recorded communication; special meetings shall be called by the
Secretary in like manner and on like notice on the written request of the
Chairman of the Board, Chief Executive Officer or two directors. Notice of any
such meeting need not be given to any director, however, if waived by him in
writing or by telegraph, telex, cable, wireless or other form of recorded
communication, or if he shall be present at the meeting.
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Section 11. Quorum and Manner of Acting. At all meetings of the
Board of Directors, 50% of the directors at the time in office (but not less
than one-third of the whole Board of Directors) shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 12. Remuneration. Unless otherwise expressly provided by
resolution adopted by the Board of Directors, none of the directors shall, as
such, receive any stated remuneration for his services; but the Board of
Directors may at any time and from time to time by resolution provide that a
specified sum shall be paid to any director of the Corporation, either as his
annual remuneration as such director or member of any committee of the Board of
Directors or as remuneration for his attendance at each meeting of the Board of
Directors or any such committee. The Board of Directors may also likewise
provide that the Corporation shall reimburse each director for any expenses
paid by him on account of his attendance at any meeting. Nothing in this
Section 12 shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
COMMITTEES OF DIRECTORS
Section 13. Executive Committee; How Constituted and Powers. The
Board of Directors may in its discretion, by resolution passed by a majority of
the whole Board of Directors, designate an Executive Committee consisting of
one or more of the directors of the Corporation. Subject to the provisions of
Section 141 of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation, and these By-Laws, the Executive Committee shall
have and may exercise, when the Board of Directors is not in session, all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and shall have the power to authorize
the seal of the Corporation to be affixed to all papers which may require it;
but the Executive Committee shall not have the power to fill vacancies in the
Board of Directors, the Executive Committee, or any other committee of
directors or to elect or approve officers of the Corporation. The Executive
Committee shall have the power and authority to authorize the issuance of
common stock and grant and authorize options and other rights with respect to
such issuance. The Board of Directors shall have the power at any time, by
resolution passed by a majority of the whole Board of Directors, to change the
membership of the Executive Committee, to fill all vacancies in it, or to
dissolve it, either with or without cause.
Section 14. Organization. The Chairman of the Executive Committee,
to be selected by the Board of Directors, shall act as chairman at all meetings
of the Executive Committee and the Secretary shall act as Secretary thereof.
In case of the absence from any meeting of the Executive Committee of the
Chairman of the Executive Committee or the Secretary, the Executive Committee
may appoint a chairman or Secretary, as the case may be, of the meeting.
Section 15. Meetings. Regular meetings of the Executive Committee,
of which no notice shall be necessary, may be held on such days and at such
places, within or without the State of Delaware, as shall be fixed by
resolution adopted by a majority of the Executive Committee and communicated in
writing to all its members. Special meetings of the Executive Committee shall
be held whenever called by the Chairman of the Executive Committee or a
majority of the members of the Executive Committee then in office. Notice of
each special meeting of the Executive Committee shall be given by mail,
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telegraph, telex, cable, wireless, or other form of recorded communication or
be delivered personally or by telephone to each member of the Executive
Committee not later than the day before the day on which such meeting is to be
held. Notice of any such meeting need not be given to any member of the
Executive Committee, however, if waived by him in writing or by telegraph,
telex, cable, wireless, or other form of recorded communication, or if he shall
be present at such meeting; and any meeting of the Executive Committee shall be
a legal meeting without any notice thereof having been given, if all the
members of the Executive Committee shall be present thereat. Subject to the
provisions of this Article III, the Executive Committee, by resolution adopted
by a majority of the whole Executive Committee, shall fix its own rules of
procedure.
Section 16. Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more other
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any committee, to the extent provided in the
resolution of the Board of Directors and not prohibited by law, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it.
At any meeting of a committee, a majority of the members of the committee shall
constitute a quorum for the transaction of business, and the act of a majority
of the members present at any meeting at which a quorum is present shall be the
act of the committee.
Section 17. Minutes of Committees. Each committee shall keep
regular minutes of its meetings and proceedings and report the same to the
Board of Directors at the next meeting thereof.
Section 18. Alternate Members of Committees. The Board of Directors
may designate one or more directors as alternate members of the Executive
Committee or any other committee, who may replace any absent or disqualified
member at any meeting of the committee, or if none be so appointed, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
GENERAL
Section 19. Actions Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or the committee.
Section 20. Presence at Meetings by Means of Communications
Equipment. Members of the Board of Directors, or of any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear one another. Participation in a meeting conducted pursuant to
this section shall constitute presence in person at the meeting.
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ARTICLE IV
NOTICES
Section 1. Type of Notice. Whenever, under the provisions of any
applicable statute, the Certificate of Incorporation, or these By-Laws, notice
is required to be given to any director or stockholder, the requirement shall
not be construed to mean personal notice, but such notice may be given in
writing, in person or by mail, addressed to such director or stockholder at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when it shall
be deposited in the United States mail. Notice to directors may also be given
in any manner permitted by Article III hereof and shall be deemed to be given
at the time when first transmitted by the method of communication so permitted.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of any applicable statute, the Certificate of
Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a
waiver of notice by a director or stockholder by mail, telegraph, telex, cable,
wireless or other form of recorded communication may constitute such a waiver.
Section 3. Authorized Notices. Unless otherwise specified herein,
the Secretary or such other person or persons as the Chief Executive Officer
designates shall be authorized to give notices for the Corporation.
ARTICLE V
OFFICERS
Section 1. Description. The elected officers of the Corporation
shall be a President, one or more Vice Presidents with or without such
descriptive titles as the Board of Directors shall deem appropriate, a
Secretary, a Treasurer, and a Controller and, if the Board of Directors so
elects, a Chairman of the Board and Vice Chairman of the Board (each of whom
shall be a director). The Board of Directors by resolution shall also appoint
one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers
and such other officers and agents as from time to time may appear to be
necessary or advisable in the conduct of the affairs of the Corporation. Any
two or more offices may be held by the same person.
Section 2. Election. The Board of Directors at its first meeting
after each annual meeting of stockholders shall elect and appoint the officers
to fill the positions designated in Section 1 of this Article V.
Section 3. Salaries. The Board of Directors shall fix all salaries
of all elected officers of the Corporation.
Section 4. Term. An officer of the Corporation shall hold office
until he resigns or his successor is chosen and qualified. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors. The Board of
Directors shall fill any vacancy occurring in any office of the Corporation by
death, resignation,
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removal or otherwise.
Section 5. Duties of the Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the stockholders and the Board of
Directors. He shall advise and counsel the President and other officers of the
Corporation, and shall exercise such powers and perform such duties as shall be
assigned to or required of him from time to time by the Board of Directors.
The Vice Chairman of the Board, if one be elected, shall assist the Chairman of
the Board and, in the absence or disability of the Chairman of the Board, shall
preside when present at all meetings of the Board of Directors.
Section 6. Duties of the President. Unless otherwise designated by
the Board of Directors, the President shall be the Chief Executive Officer of
the Corporation and, subject to the provisions of these By-Laws, shall have
general supervision of the affairs of the Corporation and shall have general
and active control of all its business. In the absence of the Chairman of the
Board (and Vice Chairman if there be one), he shall preside at all meetings of
the stockholders and the Board of Directors. He shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall have
general authority to execute bonds, deeds, and contracts in the name of the
Corporation and affix the corporate seal thereto; to sign stock certificates;
to cause the employment or appointment of such employees and agents of the
Corporation as the proper conduct of operations may require, and to fix their
compensation, subject to the provisions of these By-Laws; to remove or suspend
any employee or agent who shall have been employed or appointed under his
authority or under authority of an officer subordinate to him; to suspend for
cause, pending final action by the authority which shall have elected or
appointed him, any officer subordinate to the President; and, in general, to
exercise all the powers and authority usually appertaining to the chief
operating officer of a corporation, except as otherwise provided in these
By-Laws.
Section 7. Duties of Vice President--Finance. There may be
designated a Vice President--Finance, who, if so designated, shall be the Chief
Financial Officer of the Corporation. He shall have active control of and
responsibility for all matters pertaining to the financial affairs of the
Corporation and its subsidiaries. His authority shall include the authorities
of the Treasurer and Controller. He shall be responsible for approval of all
filings with governmental agencies. He shall have the authority to execute and
deliver bonds, deeds, contracts and stock certificates of and for the
Corporation, and to affix the corporate seal thereto by handwritten or
facsimile signature and all other powers customarily appertaining to his
office, except to the extent otherwise limited or enlarged. He shall report to
the President and to the Executive Committee and the Board of Directors of the
Corporation at their request on all financial matters of the Corporation.
Section 8. Duties of Vice Presidents and Assistant Vice Presidents.
In the absence of the President or in the event of his inability or refusal to
act, the Vice President (or in the event there be more than one Vice President,
the Vice Presidents in the order designated by the Board, or in the absence of
any designation, in the order of their election) shall perform the duties of
the President and, when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If a Vice President is appointed
or elected Chief Operating Officer of the Company, he or she shall be under the
supervision of the President and shall perform such duties as may be prescribed
by the President. The Vice Presidents shall perform such other duties and have
such other powers as the Board of Directors or the President may from time to
time prescribe.
Section 9. Duties of Secretary and Assistant Secretaries. The
Secretary or an Assistant Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all proceedings of
the meetings of the stockholders of the Corporation and of the Board of
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Directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees when required. The Secretary shall be under the
supervision of the President and shall perform such other duties as may be
prescribed by the President. The Secretary shall have charge of the seal of
the Corporation and have authority to affix the seal to any instrument
requiring it. When so affixed, the seal shall be attested by the signature of
the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer,
which may be a facsimile. The Secretary shall keep and account for all books,
documents, papers and records of the Corporation except those for which some
other officer or agent is properly accountable. The Secretary shall have
authority to sign stock certificates, and shall generally perform all the
duties usually appertaining to the office of the Secretary of a corporation.
Assistant Secretaries in the order of their seniority, unless
otherwise determined by the Board of Directors, shall assist the Secretary, and
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary. They shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
Section 10. Duties of Treasurer and Assistant Treasurers. The
Treasurer shall have the responsibility for and custody over all assets of the
Corporation, and the responsibility for handling of the liabilities of the
Corporation. He or she shall cause proper entries of all receipts and
disbursements of the Corporation to be recorded in its books of account. He or
she shall have the responsibility for all matters pertaining to taxation and
insurance. He or she shall have the authority to endorse for deposit or
collection, or otherwise, all commercial paper payable to the Corporation, and
to give proper receipts or discharges for all payments to the Corporation. He
or she shall be responsible for all terms of credit granted by the Corporation
and for the collection of all its accounts. He or she shall have the authority
to execute and deliver bonds, deeds, contracts and stock certificates of and
for the Corporation, and to affix the corporate seal thereto by handwritten or
facsimile signature and all other powers customarily appertaining to his
office, except to the extent otherwise limited or enlarged. The Treasurer
shall be under the supervision of the Vice President--Finance and he or she
shall perform such other duties as may be prescribed to him by the Vice
President--Finance, if one be designated.
Assistant Treasurers, in the order of their seniority, shall
assist the Treasurer, and in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer.
Section 11. Duties of Controller and Assistant Controllers. The
Controller shall be the Chief Accounting Officer of the Corporation. He or she
shall be responsible for all matters pertaining to the accounts of the
Corporation, its subsidiaries and divisions, with the supervision of the books
of account, their installation, arrangement and classification. The Controller
shall maintain adequate records of all assets, liabilities and transactions;
see that an adequate system of internal audit thereof is currently and
regularly maintained; coordinate the efforts of the Corporation's independent
public accountants in its external audit program; receive, review and
consolidate all operating and financial statements of the Corporation and its
various departments and subsidiaries; and prepare financial statements, reports
and analyses. The Controller shall have supervision of the accounting
practices of the Corporation and of each subsidiary and division of the
Corporation, and shall prescribe the duties and powers of the accounting
personnel of the subsidiaries and divisions. The Controller shall cause to be
maintained an adequate system of financial control through a program of
budgets, financial planning and interpretive reports. The Controller shall
initiate and enforce accounting measures and procedures whereby the business of
the Corporation and its subsidiaries and divisions shall be conducted with the
maximum efficiency and economy. The Controller shall have all other powers
customarily appertaining to the office of controller, except to the extent
otherwise limited or enlarged. The Controller shall be under the supervision
of the
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Vice President--Finance, if one be designated.
The Assistant Controllers, in the order of their seniority, shall
assist the Controller, and if the Controller is unavailable, perform the duties
and exercise the powers of the Controller.
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the
Corporation. To the fullest extent permitted by law, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise (all
of such persons being hereafter referred to in this Article VI as a "Corporate
Functionary"), against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation or, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
Section 2. Actions by or in the Right of the Corporation. To the
fullest extent permitted by law, the Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Corporate Functionary against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Determination of Right to Indemnification. Any
indemnification under Sections 1 or 2 of this Article VI (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Corporate Functionary is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 or 2 of this Article VI. Such determination
shall be made (i) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum or (ii) if
there are no such directors or if such directors so direct, by independent
legal counsel in a written opinion, or (iii) by the
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stockholders.
Section 4. Right to Indemnification. Notwithstanding the other
provisions of this Article VI, to the extent that a Corporate Functionary has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 5. Prepaid Expenses. Expenses incurred by a Corporate
Functionary in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Corporate Functionary to repay such amount
if it shall ultimately be determined he is not entitled to be indemnified by
the Corporation as authorized in this Article VI.
Section 6. Right to Indemnification upon Application; Procedure
upon Application. Any indemnification of a Corporate Functionary under
Sections 2, 3 and 4, or any advance under Section 5, of this Article VI shall
be made promptly upon, and in any event within 60 days after, the written
request of the Corporate Functionary, unless with respect to applications under
Sections 2, 3 or 5 of this Article VI, a determination is reasonably and
promptly made by the Board of Directors by majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than
quorum that such Corporate Functionary acted in a manner set forth in such
Sections as to justify the Corporation in not indemnifying or making an advance
of expenses to the Corporate Functionary. If there are no such directors, the
Board of Directors shall promptly direct that independent legal counsel shall
decide whether the Corporate Functionary acted in a manner set forth in such
Sections as to justify the Corporation's not indemnifying or making an advance
of expenses to the Corporate Functionary. The right to indemnification or
advance of expenses granted by this Article VI shall be enforceable by the
Corporate Functionary in any court of competent jurisdiction if the Board of
Directors or independent legal counsel denies his claim, in whole or in part,
or if no disposition of such claim is made within 60 days. The expenses of the
Corporate Functionary incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such proceeding shall
also be indemnified by the Corporation.
Section 7. Other Rights and Remedies. The indemnification and
advancement of expenses provided by or granted pursuant to this Article VI
shall not be deemed exclusive of any other rights to which any person seeking
indemnification and/or advancement of expenses or may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a Corporate Functionary and shall inure to the benefit of the heirs,
executors and administrators of such a person. Any repeal or modification of
these By-Laws or relevant provisions of the Delaware General Corporation Law
and other applicable law, if any, shall not affect any then existing rights of
a Corporate Functionary to indemnification or advancement of expenses.
Section 8. Insurance. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such,
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whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VI or the General
Corporation Law of Delaware.
Section 9. Mergers. For purposes of this Article VI, references to
"the Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
Section 10. Savings Provision. If this Article VI or any portion
hereof shall be invalidated on any ground by a court of competent jurisdiction,
the Corporation shall nevertheless indemnify each Corporate Functionary as to
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit, proceeding or investigation,
whether civil, criminal or administrative, including a grand jury proceeding or
action or suit brought by or in the right of the Corporation, to the full
extent permitted by any applicable portion of this Article VI that shall not
have been invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, option or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences or rights shall be set forth in full or summarized on the face or
back of the certificate that the Corporation shall issue to represent such
class or series of stock; provided, that, except as otherwise provided in
Section 202 of the General Corporation Law of the State of Delaware, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate that the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences or rights.
Section 2. Facsimile Signatures. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. New Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to
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have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. Record Date. The Board of Directors may fix, in
advance, a record date for stockholders' meetings or for any other lawful
purpose, which shall be no fewer than 10 nor more than 60 days before the date
of the meeting or other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 6. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not provided
by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, if any, may be declared by the Board of Directors (but not any
committee thereof) at any regular meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock or other
securities.
Section 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, thinks proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
Section 4. Checks. All checks or demands for money and promissory
notes of the Corporation
-15-
<PAGE> 20
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time prescribe.
Section 5. Fiscal Year. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section 6. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the word
"Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced or otherwise.
Section 7. Certificate of Incorporation. These By-Laws are subject
to the terms of the Certificate of Incorporation of the Corporation.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws adopted
only in accordance with the Certificate of Incorporation of the Corporation and
any other requirements specified in these By-Laws.
-16-
<PAGE> 21
CERTIFICATION
I, Richard Dupont, Secretary of Source Services Corporation, a Delaware
corporation, hereby certify that the foregoing is a true, accurate and complete
copy of the Amended and Restate By-Laws of Source Services Corporation, adopted
by its Board of Directors as of April 30, 1996.
/s/ Richard Dupont
---------------------------------
Richard Dupont, Secretary
-17-
<PAGE> 1
EXHIBIT 10.1
MASSMUTUAL
OFFICE LEASE
by and between
MassMutual and
Source Services Corporation
For: Suites 150 and 300 containing approximately
18,129 rentable square feet located at
5580 LBJ Freeway
A "MassMutual" Property
<PAGE> 2
MassMutual
Equity File
No.___________
OFFICE LEASE
THIS LEASE, made as of this 23rd day of January, 1995 by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation having
its principal office at 1295 State Street, Springfield, Massachusetts 01111
("Landlord") and SOURCE SERVICES CORPORATION, a Delaware corporation having its
principal office at 5580 LBJ Freeway, Suite 300, Dallas, Texas 75240
("Tenant").
INDEX
<TABLE>
<CAPTION>
Article Title
<S> <C> <C>
1. Basic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Premises, Term and Commencment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Landlord's Work, Tenant's Work, Alterations and Additions . . . . . . . . . . . . . . . . . . . . . 6
6. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Casualty Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Repair and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Inspection of Premises and Repairs by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Subletting and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. Subordination, Attornment and Mortgagee Protection . . . . . . . . . . . . . . . . . . . . . . . . . 15
18. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
19. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
20. Remedies of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Accord and Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
24. Brokerage Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
25. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
26. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
27. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
28. Additional Rights Reserved by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
29. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
30. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 3
EXHIBITS
Exhibit A Plan Showing Property and Premises
Exhibit B Landlord's Work Letter
Exhibit C Tenant's Work
Exhibit D Building's Rules and Regulations
Exhibit E Commencement Date Confirmation
Exhibit F Option to Extend
Exhibit G Right of First Offer and Refusal
2
<PAGE> 4
ARTICLE 1.
BASIC PROVISIONS
A. Tenant's Tradename: SOURCE SERVICES CORPORATION
--------------------------------------------------
B. Tenant's Address: 5580 LBJ Freeway
----------------------------------------------------
Suite 300
----------------------------------------------------
Dallas, Texas 75240
----------------------------------------------------
C. Office Building Name: 5580 LBJ Building
------------------------------------------------
Address: 5580 LBJ Freeway
-------------------------------------------------------------
Dallas, Texas 75240
-------------------------------------------------------------
D. Premises: Suite/Unit No. Suites 150 and 300
--------------------------------------------
Square feet (Gross/Net): 18,129 rentable square feet
----------------------------------
E. Landlord: Massachusetts Mutual Life Insurance Company
------------------------------------------------------------
F. Landlord's Address: c/o Cornerstone Real Estate Advisers, Inc.
--------------------------------------------------
1901 Avenue of the Stars
--------------------------------------------------
Suite 555
--------------------------------------------------
Los Angeles, California 90067,
--------------------------------------------------
ATTN: Managing Director
--------------------------------------------------
G. Building Manager/Address: Fuller-Macfarlan Real Estate Services, Ltd.
--------------------------------------------
3838 Oak Lawn Avenue, Suite 400
--------------------------------------------
Dallas, Texas 75219
--------------------------------------------
H. Commencement Date: March 10, 1995
---------------------------------------------------
I. Expiration Date: May 9, 2000
-----------------------------------------------------
J. Options to Extend: One (1) five (5) year option per Exhibit "F"
---------------------------------------------------
K. Security Deposit: $19,095.88. In addition to the Security Deposit
----------------------------------------------------
stated in Section K. above, Tenant agrees to pay a $10.00 deposit per parking
- --------------------------------------------------------------------------------
card. If for any reason a parking card is lost or damaged, Tenant will forfeit
- --------------------------------------------------------------------------------
its deposit and be required to pay an additional $25.00 per replacement card.
- --------------------------------------------------------------------------------
Upon Lease expiration or termination, if Tenant is not in default of its Lease,
- --------------------------------------------------------------------------------
the aforementioned deposit will be refunded.
- --------------------------------------------------------------------------------
3
<PAGE> 5
L. Monthly Rent: $ Refer to page 2A
--------------------------------------------------------
M. Operating Expenses Base: $ 1995 Base Year
---------------------------------------------
N. Tenant's Pro Rata Share: 20%. Tenant's Pro Rata Share shall be
determined by and adjusted by Landlord from time to time (but shall not be
readjusted sooner than the commencement of the second Lease year), by dividing
the Tenant's Gross Square Feet of the Premises (as identified in Article ID.)
by the rentable area of the Building and multiplying the resulting quotient, to
the second decimal place, by one hundred.
O. Normal Business Hours of Building:
Monday through Friday: 7:00 a.m. to 6:00 p.m.
---- ----
Saturday: 8:00 a.m. to 1:00 p.m.
---- ----
Sunday: None a.m. to None p.m.
---- ----
P. Prepaid Rent: $18,129.00
--------------------------------------------------------
4
<PAGE> 6
MONTHLY RENT SCHEDULE
<TABLE>
<CAPTION>
Months Base Monthly Rental
- ------ -------------------
<S> <C>
1-2 Base Rent Waived
3-12 $18,129.00
13-24 $18,884.38
25-36 $19,639.75
37-48 $20,395.13
49-62 $21,150.50
</TABLE>
Page 2A
<PAGE> 7
Q. Parking Spaces: Thirty-five (35) parking spaces in the garage will be
------------------------------------------------------
provided to the Tenant and the balance shall be surface parking.
- --------------------------------------------------------------------------------
Fee 9parking spaces x rate/per month):no charge so long as the Tenant
---------------------------------
is not in default of this Lease.
- --------------------------------------------------------------------------------
R. Brokers:
Fuller-Macfarlan Real Estate Services, Ltd. and
-----------------------------------------------------------------------
Jackson & Cooksey
-----------------------------------------------------------------------
The foregoing provisions shall he interpreted and applied in accordance with
the other provisions of this Lease set forth below. The capitalized terms, and
the terms defined in Article 29, shall have the meanings set forth herein or
therein (unless otherwise modified in the Lease) when used as capitalized terms
in other provisions of the Lease.
ARTICLE 2.
PREMISES, TERM AND COMMENCEMENT DATE
Landlord hereby leases and demises to the Tenant and Tenant hereby takes and
leases from Landlord that certain space identified in Article 1 and shown on a
plan attached hereto as Exhibit A ("Premises") for a term ("Term") commencing
on the Commencement Date and ending on the Expiration Date set forth in Article
1, unless sooner terminated as provided herein, subject to the provisions
herein contained. The Commencement Date set forth in Article 1 shall be
advanced to such earlier date as Tenant commences occupancy of the Premises for
the conduct of its business. Such date shall be confirmed by execution of the
Commencement Date Confirmation in the form as set forth in Exhibit E. If
Landlord delays delivering possession of the Premises or substantial completion
of any Landlord's Work under Exhibit B, this Lease shall not be void or
voidable, except as provided in Article 5, and Landlord shall have no liability
for loss or damage resulting therefrom.
ARTICLE 3.
RENT
A. MONTHLY RENT. Tenant shall pay Monthly Rent in advance on or before
the first day of each month of the Term. If the Term shall commence and end on
a day other than the first day of a month, the Monthly Rent for the first and
last partial month shall be prorated on a per diem basis. Upon the execution
of this Lease, Tenant shall pay one installment of Monthly Rent for the first
full month of the Term and a prorated Monthly Rent for any partial month which
may precede it.
B. ADDITIONAL RENT. All costs and expenses which Tenant assumes or
agrees to pay and any other sum payable by Tenant pursuant to this Lease,
including, without limitation, its share of Operating Expenses, shall be deemed
Additional Rent.
3
<PAGE> 8
C. RENT. Monthly Rent, Additional Rent and Operating Expenses and any
other amounts which Tenant is or becomes obligated to pay Landlord under this
Lease are herein referred to collectively as "Rent", and all remedies
applicable to the nonpayment of Rent shall be applicable thereto. Landlord may
apply payments received from Tenant to any obligations of Tenant then accrued,
without regard to such obligations as may be designated by Tenant.
D. PLACE OF PAYMENT, LATE CHARGE. Rent and other charges required to be
paid under this Lease, no matter how described, shall be paid by Tenant to
Landlord at the Building Manager's address listed in Article I, or to such
other person and/or address as Landlord may designate in writing, without any
prior notice or demand therefor and without deduction or set-off or
counterclaim and without relief from any valuation or appraisement laws. In
the event Tenant fails to pay Rent due under this Lease within ten (10) days of
due date of said Rent, Tenant shall pay to Landlord a late charge of ten
percent (10%) on the amount overdue.
ARTICLE 4.
OPERATING EXPENSES
A. PAYMENT OF OPERATING EXPENSES. It is agreed that during each Lease
Year beginning with the first month of the second Lease Year and each month
thereafter during the original Lease Term, or any extension thereof, Tenant
shall pay to Landlord as Additional Rent, at the same time as the Monthly Rent
is paid, an amount equal to one-twelfth (1/12) of Landlord's estimate (as
determined by Landlord in its sole discretion) of Tenant's Pro Rata Share of
any projected increase in the Operating Expenses for the particular Lease Year
in excess of the Operating Expenses Base (the "Estimated Escalation Increase").
A final adjustment (the "Escalation Reconciliation") to be made between the
parties as soon as practicable following the end of each Lease Year, but in no
event later than ninety (90) days after the end of each Lease Year. In
computing the Estimated Escalation Increase for any particular Lease Year,
Landlord shall take into account any prior increases in Tenant's Pro Rata Share
of Operating Expenses. If during any Lease Year the Estimated Escalation
Increase is less than the Estimated Escalation Increase for the previous Lease
Year on which Tenant's share of Operating Expenses were based for said year,
such Additional Rent payments, attributable to Estimated Escalation Increase,
to be paid by Tenant for the new Lease Year shall be decreased accordingly;
provided, however, in no event will the Rent paid by Tenant hereunder ever be
less than the Monthly Rent, its Pro Rata Share of the Operating Expenses Base,
plus all other amounts of Additional Rent.
As soon as practicable following the end of each Lease Year during the initial
Lease Term, or any extension thereof, including the first Lease Year, Landlord
shall submit to Tenant a statement prepared by Landlord, in the first year
setting forth the Estimated Escalation Increase, if any. Beginning with said
statement for the second Lease Year, it shall also set forth the Escalation
Reconciliation for the Lease Year just completed. To the extent that the
Operating Expense Escalation is different from the Estimated Escalation
Increase upon which Tenant paid Rent during the Lease Year just completed,
Tenant shall pay Landlord the difference in cash within thirty (30) days
following receipt by Tenant of such statement from Landlord, or receive a
credit
4
<PAGE> 9
on future Rent owing hereunder as the case may be. Until Tenant receives such
statement, Tenant's Rent for the new Lease Year shall continue to be paid at
the rate being paid for the particular Lease Year just completed, but Tenant
shall commence payment to Landlord of the monthly installment of Additional
Rent on the basis of said statement beginning on the first day of the month
following the month in which Tenant receives such statement. In addition to
the above, if, during any particular Lease Year, there is a change in the
information on which Landlord based the estimate upon which Tenant is then
making its estimated payment of Operating Expenses so that such Estimated
Escalation Increase furnished to Tenant is no longer accurate, Landlord shall
be permitted to revise such Estimated Escalation Increase by notifying Tenant,
and there shall be such adjustments made in the Additional Rent on the first
day of the month following the serving of such statement on Tenant as shall be
necessary by either increasing or decreasing, as the case may be, the amount of
Additional Rent then being paid by Tenant for the balance of the Lease Year
(but in no event shall any such decrease result in a reduction of the rent
below the Monthly Rent, Tenant's Pro Rata Share of the Operating Expenses Base,
plus all other amounts of Additional Rent), as well as a payment by Tenant or
credit to the Tenant as appropriate based upon the amount theretofore paid by
Tenant during such particular Lease Year pursuant to the prior estimate.
Landlord's and Tenant's responsibilities with respect to the Operating Expense
adjustment described herein shall survive the expiration or early termination
of this Lease.
If the Building is not fully occupied during any particular Lease Year,
Landlord shall adjust those Operating Expenses which are affected by Building
occupancy for the particular Lease Year, or portion thereof, as the case may
be, to reflect an occupancy of not less than ninety-five percent (95%) of all
such rentable area of the Building.
B. DISPUTES OVER OPERATING EXPENSES. If Tenant disputes the amount of an
adjustment or the proposed estimated increase or decrease in Operating
Expenses, Tenant shall give Landlord written notice of such dispute within
thirty (30) days after Landlord advises Tenant of such adjustment or proposed
increase or decrease. Tenant's failure to give such notice shall waive its
right to dispute the amounts so determined. If Tenant timely objects, Tenant
shall have the right to engage its own accountants ("Tenant's Accountants") for
the purpose of verifying the accuracy of the statement in dispute, or the
reasonableness of the adjustment or estimated increase or decrease. If
Tenant's Accountants determine that an error has been made, Landlord and
Tenant's Accountants shall endeavor to agree upon the matter, failing which
Landlord and Tenant's Accountants shall jointly select an independent certified
public accounting firm (the "Independent Accountant") which firm shall
conclusively determine whether the adjustment or estimated increase or decrease
is reasonable, and if not, what amount is reasonable. Both parties shall be
bound by such determination. If Tenant's Accountants do not participate in
choosing the Independent Accountant within 20 days notice by Landlord, then
Landlord's determination of the adjustment or estimated increase or decrease
shall be conclusively determined to be reasonable and Tenant shall be bound
thereby. All costs incurred by Tenant in obtaining Tenant's Accountants and
the cost of the Independent Accountant shall be paid by Tenant unless Tenant's
Accountants disclose an error, acknowledged by Landlord (or found to have
conclusively occurred by the Independent Accountant), of more than ten percent
(10%) in the computation of the total
5
<PAGE> 10
amount of Operating Expenses as set forth in the statement submitted by
Landlord with respect to the matter in dispute; in which event Landlord shall
pay the reasonable costs incurred by Tenant in obtaining such audits. Tenant
shall continue to timely pay Landlord the amount of the prior year's adjustment
and adjusted Additional Rent determined to be incorrect as aforesaid until the
parties have concurred as to the appropriate adjustment or have deemed to he
bound by the determination of the Independent Accountant in accordance with the
preceding terms. Landlord's delay in submitting any statement contemplated
herein for any Lease Year shall not affect the provisions of this Paragraph,
nor constitute a waiver of Landlord's rights as set forth herein for said Lease
Year or any subsequent Lease Years during the Lease Term or any extensions
thereof.
ARTICLE 5.
LANDLORD'S WORK, TENANT'S WORK,
ALTERATIONS AND ADDITIONS
A. LANDLORD'S WORK. Landlord shall construct the Premises in accordance
with Landlord's obligations as set forth in the work letter attached hereto as
Exhibit B, and hereinafter referred to as "Landlord's Work." Landlord will
deliver the Premises to Tenant with all of Landlord's Work completed (except
for minor and non-material punch list items which in Landlord's reasonable
judgment will not delay completion of Tenant's Work, as defined in subparagraph
B of this Article) on or before the number of days specified in Exhibit B and
Tenant agrees thereupon to commence and complete Tenant's Work on or before the
Commencement Date. If Landlord is delayed in completing Landlord's Work by
strike, shortages of labor or materials, delivery delays or other matters
beyond the reasonable control of Landlord, then Landlord shall give notice
thereof to Tenant and the date on which Landlord is to turn the Premises over
to Tenant for Tenant's Work and the Commencement Date shall be postponed for an
equal number of days as the delay as set forth in the notice. Providing,
however, if such delays exceed ninety (90) days, then either Landlord or Tenant
upon notice to the other shall have the right to terminate this Lease without
liability to either party. If the Commencement Date is postponed as aforesaid,
Tenant agrees upon request of Landlord to execute a writing confirming the
Commencement Date on such form as set forth in Exhibit E attached hereto.
B. TENANT'S WORK. On and after the date specified in the immediately
preceding subparagraph A for delivery of the Premises to Tenant for Tenant's
Work, Tenant, at its sole cost and expense, shall perform and complete all
other improvements to the Premises (herein called "Tenant's Work") including,
but not limited to, all improvements, work and requirements required of Tenant
under the foregoing work letter. Tenant shall complete all of Tenant's Work in
good and workmanlike manner, fully paid for and free from liens, in accordance
with the plans and specifications approved by Landlord and Tenant as provided
in Exhibit C, on or prior to the scheduled Commencement Date. Tenant shall
also have the right during this period to come onto the Premises to install its
fixtures and prepare the Premises for the operation of Tenant's business.
Notwithstanding the fact that foregoing activities by Tenant will occur prior
to the scheduled Commencement Date, Tenant agrees that all of Tenant's
obligations provided for in this Lease shall apply during such period with the
exception of any obligation to pay Rent.
6
<PAGE> 11
C. ALTERATIONS. Except as provided in the immediately preceding
subparagraph, Tenant shall make no alterations or additions to the Premises
without the prior written consent of the Landlord, which consent Landlord may
grant or withhold in its sole discretion.
D. LIENS. Tenant shall give Landlord at least ten (10) days prior
written notice (or such additional time as may be necessary under applicable
laws) of the commencement of any Tenant's Work, to afford Landlord the
opportunity of posting and recording notices of nonresponsibility. Tenant will
not cause or permit any mechanic's, materialman's or similar liens or
encumbrances to be filed or exist against the Premises or the Building or
Tenant's interest in this Lease in connection with work done under this Article
or in connection with any other work. Tenant shall remove any such lien or
encumbrance by bond or otherwise within twenty (20) days from the date of their
existence. If Tenant fails to do so, Landlord may pay the amount or take such
other action as Landlord deems necessary to remove any such lien or
encumbrance, without being responsible to investigate the validity thereof.
The amounts so paid and costs incurred by Landlord shall be deemed Additional
Rent under this Lease and payable in full upon demand.
ARTICLE 6.
USE
A. USE. Tenant shall use the Premises for general office purposes, and
for no other purpose whatsoever, subject to and in compliance with all other
provisions of this Lease, including without limitation the Building's Rules and
Regulations attached as Exhibit D hereto. Tenant and its invitees shall also
have the non-exclusive right along with other tenants of the Building and
others entitled to use the same and subject to such rules and regulations as
Landlord in its discretion may impose from time to time to use the Common
Areas.
B. RESTRICTIONS. Tenant shall not at any time use or occupy, or suffer
or permit anyone to use or occupy, the Premises or do or permit anything to be
done in the Premises which: (a) causes or is liable to cause injury to
persons, to the Building or its equipment, facilities or systems; (b) impairs
or tends to impair the character, reputation or appearance of the Building as a
first class office building; (c) impairs or tends to impair the proper and
economic maintenance, operation and repair of the Building or its equipment,
facilities or systems; or, (d) annoys or inconveniences or tends to annoy or
inconvenience other tenants or occupants of the Building.
C. COMPLIANCE WITH LAWS. Tenant shall keep and maintain the Premises,
its use thereof and its business in compliance with all governmental laws,
ordinances, rules and regulations. Tenant shall comply with all laws relating
to the Premises and Tenant's use thereof, including without limitation, laws
requiring the Premises to be closed on Sundays or any other days or hours and
laws in connection with the health, safety and building codes, and any permit
or license requirements. Landlord makes no representation that the Premises
are suitable for Tenant's purposes.
7
<PAGE> 12
ARTICLE 7.
SERVICES
A. CLIMATE CONTROL. Landlord shall provide climate control to the
Premises during Normal Business Hours of Building as set forth in Article 1 as
required in Landlord's reasonable judgment for the comfortable use and
occupation of the Premises. If Tenant requires climate control at any other
time, Landlord shall use reasonable efforts to furnish such service upon
reasonable notice from Tenant, and Tenant shall pay all of Landlord's charges
therefor on demand.
The performance by Landlord of its obligations under this Article is subject to
Tenant's compliance with the conditions of occupancy and connected electrical
load established by Landlord. Use of the Premises or any part thereof in a
manner exceeding the heating, ventilating or air-conditioning ("HVAC") design
conditions (including occupancy and connected electrical load), including
rearrangement of partitioning which interferes with normal operation of the
HVAC in the Premises, or the use of computer or data processing machines or
other machines or equipment, may require changes in the HVAC or plumbing
systems or controls servicing the Premises or portions thereof, in order to
provide comfortable occupancy. Any such required change shall be made by
Landlord at Tenant's expense as alterations in accordance with the provisions
of Article 5, but only to the extent permitted and upon the conditions set
forth in that Article.
B. ELEVATOR SERVICE. If the Building is equipped with elevators,
Landlord, during Normal Business Hours of Building, shall furnish elevator
service to Tenant to be used in common with others. At least one elevator
shall remain in service during all other hours. Landlord may designate a
specific elevator for use as a service elevator.
C. JANITORIAL SERVICES. Landlord shall make janitorial and cleaning
services available to the Premises. Tenant shall pay to Landlord on demand the
costs incurred by Landlord for (i) extra cleaning in the Premises required
because of (A) misuse or neglect on the part of Tenant or Tenant's agents,
contractors, invitees, employees and customers, (B) the use of portion of the
Premises for special purposes requiring greater or more difficult cleaning work
than office areas, (C) interior glass partitions or unusual quantities of
interior glass surfaces, and (D) non-building standard materials or finishes
installed by Tenant or at its request; and (ii) removal from the Premises of
any refuse and rubbish of Tenant in excess of that ordinarily accumulated in
general office occupancy or at times other than Landlord's standard cleaning
times.
D. WATER AND ELECTRICITY. Landlord shall make available domestic water
in reasonable quantities to the common areas (and to the Premises if so
designated in Exhibit B) and cause electric service equivalent to the watt load
to be supplied for lighting the Premises and for the operation of Ordinary
Office Equipment. "Ordinary Office Equipment" shall mean office equipment
wired for 120 volt electric service and rated and using less than 6 amperes or
750 watts of electric current. Landlord shall have the exclusive right to make
any replacement of
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lamps, fluorescent tubes and lamp ballasts in the Premises. Landlord may adopt
a system of relamping and ballast replacement periodically on a group basis in
accordance with good management practice. Tenant's use of electric energy in
the Premises shall not at any time exceed the capacity of any of the risers,
piping, electrical conductors and other equipment in or serving the Premises.
In order to insure that such capacity is not exceeded and to avert any possible
adverse effect upon the Building's electric system, Tenant shall not, without
Landlord's prior written consent in each instance, connect appliances or heavy
duty equipment, other than ordinary office equipment, to the Building's
electric system or make any alteration or addition to the Building's electric
system. Should Landlord grant its consent in writing, all additional risers,
piping and electrical conductors or other equipment therefor shall be provided
by Landlord and the cost thereof shall be paid by Tenant within 10 days of
Landlord's demand therefor. As a condition to granting such consent, Landlord
may require Tenant to agree to an increase in Monthly Rent by the expected cost
to Landlord of such additional service, that is, the cost of the additional
electric energy to be made available to Tenant based upon the estimated
additional capacity of such additional risers, piping and electrical conductors
or other equipment. If Landlord and Tenant cannot agree thereon, such cost
shall he determined by an independent electrical engineer, to be selected by
Landlord and paid equally by both parties.
E. SEPARATE METERS. Landlord may install separate meters for the
Premises to register the usage of all or any one of the utilities and in such
event Tenant shall pay for the cost of electricity usage as metered which is in
excess of the watt load (as established by the Landlord), or in the case of
other utilities, the metered usage in excess of that usage reasonably
anticipated by Landlord. Tenant shall reimburse Landlord for the cost of
installation of meters if such usage exceeds the watt load (or such anticipated
usage, as the case may be) by more than 10 percent. In any event, Landlord may
require Tenant to reduce its consumption to the watt load or such anticipated
usage.
F. INTERRUPTIONS. Landlord does not warrant that any of the services
referred to above, or any other services which Landlord may supply, will be
free from interruption and Tenant acknowledges that any one or more of such
services may be suspended by reason of accident, repairs, inspections,
alterations or improvements necessary to he made, or by strikes or lockouts, or
by reason of operation of law, or causes beyond the reasonable control of
Landlord. Any interruption or discontinuance of service shall not be deemed an
eviction or disturbance of Tenant's use and possession of the Premises, or any
part thereof, nor render Landlord liable to Tenant for damages by abatement of
the Rent or otherwise, nor relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord shall however, exercise reasonable
diligence to restore any service so interrupted.
G. UTILITIES PROVIDED BY TENANT. Tenant shall make application in
Tenant's own name for all utilities not provided by Landlord and shall: (i)
comply with all utility company regulations for such utilities, including
requirements for the installation of meters, and (ii) obtain such utilities
directly from, and pay for the same when due directly to, the applicable
utility company. The term "utilities" for purposes hereof shall include but
not be limited to electricity, gas, water, sewer, steam, fire protection,
telephone and other communication and alarm services, as well as
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HVAC, and all taxes or other charges thereon. Tenant shall install and connect
all equipment and lines required to supply such utilities to the extent not
already available at or serving the Premises, or at Landlord's option shall
repair, alter or replace any such existing items. Tenant shall maintain,
repair and replace all such items, operate the same, and keep the same in good
working order and condition. Tenant shall not install any equipment or
fixtures, or use the same, so as to exceed the safe and lawful capacity of any
utility equipment or lines serving the same. The installation, alteration,
replacement or connection of any utility equipment and lines shall be subject
to the requirements for alterations of the Premises set forth in Article 5.
Tenant shall ensure that all HVAC equipment is installed and operated at all
times in a manner to prevent roof leaks, damage, or noise due to vibrations or
improper installation, maintenance or operation.
ARTICLE 8.
INSURANCE
A. REQUIRED INSURANCE. Tenant shall maintain insurance policies, with
responsible companies licensed to do business in the state where the Building
is located and satisfactory to Landlord, naming Landlord, Landlord's Building
Manager or agent, Tenant and any Mortgagee of Landlord, as their respective
interests may appear, at its own cost and expense including (i) "all risk
property insurance which shall be primary on the lease improvements referenced
in Article 5 and Tenant's property, including its goods, equipment and
inventory, in an amount adequate to cover their replacement cost; (ii) income
loss coverage, (iii) comprehensive general liability insurance on an occurrence
basis with limits of liability in an amount not less than $1,000,000 (One
Million Dollars) combined single limit for each occurrence. The comprehensive
general liability policy shall include contractual liability which includes the
provisions of Article 9 herein.
On or before the Commencement Date of the Lease, Tenant shall furnish to
Landlord and its Building Manager, certificates of insurance evidencing the
aforesaid insurance coverage, including' naming Landlord and Landlord's
Building Manager or agent as additional insureds. Renewal certificates shall
be furnished at least thirty (30) days prior to the expiration date of such
insurance policies showing the above coverage to be in full force and effect.
All such insurance shall provide that it cannot be canceled except upon thirty
(30) days prior written notice to Landlord or designated property manager or
agent. Tenant shall comply with all rules and directives of any insurance
board, company or agency determining rates of hazard coverage for the Premises,
including but not limited to the installation of any equipment and/or the
correction of any condition necessary to prevent any increase in such rates.
B. SUBROGATION. The parties mutually waive all rights and claims against
each other for all losses covered by their respective insurance' policies, and
waive all rights of subrogation of their respective insurers.
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C. WAIVER OF CLAIMS. Except for claims arising from Landlord's
intentional or grossly negligent acts that are not covered by Tenant's
insurance hereunder, Tenant waives all claims against Landlord for injury or
death to persons, damage to property or to any other interest of Tenant
sustained by Tenant or any party claiming, through Tenant resulting from: (i)
any occurrence in or upon the Premises, (ii) leaking of roofs, bursting,
stoppage or leaking of water, gas, sewer or steam pipes or equipment, including
sprinklers, (iii) wind, rain, snow, ice, flooding, freezing, fire, explosion,
earthquake, excessive heat or cold, or other casualty, (iv) the 'Building,
Premises, or the operating and mechanical systems or equipment of the Building,
being defective, out of repair, or failing, and (v) vandalism, malicious
mischief, theft or other acts or omissions of any other parties including
without limitation, other tenants, contractors and invitees at the Building.
Tenant agrees that Tenant's property loss risks shall be borne by its
insurance, and Tenant agrees to look solely to and seek recovery only from its
insurance carriers in' the event of such losses. For purposes hereof, any
deductible amount shall be treated as though it were recoverable under such
policies.
ARTICLE 9.
INDEMNIFICATION
Tenant shall indemnify and hold harmless Landlord and its agents, successors
and assigns, including its Building Manager, from and against all injury, loss,
costs, expenses, claims or damage (including attorney's fees and disbursements)
to any person or property arising from, related to, or in connection with any
use or occupancy of the Premises by or any act or omission (including, without
limitation, construction and repair of the Premises arising out of Tenant's
Work or subsequent work) of Tenant, its agents, contractors, employees,
customers, and invitees, which indemnity extends to any and all claims arising
from any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease. This indemnification shall
survive the expiration or termination of the Lease Term. Landlord shall not be
liable to Tenant for any damage by or from any act or negligence of any
co-tenant or other occupant of the Building, or by any owner or occupants of
adjoining or contiguous property. Landlord shall not be liable for any injury
or damage to persons or property resulting in whole or in part from the
criminal activities of others. To the extent not covered by all risk property
insurance, Tenant agrees to pay for all damage to the Building, as well as all
damage to persons or property of other tenants or occupants thereof, caused by
the negligence, fraud or willful misconduct of Tenant or any of its agents,
contractors, employees, customers and invitees. Nothing contained herein shall
be construed to relieve Landlord from liability for any personal injury
resulting from its gross negligence, fraud or willful misconduct.
ARTICLE 10.
CASUALTY DAMAGE
Tenant shall promptly notify Landlord or the Building Manager of any fire or
other casualty to the Premises or to the extent it knows of damage, to the
Building. In the event the Premises or
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any substantial part of the Building is wholly or partially damaged or
destroyed by fire or other casualty, the Landlord will proceed to restore the
same to substantially the same condition existing immediately prior to such
damage or destruction unless such damage or destruction is incapable of repair
or restoration within one hundred twenty (120) days, in which event Landlord
may, at Landlord's option and by written notice given to Tenant within thirty
(30) days of such damage or destruction, declare this Lease terminated as of
the happening of such damage or destruction. To the extent after fire or other
casualty that Tenant shall be deprived of the use and occupancy of the Premises
or any portion thereof as a result of any such damage, destruction or the
repair thereof, providing Tenant did not cause the fire or other casualty,
Tenant shall be relieved of the same ratable portion of the fixed rental
hereunder as the amount of damaged or useless space in the Premises bears to
the gross square footage of the Premises. Landlord, in its sole discretion,
shall reasonably determine the amount of damaged or useless space and the gross
square footage of the Premises referenced in the prior sentence.
ARTICLE 11.
CONDEMNATION
In the event of a condemnation or taking of the entire Premises by a public or
quasi-public authority, this Lease shall terminate as of the date title vests
in the public or quasi-public authority. In the event of a taking or
condemnation of fifteen percent (15%) or more (but less than the whole) of the
Building and without regard to whether the Premises are part of such taking or
condemnation, Landlord may elect to terminate this Lease by giving notice to
Tenant within sixty (60) days of Landlord receiving notice of such
condemnation. All compensation awarded for any condemnation shall be the
property of Landlord, whether such damages shall be awarded as a compensation
for diminution in the value of the leasehold or to the fee of the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation. Providing, however that in the event
this Lease is terminated, Tenant shall be entitled to a separate claim
available to Tenant for loss of leasehold improvements (including fixtures paid
for by Tenant), the taking of Tenant's personal property and for costs of
moving. Notwithstanding the foregoing to the contrary, any condemnation award
to Tenant shall be available only to the extent such award is payable
separately to Tenant and does not diminish the award available to Landlord or
any lender of Landlord and such award shall be limited to the amount of Rent
actually paid by Tenant to Landlord for the period of time for which the award
is given. Any additional portion of such award shall belong to Landlord.
ARTICLE 12.
REPAIR AND MAINTENANCE
A. TENANTS OBLIGATIONS. Tenant shall keep the Premises in good working
order, repair (which repair shall include necessary replacements and capital
expenditures and in compliance with all Laws now or hereafter adopted) and
condition (which condition shall be clean, sanitary,
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sightly and free of pest and rodents). Tenant's obligations hereunder shall
include but not be limited to Tenant's trade fixtures and equipment and
interior decorations.
B. SIGNS AND OBSTRUCTIONS. Tenant shall not obstruct or permit the
obstruction of light, halls, Common Areas, roofs, parapets, stairways or
entrances to the Building or the Premises and will not affix, paint, erect or
inscribe any sign, projection, awning, signal or advertisement of any kind to
any part of the Building or the Premises, including the inside or outside of
the windows or doors, without the written consent of Landlord. Landlord shall
have the right to withdraw such consent at any time and to require Tenant to
remove any sign, projection, awning, signal or advertisement to be affixed to
the Building or the Premises. If such work is done by Tenant through any
person, firm or corporation not designated by Landlord, or without the express
written consent of Landlord, Landlord shall have the right to remove such
signs, projections, awnings, signals or advertisements without being liable to
the Tenant by reason thereof and to charge the cost of such removal to Tenant
as Additional Rent, payable within ten (10) days of Landlord's demand therefor.
C. OUTSIDE SERVICES. Tenant shall not permit, except by a person or
company reasonably satisfactory to and approved by Landlord: (i) the
extermination of vermin in, on or about the Premises; (ii) the servicing of
heating, ventilating and air conditioning equipment; (iii) the collection of
rubbish and trash other than in compliance with local government health
requirements and in accordance with the rules and regulations established by
Landlord, which shall minimally provide that Tenant's rubbish and trash shall
be kept in containers located so as not to be visible to members of the public
and in a sanitary and neat condition; or (iv) the window cleaning, janitorial
services or similar work in the Premises.
ARTICLE 13.
INSPECTION OF PREMISES AND REPAIRS BY LANDLORD
Landlord shall not be required to make any repairs or improvements to the
Building's Common Areas or the Premises except to keep the roof above,
foundation, exterior walls, other than common utility lines to the point of
connection for Tenant, and structural portions of the Premises in good working
order and repair (the cost of which shall be included in Operating Expenses
under Article 4); provided, however, that any damage to such areas shall not
have been caused by any act or omission of, or violation of this Lease by
Tenant or any of Tenant's agents, contractors, employees, invitees or
customers, in which event Landlord may perform or require the Tenant to perform
such repairs as provided above (without limiting Landlord's other remedies
herein).
Tenant shall permit the Landlord, the Building Manager and its authorized
representatives to enter the Premises to show the Premises during Normal
Business Hours of Building and at other reasonable times to inspect the
Premises and to make such repairs, improvements or additions in the Premises or
in the Building of which they are a part as may be necessary or appropriate.
Landlord shall make every effort to perform all such repairs, improvements and
additions in such
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a manner (in its judgment) so as to cause minimum 'interference with Tenant and
the Premises but Landlord shall not be liable to Tenant for any interruption or
loss of business pertaining to such activities.
ARTICLE 14.
SURRENDER OF PREMISES
Upon the expiration of the Term, or sooner termination of the Lease, Tenant
shall quit and surrender to Landlord the Premises, broom clean, in good order
and condition, normal wear and tear and damage by fire and other casualty
excepted. All leasehold improvements and other fixtures, such as light
fixtures and HVAC equipment, wall coverings, carpeting and drapes, in or
serving the Premises, whether installed by Tenant or Landlord, shall be
Landlord's property and shall remain, all without compensation, allowance or
credit to Tenant. Any property not removed shall be deemed to have been
abandoned by Tenant and may be retained or disposed of by Landlord at Tenant's
expense free of any and all claims of Tenant, as Landlord shall desire. All
property not removed from the Premises by Tenant may be handled or stored by
Landlord at Tenant's expense and Landlord shall not be liable for the value,
preservation or safekeeping thereof. At Landlord's option all or part of such
property may be conclusively deemed to have been conveyed by Tenant to Landlord
as if by bill of sale without payment by Landlord. The Tenant hereby waives to
the maximum extent allowable the benefit of all laws now or hereafter in force
in this state or elsewhere exempting property from liability for rent or for
debt.
ARTICLE 15.
HOLDING OVER
Tenant shall pay Landlord 150% of the amount Rent then applicable prorated on a
per diem basis for each day Tenant shall retain possession of the Premises or
any part thereof after expiration or earlier termination of this Lease,
together with all damages sustained by Landlord on account thereof. The
foregoing provisions shall not serve as permission for Tenant to hold-over, nor
serve to extend the Term (although Tenant shall remain bound to comply with all
provisions of this Lease until Tenant vacates the Premises) and Landlord shall
have the right at any time thereafter to enter and possess the Premises and
remove all property and persons therefrom.
ARTICLE 16.
SUBLETTING AND ASSIGNMENT
Tenant shall not, without the prior written consent of Landlord endorsed
thereon, list the Premises or any part thereof as available for assignment or
sublease with any broker or agent or otherwise advertise, post, communicate or
solicit prospective assignees or subtenants through any direct or indirect
means, nor assign this Lease or any interest thereunder, or sublet Premises or
any part thereof, or permit the use of Premises by any party other than Tenant.
In the event that during
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the term of this Lease, Tenant desires to sublease and introduces Landlord to a
proposed replacement tenant for Tenant, which replacement tenant is of
financial strength at least equal to that of Tenant (as determined by Landlord
in its sole discretion) and has a use for Premises and a number of employees
reasonably consistent with that of Tenant's operation, the Landlord may
consider such replacement tenant and notify Tenant with reasonable promptness
as to Landlord's choice, at Landlord's sole discretion, of the following:
(1) That Landlord consents to a subleasing of Premises to such replacement
tenant provided that Tenant shall remain fully liable for all of its
obligations and liabilities under this Lease and provided further that
Landlord shall be entitled to any profit obtained by Tenant from such
subletting or assignment; or;
(2) That upon such replacement tenant's entering into a mutually
satisfactory new Lease for the Premises with Landlord, then Tenant
shall be released from all further obligations and liabilities, under
this Lease (excepting only any unpaid rentals or any unperformed
covenants then past due under this Lease or any guarantee by Tenant of
replacement tenant's obligations); or
(3) That Landlord declines to consent to such sublease due to insufficient
or unsatisfactory documentation furnished to Landlord to establish
Tenant's financial strength and proposed use of and operations upon
Premises.
In no case may Tenant assign any options to sublessee(s) or assignee(s)
hereunder, all such options being deemed personal to Tenant only. Consent by
Landlord hereunder shall in no way operate as a waiver by Landlord of, or to
release or discharge Tenant from, any liability under this Lease or be
construed to relieve Tenant from obtaining Landlord's consent to any subsequent
assignment, subletting, transfer, use or occupancy.
ARTICLE 17.
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages now or hereafter placed
upon the Building, and all other encumbrances and matters of public record
applicable to the Building, including without limitation, any reciprocal
easement or operating agreements, covenants, conditions and restrictions and
Tenant shall not act or permit the Premises to be operated in violation
thereof. If any foreclosure or power of sale proceedings are initiated by any
Lender or a deed in lieu is granted (or if any ground lease is terminated),
Tenant agrees, upon written request of any such Lender or any purchaser at such
foreclosure sale, to attorn and pay Rent to such party and to execute and
deliver any instruments necessary or appropriate to evidence or effectuate such
attornment. In the event of attornment, no Lender shall be: (i) liable for
any act or omission of Landlord, or subject to any offsets or defenses which
Tenant might have against Landlord (prior to such Lender becoming Landlord
under such attornment), (ii) liable for any security deposit or bound by any
prepaid Rent not actually received by such Lender, or (iii) bound by any future
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modification of this Lease not consented to by such Lender. Any Lender may
elect to make this Lease prior to the lien of its Mortgage, and if the Lender
under any prior Mortgage shall require, this Lease shall be prior to any
subordinate Mortgage; such elections shall be effective upon written notice to
Tenant. Tenant agrees to give any Lender by certified mail, return receipt
requested, a copy of any notice of default served by Tenant upon Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of service on Tenant of a copy of an assignment of leases, or otherwise) of the
name and address of such Lender. Tenant further agrees that if Landlord shall
have failed to cure such default within the time permitted Landlord for cure
under this Lease, any such Lender whose address has been so provided to Tenant
shall have an additional period of thirty (30) days in which to cure (or such
additional time as may be required due to causes beyond such Lender's control,
including time to obtain possession of the Building by power of sale or
judicial action or deed in lieu of foreclosure). The provisions of this
Article shall be self-operative; however, Tenant shall execute such
documentation as Landlord or any Lender may request from time to time in order
to confirm the matters set forth in this Article in recordable form. To the
extent not expressly prohibited by law, Tenant waives the provisions of any law
now or hereafter adopted which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease or Tenant's
obligations hereunder if such foreclosure or power of sale proceedings are
initiated, prosecuted or completed.
ARTICLE 18.
ESTOPPEL CERTIFICATE
Tenant shall from time to time, upon written request by Landlord or lender,
deliver to Landlord or lender, within ten (10) days after from receipt of such
request, a statement in writing certifying: (i) that this Lease is unmodified
and in full force and effect (or if there have been modifications, identifying
such modifications and certifying that the Lease, as modified, is in full force
and effect); (ii) the dates to which the Rent has been paid; (iii) that
Landlord is not in default under any provision of this Lease (or if Landlord is
in default, specifying each such default); and, (iv) the address to which
notices to Tenant shall be sent; it being understood that any such statement so
delivered may be relied upon in connection with any lease, mortgage or
transfer.
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 and not modified
except as Landlord may represent; (ii) not more than one month's Rent has been
paid in advance; (iii) there are no defaults by Landlord; and, (iv) notices to
Tenant shall be sent to Tenant's Address as set forth in Article 1 of this
Lease. Notwithstanding the presumptions of this Article, Tenant shall not be
relieved of its obligation to deliver said statement.
ARTICLE 19.
DEFAULTS
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If Tenant: (i) fails to pay when due any installment or other payment of Rent,
or to keep in effect any insurance required to be maintained; or (ii) vacates
or abandons the Premises, or (iii) becomes insolvent, makes an assignment for
the benefit of creditors, files a voluntary bankruptcy or an involuntary
petition in bankruptcy is filed against Tenant which petition is not dismissed
within sixty (60) days of its filing, or (iv) fails to perform or observe any
of the other covenants, conditions or agreements contained herein on Tenant's
part to be kept or performed and such failure shall continue for thirty (30)
days after notice thereof given by or on behalf of Landlord, or (v) if the
interest of Tenant shall be offered for sale or sold under execution or other
legal process if Tenant makes any transfer, assignment, conveyance, sale,
pledge, disposition of all or a substantial portion of Tenant's property, then
any such event or conduct shall constitute a "default" hereunder.
If Tenant shall file a voluntary petition pursuant to the United States
Bankruptcy Reform Act of 1978, as the same may be from time to time be amended
(the "Bankruptcy Code"), or take the benefit of any insolvency act or be
dissolved, or if an involuntary petition be filed against Tenant pursuant to
the Bankruptcy Code and said petition is not dismissed within thirty (30) days
after such filing, or if a receiver shall be appointed for its business or its
assets and the appointment of such receiver is not vacated within thirty (30)
days after such appointment, or if it shall make an assignment for the benefit
of its creditors, then Landlord shall have all of the rights provided for in
the event of nonpayment of the Rent.
ARTICLE 20.
REMEDIES OF LANDLORD
The remedies provided Landlord under this Lease are cumulative.
(a) Upon the occurrence of any default, Landlord may serve notice on
Tenant that the Term and the estate hereby vested in Tenant and any and all
other rights of Tenant hereunder shall cease on the date specified in such
notice and on the specified date this Lease shall cease and expire as fully and
with the effect as if the Term had expired for passage of time.
(b) Without terminating this Lease in case of a default or if this Lease
shall be terminated for default as provided herein, Landlord may re-enter the
Premises, remove Tenant, or cause Tenant to be removed from the Premises in
such manner as Landlord may deem advisable; with or without legal process, and
using such reasonable force as may be necessary. In the event of re-entry
without terminating this Lease, Tenant shall continue to be liable for all
Rents and other charges accruing or coming due under this Lease.
(c) If Landlord, without terminating this Lease, shall re-enter the
Premises or if this Lease shall be terminated as provided in paragraph (a)
above:
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(i) All Rent due from Tenant to Landlord shall thereupon become
due and shall be paid up to the time of re-entry, dispossession or
expiration, together with reasonable costs and expenses (including,
without limitation, attorney's fees) of Landlord;
(ii) Landlord, without any obligation to do so, may relet the
Premises or any part thereof for a term or terms which may at
Landlord's option be less than or exceed the period which would
otherwise have constituted the balance of the Term and may grant such
concessions in reletting as Landlord, in the exercise of its
reasonable business judgment, deems desirable. In connection with
such reletting, Tenant shall be liable for all costs of the reletting
including, without limitation, free rent, leasing commissions, legal
fees and alteration and remodeling costs;
(iii) If Landlord shall have terminated this Lease, Tenant shall also
be liable to Landlord for all damages provided for in law and under
this Lease resulting from Tenant's breach including, without
limitation, the difference between the aggregate rentals reserved
under the terms of this Lease for the balance of the Term together
with all other sums payable hereunder as Rent for the balance of the
Term, less the fair rental value of the Premises for that period
determined as of the date of such termination. For purposes of this
paragraph, Tenant shall be deemed to include any guarantor or surety
of the Lease.
(d) Tenant hereby waives all right to trial by jury in any claim, action
proceeding or counterclaim by either Landlord or Tenant against each other or
any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and/or Tenant's use or occupancy or the
Premises.
(e) In addition to the above, Landlord shall have any and all other rights
provided a Landlord under law or equity for breach of a lease or tenancy by a
Tenant.
ARTICLE 21.
QUIET ENJOYMENT
Landlord covenants that subject to the conditions and limitations set forth in
this Lease, Tenant, upon paying the Rent and performing all of its other
obligations under this Lease, shall peacefully and quietly have, hold and enjoy
the Premises throughout the Term or until this Lease is otherwise terminated as
herein provided.
ARTICLE 22.
ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of an amount less than full payment
of Rent then due and payable shall be deemed to be other than on account of the
Rent then due and payable, nor shall any endorsement or statement on any check
or any letter accompanying any check or
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payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or pursue any other remedy provided for in this Lease or
available at law or in equity.
ARTICLE 23.
SECURITY DEPOSIT
To secure the faithful performance by Tenant of all of the covenants,
conditions and agreements set forth in this Lease to be performed by it,
including, without limitation, foregoing such covenants, conditions and
agreements in this Lease which become applicable upon its termination by
re-entry or otherwise, Tenant has deposited with Landlord the sum shown in
Article 1 as a "Security Deposit" on the understanding:
(a) that the Security Deposit or any portion thereof may be
applied to the curing of any default that may exist, without prejudice to any
other remedy or remedies which the Landlord may have on account thereof, and
upon such application Tenant shall pay Landlord on demand the amount so applied
which shall be added to the Security Deposit so the same will be restored to
its original amount;
(b) that should the Premises be conveyed by Landlord, the Security
Deposit or any balance thereof may be turned over to the Landlord's grantee,
and if the same be turned over as aforesaid, Tenant hereby releases Landlord
from any and all liability with respect to the Security Deposit and its
application or return, and Tenant agrees to look solely to such grantee for
such application or return; and,
(c) that Landlord may commingle the Security Deposit with other
funds and not be obligated to pay Tenant any interest;
(d) that the Security Deposit shall not be considered as advance
payment of Rent or a measure of damages for any default by Tenant, nor shall it
be a bar or defense to any actions by Landlord against Tenant;
(e) that if Tenant shall faithfully perform all of the covenants
and agreements contained in this Lease on the part of the Tenant to be
performed, the Security Deposit or any then remaining balance thereof, shall be
returned to Tenant, without interest, within thirty (30) days after the
expiration of the Term. Tenant further covenants that it will not assign or
encumber the money deposited herein as a Security Deposit and that neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
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ARTICLE 24.
BROKERAGE COMMISSION
Landlord and Tenant represent and warrant to each other that neither has dealt
with any broker, finder or agent except for the Broker(s) identified in Article
1. Tenant represents and warrants to Landlord that (except with respect to the
Broker identified in Article 1 and with whom Landlord has entered into a
separate brokerage agreement) no broker, agent, commission salesperson, or
other person has represented Tenant in the negotiations for and procurement of
this Lease and of the Premises and that no commissions, fees, or compensation
of any kind are due and payable in connection herewith to any broker, agent
commission salesperson, or other person. Tenant agrees to indemnify Landlord
and hold Landlord harmless from any and all claims, suits, or judgments
(including, without limitation, reasonable attorneys' fees and court costs
incurred in connection with any such claims, suits, or judgments, or in
connection with the enforcement of this indemnity) for any fees, commissions,
or compensation of any kind which arise out of or are in any way connected with
any claimed agency relationship not referenced in Article 1.
ARTICLE 25.
FORCE MAJEURE
Landlord shall be excused for the period of any delay in the performance of any
obligation hereunder when prevented from so doing by a cause or causes beyond
its control, including all labor disputes, civil commotion, war, war-like
operations, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, fire or other casualty,
inability to obtain any material, services or financing, or through acts of
God. Tenant shall similarly be excused for delay in the performance of any
obligation hereunder; provided:
(a) nothing contained in this Section or elsewhere in this Lease
shall be deemed to excuse or permit any delay in the payment
of the Rent, or any delay in the cure of any default which may
be cured by the payment of money;
(b) no reliance by Tenant upon this Section shall limit or
restrict in any way Landlord's right of self-help as provided
in this Lease; and
(c) Tenant shall not be entitled to rely upon this Section unless
it shall first have given Landlord notice of the existence of
any force majeure preventing the performance of an obligation
of Tenant within five days after the commencement of the force
majeure.
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ARTICLE 26.
PARKING
(a) Landlord hereby grants to Tenant the right to use the Parking
Spaces as identified in Article I and shown on Exhibit A. Landlord, at its
sole election, may designate the types and locations of said Parking Spaces and
Landlord shall have the right, at Landlord's sole election, to change said
types and locations from time to time; provided, however, such designation
shall be uniformly applied and shall not unfairly favor any tenant in the
Building.
(b) Commencing on the Commencement Date, Tenant shall pay Landlord
a Parking Fee, if any, as Additional Rent, payable monthly in advance with the
Monthly Rent. Thereafter, and throughout the Term, the parking rate for each
type of parking space provided to Tenant hereunder shall be the prevailing
parking rate, as Landlord may designate from time to time, at Landlord's sole
election, for each such type of parking space. In addition to the right
reserved hereunder by Landlord to designate the parking rate from time to time,
Landlord shall have the right to change the parking rate at any time to include
therein any amounts levied, assessed, imposed or required to be paid to any
governmental authority on account of the parking of motor vehicles, including
all sums required to be paid pursuant to transportation controls imposed by the
Environmental Protection Agency under the Clean Air Act of 1970, as amended, or
otherwise required to be paid by any governmental authority with respect to the
parking, use, or transportation of motor vehicles, or the reduction or control
of motor vehicle traffic, or motor vehicle pollution.
(c) If requested by Landlord, Tenant shall notify Landlord of the
license plate number, year, make and model of the automobiles entitled to use
the Parking Spaces and if requested by Landlord, such automobiles shall be
identified by automobile window stickers provided by Landlord, and only such
designated automobiles shall be permitted to use the Parking Spaces. If
Landlord institutes such an identification procedure, Landlord may provide
additional parking spaces for use by customers and invitees of Tenant on a
daily basis at prevailing parking rates, if any. At Landlord's sole election,
Landlord may make validation stickers available to Tenant for any such
additional parking spaces, provided, however, if Landlord makes validation
stickers available to any other tenant in the Building, Landlord shall make
such validation stickers available to Tenant.
(d) The Parking Spaces and additional parking spaces provided for
herein are provided solely for the accommodation of Tenant and Landlord assumes
no responsibility or liability of any kind whatsoever from whatever cause with
respect to the automobile parking areas, including adjoining streets,
sidewalks, driveways, property and passageways, or the use thereof by Tenant or
tenant's employees, customers, agents, contractors or invitees.
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ARTICLE 27.
HAZARDOUS MATERIALS
A. DEFINITION OF HAZARDOUS MATERIALS. The term "Hazardous Materials" for
purposes hereof shall mean any chemical, substance, materials or waste or
component thereof which is now or hereafter listed, defined or regulated as a
hazardous or toxic chemical, substance, materials or waste or component thereof
by any federal, state or local governing or regulatory body having
jurisdiction, or which would trigger any employee or community "right-to-know"
requirements adopted by any such body, or for which any such body has adopted
any requirements for the preparation or distribution of a materials safety data
sheet ("MSDS").
B. NO HAZARDOUS MATERIALS. Tenant shall not transport, use, store,
maintain, generate, manufacture, handle, dispose, release or discharge any
Hazardous Materials. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within
the Premises of Hazardous Materials customarily used in the business or
activity expressly permitted to be undertaken in the Premises under Article 6,
provided: (a) such Hazardous Materials shall be used and maintained only in
such quantities as are reasonably necessary for such permitted use of the
Premises and the ordinary course of Tenant's business therein, strictly in
accordance with applicable law, highest prevailing standards, and the
manufacturers' instructions therefor, (b) such Hazardous Materials shall not be
disposed of, released or discharged in the Building, and shall be transported
to and from the Premises in compliance with all applicable laws, and as
Landlord shall reasonably require, (c) if any applicable law or Landlord's
trash removal contractor requires that any such Hazardous Materials be disposed
of separately from ordinary trash, Tenant shall make arrangements at Tenant's
expense for such disposal directly with a qualified and licensed disposal
company at a lawful disposal site (subject to scheduling and approval by
Landlord), and (d) any remaining such Hazardous Materials shall he completely,
properly and lawfully removed from the Building upon expiration or earlier
termination of this Lease.
C. NOTICES TO LANDLORD. Tenant shall promptly notify Landlord of: (i)
any enforcement, cleanup or other regulatory action taken or threatened by any
governmental or regulatory authority with respect to the presence of any
Hazardous Materials on the Premises or the migration thereof from or to other
property, (ii) any demands or claims made or threatened by any party relating
to any loss or injury resulting from any Hazardous Materials on the Premises,
(iii) any release, discharge or nonroutine, improper or unlawful disposal or
transportation of any Hazardous Materials on or from the Premises or in
violation of this Article, and (iv) any matters where Tenant is required by law
to give a notice to any governmental or regulatory authority respecting any
Hazardous Materials on the Premises. Landlord shall have the right (but not
the obligation) to join and participate, as a party, in any legal proceedings
or actions affecting the Premises initiated in connection with any
environmental, health or safety law. At such times as Landlord may reasonably
request, Tenant shall provide Landlord with a written list, certified to be
true and complete, identifying any Hazardous Materials then used, stored, or
maintained upon the Premises, the use and approximate quantity of each such
materials, a copy of any MSDS
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issued by the manufacturer therefor, and such other information as Landlord may
reasonably require or as may be required by Law.
D. INDEMNIFICATION OF LANDLORD. If any Hazardous Materials are released,
discharged or disposed of by Tenant or any other occupant of the Premises, or
their employees, agents, invitees or contractors, on or about the Building in
violation of the foregoing provisions, Tenant shall immediately, properly and
in compliance with applicable laws clean up, remediate and remove the Hazardous
Materials from the Building and any other affected property and clean or
replace any affected personal property (whether or not owned by Landlord), at
Tenant's expense (without limiting Landlord's other remedies therefor). Tenant
shall further be required to indemnify and hold Landlord, Landlord's directors,
officers, employees and agents harmless from and against any and all claims,
demands, liabilities, losses, damages, penalties and judgments directly or
indirectly arising out of or attributable to a violation of the provisions of
this Article by Tenant, Tenant's occupants, employees, contractors or agents.
Any clean up, remediation and removal work shall be subject to Landlord's prior
written approval (except in emergencies), and shall include, without
limitation, any testing, investigation, and the preparation and implementation
of any remedial action plan required by any governmental body having
jurisdiction or reasonably required by Landlord. If Landlord or any Lender or
governmental body arranges for any tests or studies showing that this Article
has been violated, Tenant shall pay for the costs of such tests. The
provisions of this Article shall survive the expiration or earlier termination
of this Lease.
ARTICLE 28.
ADDITIONAL RIGHTS RESERVED BY LANDLORD
In addition to any other rights provided for herein, Landlord reserves the
following rights, exercisable without liability to Tenant for damage or injury
to property, person or business and without effecting an eviction, constructive
or actual, or disturbance of Tenant's use or possession or giving rise to any
claim:
(a) To name the Building and to change the name or street address
of the Building;
(b) To install and maintain all signs on the exterior and interior
of the Building;
(c) To designate all sources furnishing sign painting and
lettering:
(d) During the last ninety (90) days of the Term, if Tenant has
vacated the Premises, to decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy, without
affecting Tenant's obligation to pay Rent for the Premises;
(e) To have pass keys to the Premises and all doors therein,
excluding Tenant's vaults and safes;
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(f) On reasonable prior notice to Tenant, to exhibit the Premises
to any prospective purchaser, lender, mortgagee, or assignee
of any mortgage on the Building or land and to others having
an interest therein at any time during the Term, and to
prospective tenants during the last six months of the Term;
(g) To take any and all measures, including entering the Premises
for the purpose of making inspections, repairs, alterations,
additions and improvements to the Premises or to the Building
(including for the purpose of checking, calibrating, adjusting
and balancing controls and other parts of the Building
Systems), as may be necessary or desirable for the operation,
improvement, safety, protection or preservation of the
Premises or the Building, or in order to comply with all laws,
orders and requirements of governmental or other authority, or
as may otherwise be permitted or required by this Lease;
provided, however, that Landlord shall use its best efforts
(except in an emergency) to minimize interference with
Tenant's business in the Premises;
(h) To relocate various facilities within the Building and on the
land of which the Building is a part if Landlord shall
determine such relocation to be in the best interest of the
development of the Building and Property, provided that such
relocation shall not materially restrict access to the
Premises; and
(i) To install vending machines of all kinds in the Premises and
the Building and to receive all of the revenue derived
therefrom, provided, however, that no vending machines shall
be installed by Landlord in the Premises unless Tenant so
requests.
ARTICLE 29.
DEFINED TERMS
A. "Building" shall refer to the Building named in Article 1 of which the
leased Premises are a part (including all modifications, additions and
alterations made to the Building during the term of this Lease), the real
property on which the same is located, all plazas, common areas and any other
areas located on said real property and designated by Landlord for use by all
tenants in the Building. A plan showing the Building is attached hereto as
Exhibit A and made a part hereof and the Premises is defined in Article 2 and
shown on said Exhibit A by cross-hatched lines.
B. "Common Areas" shall mean and include all areas, facilities,
equipment, directories and signs of the Building (exclusive of the Premises and
areas leased to other Tenants) made available and designated by Landlord for
the common and joint use and benefit of Landlord, Tenant and other tenants and
occupants of the Building including, but not limited to, lobbies, public
washrooms, hallways, sidewalks, parking areas, landscaped areas and service
entrances. Common Areas may further include such areas in adjoining properties
under reciprocal easement agreements, operating agreements or other such
agreements now or hereafter in effect and which are available to Landlord,
Tenant and Tenant's employees and invitees. Landlord reserves the
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right in its sole discretion and from time to time, to construct, maintain,
operate, repair, close, limit, take out of service, alter, change, and modify
all or any part of the Common Areas.
C. "Default Rate" shall mean eighteen percent (18%) per annum, or the
highest rate permitted by applicable law, whichever shall be less.
D. "Hazardous Materials" shall have the meaning set forth in Article 27.
E. "Landlord" and "Tenant" shall be applicable to one or more parties as
the case may be, and the singular shall include the plural, and the neuter
shall include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners, beneficiaries, trustees,
officers, directors, employees, shareholders, principals, agents, affiliates,
successors and assigns.
F. "Law" or "Laws" shall mean all federal, state, county and local
governmental and municipal laws, statutes, ordinances, rules, regulations,
codes, decrees, orders and other such requirements, applicable equitable
remedies and decisions by courts in cases where such decisions are binding
precedents in the state in which the Building is located, and decisions of
federal courts applying the laws of such state.
G. "Lease" shall mean this Lease executed between Tenant and Landlord,
including any extensions, amendments or modifications and any Exhibits attached
hereto.
H. "Lease Year" shall mean each calendar year or portion thereof during
the Term, and any initial or final partial calendar years shall be "Partial
Lease Years". Notwithstanding the foregoing, at Landlord's option by notice to
Tenant, the term "Lease Year' shall mean each twelve (12) month period
commencing on the Commencement Date as adjusted pursuant to Article 2 (or at
Landlord's option), the first day of the first full calendar month following
the Commencement Date.
I. "Lender" shall mean the holder of a Mortgage at the time in question,
and where such Mortgage is a ground lease, such term shall refer to the ground
lessee.
J. "Mortgage" shall mean all mortgages, deeds of trust, ground leases and
other such encumbrances now or hereafter placed upon the Building or any part
thereof with the written consent of Landlord, and all renewals, modifications,
consolidations, replacements or extensions thereof, and all indebtedness now or
hereafter secured thereby and all interest thereon.
K. "Operating Expenses" shall mean all operating expenses of any kind or
nature which are necessary, ordinary or customarily incurred in connection with
the operation, maintenance or repair of the Building as determined by Landlord.
Operating Expenses shall include, but not be limited to:
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1.1 all real property taxes and assessments levied against the
Building by any governmental or quasigovernmental authority. The foregoing
shall include all federal,7 state, county, or local governmental, special
district, improvement district, municipal or other political subdivision taxes,
fees, levies, assessments, charges or other impositions of every kind and
nature, whether general, special, ordinary or extraordinary, respecting the
Building, including without limitation, real estate taxes, general and special
assessments, interest on any special assessments paid in installments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent, personal
property taxes imposed upon the fixtures, machinery, equipment, apparatus,
appurtenances, furniture and other personal property used in connection with
the Building which Landlord shall pay during any calendar year, any portion of
which occurs during the Term (without regard to any different fiscal year used
by such government or municipal authority except as provided below). Provided,
however, any taxes which shall be levied on the rentals of the Building shall
be determined as if the Building were Landlord's only property, and provided
further that in no event shall the term "taxes or assessment," as used herein,
include any net federal or state income taxes levied or assessed on Landlord,
unless such taxes are a specific substitute for real property taxes. Such term
shall, however, include gross taxes on rentals. Expenses incurred by Landlord
for tax consultants and in contesting the amount or validity of any such taxes
or assessments shall be included in such computations. All of the preceding
clause K (1.1) is collectively referred to as the "Tax" or "Taxes".
1.2 all "assessments", including so-called special assessments,
license tax, business license fee, business license tax, levy, charge, penalty
or tax imposed by any authority having the direct power to tax, including any
city, county, state or federal government, or any school, agricultural,
lighting, water, drainage, or other improvement or special district thereof,
against the Premises of the Building or any legal or equitable interest of
Landlord therein. For the purposes of this Lease, any special assessments
shall be deemed payable in such number of installments as is permitted by law,
whether or not actually so paid. If as of the Commencement Date the Building
has not been fully assessed as a completed project, for the purpose of
computing the Operating Expenses for any adjustment required herein or under
Article 4, the Tax shall be adjusted by Landlord, as of the date on which the
adjustment is to be made, to reflect full completion of the Building including
all standard Tenant finish work if the method of taxation of real estate
prevailing to the time of execution hereof shall be, or has been altered, so as
to cause the whole or any part of the taxes now, hereafter or theretofore
levied, assessed or imposed on real estate to be levied, assessed or imposed on
Landlord, wholly or partially, as a capital levy or otherwise, or on or
measured by the rents received therefrom, then such new or altered taxes
attributable to the Building shall be included within the term real estate
taxes, except that the same shall not include any enhancement of said tax
attributable to other income of Landlord.
1.3 costs of supplies, including, but not limited to, the cost of
relamping all Building standard lighting as the same may be required from time
to time;
1.4 costs incurred in connection with obtaining and providing
energy for the Building, including, but not limited to, costs of propane,
butane, natural gas, steam, electricity, solar energy and fuel oils, coal or
any other energy sources;
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1.5 costs of water and sanitary and storm drainage services;
1.6 costs of janitorial and security services;
1.7 costs of general maintenance and repairs, including costs
under HVAC and other mechanical maintenance contracts and maintenance, repairs
and replacement of equipment and tools used in connection with operating the
Building;
1.8 costs of maintenance and replacement of landscaping;
1.9 insurance premiums, including fire and all-risk coverage,
together with 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 (where Landlord is unable to obtain insurance
without such deductible from a major insurance carrier at reasonable rates),
public liability insurance and any other insurance carried by Landlord on the
Building, or any component parts thereof (all such insurance shall be in such
amounts as may be required by any holder of a Mortgage or as Landlord may
reasonably determine);
1.10 labor costs, including wages and other payments, costs to
Landlord of worker's compensation and disability insurance, payroll taxes,
welfare fringe benefits, and all legal fees and other costs or expenses
incurred in resolving any labor dispute;
1.11 professional building management fees required for management
of the Building;
1.12 legal, accounting, inspection, and other consultation fees
(including, without limitation, fees charged by consultants retained by
Landlord for services that are designed to produce a reduction in Operating
Expenses or to reasonably improve the operation, maintenance or state of repair
of the Building) incurred in the ordinary course of operating the Building or
in connection with making the computations required hereunder or in any audit
of operations of the Building;
1.13 the costs of capital improvements or structural repairs or
replacements made in or 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 (herein "Required Capital
Improvements") or the costs incurred by Landlord to install a new or
replacement capital item for the purpose of reducing Operating Expenses (herein
"Cost Savings Improvements"), and a reasonable reserve for all other capital
improvements and structural repairs and replacements reasonably necessary to
permit Landlord to maintain the Building in its current class. The
expenditures for Required Capital Improvements and Cost Savings Improvements
shall be amortized over the useful life of such capital improvement or
structural repair or replacement (as determined by Landlord). All costs so
amortized shall bear interest on the amortized balance at the rate of twelve
percent (12%) per annum or such higher rate as may have been paid by Landlord
on funds borrowed for the purpose of constructing these capital improvements.
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In making any computations contemplated hereby, Landlord shall also be
permitted to make such adjustments and modifications to the provisions of this
paragraph and Article 4 as shall be reasonable and necessary to achieve the
intention of the parties hereto.
L. "Rent" shall have the meaning specified therefor in Article 3.
M. "Tax" or "Taxes" shall have the meaning set forth in Article
29(K)(l.l).
All other capitalized terms shall have the definition set forth in the Lease.
ARTICLE 30.
MISCELLANEOUS PROVISIONS
A. RULES AND REGULATIONS.
Tenant shall comply with all of the rules and regulations promulgated by
Landlord from time to time for the Building. A copy of the current rules and
regulations is attached hereto as Exhibit D.
B. EXECUTION OF LEASE.
If more than one person or entity executes this Lease as Tenant, each such
person or entity shall be jointly and severally liable for observing and
performing each of the terms, covenants, conditions and provisions to be
observed or performed by Tenant.
C. NOTICES.
All notices under this Lease shall be in writing and will be deemed
sufficiently given for all purposes if, to Tenant, by delivery to Tenant at the
Premises during the hours the Building is open for business or by certified
mail, return receipt requested or by overnight delivery service (with one
acknowledged receipt), to Tenant at the address set forth below, and if to
Landlord, by certified mail, return receipt requested or by overnight delivery
service (with one acknowledged receipt), at the addresses set forth below.
Landlord: at address shown in Article I.
with copy to:
with an additional copy to: Building Manager at address shown in
Article 1.
Tenant: at address shown in Article 1.
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with copy to:
----------------------------------------------------------
------------------------------------------------------
If any alleged default on the part of the Landlord hereunder occurs, Tenant
shall give written notice to Landlord in the manner herein set forth and shall
afford Landlord a reasonable opportunity to cure any such default. In
addition, Tenant shall send notice of such default by certified or registered
mail, postage prepaid, to the holder of any Mortgage whose address Tenant has
been notified in writing, and shall afford such Mortgage holder a reasonable
opportunity to cure any alleged default on Landlord's behalf. In no event will
Landlord be responsible for any damages incurred by Tenant, including but not
limited to, lost profits or interruption of business as a result of any alleged
default by Landlord hereunder.
D. TRANSFERS.
The term "Landlord" appearing herein shall mean only the owner of the Building
from time to time and, upon a sale or transfer of its interest in the Building,
the then Landlord and transferring party shall have no further obligations or
liabilities for matters accruing after the date of transfer of that interest
and Tenant, upon such sale or transfer, shall look solely to the successor
owner and transferee of the Building for performance of Landlord's obligations
hereunder.
E. SHORING.
If any excavation or construction is made adjacent to, upon or within the
Building, or any part thereof, Tenant shall afford to any and all persons
causing or authorized to cause such excavation or construction license to enter
upon the Premises for the purpose of doing such work as such persons shall deem
necessary to preserve the Building or any portion thereof from injury or damage
and to support the same by proper foundations, braces and supports, without any
claim for damages or indemnity or abatement of the Rent, or of a constructive
or actual eviction of Tenant.
F. RELATIONSHIP OF THE PARTIES.
Nothing contained in this Lease shall be construed by the parties hereto, or by
any third party, as constituting the parties as principal and agent, partners
or joint venturers, nor shall anything herein render either party (other than a
guarantor) liable for the debts and obligations of any other party, it being
understood and agreed that the only relationship between Landlord and Tenant is
that of Landlord and Tenant.
G. ENTIRE AGREEMENT: MERGER.
This Lease embodies the entire agreement and understanding between the parties
respecting the Lease and the Premises and supersedes all prior negotiations,
agreements and understandings between the parties, all of which are merged
herein. No provision of this Lease may be
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modified, waived or discharged except by an instrument in writing signed by the
party against which enforcement of such modification, waiver or discharge is
sought.
H. NO REPRESENTATION BY LANDLORD.
Neither Landlord nor any agent of Landlord has made any representations,
warranties, or promises with respect to the Premises or the Building except as
expressly set forth herein.
I. LIMITATION OF LIABILITY.
Notwithstanding any provision in this Lease to the contrary, under no
circumstances shall Landlord's liability or that of its directors, officers,
employees and agents for failure to perform any obligations arising out of or
in connection with the Lease or for any breach of the terms or conditions of
this Lease (whether written or implied) exceed Landlord's equity interest in
the Building. Any judgments rendered against Landlord shall be satisfied
solely out of proceeds of sale of Landlord's interest in the Building. No
personal judgment shall lie against Landlord upon extinguishment of its rights
in the Building and any judgments so rendered shall not give rise to any right
of execution or levy against Landlord's assets. The provisions hereof shall
inure to Landlord's successors and assigns including any Lender. The foregoing
provisions are not intended to relieve Landlord from the performance of any of
Landlord's obligations under this Lease, but only to limit the personal
liability of Landlord in case of recovery of a judgment against Landlord; nor
shall the foregoing be deemed to limit Tenant's rights to obtain injunctive
relief or specific performance or other remedy which may be accorded Tenant by
law or under this Lease. If Tenant claims or asserts that Landlord has
violated or failed to perform a covenant under the Lease, Tenant's sole remedy
shall be an action for specific performance, declaratory judgment or injunction
and in no event shall Tenant be entitled to any money damages in any action or
by way of set off, defense or counterclaim and Tenant hereby specifically
waives the right to any money damages or other remedies.
J. MEMORANDUM OF LEASE.
At the request of either party, the other will execute a memorandum of lease in
recordable form setting forth such provisions of this Lease as Landlord deems
desirable and as may be required by law in order to permit the recording of the
form in the appropriate public office. The party recording the memorandum of
lease shall pay for the cost of recordation.
K. NO WAIVERS: AMENDMENTS.
Failure of Landlord to insist upon strict compliance by Tenant of any condition
or provision of this Lease shall not be deemed a waiver by Landlord of that
condition. No waiver shall be effective against Landlord unless in writing and
signed by Landlord. Similarly, this Lease cannot be amended except by a
writing signed by Landlord and Tenant.
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L. SUCCESSORS AND ASSIGNS.
The conditions, covenants and agreements contained herein shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
M. GOVERNING LAW.
This Lease shall be governed by the law of the State where the Building is
located.
N. EXHIBITS.
All exhibits attached to this Lease are a part hereof and are incorporated
herein by reference and all provisions of such exhibits shall constitute
agreements, promises and covenants of this Lease.
O. CAPTIONS.
The captions and headings used in this Lease are for convenience only and in no
way define or limit the scope, interpretation or content of this Lease.
P. COUNTERPARTS.
This Lease may be executed in one (1) or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
Q. EXTERIOR SIGNAGE.
Notwithstanding anything in this Lease to the contrary, Tenant shall have the
right to place a Tenant identification sign above the sixth (6th) floor of the
Building on the following terms and conditions:
(i) any and all signs shall require the prior written approval of
Landlord, which shall include, without limitation, the location of the signs,
the size of the signs, the design of the signs and the illumination of the
signs;
(ii) Tenant shall be responsible for obtaining any and all required
license and permits for the signs and shall not be permitted to install any
sign unless and until such approvals are obtained. The cost of obtaining and
maintaining such licenses and permits shall be borne entirely by Tenant. Prior
to commencing the installation of the signs, Tenant shall provide copies of all
licenses and permits to Landlord;
(iii) Tenant shall be responsible for the cost of installation,
maintenance and removal of signs. Prior to the expiration of the Term, Tenant
shall remove the signs and shall repair any and all damage to the Building as a
result thereof. In addition, Tenant shall repair any and all
31
<PAGE> 36
damage to the Building arising from the installation and/or maintenance of the
signs. Without limiting any indemnity in this Lease, Tenant hereby agrees to
indemnify and hold Landlord and its agents harmless of and from any and all
loss, cost, expenses, damage and/or liability arising from the installation,
maintenance and/or removal of the signs. This indemnity shall survive the
termination of the Lease.
(iv) Tenant's right to place a sign pursuant to these conditions
shall survive for one (1) year next following the Rental Commencement Date. If
the Tenant fails to do so within the one (1) year period, then the Tenant's
rights to install signage shall be terminated.
32
<PAGE> 37
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have duly executed this Lease with the Exhibits attached hereto, this
___ day of ______________, 199____.
Attest or Witness: Landlord:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
BY: Cornerstone Real Estate Advisers,
Inc., Its Authorized Agent
BY:
- ------------------------------ ---------------------------------------
Name Typed: Jill M. Rossi
Title: Vice President
Date:
TENANT:
Attest or Witness:
SOURCE SERVICES CORPORATION, a Delaware
Corporation
BY:
- ------------------------------ ---------------------------------------
Name Typed: D.L. Ward
Title: President
Date:
Certificate of Tenant
(If A Corporation or Partnership)
I,_________________ Secretary or General Partner of_______________________
____________________________________, Tenant, hereby certify that the officers
executing the foregoing lease on behalf of Tenant is/are duly authorized to act
on behalf of and bind the Tenant.
(Corporate Seal)
------------------------------
Secretary or General Partner
Date:
33
<PAGE> 38
EXHIBIT B
LANDLORD'S WORK
It is agreed that Landlord will complete construction of the Premises leased by
Landlord to Tenant in that lease agreement of even date herewith in accordance
with the following:
1. Tenant shall cause to be prepared final working drawings and
specifications of material relating to all improvements that Tenant desires to
be installed in the Premises. Tenant agrees to submit the aforesaid drawings
and specifications to Landlord on or before January 30, 1995. All drawings and
specifications are subject to Landlord's approval, which Landlord will not
unreasonably withhold or delay. Thereafter, Landlord will do the work and
installation contemplated by the final plans, all with reasonable diligence and
in a good and workmanlike manner.
2. Landlord shall obtain "not to exceed" bids on the cost of
providing and installing the improvements contemplated in the final plans as
outlined in Article 1. Said estimates shall be submitted to Tenant for
approval which Tenant agrees it will not unreasonably withhold or delay.
Landlord agrees to pay construction costs up to, but not to exceed $181,290.00
or $10.00 per rentable square foot. It is hereby agreed that if construction
costs, materials and labor, exclusive of architectural fees and construction
management fees, exceed $181,290.00, Tenant shall be responsible for the
overage. However, in the event Landlord receives a "not to exceed" estimate
for an amount greater than $181,290.00, Tenant shall have the right, at its own
cost and expense to revise its final drawings and specifications of materials
relating to the improvements in order to reduce the cost. It is also agreed
that if construction costs are less than $181,290.00, Landlord shall not be
required to pay to Tenant the difference between actual construction costs and
$181,290.00.
3. Any excess of Tenant's costs as outlined in Article 2 hereof
shall be paid by Tenant to Landlord upon demand and shall be subject to a 10%
service charge if not paid within thirty (30) days after demand. The amounts
payable hereunder shall constitute rental due pursuant to the lease at the
times specified herein and failure to make any such payment shall constitute a
default entitling Landlord to all of its remedies hereunder, as well as all
remedies otherwise available to Landlord.
4. All change orders to the contract are to be in writing and
must be approved by both Landlord and Tenant. If Tenant requests any changes
in the approved drawings and specifications for the improvements, Tenant shall
present Landlord with revised drawings and specifications. If Landlord
approves such changes, Landlord shall incorporate such changes in the
improvements; Landlord, however, may require prior to proceeding with any
changes cash advances against the excess in the event Landlord determines that
Tenant's proposed changes will increase the amount of the excess.
34
<PAGE> 39
5. Landlord shall at any time retain absolute control over the
exterior appearance of the building and the exterior appearance of the premises
as viewed from public halls and passageways, and Tenant shall not, without
Landlord's prior written consent, install any lighting, decoration, paintings,
drapes, window coverings, blinds, shades, signs, lettering, placards,
decorations or advertising media of any type which can be viewed from the
exterior of the building or from public halls and passageways, nor any sun
reflective or lighting blocking film or coatings to any window surface.
6. If Tenant does not object in writing to any of the work
performed by Landlord hereunder within ten (10) days after taking of possession
of the premises by Tenant, Tenant shall be deemed conclusively to have accepted
the same and it shall be conclusively established that the premises are in the
condition required hereunder, and Tenant agrees upon request of Landlord to
execute letters acknowledging such acceptance.
7. The leased premises shall not be deemed substantially complete
nor shall rent begin to accrue under said lease until:
(i) all ceilings and lighting are in and operative;
(ii) all walls and partitions have been erected, with doors and
hardware installed, and have received final painting or wall
covering;
(iii) all flooring has been installed, cleaned, and buffed;
(iv) air conditioning, plumbing and electrical systems have been
installed and are in good working condition;
(v) debris caused by Landlord's trades has been removed, the
demised leased premises have been cleaned and are in
unblemished condition.
8. The Landlord acknowledges its responsibility for compliance
with the Americans with Disabilities Act (ADA) with respect to the third floor
common area bathrooms
9. Landlord hereby agrees to refinish the walls in the common
area bathrooms located on the third floor at Landlord's sole cost using
Building standard material and labor, prior to the Tenant's Rental Commencement
Date. Landlord shall select the type and color of finishes.
35
<PAGE> 40
EXHIBIT C
Tenant's Work
None.
36
<PAGE> 41
EXHIBIT D
Building's Rules and Regulations
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from
the premises demised to any tenant or occupant.
2. No awnings or other projection shall be attached to the outside walls
or windows of the Building without the prior consent of Landlord. No curtains,
blinds, shades, or screens shall be attached to or hung in, or used in
connection with, any window or door of the premises demised to any tenant or
occupant, without the prior consent of Landlord. Such awnings, projections,
curtains, blinds, shades, screens or other fixtures must be of a quality, type,
design and color, and attached in a manner, approved by Landlord.
3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside
of the premises demised to any tenant or occupant of the Building without the
prior consent of Landlord. Interior signs on doors and directory tables, if
any, shall be of a size, color and style approved by Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels, or
other articles be placed on any window sills.
5. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors,
vestibules or other public parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. No
tenant shall bring or keep, or permit to be brought or kept, any inflammable,
combustible, explosive or hazardous fluid, materials, chemical or substance in
or about the premises demised to such tenant.
7. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior consent of Landlord, and as Landlord may direct. No tenant or
occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in a manner approved by
Landlord.
8. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the premises demised to any tenant. No cooking shall be done
or permitted in the Building by any tenant without the approval of the
Landlord. No tenant shall cause or permit any unusual or objectionable odors
to emanate from the premises demised to such tenant.
37
<PAGE> 42
9. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods, or property of
any kind at auction, without the prior consent of Landlord.
10. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the Building
or neighboring buildings or premises whether by the use of any musical
instrument, radio, television set or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out of any
doors or window.
11. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows, nor shall any changes be made in locks or the mechanism
thereof. Each tenant must, upon the termination of its tenancy, restore to
Landlord all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by, such tenant.
12. All removals from the Building, or the carrying in or out of the
Building or the premises demised to any tenant, of any safes, freight,
furniture or bulky matter of any description must take place at such time and
in such manner as Landlord or its agents may determine, from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of the
Rules and Regulations or the provisions of such tenant's lease.
13. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning towels or other like service, from any
company or person not approved by Landlord. No vending machines of any
description shall be installed, maintained or operated upon the premises
demised to any tenant without the prior consent of Landlord.
14. Landlord shall have the right to prohibit any advertising by any
tenant or occupant which, in Landlord's opinion, tends to impair the reputation
of the Building or its desirability as a building for offices, and upon notice
from Landlord, such tenant or occupant shall refrain from or discontinue such
advertising.
15. Landlord reserves the right to exclude from the Building, between the
hours of 6:00 P.M. and 8:00 AM. on business days and at all hours on Saturdays,
Sundays and holidays, all persons who do not present a pass to the Building
signed by Landlord. Landlord will furnish passes to persons for whom any
tenant requests such passes. Each tenant shall be responsible for all persons
for whom it requests such passes and shall be liable to Landlord for all acts
of such persons.
16. Each tenant, before closing and leaving the premises demised to such
tenant at any time, shall see that all entrance doors are locked and all
windows closed. Corridor doors, when not in use, shall be kept closed.
38
<PAGE> 43
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
18. No premises shall be used, or permitted to be used for lodging or
sleeping, or for any immoral or illegal purposes.
19. The requirements of tenants will be attended to only upon application
at the office of Landlord. Building employees shall not be required to
perform, and shall not be requested by any tenant or occupant to perform, and
work outside of their regular duties, unless under specific instructions from
the office of Landlord.
20. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant and occupant shall cooperate in seeking their prevention.
21. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight, or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
22. If the Premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
23. No premises shall be used, or permitted to be used, at any time,
without the prior approval of Landlord, as a store for the sale or display of
goods, wares or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation
which predominantly involves direct patronage of the general public in the
premises demised to such tenant, or for manufacturing or for other similar
purposes.
24. No tenant shall clean any window in the Building from the outside.
25. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific approval of Landlord. If any such matter requires special
handling, only a qualified person shall be employed to perform such special
handling. No tenant shall place, or permit to be placed, on any part of the
floor or floors of the premises demised to such tenant, a load exceeding the
floor load per square foot which such floor was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and
position of safes and other heavy matter, which must be placed so as to
distribute the weight.
26. Landlord shall provide and maintain an alphabetical directory board in
the first floor (main lobby) of the Building and no other directory shall be
permitted without the prior consent of
39
<PAGE> 44
Landlord. Each tenant shall be allowed one line on such board unless otherwise
agreed to in writing.
27. With respect to work being performed by a tenant in its premises with
the approval of Landlord, the tenant shall refer all contractors, contractors'
representatives and installation technicians to Landlord for its supervision,
approval and control prior to the performance of any work or services. This
provision shall apply to all work performed in the Building including
installation of telephones, telegraph equipment, electrical devices and
attachments, and installations of every nature affecting floors, walls,
woodwork, trim, ceilings, equipment and any other physical portion of the
Building.
28. Landlord shall not be responsible for lost or stolen personal
property, equipment, money, or jewelry from the premises of tenants or public
rooms whether or not such loss occurs when the Building or the premises are
locked against entry.
29. Landlord shall not permit entrance to the premises of tenants by use
of pass keys controlled by Landlord, to any person at any time without written
permission from such tenant, except employees, contractors, or service
personnel directly supervised by Landlord and employees of the United States
Postal Service.
30. Each tenant and all of tenant's employees and invitees shall observe
and comply with the driving and parking signs and markers on the land
surrounding the Building, and Landlord shall not be responsible for any damage
to any vehicle towed because of noncompliance with parking regulations.
31. Without Landlord's prior approval, no tenant shall install any radio
or television antenna, loudspeaker, music system or other device on the roof or
exterior walls of the Building or on common walls with adjacent tenants.
32. Each tenant shall store all trash and garbage within its premises or
in such other areas specifically designated by Landlord. No materials shall be
placed in the trash boxes or receptacles in the Building unless such materials
may be disposed of in the ordinary and customary manner of removing and
disposing of trash and garbage and will not result in a violation of any law or
ordinance governing such disposal. All garbage and refuse disposal shall be
only through entryways and elevators provided for such purposes and at such
times as Landlord shall designate.
33. No tenant shall employ any persons other than the janitor or Landlord
for the purpose of cleaning its premises without the prior consent of Landlord.
No tenant shall cause any unnecessary labor by reason of its carelessness or
indifference in the preservation of good order and cleanliness. Janitor
service shall include ordinary dusting and cleaning by the janitor assigned to
such work and shall not include beating of carpets or rugs or moving of
furniture or other special services. Janitor service shall be furnished
Mondays through Fridays, legal holidays
40
<PAGE> 45
excepted; janitor service will not be furnished to areas which are occupied
after 9:30 P.M. Window cleaning shall be done only by Landlord, and only
between 6:00 A.M. and 5:00 P.M.
34. Landlord reserves the right to rescind any of these rules and make
such other future rules and regulations as in the judgment of Landlord shall
from time to time be needed for the safety, protection, care, and cleanliness
of the Building, the operation thereof, the preservation of good order therein,
and the protection and comfort of its tenants, their agents, employees, and
invitees, which rules when made and notice thereof given to a tenant, shall be
binding upon him in like manner as if originally herein prescribed.
41
<PAGE> 46
EXHIBIT E
Commencement Date Confirmation
DECLARATION BY LANDLORD AND TENANT AS TO DATE OF DELIVERY AND
ACCEPTANCE OF POSSESSION OF PREMISES
Attached to and made a part of the lease dated the _____ day of
________________________ 199 entered into and by MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY as Landlord, and Source Services Corporation as TENANT.
LANDLORD AND TENANT do hereby declare that possession of the Premises was
accepted by TENANT on the _____ day of _______________, 1995. The Premises
required to be constructed and finished by LANDLORD in accordance with the
provisions of the Lease have been satisfactorily completed by LANDLORD and
accepted by TENANT, the Lease is now in full force and effect, and as of the
date hereof, LANDLORD has fulfilled all of its obligations under the Lease.
The Lease Commencement Date is hereby established as ______________, 1995. The
Term of this Lease shall terminate on 2000.
Landlord:
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
BY: Cornerstone Real Estate Advisers, Inc.,
Its Authorized Agent
By:
-----------------------------------------
Name Typed: Jill M. Rossi
Title: Vice President
Date:
TENANT:
SOURCE SERVICES CORPORATION
By:
-----------------------------------------------
Name Typed:
Title:
Date:
42
<PAGE> 47
EXHIBIT F
To Lease
By and Between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, as Landlord
and
SOURCE SERVICES CORPORATION, as Tenant
Option to Extend
Tenant at its option may extend the Lease for an additional five (5)
years commencing May 1, 2000, by serving written notice thereof upon Landlord
at least three hundred sixty-five (365) days before the expiration of the term
hereof, provided that at the time of such notice and at the commencement of
such additional extension, there shall exist no event of default as defined in
this Lease. Upon receipt of said notice, this Lease shall be extended without
the necessity of the execution of any further instrument or document. Such
extended term shall commence on May 1, 2000 and expire on April 30, 2005, and
be upon the same terms, covenants and conditions as provided in the Lease,
except that (a) the Monthly Rent payable during the extended term shall be at
ninety percent (90%) of the Prevailing Market Rate as determined by Landlord
for comparable space in the LBJ Corridor market area, at the commencement of
such extended term.
At Landlords option, Tenant shall, within (30) days of expiration of
the term, execute an amendment to the Lease setting forth the rent for the
extended term. Otherwise, this Lease shall terminate on April 30, 2000.
Payment of excess Operating Costs and other charges required to be
made by Tenant as provided in this Lease for the extended term shall continue
to be made during the extended term. The terms of this option are personal to
the Tenant and will not inure to the benefit of any assignee or subtenant of
Tenant.
43
<PAGE> 48
EXHIBIT G
RIGHT OF FIRST OFFER AND REFUSAL
Landlord hereby grants to Tenant the right of first refusal on the terms and
conditions contained in this paragraph to lease the space (the "Refusal Space")
outlined in red on Exhibit "G" to this Lease consisting of approximately 2,466
square feet of rentable area on the first (1st) floor of the Building. In the
event Landlord shall receive a bona fide offer from a third party who desires
to lease the Refusal Space, Landlord shall give notice thereof to Tenant which
notice shall contain the terms under which Landlord is willing to lease the
Refusal Space to Tenant. Alternatively, if Landlord wishes to market the
Refusal Space, Landlord may (but shall not be obligated to) give Tenant a
notice setting forth the terms under which Landlord is willing to lease the
Refusal Space. In the case of either such notice and within seven (7) days of
such notice, time being of the essence, Tenant shall give Landlord a notice
that it either does or does not wish to enter into negotiations with Landlord
to lease the Refusal Space on the terms and conditions contained in Landlord's
notice. In the event that Tenant's notice provides that it does not wish to
enter into negotiations to lease the Refusal Space or if Tenant fails to give
Landlord the notice of its desires respecting the Refusal Space within the
foregoing required seven (7) day period, then Landlord shall be entitled to
proceed to market and/or lease the Refusal Space to a third party free and
clear of Tenant's right of first offer and refusal and such right shall be
deemed terminated in all respects.
In the event that Tenant gives Landlord a notice as required in the preceding
paragraph that it wishes to enter into negotiations with Landlord regarding the
leasing of the Refusal Space on the terms and conditions contained in
Landlord's notice to it, then Landlord and Tenant shall have twenty (20) days
from the date of the notice within which to sign a new lease covering the
Refusal Space on the terms and conditions contained in Landlord's notice or to
amend this Lease by adding the Refusal Space on the terms and conditions
contained in Landlord notice. In the event Landlord and Tenant fail to sign
such a lease or amendment to this Lease within said twenty (20) day period,
time being of the essence, then Landlord shall be entitled to proceed to market
and/or lease the Refusal Space to a third party free and clear of such right
and such right shall be deemed terminated in all respects.
44
<PAGE> 1
EXHIBIT 10.2
SOURCE SERVICES CORPORATION
1996 STOCK OPTION PLAN
INTRODUCTION
On April 3, 1996, the Board of Directors of Source Services
Corporation adopted the Source Services Corporation 1996 Stock Option Plan as
set forth herein:
1. PURPOSE. The purpose of the Plan is to provide key employees
with a proprietary interest in the Company through the granting of options
which will:
(a) increase the interest of the key employees in the
Company's welfare;
(b) furnish an incentive to the key employees to continue
their services for the Company; and
(c) provide a means through which the Company may attract
able persons to enter its employ.
2. ADMINISTRATION. The Plan shall be administered by the
Committee.
3. PARTICIPANTS. The Committee shall, from time to time, select
the particular key employees of the Company and its Subsidiaries to whom
options are to be granted, and who will, upon such grant, become participants
in the Plan. For purposes of the Plan, "key employees" are those officers and
employees (including officers and key employees who are members of the Board)
whose performance and responsibilities are determined by the Board to be
influential to the success of the Company.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be
granted to an employee who owns more than 10% of the voting power of all
classes of stock of the Company or its Parent or Subsidiaries. This limitation
will not apply if the option price is at
<PAGE> 2
least 110% of the fair market value of the stock at the time the Incentive
Option is granted and the Incentive Option is not exercisable more than ten
years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The aggregate number of shares of
Common Stock for which options may be granted under the Plan shall not exceed
1,000,000 shares of Common Stock of the Company, but this number may be
adjusted to reflect, if deemed appropriate by the Committee, any stock
dividend, stock split, share combination, recapitalization or the like, of or
by the Company. Shares to be optioned and sold may be made available from
either authorized but unissued Common Stock or Common Stock held by the Company
in its treasury. Shares that by reason of the expiration of an option or
otherwise are no longer subject to purchase pursuant to an option granted under
the Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock which any
employee is first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option plans
of the Company or its Parent or Subsidiaries shall not exceed $100,000. For
this purpose, the fair market value (determined at the respective date of grant
of each option) of the stock purchasable by exercise of an Incentive Option (or
an installment thereof) shall be counted against the $100,000 annual limitation
for an employee only for the calendar year such stock is first purchasable
under the terms of the option.
7. ALLOTMENT OF SHARES. The Committee shall determine the number
of shares of Common Stock to be offered from time to time by grant of options
to key employees of the Company or its Subsidiaries. The grant of an option to
a key employee shall not be
-2-
<PAGE> 3
deemed either to entitle the key employee to, or to disqualify the key employee
from, participation in any other grant of options under the Plan.
8. GRANT OF OPTIONS. All options granted under the Plan shall be
granted by the Committee, which is authorized to grant Incentive Options and
Nonqualified Options under the Plan. The grant of options shall be evidenced
by stock option agreements containing such terms and provisions as are approved
by the Committee, but not inconsistent with the Plan, including provisions that
may be necessary to assure that any option that is intended to be an Incentive
Option will comply with Section 422 of the Code. The Company shall execute
stock option agreements upon instructions from the Committee. The Plan shall
be submitted to the Company's stockholders for approval. The Committee may
grant options under the Plan prior to the time of stockholder approval, which
options will be effective when granted, but if for any reason the stockholders
of the Company do not approve the Plan prior to one year from the date of
adoption of the Plan by the Board, all options granted under the Plan will be
terminated and of no effect, and no option may be exercised in whole or in part
prior to such stockholder approval.
9. OPTION PRICE. The option price for an Incentive Option shall
not be less than 100% of the fair market value per share of the Common Stock on
the date the Incentive Option is granted. The Committee shall determine the
fair market value of the Common Stock on the date of grant and shall set forth
the determination in its minutes, using any reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Committee authorizes the option
unless the Committee
-3-
<PAGE> 4
specifies a later date. No option may terminate later than ten years from the
date the option is granted. The Committee may provide for the exercise of
options in installments and upon such terms, conditions and restrictions as it
may determine. The Committee may provide for termination of the option in the
case of termination of employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Code] prior
to termination of his right to exercise an option in accordance with the
provisions of his stock option agreement without having totally exercised the
option, the option agreement may provide that it may be exercised, to the
extent of the shares with respect to which the option could have been exercised
by the participant on the date of the participant's death or disability, (i) in
the case of death, by the participant's estate or by the person who acquired
the right to exercise the option by bequest or inheritance or by reason of the
death of the participant, or (ii) in the case of disability, by the participant
or his personal representative, provided the option is exercised prior to the
date of its expiration or three months from the date of the participant's death
or disability, whichever first occurs. The date of disability of a participant
shall be determined by the Committee.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering shares of Common Stock
at the fair market value per share at the time of exercise, or on such other
terms as are set forth in the applicable option agreement. No shares may be
issued until full payment of the purchase price therefor has been made, and a
participant will have none of the rights of a shareholder until shares are
issued to him.
-4-
<PAGE> 5
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth in
the applicable stock option agreements. In no event may an option be exercised
or shares be issued pursuant to an option if any requisite action, approval or
consent of any governmental authority of any kind having jurisdiction over the
exercise of options shall not have been taken or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares
of Common Stock covered by each outstanding option granted under the Plan and
the option price may be adjusted to reflect, as deemed appropriate by the
Committee, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Committee shall interpret the Plan and
shall prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the Plan.
The Committee may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
number of securities that may be issued
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<PAGE> 6
under the Plan, or (b) materially modify the requirements of eligibility for
participation in the Plan must be approved by the stockholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board or the Committee shall be deemed to give any key employee
any right to be granted an option to purchase Common Stock of the Company or
any other rights except as may be evidenced by the stock option agreement, or
any amendment thereto, duly authorized by the Committee and executed on behalf
of the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this
Plan will terminate on April 2, 2006. The Committee may not grant options
under the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the committee of the Board
appointed by the Board to administer the Plan, consisting of two or
more directors, each of whom has not been granted equity securities of
the Company, including options and other derivative securities, during
the one year period prior to service on the Committee or while serving
in a similar capacity pursuant to any other plan of the Company, its
Parent or its Subsidiaries; provided, however that the foregoing
limitation shall not prohibit the members of the
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<PAGE> 7
Committee from participating in a formula plan maintained by the
Company, its Parent or its Subsidiaries providing for automatic grants
of stock.
(d) "Common Stock" means the Common Stock which the
Company is currently authorized to issue or may in the future be
authorized to issue (as long as the common stock varies from that
currently authorized, if at all, only in amount of par value).
(e) "Company" means Source Services Corporation, a
Delaware corporation.
(f) "Incentive Option" means an option granted under the
Plan which meets the requirements of Section 422 of the Code.
(g) "Nonqualified Option" means an option granted under
the Plan which is not intended to be an Incentive Option.
(h) "Option Period" means the period during which an
option may be exercised.
(i) "Parent" means any corporation in an unbroken chain
of corporations ending with the Company if, at the time of granting of
the option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(j) "Plan" means this 1996 Stock Option Plan, as amended
from time to time.
(k) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company if, at the time of
the granting of the option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing
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<PAGE> 8
50% or more of the total combined voting power of all classes of stock
in one of the other corporations in the chain, and "Subsidiaries"
means more than one of any such corporations.
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<PAGE> 9
SOURCE SERVICES CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Source Services Corporation
1996 Stock Option Plan (the "Plan") for key employees of Source Services
Corporation (the "Company") and its subsidiaries, the Company grants to
___________________________________________
(the "Option Holder")
an incentive option to purchase from the Company a total of ________
shares of Common Stock, $______ par value, of the Company (the "Common Stock")
at $______ per share (being at least the fair market value per share of the
Common Stock on the date of this grant), in the amounts, during the periods and
upon the terms and conditions set forth in this Agreement. This option is
intended to constitute an incentive option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option is exercisable in the following
cumulative installments:
First installment. Up to 25% of the total optioned shares at any time
on or after one year from the date of grant.
Second installment. Up to an additional 25% of the total optioned
shares at any time after two years from the date of grant.
Third installment. Up to an additional 25% of the total optioned
shares at any time after three years from the date of grant.
<PAGE> 10
Fourth installment. Up to an additional 25% of the total optioned
shares at any time after four years from the date of grant.
If an installment covers a fractional share, such installment will be rounded
off to the next highest share, except the final installment, which will be for
the balance of the total optioned shares. In the event of the Option Holder's
termination of employment for whatever cause, the option will be exercisable
only to the extent that the Option Holder could have exercised it on the date
of his termination of employment.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
requested by the Option Holder and approved by the Company, the Option Holder
may exercise this option or any portion hereof by tendering shares of Common
Stock, in lieu of cash payment for the option shares being purchased, with the
number of shares tendered to be determined by the fair market value per share
of the Common Stock on the date of exercise, as determined by the Committee.
4. Subject to Plan. This option and the grant and exercise
thereof are subject to the terms and conditions of the Plan, which is
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, this option is subject to any rules and regulations
promulgated pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the
following:
(a) 5 p.m. on _______, 20__.
(b) 5 p.m. on the date three months following the date of the
Option Holder's death or disability.
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<PAGE> 11
(c) 5 p.m. on the date thirty (30) days following the date the
Option Holder's employment with the Company and its
subsidiaries terminates for a reason other than cause (as
defined in Section 5(d) below), death or disability.
(d) Upon termination of the Option Holder's employment with the
Company or its subsidiaries for "cause", this option will
terminate immediately and the Option Holder will forfeit any
right to exercise any portion of this option. As used in this
Agreement, "cause" means the occurrence, determined by the
Board of Directors of the Company (the "Board"), in its sole
and absolute discretion, of any one or more of the following:
(i) the willful and continued failure by the Option
Holder to substantially perform his or her duties
(other than any such failure resulting from the
Option Holder's physical or mental disability), after
a written demand for substantial performance is
delivered by the Company to the Option Holder that
specifically identifies the manner in which the
Company believes that the Option Holder has not
substantially performed his or her duties, and the
Option Holder has failed to remedy the situation
within thirty (30) calendar days of receiving such
notice; or
(ii) the Option Holder's conviction for committing an act
of fraud, embezzlement, theft, or other act
constituting a felony; or
(iii) the willful engaging by the Option Holder in gross
misconduct materially and demonstrably injurious to
the Company, as determined by the Company.
However, no act or failure to act, on the Option Holder's part
shall be considered "willful" unless done, or omitted to be
done, by the Option Holder not in good faith and without
reasonable belief that his or her action or omission was in
the best interest of the Company.
6. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled [within the meaning of Section 22(e)(3) of the Code]
prior to the termination date specified in Section 5 hereof without having
exercised the option as to all of the shares covered hereby, the option may be
exercised to the extent the Option Holder could have exercised the option on
the date of his or her death or disability at any time prior to the earlier of
the dates specified in Sections 5(a)
-3-
<PAGE> 12
and (b) hereof by (i) the Option Holder's estate or a person who acquired the
right to exercise the option by bequest or inheritance or by reason of the
death of the Option Holder in the event of the Option Holder's death, or (ii)
the Option Holder or his or her personal representative in the event of the
Option Holder's disability, subject to the other terms of this Agreement, the
Plan and applicable laws, rules and regulations. For purposes of this
Agreement, the Company shall determine the date of disability of the Option
Holder.
7. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall
be delivered, if any requisite approval or consent of any
government authority of any kind having jurisdiction over the
exercise of options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and
ending on the date three months prior to the date of exercise
the Option Holder was an employee of either the Company or a
subsidiary of the Company; provided, if the Option Holder's
continuous employment is terminated by death, or if the Option
Holder dies within said three-month period, the option may be
exercised in accordance with Section 5.
8. Manner of Exercise. Subject to such administrative
regulations as the committee (the "Committee") appointed pursuant to the terms
of the Plan by the Board to administer the Plan may from time to time adopt,
the Option Holder or beneficiary shall, in order to exercise this option:
(a) give written notice to the Committee of the exercise price and
the number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Committee of the exercise price and
the number of shares for which he is requesting approval from
the Committee to tender other shares of Common Stock in
exchange for option shares.
-4-
<PAGE> 13
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of the option evidenced by this
Agreement, (ii) to determine whether registration is then required under the
Securities Act of 1933, or any other law, as then in effect, and (iii) to
comply with or satisfy the requirements of the Securities Act of 1933, or any
other law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested,
the notice shall include an undertaking to tender to the Company (i) promptly
after receipt of denial by the Committee of the paragraph (b) request, full
payment in United States dollars of the option exercise price for the shares
being purchased hereunder or (ii) promptly after receipt of approval by the
Committee of exercise of this option or portion thereof by payment of Common
Stock, full payment in Common Stock in exchange for the shares being purchased
hereunder.
The Committee shall advise the Option Holder or beneficiary in
writing, within ten business days after the first meeting of the Committee
following the date of exercise, whether the Committee approves the exchange of
Common Stock for option stock being purchased. The Company must receive full
payment in United States dollars or the appropriate number of shares of Common
Stock, whichever applies, of the option exercise price within five business
days after the date of the Committee's notice, unless the Committee extends the
time of payment.
9. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
10. Rights of Stockholder. The Option Holder will have no rights
as a stockholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no
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<PAGE> 14
adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.
11. Capital Adjustments; Antidilution. The number of shares of
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Committee deems appropriate to reflect any
stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
12. Change in Control of the Company. In the event the Company
shall be a party to any merger, consolidation or corporate reorganization, as
the result of which the Company shall be the surviving corporation, the rights
and duties of the Option Holder and the Company shall not be affected in any
manner. In the event (i) the Company sells more than 50% of its assets, (ii)
becomes a party to any merger, consolidation or corporate reorganization, and
as the result of which the Company shall not be the surviving corporation, or
(iii) any other person or entity makes a tender or exchange offer for Common
Stock of the Company whereby such other person or entity would own more than
50% of the outstanding Common Stock of the Company (the surviving corporation,
purchaser, or tendering person being collectively referred to as the
"purchaser", and the applicable action being referred to as the "transaction"),
then the Board may, at its election, (a) reach an agreement with the purchaser
that the purchaser will assume the obligation of the Company under the option;
(b) reach an agreement with the purchaser that the purchaser will convert the
option into an option of at least equal value, determined as of the date of the
transaction, as to stock of the purchaser; or (c) not later than twenty days
prior to the effective date of such transaction, or such shorter period as is
determined to be administratively
-6-
<PAGE> 15
practicable by the Board, notify the Option Holder and afford to the Option
Holder a right for ten days, or such shorter period as may be approved by the
Board, after the date of such notice to exercise all or any portion of the
shares of Common Stock covered by this option that have not been exercised and
that the time for exercising such shares of Common Stock has not expired
pursuant to this Agreement, regardless of whether such Optioned Shares
otherwise would then be exercisable under the Agreement. Within the ten-day
period (or, if applicable, such shorter period) described in clause (c) above,
the Option Holder may exercise any portion of the shares described in the
preceding sentence as he may desire and deposit with the Company the requisite
cash to purchase in full the Common Stock thereby exercised, in which case the
Company shall, prior to the effective date of the transaction, transfer to the
Option Holder all shares of Common Stock thus exercised, which shall be treated
as owned by the Option Holder for purposes of the transaction.
13. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
14. Date of Grant. The date of grant of this option is
_____________, 19__.
15. Shareholder Approval. This option is subject to the approval
of the Plan, prior to April ____, 1997, by the shareholders of the Company.
Subject to such approval, this option is effective on the date of grant
specified in Section 14. If the Plan is not so approved, this option will be
of no effect. No portion of this option may be exercised prior to such
approval.
16. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying
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<PAGE> 16
its liability to withhold federal, state or local income or other taxes
incurred by reason of the exercise of this option. If the amount requested is
not paid, the Company may refuse to issue or transfer shares of stock upon
exercise of this option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Option Holder, to evidence his
or her consent and approval of all the terms hereof, has duly executed this
Agreement, as of the date specified in Section 14 hereof.
SOURCE SERVICES CORPORATION
By
----------------------------------
------------------------------------
Option Holder
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<PAGE> 17
SOURCE SERVICES CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Source Services Corporation 1996
Stock Option Plan (the "Plan") for key employees of Source Services Corporation
(the "Company") and its subsidiaries, the Company grants to
_____________________________________________
(the "Option Holder")
a nonqualified option to purchase from the Company a total of _________
shares of Common Stock, $______ par value, of the Company (the "Common Stock")
at $______ per share, in the amounts, during the periods and upon the terms and
conditions set forth in this Agreement. This option is not intended to
constitute an incentive option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except only as specifically provided elsewhere
in this Agreement, this option is exercisable in the following cumulative
installments:
First installment. Up to 25% of the total optioned shares at any time
after one year from the date of grant.
Second installment. Up to an additional 25% of the total optioned
shares at any time after two years from the date of grant.
Third installment. Up to an additional 25% of the total optioned
shares at any time after three years from the date of grant.
Fourth installment. Up to an additional 25% of the total optioned
shares at any time after four years from the date of grant.
<PAGE> 18
If an installment covers a fractional share, such installment will be rounded
off to the next highest share, except the final installment, which will be for
the balance of the total optioned shares. In the event of the Option Holder's
termination of employment for whatever cause, the option will be exercisable
only to the extent that the Option Holder could have exercised it on the date
of his termination of employment.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
requested by the Option Holder and approved by the Company, the Option Holder
may exercise this option or any portion hereof by tendering shares of Common
Stock, in lieu of cash payment for the option shares being purchased, with the
number of shares tendered to be determined by the fair market value per share
of the Common Stock on the date of exercise, as determined by the Committee.
4. Subject to Plan. This option and the grant and exercise thereof
are subject to the terms and conditions of the Plan, which are incorporated
herein by reference and made a part hereof, but the terms of the Plan shall not
be considered an enlargement of any benefits under this Agreement. In
addition, this option is subject to any rules and regulations promulgated
pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the following:
(a) 5 p.m. on _________________, 20___.
(b) 5 p.m. on the date three months following the date of the
Option Holder's death or disability (as described in Section
6).
(c) 5 p.m. on the date thirty (30) days following the date the
Option Holder's employment with the Company and its subsidiary
companies terminates for reasons other than cause (as defined
in Section 5(d) below), death or disability.
-2-
<PAGE> 19
(d) Upon termination of the Option Holder's employment with the
Company, or its subsidiary companies for "cause", this option
will terminate immediately and the Option Holder will forfeit
any right to exercise any portion of this option. As used in
this Agreement, "cause" means the occurrence, determined by
the Board of Directors of the Company (the "Board"), in its
sole and absolute discretion, of any one or more of the
following:
(i) the willful and continued failure by the Option
Holder to substantially perform his or her duties
(other than any such failure resulting from the
Option Holder's physical or mental disability), after
a written demand for substantial performance is
delivered by the Company to the Option Holder that
specifically identifies the manner in which the
Company believes that the Option Holder has not
substantially performed his or her duties, and the
Option Holder has failed to remedy the situation
within thirty (30) calendar days of receiving such
notice; or
(ii) the Option Holder's conviction for committing an act
of fraud, embezzlement, theft, or other act
constituting a felony; or
(iii) the willful engaging by the Option Holder in gross
misconduct materially and demonstrably injurious to
the Company, as determined by the Company.
However, no act or failure to act, on the Option Holder's part
shall be considered "willful" unless done, or omitted to be
done, by the Option Holder not in good faith and without
reasonable belief that his or her action or omission was in
the best interest of the Company.
6. Who May Exercise. During the lifetime of the Option Holder, this
option may be exercised only by the Option Holder. If the Option Holder dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Code] prior
to the termination date specified in Section 5 hereof without having exercised
the option as to all of the shares covered hereby, the option may be exercised
to the extent the Option Holder could have exercised the option on the date of
his or her death or disability at any time prior to the earlier of the dates
specified in Sections 5(a) and (b) hereof by (i) the Option Holder's estate or
a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Option Holder in the event
-3-
<PAGE> 20
of the Option Holder's death, or (ii) the Option Holder or his or her personal
representative in the event of the Option Holder's disability, subject to the
other terms of this Agreement, the Plan and applicable laws, rules and
regulations. For purposes of this Agreement, the Company shall determine the
date of disability of the Option Holder.
7. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no certificates
representing shares subject to such option shall be delivered,
if any requisite approval or consent of any government
authority of any kind having jurisdiction over the exercise of
options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and
ending on the date thirty (30) days prior to the date of
exercise the Option Holder was a key employee of the Company
or a subsidiary of the Company; provided, if the Option
Holder's continuous employment is terminated by disability or
death, or if the Option Holder dies within said thirty (30)
day period, the option may be exercised in accordance with
Section 5.
8. Manner of Exercise. Subject to such administrative regulations as
the committee (the "Committee") appointed pursuant to the terms of the Plan by
the Board to administer the Plan may from time to time adopt, the Option Holder
or beneficiary shall, in order to exercise this option:
(a) give written notice to the Committee of the exercise price and
the number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Committee of the exercise price and
the number of shares for which he is requesting approval from
the Committee to tender other shares of Common Stock in
exchange for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in
-4-
<PAGE> 21
part, of the option evidenced by this Agreement, (ii) to determine whether
registration is then required under the Securities Act of 1933, or any other
law, as then in effect, and (iii) to comply with or satisfy the requirements of
the Securities Act of 1933, or any other law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested,
the notice shall include an undertaking to tender to the Company (i) promptly
after receipt of denial by the Committee of the paragraph (b) request, full
payment in United States dollars of the option exercise price for the shares
being purchased hereunder or (ii) promptly after receipt of approval by the
Committee of exercise of this option or portion thereof by payment of Common
Stock, full payment in Common Stock in exchange for the shares being purchased
hereunder.
The Committee shall advise the Option Holder or beneficiary in
writing, within ten business days after the first meeting of the Committee
following the date of exercise, whether the Committee approves the exchange of
Common Stock for option stock being purchased. The Company must receive full
payment in United States dollars or the appropriate number of shares of Common
Stock, whichever applies, of the option exercise price within five business
days after the date of the Committee's notice, unless the Committee extends the
time of payment.
9. Non-Assignability. This option is not assignable or transferable
by the Option Holder except by will or by the laws of descent and distribution.
10. Rights of Stockholder. The Option Holder will have no rights as
a stockholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
-5-
<PAGE> 22
11. Capital Adjustments; Antidilution. The number of shares of
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Committee deems appropriate to reflect any
stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
12. Change in Control of the Company. In the event the Company
shall be a party to any merger, consolidation or corporate reorganization, as
the result of which the Company shall be the surviving corporation, the rights
and duties of the Option Holder and the Company shall not be affected in any
manner. In the event (i) the Company sells more than 50% of its assets, (ii)
becomes a party to any merger, consolidation or corporate reorganization, and
as the result of which the Company shall not be the surviving corporation, or
(iii) any other person or entity makes a tender or exchange offer for Common
Stock of the Company whereby such other person or entity would own more than
50% of the outstanding Common Stock of the Company (the surviving corporation,
purchaser, or tendering person being collectively referred to as the
"purchaser", and the applicable action being referred to as the "transaction"),
then the Board may, at its election, (a) reach an agreement with the purchaser
that the purchaser will assume the obligation of the Company under the option;
(b) reach an agreement with the purchaser that the purchaser will convert the
option into an option of at least equal value, determined as of the date of the
transaction, as to stock of the purchaser; or (c) not later than twenty days
prior to the effective date of such transaction, or such shorter period as is
determined to be administratively practicable by the Board, notify the Option
Holder and afford to the Option Holder a right for ten days, or such shorter
period as may be approved by the Board, after the date of such notice
-6-
<PAGE> 23
to exercise all or any portion of the shares of Common Stock covered by this
option that have not been exercised and that the time for exercising such
shares of Common Stock has not expired pursuant to this Agreement, regardless
of whether such Optioned Shares otherwise would then be exercisable under the
Agreement. Within the ten-day period (or, if applicable, such shorter period)
described in clause (c) above, the Option Holder may exercise any portion of
the shares described in the preceding sentence as he or she may desire and
deposit with the Company the requisite cash to purchase in full the Common
Stock thereby exercised, in which case the Company shall, prior to the
effective date of the transaction, transfer to the Option Holder all shares of
Common Stock thus exercised, which shall be treated as owned by the Option
Holder for purposes of the transaction.
13. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
14. Date of Grant. The date of grant of this option is
______________________, 19___.
15. Stockholder Approval. This option is subject to the approval
of the Plan, prior to April _____, 1997, by the stockholders of the Company.
Subject to such approval, this option is effective on the date of grant
specified in Section 14 hereof. If the Plan is not so approved, this option
will be of no effect. No portion of this option may be exercised prior to such
approval.
16. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying its liability to
withhold federal, state or local income or other taxes incurred by reason of
the
-7-
<PAGE> 24
exercise of this option. If the amount requested is not paid, the Company may
refuse to issue or transfer shares of stock upon exercise of this option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Option Holder, to evidence his
or her consent and approval of all the terms hereof, has duly executed this
Agreement, as of the date specified in Section 14 hereof.
SOURCE SERVICES CORPORATION
By
--------------------------------
----------------------------------
Option Holder
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<PAGE> 1
EXHIBIT 10.3
SOURCE SERVICES CORPORATION
EMPLOYEES' PROFIT SHARING PLAN
Amended and Restated Effective as of January 1, 1989, unless otherwise indicated
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . 1
ARTICLE 2 ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . 8
ARTICLE 3 EMPLOYER CONTRIBUTIONS . . . . . . . . . . . . . . . . 9
ARTICLE 4 PARTICIPANTS' ACCOUNTS AND ALLOCATION
OF TRUST INCOME OR LOSS . . . . . . . . . . . . . . . 10
ARTICLE 5 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES . . . . . 12
ARTICLE 6 VESTING . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 7 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . 20
ARTICLE 8 WITHDRAWALS AND INVESTMENT DIVERSIFICATION . . . . . . 31
ARTICLE 9 BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 DESIGNATION OF NAMED FIDUCIARY
APPOINTMENT OF INVESTMENT MANAGER . . . . . . . . . . . 37
ARTICLE 11 TRUST FUND AND TRUSTEE . . . . . . . . . . . . . . . . 42
ARTICLE 12 AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . 44
ARTICLE 13 ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 14 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . 47
ARTICLE 15 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 16 ALTERNATE VESTING SCHEDULE . . . . . . . . . . . . . . 51
ARTICLE 17 TOP HEAVY PROVISIONS . . . . . . . . . . . . . . . . . 54
</TABLE>
<PAGE> 3
SOURCE SERVICES CORPORATION
EMPLOYEES' PROFIT SHARING PLAN
SOURCE SERVICES CORPORATION, a Delaware corporation
("Source-Delaware") maintains the SOURCE SERVICES CORPORATION Employees' Profit
Sharing Plan for the purpose of (a) enabling eligible employees to share in the
Employer's profits, (b) permitting eligible employees to acquire capital
ownership in SOURCE SERVICES CORPORATION through the contribution of stock of
Source-Delaware to the Plan and the investment of cash contributions to the
Plan in such stock, and (c) providing employees with an opportunity to
accumulate funds for their retirement or disability or for the payment of death
benefits for their dependents and beneficiaries. Source-Delaware hereby adopts
this amended and restated Plan effective January 1, 1989, except as otherwise
expressly provided herein. This Plan is intended to be a profit sharing plan
which is qualified under section 401(a) of the Internal Revenue Code of 1986,
as amended.
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
1.1 The following words and phrases as used in this Plan shall
have the following meanings unless a different meaning is clearly required by
the context:
<PAGE> 4
(a) "Beneficiary" shall mean the person or persons
entitled under the provisions of this Plan to receive benefits after the death
of a Participant.
(b) "Board" shall mean the Board of Directors of
Source-Delaware.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(d) (i) "Compensation" shall mean all compensation
paid or payable in the Fiscal Year in question in cash or in kind by the
Employer by reason of services performed by an Employee during any period which
is included in the Employee's federal gross income for federal income tax
purposes for the Fiscal Year excluding reimbursements and allowances for moving
expenses. If the Employer has adopted a cafeteria plan under section 125 of
the Code, "Compensation" shall include any amount contributed by the Employer
to such Plan and which is not includable in the Employee's gross income under
section 125 of the Code.
(ii) "Compensation" shall not include Compensation
paid to any Employee prior to the time the Employee becomes a Participant in
the Plan, or any amounts contributed by the Employer for or on account of any
Employee under the Plan. For purposes of determining contributions or
allocations under the Plan, Compensation shall not exceed the dollar limit
established under section 401(a)(17) of the Code (or such higher amount as may
be permitted under Treasury Regulations promulgated thereunder).
(e) "Deferral Period" shall mean with respect to a Quota
or Professional Employee who terminates employment prior to attaining his or
her Normal Retirement Date for reasons other than death or Total Disability,
the period beginning with the date such Employee terminates employment and
ending on the third anniversary thereof or the date
<PAGE> 5
such Employee dies, incurs a Total Disability or attains his or her Normal
Retirement Date, whichever is earlier.
(f) "Effective Date" of this amended and restated Plan
shall mean January 1, 1989.
(g) "Eligible Employee" shall mean every Employee except
the following:
(i) Any Employee who is deemed to be an Employee
of the Employer because such individual is a leased Employee pursuant to
section 414(n) of the Code;
(ii) An Employee who is a member of a collective
bargaining unit and who is covered by a collective bargaining agreement, which
agreement does not specifically provide for coverage of such Employee under the
Plan;
(iii) An Employee who is a non-resident alien and
who receives no earned income (within the meaning of section 911(d)(2) of the
Code) from the Employer which constitutes income from sources within the United
States (within the meaning of section 861(a)(3) of the Code).
(iv) Prior to January 1, 1990 an employee who is
contracted out on a substantially full- time basis to clients of the Employer.
(h) "Eligibility Computation Period" shall mean the
twelve (12) consecutive month period beginning on the date on which the
Employee first performs an Hour of Service for the Employer and on successive
anniversaries thereof.
<PAGE> 6
(i) "Employee" shall mean a person currently employed by
the Employer any portion of whose income is subject to withholding of income
tax and/or for whom Social Security contributions are made by the Employer, as
well as any other person qualifying as a common law employee of the employer.
(j) "Employer" shall mean Source-Delaware and each and
every wholly-owned subsidiary thereof.
(k) "Entry Date" shall mean: (i) for Employees hired on
or after January 1, 1990 but before January 1, 1992, January 1 and July 1 of
each year; and (ii) for Employees hired on or after January 1, 1992, the date
next following the completion of an Eligibility Computation Period and
successive anniversaries thereof or such other date as may be required by
regulation.
(l) "ERISA" means the Employee Retirement Income Security
Act of 1974 as amended from time to time.
(m) "Fiscal Year" shall mean the fiscal year adopted by
the Plan and Trust which shall correspond with the fiscal year of the Employer
which is presently from January 1 through December 31.
(n) "Hour of Service" shall mean each hour for which an
Employee is directly, or indirectly, paid or entitled to payment by the
Employer, or for which back pay has been awarded or agreed to by the Employer
for the performance of duties during the applicable computation period. An
Hour of Service shall mean each hour for which an Employee is paid (directly or
indirectly) by his or her Employer for reasons (such as vacation, sickness, or
disability) other than for the performance of duties during the
<PAGE> 7
applicable computations period, or on which the Employee is on
Employer-approved leave of absence or absence while serving in the Armed Forces
of the United States in time of war or emergency or as the result of compulsory
military service law. Notwithstanding the foregoing, however, no more than 501
Hours of Service shall be credited to an Employee on account of any single
continuous period in which the Employee performs no duties. Hours of Service
for which no duties are performed shall be credited in accordance with the
Department of Labor Regulations section 2580.200b-2(b) and (c).
For purposes of determining Hours of Service under the Plan for hourly
paid Employees, actual Hours of Service shall be credited in accordance with
the provisions set forth above. For purposes of determining Hours of Service
under the Plan for non-hourly paid Employees, such Employees shall be credited
with one hundred ninety (190) Hours of Service for each month in which the
Employee has at least one (1) Hour of Service as defined above.
(o) "Named Fiduciary for Administration" shall mean the
person or entity designated as such fiduciary pursuant to the provisions of
Article 10.
(p) "Named Fiduciary for Investments" shall mean the
person or entity designated as such fiduciary pursuant to the provisions of
Article 10.
(q) "Normal Retirement Date" shall mean the first day of
the month during which the Participant attains age fifty-five years.
(r) "One Year Break in Service" shall mean:
<PAGE> 8
(i) A Vesting Computation Period during which a
Participant is credited with 500 Hours of Service or less. For all purposes
hereunder, the One Year Break in Service shall be deemed to have occurred as of
the last day of the computation period in which such One Year Break in Service
occurred.
(ii) If a Participant is absent from work for any
period by reason of pregnancy, the birth of a child of the Participant, or the
placement of a child with the Participant in connection with the adoption of
such child by such Participant or for purposes of caring for such child for a
period beginning immediately following such birth or placement, the Participant
shall not be treated as having incurred a One Year Break in Service in the
Vesting Computation Period in which such absence begins. However, if the
Participant would not otherwise have suffered a One Year Break In Service
during the Vesting Computation Period in which the absence begins, the
Participant shall not be treated as having incurred a One Year Break in Service
the immediately following Vesting Computation Period. The Employer may
require, as a condition of receiving the credit provided by this Article
1.1(p)(ii), that such Participant furnish timely information to establish that
the absence from work is for reasons referred to above and the number of days
for which there was such an absence.
(s) "One Year of Service For Eligibility Purposes" shall
mean an Eligibility Computation Period during which the Employee is credited
with not less than 1,000 Hours of Service.
(t) "Participant" shall mean any Employee who has become
a participant in this Plan in accordance with the provisions of Article 2 and
whose participation has
<PAGE> 9
not terminated. The term Participant shall include both "Active Participants"
and "Inactive Participants." An "Active Participant" shall mean a Participant
whose active employment with the Employer has not terminated. An "Inactive
Participant" shall mean any Participant, other than an Active Participant, who
has any vested accounts which have not yet been distributed from the Plan.
(u) "Plan" shall mean the Employees' Profit Sharing Plan
set forth herein and any amendments hereto.
(v) "Quota or Professional Employee" effective January 1,
1993 shall mean any employee who is classified as a quota, professional or
management employee under objective guidelines promulgated by the Named
Fiduciary for Administration.
(w) "SSC Stock" shall mean shares of any class of stock,
preferred or common, voting or non-voting, issued by Source-Delaware.
(x) "Total Disability" shall mean the permanent
incapacity of a Participant, by reason of physical or mental illness, to
perform his or her usual duties for the Employer. Disability shall be
determined by the Employer in its sole discretion, after consideration of such
evidence as it may require, including reports of such physician or physicians
as it may designate.
(y) "Trust" shall mean the legal entity created by the
Trust Agreement as part of the Plan.
(z) "Trust Agreement" shall mean the Source Services
Corporation Employees' Stock Bonus Trust Agreement adopted December 23, 1975,
as amended from time to time.
<PAGE> 10
(aa) "Trustee" shall mean the original Trustee named in
the Trust Agreement and any duly appointed successor.
(bb) "Trust Fund" shall mean all property and income held
by the Trustee under the Trust Agreement.
(cc) "Valuation Date" shall mean the last day of the
Fiscal Year and such other date(s) as the Named Fiduciary for Administration
shall specify.
(dd) "Vesting Computation Period" shall mean the twelve
(12) consecutive month period beginning on the date on which the Employee first
performs an Hour of Service for the Employer and on successive anniversaries
thereof.
(ee) "Year of Service for Vesting Purposes" shall mean a
Vesting Computation Period during which an Employee is credited with not less
than 1,000 Hours of Service.
1.2 All matters respecting the validity, effect, interpretation
and administration of the Plan shall be determined in accordance with ERISA,
and to the extent allowed by ERISA, in accordance with the laws of the State of
Delaware; provided, however, that if any provision is susceptible of more than
one interpretation, such interpretation shall be given thereto as is consistent
with the Plan being a qualified employees' profit sharing plan within the
meaning of the Code and ERISA, or corresponding provisions of subsequent
federal revenue laws.
<PAGE> 11
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 Each Employee who is a Participant in the Plan which is
amended hereby shall continue to be a Participant in the Plan as amended,
subject to the terms and conditions of this Plan.
2.2 Each Employee who commences employment as an Eligible Employee
prior to January 1, 1990, and who is credited with at least 501 Hours of
Service during his or her Eligibility Computation Period shall become a
Participant as of the Entry Date next preceding the date he or she first
completes 501 Hours of Service.
2.3 Each Employee who commences employment on or after January 1,
1990, shall become a Participant as of the Entry Date coinciding with or next
following the completion of One Year of Service for Eligibility Purposes,
provided such Employee qualifies as an "Eligible Employee" on such Entry Date
and is still employed on such Entry Date.
2.4 An employee who has satisfied the service requirements for
participation in the Plan but who is not an Eligible Employee on the date which
would (except for the fact such Employee is not an Eligible Employee) be such
Employee's Entry Date shall become a Participant on the date the Employee
becomes an Eligible Employee.
2.5 Active Participation in the Plan continues until a Participant
terminates his or her employment by reason of normal or deferred retirement,
death or Total Disability or for any other reason. Thereupon, the Participant
shall become an Inactive Participant until all vested amounts credited to his
or her account(s) have been paid in full.
<PAGE> 12
2.6 Any Employee who was previously a Participant in the Plan and
whose employment has terminated and who is subsequently rehired shall become a
Participant on the first day on which he or she resumes employment.
ARTICLE 3
EMPLOYER CONTRIBUTIONS
3.1 For each Fiscal Year, the Employer shall contribute to the
Trust such amount as may be required to fund any restorations required under
Article 6.4 by reason of repayments made during the Fiscal Year. In addition,
for each Fiscal Year the Employer shall contribute to the Trust from its net
profits for such year, or its accumulated earnings and profits, such amount as
shall be determined by the Board, in its sole discretion.
3.2 The Employer's contribution for any Fiscal Year may, at the
discretion of the Employer, be paid in cash or in SSC Stock and shall be paid
to the Trustee in one or more installments not later than the final date for
filing the Employer's Federal Income Tax Return or within such other period as
may be provided for in section 404(a)(6) of the Code.
3.3 As used in Article 3.1, the term "net profits" of the Employer
for any year means its net income or profits for such year determined by the
Employer upon the basis of its books of account in accordance with its normal
accounting practices, without any deduction for federal taxes based upon income
or for contributions made by the Employer under this Plan.
<PAGE> 13
ARTICLE 4
PARTICIPANTS' ACCOUNTS AND
ALLOCATION OF TRUST INCOME OR LOSS
4.1 There shall be opened and maintained, as required, the
following separate accounts for each Participant in which shall be recorded the
amounts allocated thereto as provided in Articles 4 and 5, any distributions
therefrom, and such other information as affects the value of such accounts.
(a) Company Stock Account. A Company Stock Account shall
be established for each Participant. Each Participant's Company Stock Account
shall be credited as of the Valuation Date with such Participant's allocable
share of SSC Stock acquired by the Trust, with such Participant's allocable
share of rights, warrants or options with respect to SSC Stock received by the
Trust, and with such Participant's allocable share of stock dividends on SSC
Stock held by the Trust. Each Participant's Company Stock Account shall be
debited for all shares of SSC Stock allocated to such Participant's Company
Stock Account which are sold in a tender offer by the Trust or the Employer as
provided in Article 7.
(b) Other Investments Account. An Other Investments
Account shall be established for each Participant. Each Participant's Other
Investments Account will be credited (or debited) as of the Valuation Date with
such Participant's share of the net income or losses of the Participant's Other
Investments Accounts pursuant to the provisions of Article 4.3(a) and with cash
dividends on SSC Stock held by the Trust pursuant to the provisions of Article
4.3(b). The Participants' Other Investments
<PAGE> 14
Accounts shall also be credited with Employer contributions in cash made during
the Fiscal Year, in accordance with the allocation formula set forth in Article
5. The Participants' Other Investments Accounts will be debited for any cash
payments to purchase SSC Stock. Each Participant's Other Investments Account
shall be credited with such Participant's allocable share of the proceeds
received from the sale of rights, warrants, and options on SSC Stock held by
the Trust and with the proceeds received from the sale of any SSC Stock
allocated to such Participant's Company Stock Account.
4.2 As soon as practicable after the end of each Fiscal Year, or
such other period as the Named Fiduciary for Administration may determine, each
Active Participant shall be furnished with a statement of his or her accounts,
as determined as of the last day of the Fiscal Year or such other period.
Accountings to Participants are for accounting purposes only and no
allocations, valuations or other Participant accounting shall vest any right or
title in any part of the Trust Fund, except as is specifically provided in
Article 6, nor require any segregation of Trust Assets, except as is
specifically provided in Articles 7.4(g) and 8.3.
4.3 As of each Valuation Date (or, if any Valuation Date falls on
a non-business day, the next preceding business day) and prior to any
allocation of contributions and forfeitures to be made as of such date, the
Trustee shall determine the fair market value of the assets of the Trust Fund.
(a) Allocation of Net Income and Loss of Other
Investments Accounts. Based on such determination, a determination shall be
made of the amount of the net income or loss of the Participants' Other
Investments Accounts since the next preceding Valuation Date. The net income
or loss of such accounts shall include the increase or decrease of the fair
market value of the assets in such accounts, and interest, dividends and other
income and expenses attributable to assets in such accounts since the next
preceding
<PAGE> 15
Valuation Date, except, however, that net income or loss of such accounts shall
not include cash or stock dividends on SSC Stock held in Participants' Company
Stock Accounts. The Committee shall allocate the net income or loss of the
Participants' Other Investments Accounts to such accounts in proportion to the
value of each such account at the next preceding Valuation Date, except that
the income or loss from an investment option shall be allocated to the accounts
of Participants who participate in such investment option on a segregated
basis.
(b) Cash Dividends on SSC Stock. Cash dividends on
shares of SSC Stock which have been allocated to Participants' Company Stock
Accounts shall be credited to the respective Participants' Other Investments
Accounts.
4.4 For purposes of the valuation required in Article 4.3, the
Committee shall adopt such procedures as it considers equitable to establish a
proportionate crediting of the allocations described in Article 4.3 to those
portions of Participants' accounts which have been contributed in the interim
period since the next preceding Valuation Date.
ARTICLE 5
ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
5.1 Amounts contributed by the Employer for any Fiscal Year (other
than the amount of contributions necessary to fund the restorations required by
Article 6.4) and
<PAGE> 16
the allocable forfeitures described in Article 6 shall be allocated to the
accounts of Participants who qualify to share in the allocation for the year
pursuant to Article 5.2, in the proportion that the Participant's Compensation
bears to the Compensation for all such Participants during the Fiscal Year.
5.2 Any Participant who (i) (a) completes at least 501 Hours of
Service during the Fiscal Year excluding Hours of Service performed prior to
becoming a Participant in the Plan, and (b) for purposes of allocating
forfeitures only, is still an Employee on the last day of the Fiscal Year, or
(ii) who has died, retired, or terminated employment on account of Total
Disability shall be considered a Participant eligible to share for such year in
the allocations described in Article 5.1 to the extent of his or her
Compensation during such Fiscal Year.
5.3 Notwithstanding anything to the contrary contained in this
Plan, the total Annual Additions (as defined below) to a Participant's account
for any Fiscal Year shall not exceed the lesser of Thirty Thousand Dollars
($30,000) (or if greater, 25% of the dollar limitation in effect under section
415(b)(1)(A) of the Code (the "Maximum Dollar Amount") or 25% of the
Participant's compensation from the Employer for the year as determined
pursuant to Article 5.4(b). Notwithstanding the previous sentence, the Maximum
Dollar Amount limitation shall not apply either to any contribution for medical
benefits (within the meaning of section 419(f)(2) of the Code) after separation
from service which is treated as an Annual Addition or to any amount treated as
an Annual Addition under section 415(1)(1) of the Code.
<PAGE> 17
5.4 For purposes of Article 5.3:
(a) the term Annual Additions shall mean for any Fiscal
Year the aggregate of amounts credited to a Participant's account from Employer
contributions and allocable forfeitures (except that restorations made pursuant
to Article 6.4 shall not be included in a Participant's Annual Additions), and
a Participant's contributions and amounts described in section 415(1) and
section 419A(d)(2) of the Code. If the Employer is contributing to another
defined contribution plan, as defined in section 414(i) of the Code, for
Employees of the Employer, some or all of whom may be Participants of this
Plan, then any such Participant's Annual Additions in such other plan shall be
aggregated with such Participant's Annual Additions derived from this Plan for
purposes of the limitation in Article 5.3.
(b) The term "compensation" as used in this Article 5.4
shall mean for any Fiscal Year all wages, salaries, fees for professional
service and other amounts received for personal services actually rendered in
the course of employment with the Employer (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)
paid in cash or in kind to a Participant during such Plan Year and excluding
all Excluded Items. For purposes of determining contributions or allocations
under the Plan, "compensation" shall not exceed the dollar limit established
under section 401(a)(17) of the Code or such higher amount as may be permitted
under Treasury Regulations promulgated thereunder.
(c) For the purposes of Article 5.4(b) above, "Excluded
Items" shall mean:
<PAGE> 18
(i) Contributions made by the Employer to a plan
of deferred compensation to the extent that, before the application of the
Code's section 415 limitations to that plan, the contributions are not
includable in the gross income of the Employee for the taxable year in which
contributed. In addition, Employer contributions made on behalf of an Employee
to a simplified employee pension plan described in section 408(k) of the Code
are not considered as compensation for the taxable year in which contributed to
the extent such contributions are deductible by the Employee under section
219(b)(7) of the Code. Additionally, any distributions from a plan of deferred
compensation are not considered as compensation for purposes of section 415 of
the Code, regardless of whether such amounts are includable in the gross income
of the Employee when distributed. However, any amounts received by an Employee
pursuant to an unfunded non-qualified plan may be considered as compensation
for purposes of section 415 of the Code in the Fiscal Year such amounts are
includable in the gross income of the Employee.
(ii) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture (see section 83 of the Code and the Regulations
thereunder).
(iii) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax
benefits, such as premiums for group term life insurance (but only to the
extent that the premiums are not
<PAGE> 19
includable in the gross income of the Employee), or contributions made by an
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 excludable from the gross income of the
employee).
5.5 If a Participant of this Plan is also a Participant in a
defined benefit plan, as defined in section 414(j) of the Code, to which
contributions are made by the Employer, then in addition to the limitation
contained in Article 5.3, such Participant shall be subject to the following
limitation:
(a) The sum of the defined benefit plan fraction and the
defined contribution plan fraction shall not exceed 1.0;
(b) For purposes of Article 5.5(a), the defined benefit
plan fraction for any year is a fraction (determined as of the close of the
year), the numerator of which is the projected annual benefit of the
Participant under the Plan, and the denominator of which is lesser of (i) the
product of 1.25, multiplied by the dollar limitation in effect under section
415(b)(1)(A) of the Code of the Plan's Fiscal Year or (ii) 1.4 multiplied by
the amount actuarially determined to equal the maximum benefit allowable for
the Participant under section 415(b)(1)(B) of the Code; the defined
contribution plan fraction is a fraction the numerator of which is the total
Annual Additions allocated to the Participant's account as of the close of the
Fiscal Year and determined for such year and for each prior year of service
with the Employer and the denominator of which is the sum of the lesser of the
product of 1.25, multiplied by the Maximum Dollar Amount for each
<PAGE> 20
such year or the product of 1.4, multiplied by twenty-five percent (25%) of the
Participant's compensation for each such year.
5.6 If the Annual Additions to a Participant's account would
exceed the limitations described in Article 5.3 and Article 5.5, the aggregate
of the Annual Additions to this Plan and the Annual Additions to any other
defined contribution plan referred to in Article 5.4 shall be reduced until the
applicable limitation is satisfied by reducing the aggregate amount in the
following order of priority:
(a) Refund of any contributions made by the Participant
to this Plan which would be included in the Annual Additions.
(b) Refund of any contributions made by the Participant
to any other defined contribution plan which would be aggregated with the
Annual Additions to this Plan pursuant to Article 5.4.
(c) Reduction in the Participant's allocation under this
Plan for the Fiscal Year in which the excess arises. The reduction shall be
treated as a forfeiture and shall be allocated in accordance with Article 5.1
to the accounts of Participants who are not affected by this limitation.
5.7 If the Annual Additions to any Participant's account would
exceed the limitation described in Article 5.3 and Article 5.5 despite the
application of Article 5.6, such excess amount shall be held in an unallocated
suspense account to be allocated to the Participant's accounts in succeeding
Fiscal Years in accordance with Article 5.1 to the extent permissible under
this Article 5. No profits or losses attributable to the assets of the Trust
may be allocated to this suspense account. Until all amounts held
<PAGE> 21
in the suspense account are allocated, the Employer shall make no contributions
under this Plan.
5.8 For the purpose of Articles 5.3-5.7, the term "Employer" shall
include all other corporations which are members of the same controlled group
as the Employer determined under section 1563(a) of the Code (without regard to
section 1563(a)(4) and 1563(e)(3)(C)), but by substituting 50% for 80% when it
appears in that section.
ARTICLE 6
VESTING
6.1 The full amount credited to a Participant's accounts shall be
deemed vested in himself or herself on his or her Normal Retirement Date, death
or Total Disability which occurs while he or she is an Active Participant in
the Plan. Any amount credited to a Participant's account with respect to the
Employer's contribution for the Fiscal Year in which such Participant's
employment terminates on or after one of the reasons enumerated in the
foregoing sentence shall also be completely vested at the time of such
contribution.
6.2 (a) Effective as of January 1, 1990, except as otherwise
provided in Articles 6.1 and 16, the accounts of each Participant who first
commenced employment on or after January 1, 1990, shall vest in accordance with
the following schedule:
<TABLE>
<CAPTION>
Years of Service
For Vesting Purposes Percentage Vested
-------------------- -----------------
<S> <C>
less than 2 0%
2 10%
3 30%
4 60%
5 or more 100%
</TABLE>
<PAGE> 22
(b) Except as otherwise provided in Articles 6.1 and 16,
the accounts of a Participant who first commenced employment prior to January
1, 1990, shall vest in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service
For Vesting Purposes Percentage Vested
-------------------- -----------------
<S> <C>
1 10%
2 60%
3 80%
4 100%
</TABLE>
(c) Notwithstanding the provisions of Article 6.2(a) and
(b), above, the accounts of a Participant whose employment terminated prior to
July 8, 1983, shall vest in accordance with the provisions of the Plan which
were in effect at the time of such Participant's termination of employment.
6.3 In the event a Participant terminates employment when such
Participant is less than 100% vested, the portion of such Participant's account
which is not vested shall be provisionally forfeited. Forfeitures shall be
added to the Employer's contribution made with respect to the Fiscal Year in
which the forfeitures occur and shall be allocated in accordance with the
provisions of Article 5.1.
6.4 (a) If the Participant is re-employed before he or she
has five (5) consecutive One Year Breaks in Service, and, in the case of a
Participant who has received a distribution of his or her vested interest, if
the Participant repays the full amount of his or her distribution within a
period of two (2) years from the Participant's
<PAGE> 23
re-employment commencement date, the full amount of the Participant's
forfeiture unadjusted for any gains or losses, shall be restored to the
Participant's accounts. Restorations required under this Article 6.4 shall be
made out of the Employer contributions made with respect to the Fiscal Year in
which such restoration is required to be credited as follows:
(i) In the event a Participant did not receive a
distribution of his or her vested interest, the restored forfeiture and such
undistributed vested interest shall be credited to the Participant's accounts
as of his or her re-employment date.
(ii) In the event the Participant did receive a
distribution of his or her vested interest and such distribution was repaid by
the Participant pursuant to Article 6.4(a), the restored forfeiture shall be
credited to the Participant's accounts as of the date all such distributions
are repaid.
(c) If the Plan is terminated, all rights to forfeiture
restoration shall lapse as to persons who have not resumed employment before
Plan termination.
(d) For purposes of this Article 6.4, a One Year Break in
Service incurred prior to the Fiscal year beginning in 1985 shall be treated as
five (5) consecutive One Year Breaks in Service.
6.5 In determining the period of service under the Plan for the
purpose of determining a Participant's vested percentage under Article 6.2, all
of the Participant's Years of Service with the Employer shall be taken into
account.
6.6 Notwithstanding any other provision of this Plan, in the case
of a Participant who has five (5) consecutive One Year Breaks in Service, Years
of Service thereafter
<PAGE> 24
shall not be taken into account for purposes of determining the vested portion
of the Participant's accounts derived from Employer contributions which accrued
before such five (5) consecutive One Year Breaks in Service.
ARTICLE 7
DISTRIBUTION OF BENEFITS
7.1 When a Participant's employment is terminated, the vested
amount credited to his or her Other Investments and Company Stock Accounts
shall be determined based on the value of such accounts as of the Valuation
Date coincident with or next following such termination of employment, plus any
contributions subsequently credited thereto and less any distributions
subsequently made therefrom, and the benefits provided by the Plan shall be
distributed as provided in this Article 7.
7.2 (a) Participants Who Are Not Quota or Professional
Employees. Distribution of the Participant's vested interest of a Participant
who is not a Quota or Professional Employee shall be made as follows:
(i) Method of Distribution. Subject to the
provisions of Article 7.2(a)(iii), the vested interest of a Participant in his
or her Company Stock Account shall be distributed entirely in shares of SSC
Stock and the Participant's vested interest in his or her Other Investments
Account shall be distributed in cash.
(ii) Time of Distribution. Subject to the
provisions of Article 7.3, the vested accounts of Participants other than Quota
or Professional Employees will be
<PAGE> 25
distributed within 120 days after the end of the Fiscal Year in which such
Participant terminates employment.
(iii) Tender of Company Stock. The vested shares
of such a Participant's Company Stock Account shall be automatically tendered
at the earliest tender offer by the Trust and/or the Employer following the
last day of the Fiscal Year in which such a Participant terminated employment
with the Employer. However, if such a Participant terminated employment with
the Employer prior to January 1, 1990, and had at least five (5) Years of
Service for Vesting Purposes as of the date of termination of employment with
the Employer, the vested interest of such Participant in his or her Company
Stock Account shall be tendered as provided in this Article 7.2(a)(iii) only
with such Participant's consent.
(b) Quota or Professional Employees. Distribution of the
vested accounts of a Quota or Professional Employee who terminates employment
will be as follows:
(i) Method of Distribution. The vested interest
of a Participant in his or her Company Stock Account shall be distributed
entirely in shares of SSC Stock and the Participant's vested interest in his or
her Other Investments Account shall be distributed in cash.
(ii) Time of Distribution
(A) The distribution of the vested
account(s) of a Quota or Professional Employee whose employment terminates on
or after January 1, 1990, shall be deferred for the Deferral Period.
<PAGE> 26
(B) (I) If a Quota or Professional
Employee competes with the Employer at any time during the Deferral Period, his
or her vested accounts which have not previously been distributed will, except
as provided in Article 7.3, be distributed no later than 60 days after the end
of the Fiscal Year in which his or her Normal Retirement Date occurs or the
date he or she terminates employment, whichever is later. For purposes of this
Article 7.2(b)(ii)(B)(I), the vested account of a terminated Quota or
Professional Employee who has competed with the Employer during the Deferral
Period shall be determined pursuant to the Alternate Vesting Schedule set forth
in Article 16.1.
(II) A Quota or Professional
Employee will be considered to have competed if he or she works for a firm
engaged, on a contingency, retainer or search basis, in the placement of
accounting, financial, engineering or computer personnel in the United States
or Canada as a partner, sole proprietor, shareholder, officer, director,
employee or agent, or if he or she engages in any other placement activity or
temporary activity in competition with the Employer. The determination as to
whether a particular Quota or Professional Employee has competed with the
Employer in a particular case shall be made consistently with the
Administrative Committee Guidelines For Determining Competition that are
attached to the Plan as Appendix "A", which guidelines shall constitute part of
the Plan.
(C) In the event a Quota or Professional
Employee is rehired by the Employer at any time within the Deferral Period and
if the rehired Employee did not compete with the Employer during such period,
upon his or her rehire
<PAGE> 27
the Deferral Period shall be suspended and no amounts shall be distributed
until such Employee's subsequent termination of employment and any such
subsequent distributions shall be subject to the provisions of this Article 7.
Upon such Employee's subsequent termination of employment, the distribution of
all of such Employee's vested account(s) shall be deferred for the new Deferral
Period which shall be reduced by the time he or she was absent from the
Employer after his or her previous termination from employment. In no event,
however, shall the New Deferral Period be reduced to less than 1 year.
(D) The vested accounts which have
not previously been distributed of a terminated Quota or Professional Employee
who does not compete with the Employer during the Deferral Period will be
distributed as soon as is administratively feasible following the end of the
Deferral Period, subject, however, to the provisions of Article 7.2(b)(ii)(C)
and Article 7.3.
(E) Notwithstanding the provisions
of Article 7.2(b)(ii)(A), the vested accounts (or a percentage thereof) of a
terminated Quota or Professional Employee who terminated employment prior to
January 1, 1990, and who has completed at least ten (10) Employment Years and
who is fully vested under Article 16, may be distributed on account of
separation from service prior to expiration of the Deferral Period if the
Employee requests such earlier distribution.
(I) The portion of the
terminated Quota or Professional Employee's accounts with respect to which
early distribution may be requested shall be:
<PAGE> 28
<TABLE>
<CAPTION>
Number of Amount Eligible
Employment Years for Early Distribution
---------------- ----------------------
<S> <C> <C>
less than 10 0%
10 25%
11 50%
12 75%
13 100%
</TABLE>
(II) For purposes of this Article
7.2(b)(ii)(E), only, whether a Participant has completed ten (10) Employment
Years shall be determined as provided under Article 8.2(c) and the Participant
shall be credited with one additional Employment Year on each successive
anniversary of his or her tenth (10th) Employment Year, regardless of whether
he or she was actually employed after his or her tenth (10th) Employment Year.
(III) The distribution provisions set
forth in this Article 7.2(b)(ii)(E) do not supersede the noncompetition
provisions set forth in Article 7.2(b)(ii)(B). Consequently, should a Quota or
Professional Employee compete with the Employer during the Deferral Period,
such Employee shall not be entitled to request any further early distribution
pursuant to this Article 7.2(b)(ii)(E) and distribution of the balance
remaining in such Quota or Professional Employee's accounts shall be deferred
and distributed in accordance with the provisions of Article 7.2(b)(ii)(B).
7.3 Notwithstanding any other provision of Article 7.2 to the
contrary:
(a) Death and Disability. Distribution of the account of
a Participant who becomes deceased or totally disabled will be made 120 days
after the end of the Fiscal Year in which such Participant's death or Total
Disability occurs.
<PAGE> 29
(b) Normal Retirement. A Participant's vested accounts
shall be distributed no later than 60 days after the end of the Fiscal Year in
which the Participant attains the Normal Retirement Date or the date the
Participant terminates employment, whichever is later.
(c) Required Distribution. Benefit payments to any
Participant shall commence not later than the April 1 after the calendar year
in which he or she attains age 70-1/2 years.
(d) Consent Required For Early Distribution. No
distributions shall be made prior to the date on which the Participant attains
age 62 without the Participant's prior written consent.
(e) Direct Rollover of Eligible Rollover Distributions.
(i) Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Article 7.3(e), a Distributee may elect, at the time and in the manner
prescribed by the Named Fiduciary for Administration, to have any portion of an
Eligible Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover.
(ii) Definitions.
(1) Eligible Rollover Distribution. An
Eligible Rollover Distribution is any distribution of all or any portion of the
vested balance of the Distributee's accounts, 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
<PAGE> 30
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
includable in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(2) Eligible Retirement Plan. 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, an Eligible
Retirement Plan is an individual retirement account or retirement annuity.
(3) Distributee. For purposes of this
Article 7.3(e), a Distributee means a Participant. In addition, the
Participant's surviving spouse and the Participant's spouse or former spouse
who is the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
(4) Direct Rollover. A Direct Rollover
is a payment by the Plan to the Eligible Retirement Plan specified by the
Distributee.
7.4 Rules Regarding Accounts During Deferral.
(a) With respect to an Inactive Participant whose
distribution has been deferred during the Deferral Period, the Named Fiduciary
for Administration shall direct
<PAGE> 31
the Trustee to continue to maintain the Company Stock Account and Other
Investments Account of such Inactive Participant. Such accounts shall continue
as part of the Trust and be subject to all of the provisions thereof.
(b) If a Quota or Professional Employee whose accounts
are subject to deferred distribution under Article 7.2(b)(ii)(A) has less than
five (5) Years of Service for Vesting Purposes as of the date of termination of
employment with the Employer, the entire vested interest in such Participant's
Company Stock Account shall be automatically tendered at the earliest tender
offer by the Trust and/or the Employer following the last day of the Fiscal
Year in which such Employee terminated.
(c) If the vested accounts of any Quota or Professional
Employee are subject to deferred distribution under Article 7.2(b)(ii)(A) and
are not subject to the mandatory tender provided by Article 7.4(b), such
terminated Quota or Professional Employee may direct the Trustee to tender such
amount of the Employee's vested interest in his or her Company Stock Account in
a tender offer made by the Trust and/or the Employer after the end of the
Fiscal Year in which such Employee terminated employment and in subsequent
years thereafter, as may be permitted in accordance with uniform and
nondiscriminatory rules established by the Named Fiduciary for Administration.
(d) If a Quota or Professional Employee who terminates
prior to January 1, 1990, is determined to have competed during the Deferral
Period, such Participant shall have the opportunity to direct the Trustee to
sell any vested shares in his or her Company Stock Account (determined after
taking into account the provisions
<PAGE> 32
of Article 16.1) in the earliest tender offer made by the Trust and/or the
Employer following the date such determination of competition was made and in
subsequent years thereafter as may be permitted in accordance with uniform and
non-discriminatory rules established by the Named Fiduciary for Administration
and the distribution of proceeds of such sale will be deferred as set forth in
Article 7.2(b)(ii)(A), above.
(e) If a Quota or Professional Employee who terminates on
or after January 1, 1990 is determined to have competed with the Employer
during the Deferral Period, such Employee's vested interest in his or her
Company Stock Account (determined after taking into account the provisions of
Article 16.1) shall be automatically tendered at the earliest tender offer by
the Trust and/or the Employer following the date such determination of
competition was made.
(f) If the Trust and/or the Employer does not purchase
all of the shares of SSC Stock initially tendered pursuant to Articles 7.4(b)
and (e), above, the remaining shares of SSC Stock initially tendered shall be
automatically tendered in each subsequent tender offer by the Trust and/or the
Employer, until all of such shares of SSC Stock have been purchased.
(g) If the SSC Stock credited to a Participant is sold in
a tender offer pursuant to the provisions of this Article 7.4, the proceeds
from such sale will be allocated to the Participant's Other Investments Account
and will be invested in such investment options as the Participant may elect as
provided in Article 11.4.
7.5 Any payment to any Participant, or to his or her legal
representative or beneficiary, in accordance with the provisions of the Plan,
shall to the extent thereof be
<PAGE> 33
in full satisfaction of all claims hereunder against the Trustee, or the
Employer, any of whom may require such Participant, legal representative or
Beneficiary as a condition precedent to such payment to execute a receipt
therefor in such form as shall be determined by the Trustee or the Named
Fiduciary for Administration, as the case may be. The Employer does not
guarantee the Trust, the Participants, former Participants or other
Beneficiaries against loss of or depreciation in value of any right or benefit
that any of them may acquire under the terms of this Plan. All of the benefits
payable hereunder shall be paid or provided for solely from the Trust and the
Employer does not assume any liability or responsibility therefor.
7.6 (a) A Participant or former Participant ("Distributee")
who receives shares of SSC Stock from the Plan on or after January 1, 1990, and
any transferee of a Distributee ("Transferee") may not transfer or sell less
than 500 shares of SSC Stock (or, if less, the total number of shares of SSC
Stock owned by the Distributee or Transferee) in any single transaction.
(b) The restriction on transfer set forth in subparagraph
(a) of Article 7.6 shall not apply to any sale or transfer to the Trust or to
Source-Delaware.
7.7 Shares of SSC Stock distributed to a Participant shall be
subject to a right of first refusal providing that prior to any sale of such
shares to a prospective buyer by the Participant, his or her beneficiary,
spouse, next of kin or other heir or by any transferee of the foregoing
(hereinafter collectively referred to in this Article 7.7 as the
"Stockholders") such shares must first be offered to the Trust and then to
Source-Delaware at the price which the prospective buyer is willing to pay as
follows:
<PAGE> 34
(a) Any Stockholder wishing to sell, assign, transfer,
pledge or otherwise alienate any of the shares of SSC Stock shall first give
written notice of any proposed transfer to the Trust and Source Delaware. The
notice shall name the proposed transferee and state the number of shares to be
transferred, the price per share and all other terms of the offer made by a
bona fide purchaser in writing.
(b) For thirty (30) days following receipt of such
notice, the Trust and, to the extent the Trust elects not to exercise its right
of first refusal, Source-Delaware, shall have the option to purchase all or any
portion of the stock specified in the notice at the purchase price and on the
terms of payment as set forth in the notice. In the event the Trust and/or
Source-Delaware elects to purchase all or any portion of the stock, it shall
give written notice to the Stockholder of its election, specifying the number
of shares it elects to purchase.
(c) In the event the Trust and/or Source-Delaware elects
to acquire some portion or all of the shares of the stock as specified in said
Stockholder's notice, the Trustee and/or the Secretary of Source-Delaware shall
so notify the Stockholder and settlement for said shares shall be made pursuant
to the terms of the Stockholder's notice.
(d) In the event the Trust and/or Source-Delaware does
not elect to acquire all of the shares of stock specified in the Stockholder's
notice, the Stockholder may, within the sixty (60) day period following the
expiration of the option rights granted to the Trust and Source-Delaware
herein, transfer the shares specified in the Stockholder's notice elsewhere,
provided that the sale shall not be on terms and
<PAGE> 35
conditions more favorable to the purchaser than those contained in the bona
fide offer set forth in the Stockholder's notice, and provided further that
such transferee shall purchase the shares subject to the right of first refusal
set forth in this Article 7.7.
(e) This right of first refusal shall not apply to any
sale or proposed sale by a Stockholder to the Trust or to Source-Delaware.
ARTICLE 8
WITHDRAWALS AND INVESTMENT DIVERSIFICATION
8.1 If a financial emergency arises from the sickness of an Active
Participant or of his or her family, the Named Fiduciary for Administration, in
its sole discretion and upon written application of such Participant, may
permit the withdrawal by such Active Participant of a percentage or amount,
specified by the Named Fiduciary for Administration, of the vested amount
credited to the Active Participant's accounts.
8.2 In addition to withdrawals for financial emergency pursuant to
Article 8.1, Active Participants may elect to withdraw amounts from their
vested accounts subject to the following terms and conditions:
(a) Employees other than Quota or Professional Employees.
Any Active Participant who is not a Quota or Professional Employee who has
completed at least five Employment Years as defined in Article 8.2(c), below,
and who is fully vested, may upon written request to the Named Fiduciary for
Administration elect to withdraw up to the entire vested amount credited to
such Active Participant's accounts.
(b) Quota or Professional Employees. Any Active
Participant who is a Quota or Professional Employee and who has completed at
least ten Employment Years
<PAGE> 36
as defined in Article 8.2(c), below, and who has completed five Years of
Service for Vesting Purposes, may, upon written request to the Named Fiduciary
for Administration, withdraw amounts from his or her vested accounts as
follows:
(i) On or after the completion of the tenth
(10th) Employment Year, the Active Participant may elect to withdraw up to 25%
of the value of his or her vested accounts.
(ii) On or after the completion of the eleventh
(11th) Employment Year, the Active Participant may elect to withdraw up to
33-1/3% of the value of his or her vested accounts or, if no previous
withdrawals have been made pursuant to this Article 8.2(b), up to 50% of the
value of the Active Participant's vested accounts, or such other percentage or
amount as may be permitted under Article 8.2(b)(v).
(iii) On or after the completion of the twelfth
(12th) Employment Year, the Active Participant may elect to withdraw up to
fifty percent (50%) of the value of his or her vested accounts or, if no
previous withdrawals have been made under this Article 8.2(b), up to 75% of the
value of the Active Participant's vested accounts, or such other percentage or
amount as may be permitted under Article 8.2(b)(v).
(iv) On or after the completion of the thirteenth
(13th) Employment Year, the Active Participant may withdraw the entire value of
his or her vested accounts which have not previously been withdrawn.
(v) If an Active Participant elects under
subparagraphs (i), (ii) or (iii) of this Article 8.2(b) to withdraw a part but
less than all of the percentage or amount the Active Participant is entitled to
withdraw under such subparagraphs, then the Active
<PAGE> 37
Participant may subsequently withdraw from his or her accounts such percentage
or amount as the Named Fiduciary for Administration shall determine. In
determining the percentage or amount which may be withdrawn under this
subparagraph (v), the Named Fiduciary for Administration shall adjust the
maximum percentage or amount which could be withdrawn under subparagraph (i),
(ii) or (iii) if no previous withdrawals had been made to reflect the partial
withdrawals previously made. All adjustments made by Named Fiduciary for
Administration hereunder shall be made in accordance with procedures uniformly
applied to all Active Participants in a nondiscriminatory manner.
(c) For purposes of the withdrawal provisions contained
in this Article 8.2 a Participant shall be credited with one Employment Year
for each twelve months of employment (whether or not consecutive) of such
Participant, determined as follows:
(i) For purposes of determining the Participant's
employment, a Participant shall be credited for the time period commencing with
his or her Employment Commencement Date and/or Reemployment Commencement Date
and ending on his or her Employment Termination Date.
(ii) Nonsuccessive periods of employment shall be
aggregated. Less than whole year periods of employment (whether or not
consecutive) shall be aggregated on the basis that twelve (12) months of
employment or 365 days of employment equal a whole year of service. Thirty
(30) days are deemed to be one (1) month in the case of aggregation of partial
months.
<PAGE> 38
(iii) "Employment Commencement Date" shall mean the
date an Employee first performs an hour of service within the meaning of
Department of Labor Regulation e 2530.200b-2(a) for the Employer.
(iv) "Reemployment Commencement Date" shall mean
the first day on which a rehired Employee performs an hour of service within
the meaning of Department of Labor Regulations e 2530.200b-2(a) for the
Employer.
(v) "Employment Termination Date" shall mean the
date on which an Employee quits, retires, is discharged, dies, commences an
unpaid leave of absence, or goes on long-term disability or separates from
service of the Employer for any other reason.
(d) Rehired Quota or Professional Employees. A former Quota or
Professional Employee Participant who has been determined to have competed
within the meaning of Article 7.2(b)(ii)(A) after termination of employment and
who is rehired by the Employer may, if otherwise eligible to make a withdrawal
under the provisions of this Article 8.2, withdraw amounts attributable to his
or her service with the Employer prior to such rehire and any earnings thereon
only if such rehired Participant has completed at least three (3) years of
continuous employment with the Employer measured from his or her Reemployment
Commencement Date. Such rehired Participant may withdraw amounts attributable
to his or her service with the Employer performed after his or her Reemployment
Commencement Date in accordance with the provisions of this Article 8.2.
<PAGE> 39
8.3 (a) In addition to or in lieu of the withdrawal rights
set forth in Article 8.2, any Active Participant who is entitled to make a
withdrawal under Article 8.2, may, instead of such withdrawal or in addition to
the withdrawal if less than the maximum amount subject to withdrawal has been
withdrawn, elect in writing to diversify the investment of fifty percent (50%)
of the amount which such Active Participant would be entitled to withdraw from
his or her accounts under Article 8.2.
(b) Upon making an election under the provisions of
Article 8.3(a), the number of SSC shares equal in value to the amount subject
to diversification (rounded to the nearest whole share) shall be tendered in
the earliest tender offer by the Trust and/or the Employer after the
diversification election is filed. If the Trust and/or the Employer does not
purchase all of the shares of SSC Stock initially tendered pursuant to this
Article 8.3(b), the remaining shares of SSC Stock shall be automatically
tendered in each subsequent tender offer by the Trust and/or the Employer,
until all of the shares of SSC Stock have been purchased.
(c) The amount subject to diversification under this
Article 8.3 shall be credited to the Participant's Other Investments Account
and shall be invested in such investment options as the Participant may direct
as provided in Article 11.4.
8.4 For purposes of determining the amount which any Active
Participant is entitled to withdraw or diversify pursuant to the provisions of
Article 8.2 and 8.3 the value of an Active Participant's vested accounts shall
be determined as of the Valuation Date coinciding with or next preceding the
date of such Active Participant's request for
<PAGE> 40
withdrawal or diversification election, reduced by any distribution or
withdrawal made subsequent thereto.
8.5 No more than one withdrawal may be made under Article 8.2 in
any Fiscal Year.
ARTICLE 9
BENEFICIARIES
9.1 Each Participant shall have the right to designate on forms
provided by the Named Fiduciary for Administration a Beneficiary or
Beneficiaries to receive the benefits herein provided in the event of his or
her death, and shall have the right at any time to revoke such designation or
to substitute another such Beneficiary or Beneficiaries; provided, however, if
the Participant is married at the time any such designation of Beneficiary is
made and the Participant's surviving spouse is not the sole designated
Beneficiary of the Participant, consent of such spouse must be given in writing
with respect to such designation and witnessed by a notary public. This
spousal consent requirement may be waived by the Employer if there is no spouse
or the spouse cannot be located, or for such other reasons authorized in
applicable Treasury Regulations.
9.2 If, upon the death of a Participant or Beneficiary, there is
no valid designation of Beneficiary on file with the Named Fiduciary for
Administration, the Named Fiduciary for Administration shall designate as the
Beneficiary, in order of priority:
(a) The surviving spouse;
(b) Surviving children, including adopted children;
<PAGE> 41
(c) Surviving parents; or
(d) The Participant's estate; provided that at all times
the Named Fiduciary for Administration shall have the right to designate as
Beneficiary the Participant's estate irrespective of said order of priority.
(e) Notwithstanding the foregoing, if the Participant is
married on the date of his or her death, the Employer shall designate the
Participant's surviving spouse as the Participant's sole Beneficiary unless
such surviving spouse consents in writing witnessed by a notary public to
designation of another Beneficiary. This spousal consent requirement may be
waived by the Employer if there is no spouse or the spouse cannot be located,
or for such other reasons authorized in applicable Treasury Regulations.
(f) The determination of the Named Fiduciary for
Administration as to which persons, if any, qualify within the aforementioned
categories shall be final and conclusive upon all persons.
ARTICLE 10
DESIGNATION OF NAMED FIDUCIARY
APPOINTMENT OF INVESTMENT MANAGER
10.1 Source-Delaware is the Named Fiduciary for Administration of
the Plan provided for by ERISA and shall have the authority to manage and
control the operation and administration of the Plan.
<PAGE> 42
10.2 The Named Fiduciary for Administration shall have all powers
necessary to enable it to administer the Plan in accordance with its
provisions, including without limitation the following:
(a) Resolving all questions relating to the eligibility
of Employees to become Participants;
(b) Determining the appropriate allocations to
Participants' accounts pursuant to Article 4;
(c) Determining the amount of benefits payable to a
Participant (or Beneficiary), and, subject to the provisions of the Plan, the
time and manner in which such benefits are to be paid;
(d) Determining whether a Participant has competed with
the Employer or has engaged in misappropriation and applying the Alternate
Vesting Schedule under Article 16 if competition or misappropriation is
determined to have occurred. The determination as to whether a particular
Quota or Professional Employee has competed with the Employer in a particular
case shall be made consistently with the Administrative Committee Guidelines
For Determining Competition that are attached to the Plan as Appendix "A",
which guidelines shall constitute part of the Plan.
(e) Authorizing and directing all disbursements from the
Trust Fund by the Trustee;
(f) Establishing procedures in accordance with section
414(p) of the Code to determine the qualified status of domestic relations
orders and to administer distributions under such qualified orders;
<PAGE> 43
(g) Engaging any administrative, legal, accounting,
clerical or other services that it may deem appropriate;
(h) Construing and interpreting the Plan and the Trust
Agreement and adopting rules for administration of the Plan that are consistent
with the terms of the Plan documents and of ERISA and the Code;
(i) Compiling and maintaining all records it determines
to be necessary, appropriate or convenient in connection with the
administration of the Plan;
(j) Executing agreements and other documents on behalf of
the Plan and Trust.
(k) Directing the Trustee in voting shares of SSC Stock
held by the Trust, such direction to be in accordance with the Participants'
directions to the extent required by Article 11.3 hereof.
The Named Fiduciary for Administration shall perform its duties under
the Plan solely in the interests of the Participants (and their Beneficiaries).
Any discretion granted to the Named Fiduciary for Administration under any of
the provisions of the Plan shall be exercised only in accordance with rules and
policies established by the Named Fiduciary for Administration which shall be
applicable on a non-discriminatory basis. Subject to the provisions of Article
14, decisions of the Named Fiduciary for Administration shall be final and
binding.
10.3 The Named Fiduciary for Administration may employ such persons
or organizations to render service or perform services with respect to the
responsibilities of the Named Fiduciary for Administration under the Plan as
it, in its sole discretion,
<PAGE> 44
determines to be necessary and appropriate. Such persons or organizations may
include, without limitation, actuaries, attorneys, accountants and benefit,
financial and administrative consultants. The Named Fiduciary for
Administration shall pay such advisors such reasonable compensation as may be
agreed upon from time to time and shall reimburse such advisors for reasonable
expenses.
10.4 Source-Delaware is the Named Fiduciary for Investments and
shall have authority and responsibility with respect to control or management
of the Plan assets provided for by ERISA. The Named Fiduciary for Investments
shall have all powers necessary to enable it to manage the assets of the Plan,
including without limitation, the following:
(a) Selecting, reviewing and retaining or changing any
investment options offered under the Plan pursuant to Article 11.4;
(b) Reviewing the performance of the Trustee with respect
to the Trustee's duties, responsibilities and obligations under the Plan and
Trust Agreement;
(c) Subject to the provisions of Articles 7.4(g) and 8.3,
directing the investments of the assets of the Trust and directing the Trustee
in the segregation of the accounts of Active Participants where necessary and
all other transactions in respect thereof;
(d) Communicating Participants' investment elections to
the Trustee;
(e) Conducting any tender offer by the Plan or Trust to
purchase shares of SSC Stock, and taking any and all actions which may be
necessary or appropriate in connection therewith;
<PAGE> 45
(f) Appointing (or removing) one or more Investment
Managers as defined in ERISA to direct the investment and management of all or
part of the assets of the Trust. Each Investment Manager shall have the power
to manage, acquire and dispose of the part of the assets of the Trust
designated by the Named Fiduciary for Investments.
10.5 (a) Effective January 1, 1993, Source-Delaware shall
discharge its duties as the Named Fiduciary for Administration through an
Administrative Committee consisting of five (5) individuals to be appointed by
and hold office at the pleasure of the Board of Source-Delaware. Vacancies in
the Administrative Committee arising from death, resignation, removal or
otherwise, shall be filled by the Board of Source-Delaware. Administrative
Committee action will be by vote of a majority or such greater number as the
members may specify from time to time at a meeting or in writing by the members
without a meeting. A Committee member who is a Participant shall not vote on
any questions relating specifically to himself or herself unless he or she is
the sole member of the Committee. The Committee shall choose from its members
a Chairman and a Secretary. The Chairman or the Secretary of the Committee
shall be authorized to execute any certificate or other written direction on
behalf of the Committee.
(b) In addition, Source-Delaware may, in its discretion,
appoint an independent fiduciary to discharge any of its responsibilities as
the Named Fiduciary for Investments or may delegate any such responsibilities
to the Administrative Committee. Such independent fiduciary or delegation to
the Administrative Committee shall be designated by the Board of
Source-Delaware or by the President of Source-Delaware.
<PAGE> 46
Any such appointment of an independent fiduciary or delegation to the
Administrative Committee shall be in writing and shall clearly specify the
actions for which such independent fiduciary is responsible or which have been
delegated to the Administrative Committee. Any independent fiduciary appointed
under this article shall accept the responsibilities delegated to him, her or
it and shall acknowledge that he, she or it is a fiduciary of the Plan subject
to the provisions of ERISA.
10.6 Any person or group of persons may serve in more than one
fiduciary capacity with respect to the Plan.
10.7 Source-Delaware shall indemnify and hold harmless the members
of the Board, the Administrative Committee and any other Employees to whom any
fiduciary responsibility with respect to the Plan is allocated or delegated,
from and against any and all liabilities, costs and expenses, including
attorneys' fees, incurred by such persons as a result of any act, or omission
to act, in connection with the performance of their duties, responsibilities
and obligations under the Plan and under ERISA, other than such liabilities,
costs and expenses as may result from the bad faith, willful misconduct or
criminal acts of such persons or to the extent such indemnification is
specifically prohibited by ERISA. Source-Delaware shall have the obligation to
conduct the defense of such persons in any proceeding to which this Article
10.7 applies. If any Board member, Administrative Committee member or any
Employee covered by this indemnification clause of this Article 10.7 determines
that the defense of Source-Delaware is inadequate, that member shall be
entitled to retain separate legal counsel for his or her defense and
Source-Delaware shall be obligated to pay for all reasonable
<PAGE> 47
legal fees and other court costs incurred in the course of such defense unless
a court of competent jurisdiction finds such person has acted in bad faith or
engaged in willful misconduct or criminal acts. Source-Delaware may satisfy
its obligation under this Article 10.7 in whole or in part, through the
purchase of a policy or policies of insurance, but no insurer shall have any
rights against the Plan arising out of this Article 10.7.
ARTICLE 11
TRUST FUND AND TRUSTEE
11.1 Contributions made by the Employer and all other assets of the
Plan shall be held in Trust in accordance with the provisions of the Trust
Agreement between the Employer and the said Trustee, which Trust Agreement is
executed concurrently herewith and attached hereto and incorporated by
reference herein as though set forth in full. The Trust Agreement may, from
time to time, be amended in the manner therein provided.
11.2 The Plan is established for the purposes, among others, of
enabling Employees to share in the profits of the Employer and to acquire
capital ownership in the Employer through the contribution of SSC Stock to the
Plan and the investment of cash contributions to the Plan in SSC Stock. In the
fulfillment of these purposes, and subject to the provisions hereinafter set
forth, any assets of the Trust Fund, up to 100% thereof, may be invested in or
used to acquire SSC Stock in such amounts and at such prices as the Named
Fiduciary for Investments in its judgment shall deem appropriate; provided,
however, the purchase of the SSC Stock to be acquired by the Trust shall be
<PAGE> 48
made at a price, or at prices, which do not exceed the fair market value of
such shares of SSC Stock. The fair market value per share of the SSC Stock
shall be determined by dividing the fair market value of SSC by the total
number of shares issued and outstanding. For purposes of determining the fair
market value of SSC, an independent appraiser shall be retained to value SSC
which value shall be conclusive upon all parties interested herein. If the
Named Fiduciary for Investments shall determine that there is no SSC Stock
available for purchase, or that the purchase of SSC Stock would not be an
appropriate investment under the circumstances prevailing or if the terms of
the Plan provide that amounts allocated to Participants' accounts shall not be
invested in shares of SSC Stock, the Named Fiduciary for Investments may direct
the Trustee to otherwise invest funds of the Trust as permitted by the Trust
Agreement.
11.3 Each Participant whose accounts have not been distributed
shall have the right to direct the Named Fiduciary for Administration as to the
exercise of voting rights with respect to the vested shares of SSC Stock
allocated to his or her Company Stock Account. For purposes of this Article
11.3, a Participant's vested shares of SSC Stock shall be equal to the number
of such shares allocated to his or her Company Stock Account, multiplied by his
or her vested percentage as determined under Article 6 or Article 16, as the
case may be, as of the last day of the Fiscal Year which coincides with or next
precedes the date on which such exercise of voting rights occurs, reduced by
the number of shares of SSC Stock which have been distributed subsequent to
such date and prior to the date on which such voting occurs. The Named
Fiduciary for Administration shall direct the Trustee, or any person to whom
the Trustee has given its
<PAGE> 49
proxy, to vote all vested shares of SSC Stock for which the Named Fiduciary for
Administration has received directions from Participants as provided by this
Article 11.3, in accordance with such directions. The Named Fiduciary for
Administration shall have the right to direct the Trustee as to how to vote (a)
all vested shares of SSC Stock with respect to which the Named Fiduciary for
Administration has not received from Participants directions given in
accordance with such procedures and requirements as the Named Fiduciary for
Administration may establish; and (b) all unvested shares of SSC Stock. The
Named Fiduciary for Administration shall adopt such procedures as it deems
reasonable and appropriate to solicit Participants' directions as to the manner
in which vested shares allocated to the Participants' Company Stock Accounts
shall be voted, provided that such procedures shall be uniformly applied to all
Participants and shall be designed to give all Participants a fair opportunity
to exercise the pass-through voting provided under this Article 11.3.
11.4 (a) The Named Fiduciary for Investments shall establish
investment options under the Plan, and may, in its sole discretion, add to or
change the investment options from time to time. The Named Fiduciary for
Investments shall notify Eligible Employees and Participants of such change in
writing and such change shall be effective as of the date the Named Fiduciary
for Investments shall designate in such written notice.
(b) The Named Fiduciary for Investments shall establish
such rules and procedures by which a Participant may make or change his or her
investment choice as it shall deem appropriate; provided, however, that such
rules and procedures shall be
<PAGE> 50
communicated to Participants and shall be applied in a uniform and
nondiscriminatory manner.
ARTICLE 12
AMENDMENT AND TERMINATION
12.1 The Employer reserves the right at any time or times to amend
the Plan to any extent and in any manner that it may deem advisable by delivery
to the Trustee of a certified copy of a Resolution of the Board of Source-
Delaware making such amendment. Such power includes the right, without
limitation, to make retroactive amendments referred to in section 401(b) of the
Code. Upon delivery of such certified copy to the Trustee, the Plan and Trust
Agreement shall be deemed to have been amended in the manner set forth herein,
and the Employer, the Trustee, and all Participants, their Beneficiaries and
all other persons having any interest hereunder shall be bound thereby;
provided, however, that no amendment:
(a) Shall cause or permit any part of the principal or
income of the Trust to revert to the Employer or to be used for, or be diverted
to, any purpose other than the exclusive benefit of Participants and their
Beneficiaries;
(b) Shall change the duties or liabilities of the Trustee
without its written assent to such amendment; or
(c) Shall retroactively reduce the benefits of any
Participant or his or her Beneficiary accrued under the Plan by reason of
contributions made by the Employer prior to the amendment except to the extent
that such reduction is permitted by ERISA.
<PAGE> 51
All amendments to the Plan or Trust which are adopted by the Board
shall be deemed adopted by the Board of Directors of any subsidiary
corporations of Source-Delaware upon the acceptance of such amendments by the
President and Secretary of such subsidiary corporations.
12.2 The Employer has established the Plan with the bona fide
intention and expectation that the Plan will continue indefinitely and that it
will be able to make its contributions indefinitely, but the Employer shall be
under no obligation to continue its contributions or to maintain the Plan for
any given length of time and may, in its sole and absolute discretion,
discontinue its contributions or terminate the Plan at any time without any
liability whatsoever. In the event of the complete or partial termination of
the Plan or complete discontinuance of further contributions hereunder, the
full value of the accounts of all Participants shall become fully vested and
nonforfeitable, notwithstanding any other provisions of the Plan. However, the
Trust shall continue until all Participants' accounts have been completely
distributed to or for the benefit of the Participants in accordance with the
Plan.
12.3 Unless sooner terminated in accordance with Article 12.2, the
Plan shall terminate:
(a) Upon the date specified in a written notice of the
termination of the Plan and Trust, executed by the Employer and delivered to
the Trustee; or
(b) Upon the adjudication of the Employer as a bankrupt
or the execution of a general assignment by the Employer to or for the benefit
of creditors or dissolution of the Employer; provided, however, that such
bankruptcy, assignment or
<PAGE> 52
dissolution proceedings shall not terminate the Plan or Trust if the Employer
continues to exist or if there exists a reorganized or successor corporation
which expressly adopts this Plan and agrees in writing to continue the Plan and
Trust; or
(c) Upon the complete accomplishment of all the purposes
for which the Plan is created.
However, the Trust shall continue until all Participants' accounts
have been completely distributed to or for the benefit of the Participants in
accordance with the Plan.
12.4 Upon the termination of the Plan and Trust and after payment
of all expenses of the Trust, the Trust assets and all Participants' accounts
shall be valued according to the procedures provided in Article 4, and the
Trustee shall distribute Participants' accounts as directed by the Employer in
accordance with the provisions of Article 7.
ARTICLE 13
ASSIGNMENTS
13.1 The interest herein, whether vested or not, of any
Participant, or Beneficiary, shall not be subject to alienation, assignment,
encumbrance, attachment, garnishment, execution, sequestration or other legal
or equitable process, or transferability by operation of law in event of
bankruptcy, insolvency or otherwise. This provision shall not apply to a
qualified domestic relations order with respect to a
<PAGE> 53
Participant as defined in section 401(a)(13) of the Code (as amended by the
Retirement Equity Act of 1984) and Treasury Regulations promulgated thereunder.
ARTICLE 14
CLAIMS PROCEDURE
The procedure set forth below is intended to provide a means for a
Participant or Beneficiary entitled to receive benefits under the Plan to
request a review of the determination of such benefits as made by the Named
Fiduciary for Administration, and is not intended as a process by which a
Participant or Beneficiary may request an exception to the provisions of the
Plan for such person's personal circumstances or any other reason.
14.1 A Participant or Beneficiary entitled to receive benefits
under the Plan need not file a request therefor. However, if the Participant
or Beneficiary believes that his or her benefit has been incorrectly
determined, he or she may make a written request for review of the
determination previously made by the Named Fiduciary for Administration. The
Named Fiduciary for Administration may require additional information if
necessary to process the request. The Named Fiduciary for Administration shall
review the request and shall render its decision within ninety (90) days from
the date the request is filed (or the requested additional information is
submitted, if later), unless special circumstances require an extension of time
for processing the request. If such an extension of time is required, written
notice of the extension shall be furnished the person making the request within
the initial ninety (90) day period, and the notice shall indicate the special
<PAGE> 54
circumstances requiring the extension and the date by which the Named Fiduciary
for Administration expects to reach a decision on the requests. In no event
shall the extension exceed a period of ninety (90) days from the end of the
initial period.
14.2 If the Named Fiduciary for Administration denies a request in
whole or in part, it shall provide the person making the request with written
notice of the denial within ten (10) days from the date the Named Fiduciary for
Administration determines that such request is denied. The notice shall set
forth in language calculated to be understood by the persons making the
request:
(a) The specific reason for such denial;
(b) Specific reference to pertinent Plan provisions upon
which the denial is based;
(c) A description of any additional material or
information which may be needed to clarify or perfect the request, and an
explanation of why such information is required; and
(d) An explanation of the Plan's review procedure with
respect to the denial of benefits.
14.3 (a) A person whose request has been denied in whole or in
part may file a claim for review of the decision of the Named Fiduciary for
Administration in writing with the Named Fiduciary for Administration within
sixty (60) days of receipt of the notification of denial. The Named Fiduciary
for Administration, for good cause shown, may extend the period during which
the claim may be filed. The claimant shall be
<PAGE> 55
permitted to submit issues and comments regarding the claim to the Named
Fiduciary for Administration in writing.
(b) The Named Fiduciary for Administration shall appoint
an independent committee (the "Review Committee") composed of not fewer than
three (3) individuals who did not participate in the original denial of the
applicant's request for review and the Review Committee shall render its
decision within sixty (60) days after receipt of the application for review,
unless special circumstances (such as the need to hold a hearing) require an
extension of time for processing, in which case the decision shall be rendered
as soon as possible, but not later than one hundred twenty (120) days after
receipt of a request for review. If an extension of time is necessary, written
notice shall be furnished the claimant before the extension period commences.
The vote of a majority of the Review Committee shall be required for any action
or decision taken by the Review Committee.
(c) The Review Committee shall decide whether a hearing
shall be held on the claim and, if a hearing is to be held, it shall notify the
claimant in writing of the time and place for the hearing. Unless the claimant
agrees to a shorter period, the hearing shall not be scheduled earlier than
fourteen (14) days from the date of the notice of hearing. The claimant and/or
his or her duly authorized representative may appear at any such hearing.
(d) The decision of the Review Committee on review shall
be furnished to the claimant in writing within the time specified in this
Article 14.3. If the decision on review denies the claim in whole or in part,
it shall specify the reasons for the decision
<PAGE> 56
in a manner calculated to be understood by the claimant, and shall include
references to the specific Plan provisions on which the decision is based. The
Review Committee shall not be restricted in its review to those provisions of
the Plan cited in the original denial of the claim.
(e) If the decision on review is not furnished by the
Review Committee within the time specified in this Article 14.3, the claim
shall be deemed denied on review.
ARTICLE 15
MISCELLANEOUS
15.1 The adoption and maintenance of the Plan and Trust shall not
be deemed to be a contract between the Employer and any Employee. Nothing
herein contained shall be deemed to give any Employee the right to be retained
in the employ of the Employer or to interfere with the right of the Employer to
discharge any Employee in its employ at any time, nor shall it be deemed to
give the Employer the right to require any Employee to remain in its employ,
nor shall it interfere with the Employee's right to terminate his or her
employment at any time. All benefits payable under the Plan shall be paid as
provided for solely from the Trust and the Employer may not assume any
liability or responsibility therefor.
15.2 (a) In no event shall this Plan be merged or consolidated
with any other plan, nor shall there be any transfer of assets or liabilities
from this Plan to any other plan, unless immediately after such merger,
consolidation or transfer, each Participant's benefits, if such other plan were
then to terminate, are at least equal to or greater than
<PAGE> 57
the benefits which the Participant would have been entitled to had this Plan
been terminated immediately before such merger, consolidation, or transfer.
(b) If the Employer merges or consolidates with or into a
corporation, or if substantially all of the assets of the Employer shall be
transferred to a corporation, the Plan hereby created shall terminate on the
effective date of such merger, consolidation or transfer. However, if the
surviving corporation resulting from such merger or consolidation, or the
corporation to which the assets have been transferred, adopts this Plan, the
Plan shall continue and said corporation shall succeed to all rights, powers
and duties of the Employer hereunder. The employment of any Employee who is
continued in the employ of such successor corporation shall not be deemed to
have been terminated for any purpose hereunder.
15.3 The Plan shall neither accept assets from an individual who is
or is eligible to become a Participant of the Plan nor allow the transfer of
such assets to the Plan which qualify as a Rollover Contribution within the
meaning of section 402(a)(5), section 403(a)(4), section 403(b)(8) or section
408(d)(3) of the Code.
ARTICLE 16
ALTERNATE VESTING SCHEDULE
16.1 (a) Alternate Vesting Schedule. Notwithstanding the
provisions of Article 6, the Alternate Vesting Schedule set forth in Article
16.1(b), below, shall be applied to determine a Participant's vested interest
in the circumstances described in subparagraphs (i) and (ii) below:
<PAGE> 58
(i) Alternate Vesting Schedule For Competition.
Any Quota or Professional Employee who, at any time during the Deferral Period
competes with the Employer shall be subject to the Alternate Vesting Schedule.
A Quota or Professional Employee will be considered to have competed if he or
she works for a firm engaged, on a contingency, retainer or search basis, in
the placement of accounting, financial, engineering or computer personnel in
the United States or Canada as a partner, sole proprietor, shareholder,
officer, director, employee or agent, or if he or she engages in any other
placement activity or temporary activity in competition with the Employer. The
determination as to whether a particular Quota or Professional Employee has
competed with the Employer in a particular case shall be made consistently with
the Administrative Committee Guidelines For Determining Competition that are
attached to the Plan as Appendix "A", which guidelines shall constitute part of
the Plan.
(ii) Alternate Vesting Schedule for Embezzlement
or Misappropriation. Any Employee who embezzles or misappropriates funds or
trade secrets of the Employer (collectively, such acts being hereinafter
referred to as "Misappropriation"), shall be subject to the Alternate Vesting
Schedule.
(b) Alternate Vesting Schedule. The accounts of each
Participant subject to this Alternate Vesting Schedule shall vest in accordance
with one of the following schedules, as appropriate:
(i) If the Participant has not performed at least
one Hour of Service on or after January 1, 1989:
<PAGE> 59
<TABLE>
<CAPTION>
Years of Service
For Vesting Purposes Percentage Vested
-------------------- -----------------
<S> <C>
Less than 10 0
10 or more 100%
</TABLE>
(ii) If the Participant has performed at least one
Hour of Service on or after January 1, 1989:
<TABLE>
<CAPTION>
Years of Service
For Vesting Purposes Percentage Vested
-------------------- -----------------
<S> <C>
Less than 5 0
5 or more 100%
</TABLE>
(c) Exceptions.
(i) Notwithstanding Articles 16.1(a) and 16.1(b),
the account(s) of any Participant who terminates employment on or after such
Participant attains his or her Normal Retirement Date or who terminates
employment as a result of death or Total Disability, shall not be subject to
the Alternate Vesting Schedule set forth in Article 16.1(b) but shall be 100%
vested.
(ii) Notwithstanding the provisions of Articles
16.1(a) and 16.1(b), the amount of a Participant's vested interest in his or
her accounts determined as of July 15, 1984 shall not be subject to the
Alternate Vesting Schedule.
16.2 Any forfeiture which may occur under Article 16.1(a)(i) shall
be deemed to occur on the last day of the Fiscal Year in which the Deferral
Period ends or the date a final determination has been made regarding whether
competition has occurred, whichever is later.
<PAGE> 60
16.3 Any forfeiture which may occur under Article 16.1(a)(ii) shall
be deemed to occur on the last day of the Fiscal Year in which a final
determination is made as to whether Misappropriation has occurred.
16.4 Any amounts forfeited pursuant to Article 16.1 shall be
allocated among the accounts of the Active Participants who are entitled to
share therein under Article 5.2 in accordance with the provisions of Article 5.
ARTICLE 17
TOP HEAVY PROVISIONS
17.1 In any Fiscal Year in which the Plan becomes Top Heavy
(defined below) the provisions of this Article 17 shall supersede any
conflicting provisions of the Plan to the contrary.
17.2 (a) "Key Employee" shall mean:
(i) An Employer who, at any time during the
Fiscal Year or any of the four preceding Fiscal Years, is:
(A) An officer of any Employer having an
annual compensation greater than 150% of the Maximum Dollar Amount as set forth
in Article 5.3 for any such Fiscal Year;
(B) 1 of 10 Employees of any Employer
having annual compensation from all Employers of more than the Maximum Dollar
Amount then in effect, and owning (or considered as owning with the meaning of
section 318 of the
<PAGE> 61
Code) both more than a 1/2% interest in value and the largest percentage
interest in such Employer;
(C) A 5% owner of any Employer; or
(D) A 1% owner of any Employer, having
an annual compensation from all Employers of more than $150,000.
(ii) For purposes of this definition, not more
than 50 Employees (or, if lesser, the greater of 3 or 10% of the Employees)
shall be treated as officers. For purposes of subparagraph (i)(B) above, if
two employees of any Employer have the same interest in such Employer, the
Employee having the greater annual compensation from such Employer shall be
treated as having a larger interest.
(iii) For purposes of this paragraph:
(A) 5% owner shall mean any person who
owns (or who is considered as owning within the meaning of section 318 of the
Code) more than 5% of the outstanding stock of any Employer or stock possessing
more than 5% of the total combined voting power of all stock of such Employer;
and
(B) A 1% owner is any person who would
be described in subparagraph (i)(A) above, if "1%" were substituted for "5%"
each place it appears therein.
(iv) For purposes of subparagraph (i)(B) and
subparagraph (iii), the rules of section 318 of the Code shall be modified as
set forth in section 416(i)(1)(B)(iii) of the Code.
<PAGE> 62
(v) A Key Employee shall also include the
Beneficiary of a Key Employee.
(A) "Non-Key Employee" shall mean any
Employee who is not a Key Employee.
17.3 In any Fiscal Year in which this Plan is a Top Heavy Plan, for
purposes of determining contributions or allocations under the Plan,
Compensation shall not exceed the dollar limit established under section
401(a)(17) of the Code (or such higher amount as may be permitted under
Treasury Regulations promulgated thereunder).
17.4 The Plan will be considered Top Heavy for the Fiscal Year if
as of the last day of the preceding Fiscal Year (a) the value of the sum of
accounts of Participants who are Key Employees (as defined in Article 17.2(a))
exceeds 60% of the value of the sum of the accounts of all Participants (the
"60% Test") or (b) the Plan is part of a required aggregation group (within the
meaning of section 416(g) of the Code) and the required aggregation group is
Top Heavy. Notwithstanding the results of the 60% Test, the Plan shall not be
considered a Top Heavy Plan for any Fiscal Year in which the Plan is a part of
a required or permissive aggregation group (within the meaning of section
416(g) of the Code) which is not Top Heavy.
17.5 In any Fiscal Year in which the Plan is Top Heavy:
(a) In addition to the contribution described in Article
3, the Employer shall contribute an amount equal to the lesser of: (i) the
percentage contribution for such year or (ii) 3% of the Compensation of all
Participants who are Non-Key Employees and
<PAGE> 63
who have not separated from service prior to the last day of the Fiscal Year
but who have not completed at least 500 Hours of Service during such Fiscal
Year.
(b) Amounts contributed by the Employer for such Fiscal
Year and the allocable forfeitures described in Articles 6, 16 and 17, shall be
allocated as of the last day of the Fiscal Year to the accounts of Participants
who qualify to share in the allocation for the year under the provisions of
Articles 17.5(b)(ii) and 5.2 in accordance with the provisions of this Article
17.5(b) and Article 17.5(c) as follows:
(i) An amount equal to the lesser of:
(A) The contribution for such year, or
(B) 3% of the Compensation of the
Participants described in Article 17.5(b)(ii) shall be allocated to the
accounts of all such Participants qualified to share in the allocation pursuant
to Article 17.5(b)(ii) in the proportion that each such Participant's
Compensation bears to the Compensation of all such Participants during the
Fiscal Year.
(ii) Participants qualified to share in the
allocation for the year pursuant to this Article 17.5(b)(ii) shall be all
Participants who qualify to share in the allocation for the year pursuant to
Article 5.2, and all Participants who are Non-Key Employees and who have not
separated from service prior to the last day of the Fiscal Year but who have
not completed at least 500 Hours of Service during such Fiscal Year.
(c) The balance of the Employer's contributions and
allocable forfeitures for the Fiscal Year remaining after the allocation
required by Article 17.5(b), shall be allocated among the accounts of
Participants who qualify to share in the allocation for
<PAGE> 64
the year pursuant to Article 5.2 in the proportion that each such Participant's
Compensation bears to the total Compensation of all such Participants for the
Fiscal Year.
17.6 Notwithstanding the provisions of Articles 6 and 16, if a
Participant's termination of employment occurs while the Plan is a Top Heavy
Plan, such Participant's vested percentage in his or her accounts shall not be
less than the following Top Heavy Vesting Schedule:
<TABLE>
<CAPTION>
Years of Service
For Vesting Purposes Percentage Vested
-------------------- -----------------
<S> <C>
less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(b) If the Plan becomes a Top Heavy Plan and Article
17.6(a) therefore supersedes the regular vesting schedule and the Alternate
Vesting Schedule set forth in Articles 6 and 16, and the Plan subsequently
ceases to be Top Heavy, the Top Heavy Vesting Schedule set forth in Article
17.6(a) shall continue to supersede Articles 6 and 16 with respect to any
Participant who had at least five (5) Years of Service for Vesting Purposes as
of the last day of the Fiscal Year in which the Plan was Top Heavy. For other
Participants, Article 17.6(a) shall apply only to their account balances as of
the last day of the Fiscal Year in which the Plan was last Top Heavy and
Articles 6 and 16 shall apply to the remainder of their account balances.
<PAGE> 65
17.7 Notwithstanding Article 6.4(a), if a Participant is
re-employed before such Participant has five (5) consecutive One Year Breaks in
Service, no portion of a distribution to such Participant attributable to the
Employer's contribution (the "Minimum Contribution") under Article 17.5(a)
shall be subject to repayment as set forth in Article 6.4(a), and the forfeited
portion of such Participant's accounts attributable to the Minimum Contribution
shall be restored out of available Employer contributions, forfeitures or
earnings on Plan assets, in that order. In the year in which such Participant
is re-employed:
(a) In the event a Participant did not receive any such
distribution, the restored forfeiture shall be credited to the Participant's
account(s) as of his re-employment date.
(b) In the event that Participant did receive such a
distribution, the restored forfeiture shall be maintained as a separate
account. The vested amount of the separate account to which such Participant
would be entitled shall be determined by applying the following formula:
Vested amount = P(AB + (RxD)) -(RxD)
For purposes of applying the formula, P is the vested percentage in
accordance with Article 6 at the time of such distribution; AB is the portion
of the account balance attributable to the Minimum Contribution at the time of
such distribution; D is the amount of such distribution previously made; and R
is the ratio of the portion of the account balance attributable to the Minimum
Contribution at the time of the distribution to the
<PAGE> 66
portion of the account balance attributable to the Minimum Contribution
immediately following the prior such distribution.
(c) If the Plan is terminated, all rights to such
forfeiture restoration shall lapse as to persons who have not resumed
employment before Plan termination.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed by its duly authorized offices on the ____ day of _____________, 1994.
EMPLOYER:
SOURCE SERVICES CORPORATION
A Delaware corporation
By:
By:
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 1
TO THE
SOURCE SERVICES CORPORATION EMPLOYEES' PROFIT SHARING PLAN
This Amendment No. 1 to the Source Services Corporation Employees'
Profit Sharing Plan, as amended and restated effective January 1, 1989 (the
"Plan") is adopted by Source Services Corporation (the "Company") as of the 9th
day of April, 1996, effective as set forth herein.
W I T N E S S E T H:
WHEREAS, the Plan was amended and restated on December 15, 1994,
effective generally as of January 1, 1989, to incorporate, among other things,
the provisions of the Tax Reform Act of 1986, as amended and subsequent laws
applicable to the Plan; and
WHEREAS, the Company desires to amend the Plan further as set forth
herein to modify certain duties and responsibilities of the Trustee and the
Plan's administrative committee with respect to the operation of the Plan, and
to provide active participants with an opportunity to participate in sales of
Company stock in connection with an initial public offering of the Company's
stock;
NOW THEREFORE, pursuant to the provisions of Article 12.1 of the Plan,
the Company hereby amends the Plan in the following respects:
1. Article 8 of the Plan hereby is amended, effective as of April
1, 1996, by adding a new Article 8.6 thereto to read as follows:
8.6 In the event of an initial public offering ("IPO") of
SSC Stock, any Active Participant may elect in writing, in such manner
and form as the Named Fiduciary for Investments may adopt, to direct
the Trustee to sell in the IPO vested shares of SSC Stock allocated to
his or her Company Stock Account in accordance with the provisions of
this Article 8.6. The aggregate amount, if any, of SSC Stock
allocated to the Company Stock Accounts of Active Participants that
may be sold in the IPO will be determined by the Company based on the
advice of the managing underwriter in the IPO (the "Plan IPO
Allocation"). An Active Participant who elects to have vested shares
of SSC Stock sold pursuant to this Article 8.6 shall participate in
the Plan IPO Allocation pro rata, based on such Active Participant's
vested shares of SSC Stock held in his or her Company Stock Account
relative to the total number of vested shares of SSC Stock held in the
Company Stock Accounts of all Active Participants. In the event any
Active
<PAGE> 2
Amendment No. 1 to the Source Services Corporation
Employees' Profit Sharing Plan Page 2
Participant elects to have sold less than his or her pro rata share of
the IPO Plan Allocation, the pro rata share of the remaining IPO
Allocation for Active Participants who elect to participate in full in
the IPO Allocation shall be increased in the proportion that the
vested shares of SSC Stock allocated to each such Active Participant's
Company Stock Account bears to the total number of vested shares of
SSC Stock of all such Active Participants who qualify to participate
in the allocation of the remaining IPO Allocation. For purposes of
applying this Article 8.6, an Active Participant's vested shares of
SSC Stock shall be equal to the number of such shares allocated to his
or her Company Stock Account, multiplied by his or her vested
percentage as determined under Article 6 or Article 16, as the case
may be, as of the last day of the Fiscal Year which coincides with or
next precedes the date of an IPO. If the SSC Stock credited to an
Active Participant's Company Stock Account is sold pursuant to the
provisions of this Article 8.6, the net proceeds from such sale will
be allocated to his or her Other Investment Account and will be
invested in such investment options as the Active Participant may
elect as provided in Article 11.4.
2. Article 10 of the Plan hereby is amended, effective as of
April 1, 1996 by deleting Article 10.2(k) thereof in its entirety.
3. Article 11 of the Plan hereby is amended, effective as of
April 1, 1996, by restating Article 11.3 thereof in its entirety to read as
follows:
11.3 Each Participant whose accounts have not been
distributed shall have the right to direct the Trustee as to the
exercise of voting rights with respect to the vested shares of SSC
Stock allocated to his or her Company Stock Account. For purposes of
this Article 11.3, a Participant's vested shares of SSC Stock shall be
equal to the number of such shares allocated to his or her Company
Stock Account, multiplied by his or her vested percentage as
determined under Article 6 or Article 16, as the case may be, as of
the last day of the Fiscal Year which coincides with or next precedes
the date on which such exercise of voting rights occurs, reduced by
the number of shares of SSC Stock which have been distributed
subsequent to such date and prior to the date on which such voting
occurs. The Trustee shall vote all vested shares of SSC Stock for
which the Trustee has received directions from Participants as
provided by this Article 11.3, in accordance with such directions. In
addition, the Trustee shall vote (a) all vested shares of SSC Stock
with respect to which the Trustee has not received from Participants
directions given in accordance with such procedures and requirements
as the Trustee may establish and (b) all unvested shares of SSC Stock.
The Trustee, in its discretion, shall
<PAGE> 3
Amendment No. 1 to the Source Services Corporation
Employees' Profit Sharing Plan Page 3
adopt such procedures as it deems reasonable and appropriate in
accordance with the Trustee's responsibilities under ERISA to solicit
Participants' directions as to the manner in which vested shares
allocated to the Participants' Company Stock Accounts shall be voted
and to ensure the confidentiality of the Participants' votes, provided
that such procedures shall be uniformly applied to all Participants
and shall be designed to give all Participants a fair opportunity to
exercise the pass-through voting provided under this Article 11.3.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to the
Plan to be executed by its duly authorized officers as of the date first above
written.
SOURCE SERVICES CORPORATION
By: /s/ D. Les Ward
----------------------------
D. Les Ward, President
<PAGE> 1
EXHIBIT 10.5
SOURCE SERVICES CORPORATION
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
INTRODUCTION
On April 3, 1996 (the "Effective Date") the Board of Directors of
Source Services Corporation (the "Company") adopted the following 1996
Non-Employee Directors Stock Option Plan:
1. Purpose. The purpose of the Plan is to provide Non-Employee
Directors of the Company with a proprietary interest in the Company through the
granting of options which will:
(a) increase the interest of the Non-Employee Directors in the
Company's welfare;
(b) furnish an incentive to the Non-Employee Directors to continue
their services for the Company; and
(c) provide a means through which the Company may attract able
persons to serve on the Board.
2. Administration. The Plan will be administered by the Board.
3. Participants. All Non-Employee Directors of the Company are to be
granted options under the Plan, and upon such grant will become participants in
the Plan.
4. Shares Subject to Plan. Options may not be granted under the Plan
for more than 30,000 shares of Common Stock of the Company, but this number
shall be adjusted to reflect, if deemed appropriate by the Board, any stock
dividend, stock split, share combination, recapitalization or the like, of or
by the Company. Shares to be optioned and sold may be made available from
either authorized but unissued Common Stock or Common Stock held by the Company
in its treasury. Shares that by reason of the expiration of an option or
otherwise are no longer subject to purchase pursuant to an option granted under
the Plan may be re-offered
<PAGE> 2
under the Plan.
5. Allotment of Shares. Subject to approval by the Company's
stockholders pursuant to Section 5(d), grants of options under the Plan shall
be as described in this Section 5:
(a) Each Non-Employee Director of the Company elected after the
Effective Date at the annual stockholders meeting who has not
previously served as a director of the Company shall be
granted an option, effective as of the Grant Date, to purchase
1,000 shares of Common Stock of the Company.
(b) Each Non-Employee Director of the Company appointed after the
Effective Date to fill a vacancy in the Board who has not
previously served as a director of the Company shall be
granted an option, effective as of the Grant Date, to purchase
1,000 shares of Common Stock of the Company.
(c) Each other Non-Employee Director of the Company elected at, or
continuing to serve following, each annual stockholders
meeting, commencing with the 1996 annual meeting, shall be
granted an option, effective as of the Grant Date, to purchase
1,000 shares of Common Stock of the Company.
(d) The Plan shall be submitted to the Company's stockholders for
approval. The Board may grant options under the Plan prior to
the time of stockholder approval, which options will be
effective when granted, but if for any reason the stockholders
of the Company do not approve the Plan prior to one year after
the date of adoption of the Plan by the Board, all options
granted under the Plan will be terminated and of no effect,
and no option may be exercised in whole or in part prior to
such stockholder approval.
6. Grant of Options. All options under the Plan shall be
automatically granted as
<PAGE> 3
provided in Section 5. The grant of options shall be evidenced by stock option
agreements containing such terms and provisions as are approved by the Board,
but not inconsistent with the Plan. The Company shall execute stock option
agreements upon instructions from the Board.
7. Option Price. The exercise price of each share of Common Stock
covered by an option under the Plan shall be equal to the Fair Market Value of
a share of Common Stock on the Grant Date.
8. Option Period. The Option Period will begin on the Grant Date and
will terminate at the first of the following:
(a) 5 p.m. on the fifth anniversary of the Grant Date.
(b) 5 p.m. on the date three months following the date of the
Non-Employee Director's death or disability.
(c) 5 p.m. on the date thirty (30) days following the date the
Non-Employee Director ceases to be a director of the Company
for any reason other than death or disability.
9. Rights in Event of Death or Disability. If a participant dies or
becomes disabled prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option may be exercised to the extent the
participant could have exercised the option on the date of his death or
disability at any time prior to the earlier of the dates specified in Section
8(a) or (b) hereof by (i) the participant's estate or by the person who
acquired the right to exercise the option by bequest or inheritance or by
reason of the death of the participant in the event of the participant's death,
or (ii) the participant or his personal representative in the event of the
participant's disability, subject to the other terms of the Plan and applicable
laws, rules and regulations. For purposes of the Plan, the
<PAGE> 4
Board shall determine the date of disability of a participant.
10. Payment. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering shares of Common Stock
at the Fair Market Value per share at the time of exercise, or on such other
terms as are set forth in the applicable option agreement. No shares may be
issued until full payment of the purchase price therefor has been made, and a
participant will have none of the rights of a stockholder until shares are
issued to him. In addition, the participant shall tender payment of the amount
as may be requested by the Company for the purpose of satisfying its liability
to withhold federal, state or local income or other taxes incurred by reason of
the exercise of an option.
11. Vesting.
(a) Each option will become fully vested and exercisable on the
date which is six months after the Grant Date.
(b) In no event may an option be exercised or shares be issued
pursuant to an option if any requisite action, approval or
consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been
taken or secured.
12. Capital Adjustments and Reorganizations. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and the
option price thereof, and the number of shares to be granted pursuant to
Section 5 and the option price thereof, shall be adjusted to reflect, as deemed
appropriate by the Board, any stock dividend, stock split, share combination,
exchange of shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation or the like, of or by the Company.
If (a) the Company shall be party to a merger or consolidation in
which (i) the Company
<PAGE> 5
is not the surviving entity, or (ii) the Company survives only as a subsidiary
of an entity other than a previously- owned subsidiary of the Company, or (iii)
the Company survives but the Common Stock is exchanged or converted into any
securities or property, (b) the Company sells, leases or exchanges or agrees to
sell, lease or exchange all or substantially all of its assets to any person or
entity (other than a wholly-owned subsidiary of the Company) or (c) the Company
is to be dissolved and liquidated (each such event is referred to herein as a
"Corporate Change"), then effective as of the earlier of (A) the date of
approval by the stockholders of the Company of such Corporate Change or (B) the
date of such Corporate Change, (1) in the event of any such merger or
consolidation and upon any exercise of any outstanding option, the participant
shall be entitled to purchase, in lieu of the number of shares of Common Stock
as to which such option shall then be exercisable, the number and class of
shares of stock or other securities or property to which the participant would
have been entitled pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation the
participant had been the holder of record of the number of shares of Common
Stock as to which such option is then exercisable, and (2) in the event of any
such sale, lease or exchange of assets or dissolution, each participant shall
surrender his options to the Company and the Company shall cancel such options
and pay to each participant an amount of cash per share equal to the excess of
the per share price offered to stockholders of the Company in any such sale,
lease or exchange of assets or dissolution transaction for the shares subject
to such options over the exercise price(s) under such options for such shares.
13. Non-Assignability. Options may not be transferred other than by
will or by the laws of descent and distribution. Except as otherwise provided
in the Plan, during a participant's lifetime, options granted to a participant
may be exercised only by the participant.
<PAGE> 6
14. Interpretation. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan. The
Board may rescind and amend its rules and regulations.
15. Amendment or Discontinuance. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) increase the number of
securities that may be issued under the Plan, or (c) materially modify the
requirements of eligibility for participation in the Plan, must be approved by
the stockholders of the Company. In addition, the Plan shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
16. Effect of Plan. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any director any right to be granted an
option to purchase Common Stock of the Company or any other rights except as
may be evidenced by the stock option agreement, or any amendment thereto, duly
authorized by the Board and executed on behalf of the Company, and then only to
the extent and on the terms and conditions expressly set forth therein.
17. Term. Unless sooner terminated by action of the Board, the Plan
will terminate on April 2, 2001. The Board may not grant options under the
Plan after that date, but options granted before that date will continue to be
effective in accordance with their terms.
18. Definitions. For the purposes of the Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the board of directors of the Company or any
committee of the Board appointed by the Board to administer
the Plan or any portion of the Plan.
<PAGE> 7
(b) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be
authorized to issue (as long as the common stock varies from
that currently authorized, if at all, only in amount of par
value).
(c) "Fair Market Value " means, as of any specified date, the
average between the high and low sales price of the Common
Stock on any national securities exchange. If the Common
Stock is not then listed on any national securities exchange
but is traded over the counter at the time a determination of
its Fair Market Value is required to be made hereunder, its
Fair Market Value shall be deemed to be equal to the average
between the reported high and low sales prices of Common Stock
on the specified date. If the Common Stock is not publicly
traded at the time a determination of its value is required to
be made hereunder, the determination of its Fair Market Value
shall be made by the Board in such manner as it deems
appropriate.
(d) "Grant Date" means, with respect to an option, the date of the
annual stockholders meeting at which the Non-Employee Director
is elected or the date of the Board meeting at which the
Non-Employee Director is appointed to fill a vacancy in the
Board, whichever is applicable, and, as a consequence thereof,
is granted that option.
(e) "Non-Employee Director" means a director of the Company who is
not an employee of the Company or any of its subsidiaries.
(f) "Option Period" means the period during which an option may be
exercised.
(g) "Plan" means this 1996 Non-Employee Directors Stock Option
Plan, as amended from time to time.
<PAGE> 8
SOURCE SERVICES CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Source Services Corporation
1996 Non-Employee Directors Stock Option Plan (the "Plan") for non-employee
directors of Source Services Corporation (the "Company"), the Company grants to
________________________________________
(the "Option Holder")
an option to purchase from the Company a total of _________ shares of Common
Stock, $_______ par value, of the Company at $______ per share (being at least
the fair market value per share of the Common Stock on the date of this grant),
in the amounts, during the periods, and upon the terms and conditions set forth
in this Agreement.
2. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option shall be fully vested and exercisable
in whole or in part, at any time after the date which is six months after the
date of grant specified in Section 13 of this Agreement. No fractional shares
will be issued; if an installment covers a fractional share, such installment
will be rounded off to the next highest share, except the final installment,
which will be for the balance of the total optioned shares. In no event may
this option be exercised in whole or in part after its date of termination
specified in Section 5 hereof.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
elected by the Option Holder, the Option Holder may exercise this option or any
portion hereof by tendering shares of Common Stock, in lieu of cash payment for
the option shares being purchased, with the number of shares tendered
<PAGE> 9
to be determined by the Fair Market Value per share of the Common Stock on the
date of exercise, as defined in the Plan.
4. Subject to Plan. This option and the grant and exercise
thereof are subject to the terms and conditions of the Plan, which is
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, this option is subject to any rules and regulations
promulgated pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the
following:
(a) 5 p.m. on the fifth anniversary of the date of grant specified
in Section 13 of this Agreement.
(b) 5 p.m. on the date 180 days following the date of the Option
Holder's death or disability.
(c) 5 p.m. on the date 60 days following the date the Option
Holder ceases to be a director of the Company for any reason
other than death or disability.
6. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled prior to the termination date specified in Section 5
hereof without having exercised the option as to all of the shares covered
thereby, the option may be exercised to the extent the Option Holder could have
exercised the option on the date of his death or disability at any time prior
to the earlier of the dates specified in Section 5(a) and (b) hereof by (i) the
Option Holder's estate or a person who acquired the right to exercise the
option by bequest or inheritance or by reason of the death of the Option Holder
in the event of the Option Holder's death, or (ii) the Option Holder or his
personal representative in the event of the Option Holder's disability, subject
to the other terms
-2-
<PAGE> 10
of this Agreement and applicable laws, rules and regulations. For purposes of
this Agreement, the Company shall determine the date of disability of the
Option Holder.
7. Restrictions on Exercise. The option evidenced by this
Agreement:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall be
delivered, if any requisite approval or consent of any
governmental authority of any kind having jurisdiction over the
exercise of options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and ending
on the date 60 days prior to the date of exercise the Option
Holder was a director of the Company; provided, if the Option
Holder's continuous directorship is terminated by death or
disability, or if the Option Holder dies within said 60-day
period, the option may be exercised in accordance with Section
6.
8. Manner of Exercise. Subject to such administrative regulations
as the Board of Directors of the Company may from time to time adopt, the
Option Holder or beneficiary shall, in order to exercise this option
(a) give written notice to the Company of the exercise price and the
number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Company of the exercise price and the
number of shares for which he is electing to tender other shares
of Common Stock in exchange for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Company in its discretion shall deem necessary (i) to evidence
such exercise, in whole or in part, of the option evidenced by this Agreement,
(ii) to determine whether registration is then required under the Securities
Act of 1933, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other law, as
then in effect. In
-3-
<PAGE> 11
addition, the Option Holder shall tender payment of the amount, if any, as may
be requested pursuant to Section 14 by the Company for the purpose of
satisfying its liability to withhold federal, state or local income or other
taxes incurred by reason of the exercise of this option.
9. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
10. Rights of Stockholder. The Option Holder will have no rights as
a stockholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11. Capital Adjustments. The number of shares of Common Stock
covered by this option, and the option price thereof, shall be subject to such
adjustment as the Board of Directors of the Company deems appropriate to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
If (a) the Company shall be party to a merger or consolidation in which
(i) the Company is not the surviving entity, or (ii) the Company survives only
as a subsidiary of an entity other than a previously-owned subsidiary of the
Company, or (iii) the Company survives but the Common Stock is exchanged or
converted into any securities or property, (b) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any person or entity (other than a wholly-owned subsidiary of the
Company) or (c) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "Corporate Change"),
-4-
<PAGE> 12
then effective as of the earlier of (A) the date of approval by the
stockholders of the Company of such Corporate Change or (B) the date of such
Corporate Change, (1) in the event of any such merger or consolidation and upon
any exercise of any outstanding option, the Option Holder shall be entitled to
purchase, in lieu of the number of shares of Common Stock as to which such
option shall then be exercisable, the number and class of shares of stock or
other securities or property to which the Option Holder would have been
entitled pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation the Option Holder had been
the holder of record of the number of shares of Common Stock as to which such
option is then exercisable, and (2) in the event of any such sale, lease or
exchange of assets or dissolution, each Option Holder shall surrender his
options to the Company and the Company shall cancel such options and pay to
each Option Holder an amount of cash per share equal to the excess of the per
share price offered to stockholders of the Company in any such sale, lease or
exchange of assets or dissolution transaction for the shares subject to such
options over the exercise price(s) under such options for such shares.
12. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
13. Date of Grant. The date of grant of this option is
________________, 199__.
14. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount, if any, as
may be requested by the Company for the purpose of satisfying its liability to
withhold federal, state or local income or other taxes incurred by reason
-5-
<PAGE> 13
of the exercise of this option. If the amount requested is not paid, the
Company may refuse to issue or transfer shares of stock upon exercise of this
option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Option Holder, to evidence his consent
and approval of all the terms hereof, has duly executed this Agreement, as of
the date specified in Section 13 hereof.
SOURCE SERVICES CORPORATION
By:
----------------------------------
-------------------------------------
, Option Holder
-6-
<PAGE> 1
EXHIBIT 10.6
LOAN AGREEMENT
May 21, 1996
Source Services Corporation
5580 LBJ Freeway, #300
Dallas, Texas 75240
Ladies and Gentlemen:
This Loan Agreement (the "Loan Agreement") will serve to set forth the
terms of the financing transactions by and between SOURCE SERVICES CORPORATION
("Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank"):
1. CREDIT FACILITY. Subject to the terms and conditions set
forth in this Loan Agreement and the other agreements, instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining to
the Loan, as hereinafter defined (collectively, together with the Loan
Agreement, referred to hereinafter as the "Loan Documents"), Bank hereby agrees
to provide to Borrower the credit facility or facilities hereinbelow (whether
one or more, the "Credit Facility"):
Borrowing Base Line of Credit. Subject to the terms and conditions
set forth herein, Bank agrees to lend to Borrower, on a revolving basis from
time to time during the period commencing on the date hereof and continuing
through the maturity date of the promissory note evidencing this Credit
Facility from time to time, such amounts as Borrower may request hereunder;
provided, however, the total principal amount outstanding at any time shall not
exceed the lesser of (i) an amount equal to the Borrowing Base (as such term is
defined hereinbelow), or (ii) $10,000,000.00 (the "Borrowing Base Line of
Credit"). If at any time the aggregate principal amount outstanding under the
Borrowing Base Line of Credit shall exceed an amount equal to the Borrowing
Base, Borrower agrees to immediately repay to Bank such excess amount, plus all
accrued but unpaid interest thereon. Subject to the terms and conditions
hereof, Borrower may borrow, repay and reborrow hereunder. Borrower agrees
that for a period of not less than thirty (30) consecutive days ("Clean- up
Period") during each calendar year, Borrower shall have repaid the entire
outstanding principal amount of the Borrowing Base Line of
Credit, together with all accrued but unpaid interest thereon. The sums
advanced under the Borrowing Base Line of Credit shall be used for general
corporate purposes and to refinance a line of credit owing to NationsBank.
LOAN AGREEMENT - Page 1
<PAGE> 2
As used in this Loan Agreement, the term "Borrowing Base" shall have the
meaning set forth hereinbelow:
An amount equal to 80% of the Borrower's Eligible Temporary Accounts, plus 80%
of the Borrower's Eligible Contingency Accounts. As used herein, the term
"Eligible Temporary Accounts" shall mean at any time, an amount equal to the
aggregate net invoice or ledger amount owing on all billed receivables of
Borrower for the placement of temporary employees, in the ordinary course of
business, in which the Bank has a perfected, first priority lien, and the term
"Eligible Contingency Accounts" shall mean at any time, an amount equal to the
aggregate net invoice or ledger amount owing on all billed receivables of
Borrower for the placement of employees in permanent positions (which shall
mean positions for which an offer has been extended and accepted and the
employee has remained on the job for not less than 30 days), in the ordinary
course of business in which Bank has a perfected first priority lien, after
deducting from such Temporary and Contingency Accounts (without duplication):
(i) each such account that is unpaid 90 days or more after the original invoice
date thereof, (ii) the amount of all contra accounts, setoffs, defenses or
counterclaims asserted by or available to the account debtors, (iii) all
accounts in which the account debtor is the United States or any department,
agency or instrumentality of the United States, except to the extent an
acknowledgment of assignment to Bank of such account in compliance with the
Federal Assignment of Claims Act and other applicable laws has been received by
Bank, (iv) all accounts due Borrower by any account debtor whose principal
place of business is located outside the United States of America and its
territories, (v) all accounts subject to any provision prohibiting assignment
or requiring notice of or consent to such assignment, and (vi) any other
accounts reasonably deemed unacceptable by Bank in its sole and absolute
discretion.
All advances under the Credit Facility shall be collectively called the "Loan".
2. PROMISSORY NOTE. The Loan shall be evidenced by one or more
promissory notes (whether one or more, together with any renewals, extensions
and increases thereof, the "Note") duly executed by Borrower and payable to the
order of Bank, in form and substance acceptable to Bank. Interest on the Note
shall accrue at the rate set forth therein. The principal of and interest on
the Note shall be due and payable in accordance with the terms and conditions
set forth in the Note and in this Loan Agreement.
3. COLLATERAL. As collateral and security for the indebtedness
evidenced by the Note and any and all other indebtedness or obligations from
time to time owing by Borrower
LOAN AGREEMENT - Page 2
<PAGE> 3
to Bank, Borrower shall grant, and hereby grants, to Bank, its successors and
assigns, a first and prior lien and security interest in and to the property
described hereinbelow, together with any and all PRODUCTS AND PROCEEDS thereof
(the "Collateral"):
All present and future accounts, chattel paper, documents,
instruments, deposit accounts and general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale or delivery
of personal property or work done or labor performed by Borrower), now or
hereafter owned, held, or acquired by Borrower, together with any and all books
of account, customer lists and other records relating in any way to the
foregoing.
The term "Collateral" shall also include all records and data relating to any
of the foregoing (including, without limitation, any computer software on which
such records and data may be located). Borrower agrees to execute such
security agreements, assignments, deeds of trust and other agreements and
documents as Bank shall deem appropriate and otherwise require from time to
time to more fully create and perfect Bank's lien and security interests in the
Collateral.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants, and upon each request for an advance under the Credit Facility
further represents and warrants, to Bank as follows:
(a) Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and all
other states where it is doing business, and has all requisite power and
authority to execute and deliver the Loan Documents.
(b) Binding Obligations. The execution, delivery, and performance
of this Loan Agreement and all of the other Loan Documents by Borrower have
been duly authorized by all necessary action by Borrower, and to the best of
Borrower's knowledge constitute legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and except to the extent
specific remedies relating to the enforcement of creditors' rights may
generally be limited by equitable principles.
(c) No Consent. The execution, delivery and performance of this
Loan Agreement and the other Loan Documents, and the consummation of the
transactions contemplated hereby and thereby, do not (i) conflict with, result
in a violation of, or constitute a default under (A) any provision of its
articles or certificate of incorporation or bylaws, if Borrower
LOAN AGREEMENT - Page 3
<PAGE> 4
is a corporation, or its partnership agreement, if Borrower is a partnership,
or any agreement or other instrument binding upon Borrower, or to the best of
Borrower's knowledge (B) any law, governmental regulation, court decree or
order applicable to Borrower, or (ii) require the consent, approval or
authorization of any third party.
(d) Financial Condition. Each financial statement of Borrower
supplied to the Bank truly discloses and fairly presents Borrower's financial
condition as of the date of each such statement. There has been no material
adverse change in such financial condition or results of operations of Borrower
subsequent to the date of the most recent financial statement supplied to the
Bank.
(e) Litigation. There are no actions, suits or proceedings,
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower or the properties of Borrower, before any court or governmental
department, commission or board, which, if determined adversely to Borrower,
would have a material adverse effect on the financial condition, properties, or
operations of Borrower.
(f) Taxes; Governmental Charges. Borrower has filed all federal,
state and local tax reports and returns required by any law or regulation to be
filed by it and has either duly paid all taxes, duties and charges indicated
due on the basis of such returns and reports, or made adequate provision for
the payment thereof, and the assessment of any material amount of additional
taxes in excess of those paid and reported is not reasonably expected.
5. CONDITIONS PRECEDENT TO ADVANCES. Bank's obligation to make
any advance under this Loan Agreement and the other Loan Documents shall be
subject to the conditions precedent that, as of the date of such advance and
after giving effect thereto (i) all representations and warranties made to Bank
in this Loan Agreement and the other Loan Documents shall be true and correct,
as of and as if made on such date, (ii) no material adverse change in the
financial condition of Borrower since the effective date of the most recent
financial statements furnished to Bank by Borrower shall have occurred and be
continuing, (iii) no event has occurred and is continuing, or would result from
the requested advance, which with notice or lapse of time, or both, would
constitute an Event of Default (as hereinafter defined), and (iv) Bank's
receipt of all Loan Documents appropriately executed by Borrower and all other
proper parties.
6. AFFIRMATIVE COVENANTS. Until (i) the Note and all other
obligations and liabilities of Borrower under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower agrees and covenants that it will,
unless Bank shall otherwise consent in writing:
LOAN AGREEMENT - Page 4
<PAGE> 5
(a) Accounts and Records. Maintain its books and records in
accordance with generally accepted accounting principles.
(b) Right of Inspection. Permit Bank to visit its properties and
installations and to examine, audit and make and take away copies or
reproductions of Borrower's books and records, at all reasonable times.
(c) Right to Additional Information. Furnish Bank with such
additional information and statements, lists of assets and liabilities, tax
returns, and other reports with respect to Borrower's financial condition and
business operations as Bank may reasonably request from time to time.
(d) Compliance with Laws. Conduct its business in an orderly and
efficient manner consistent with good business practices, and perform and
materially comply with all statutes, rules, regulations and/or ordinances
imposed by any governmental unit upon Borrower its businesses, operations and
properties (including without limitation, all applicable environmental
statutes, rules, regulations and ordinances).
(e) Taxes. Pay and discharge when due all of its indebtedness and
obligations, including without limitation, all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits; provided, however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (i) the legality of the same shall be
contested in good faith by appropriate judicial, administrative or other legal
proceedings, and (ii) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien or
claim in accordance with generally accepted accounting principles, consistently
applied.
(f) Insurance. Maintain insurance, including but not limited to,
fire insurance, comprehensive property damage, public liability, worker's
compensation, business interruption and other insurance reasonably deemed
necessary by Bank.
(g) Notice of Indebtedness. Promptly inform Bank of the creation,
incurrence or assumption by Borrower of any actual or contingent liabilities
not permitted under this Loan Agreement.
(h) Notice of Litigation. Promptly after the commencement
thereof, notify Bank of all actions, suits and proceedings before any court or
any governmental department, commission or board affecting Borrower or any of
its properties which if determined
LOAN AGREEMENT - Page 5
<PAGE> 6
adversely to Borrower would have a material adverse effect on the financial
condition of Borrower.
(i) Notice of Material Adverse Change. Promptly inform Bank of
(i) any and all material adverse changes in Borrower's financial condition, and
(ii) all claims made against Borrower which could materially affect the
financial condition of Borrower.
(j) Additional Documentation. Execute and deliver, or cause to be
executed and delivered, any and all other agreements, instruments or documents
which Bank may reasonably request in order to give effect to the transactions
contemplated under this Loan Agreement and the other Loan Documents.
7. NEGATIVE COVENANTS. Until (i) the Note and all other
obligations and liabilities of Borrower under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will not, without the prior written
consent of Bank:
(a) Nature of Business. Make any material change in the nature of
its business as carried on as of the date hereof.
(b) Liquidations, Mergers, Consolidations. Liquidate, merge or
consolidate with or into any other entity, unless Borrower is the surviving
entity .
(c) Sale of Assets. Sell, transfer or otherwise dispose of any of
its assets or properties, other than in the ordinary course of business.
(d) Liens. Create or incur any lien or encumbrance on any of its
assets, other than (i) liens and security interests securing indebtedness owing
to Bank, (ii) liens for taxes, assessments or similar charges either (1) not
yet due or (2) being contested in good faith by appropriate preceedings and for
which Borrower has established adequate reserves, and (iii) liens and security
interest existing as of the date hereof which have been disclosed to and
approved by the Bank in writing. Notwithstanding anything contained herein to
the contrary, a lien or encumbrance shall be permitted after Borrower has
obtained a Tangible Net Worth of not less than $25,000,000.00.
(e) Indebtedness. Create, incur or assume any indebtedness for
borrowed money or issue or assume any other note, debenture, bond or other
evidences of indebtedness, or guarantee any such indebtedness or such evidences
of indebtedness of others, other than (i) borrowings from Bank, and (ii)
borrowings outstanding on the date hereof and disclosed in writing to Bank.
Notwithstanding anything contained herein to the contrary, borrowings shall
LOAN AGREEMENT - Page 6
<PAGE> 7
be permitted after Borrower has obtained a Tangible Net Worth of not less than
$25,000,000.00.
(f) Change in Management. Permit a change in the senior
management of Borrower.
8. FINANCIAL COVENANTS. Until (i) the Note and all other
obligations and liabilities of Borrower under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will maintain the following financial
covenants:
(a) Liabilities/Tangible Net Worth. Borrower will maintain, after
Borrower has obtained a Tangible Net Worth of not less than $25,000,000.00, at
all times, a ratio of (a) total liabilities (excluding any Subordinated Debt),
to (b) Tangible Net Worth of not greater than 1.75 to 1.0.
(b) Current Ratio. Borrower will maintain, at all times, a ratio
of (a) current assets (excluding prepaid expenses), to (b) current liabilities
of not less than 1.2 to 1.0.
(c) Interest Coverage. Borrower will maintain, as of the end of
each fiscal year, a ratio of (a) earnings before interest and taxes for such
fiscal year, to (b) interest expense for such fiscal year, of not less than 2.0
to 1.0.
As used herein, the term "Tangible Net Worth" means, as of any date, Borrower's
total assets excluding all intangible assets, less total liabilities excluding
any Subordinated Debt. As used herein, the term "Subordinated Debt" means any
indebtedness owing by Borrower which has been subordinated by written agreement
to all indebtedness now or hereafter owing by Borrower to Lender, such
agreement to be in form and substance acceptable to Lender. As used herein,
"Distributions" shall mean all dividends and other distributions made by
Borrower to its shareholders or partners, as the case may be, other than
salary, bonuses and other compensation for services. Unless otherwise
specified, all accounting and financial terms and covenants set forth above are
to be determined according to generally accepted accounting principles,
consistently applied.
9. REPORTING REQUIREMENTS. Until (i) the Note and all other
obligations and liabilities of Borrower under this Loan Agreement and the other
Loan Documents are fully paid and satisfied, and (ii) the Bank has no further
commitment to lend hereunder, Borrower will, unless Bank shall otherwise
consent in writing, furnish to Bank:
(a) Interim Financial Statements. As soon as available, and in
any event within forty-five (45) days after the end of each quarter of each
fiscal year of Borrower, a balance
LOAN AGREEMENT - Page 7
<PAGE> 8
sheet and income statement of Borrower as of the end of such fiscal quarter,
all in form and substance and in reasonable detail satisfactory to Bank and
duly certified (subject to year-end review adjustments) by the President and/or
Chief Financial Officer of Borrower (i) as being true and correct in all
material aspects to the best of his or her knowledge and (ii) as having been
prepared in accordance with generally accepted accounting principles,
consistently applied.
(b) Annual Financial Statements. As soon as available and in any
event within one hundred twenty (120) days after the end of each fiscal year of
Borrower, a balance sheet and income statement of Borrower as of the end of
such fiscal year, in each case audited by independent public accountants of
recognized standing acceptable to Bank.
(c) Compliance Certificate. A certificate signed by the President
and/or Chief Financial Officer of Borrower, within forty-five (45) days after
the end of each quarter of each fiscal year, stating that Borrower is in full
compliance with all of its obligations under this Loan Agreement and all other
Loan Documents and is not in default of any term or provisions hereof or
thereof, and demonstrating compliance with all financial ratios and financial
covenants set forth in this Loan Agreement.
(d) Borrowing Base Report. A borrowing base report signed by the
President and/or Chief Financial Officer of Borrower, within thirty (30) days
after the end of each month of each fiscal year, in form and detail
satisfactory to Bank.
(e) Accounts Aging. An accounts receivable aging report within
thirty (30) days after the end of each month of each fiscal year, in form and
detail satisfactory to Bank.
10. EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" under this Loan Agreement:
(a) The failure, refusal or neglect of Borrower to pay within five
(5) days of when due the Commitment Fee or any part of the principal of, or
interest on, the Note or within five (5) days of receipt of written notice from
Bank to Borrower detailing any other indebtedness or obligations owing to Bank
by Borrower from time to time.
(b) The failure of Borrower or any Obligated Party (as defined
below) to timely and properly observe, keep or perform any covenant, agreement,
warranty or condition required herein or in any of the other Loan Documents and
such failure continues for thirty (30) days after written notice thereof from
Bank to Borrower.
LOAN AGREEMENT - Page 8
<PAGE> 9
(c) The occurrence of an event of default under any of the other
Loan Documents or under any other agreement now existing or hereafter arising
between Bank and Borrower.
(d) Any representation contained herein or in any of the other
Loan Documents made by Borrower or any Obligated Party is false or misleading
in any material respect.
(e) The occurrence of any event which permits the acceleration of
the maturity of any indebtedness owing by Borrower to any third party under any
agreement or understanding which if accelerated would have a material adverse
effect on the financial condition of Borrower.
(f) If Borrower or any Obligated Party: (i) becomes insolvent, or
makes a transfer in fraud of creditors, or makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts as they
become due; (ii) generally is not paying its debts as such debts become due;
(iii) has a receiver, trustee or custodian appointed for, or take possession
of, all or substantially all of the assets of such party, either in a
proceeding brought by such party or in a proceeding brought against such party
and such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party consents
to or acquiesces in such appointment or possession; (iv) files a petition for
relief under the United States Bankruptcy Code or any other present or future
federal or state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "Applicable Bankruptcy Law") or an involuntary
petition for relief is filed against such party under any Applicable Bankruptcy
Law and such involuntary petition is not dismissed within sixty (60) days after
the filing thereof, or an order for relief naming such party is entered under
any Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; or (v) fails to have discharged within
a period of thirty (30) days any attachment, sequestration or similar writ
levied upon any property of such party.
(g) Subject to Subparagraph 7(b) hereof, if Borrower or any
Obligated Party is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if Borrower or any Obligated Party is an
individual, the death or legal incapacity of any such individual.
(h) The entry of any judgment against Borrower or the issuance or
entry of any attachment or other lien against any of the property of Borrower
for an amount in excess of $250,000.00, if undischarged, unbonded or
undismissed within thirty (30) days after such entry.
Nothing contained in this Loan Agreement shall be construed to limit the events
of default enumerated in any of the other Loan Documents and all such events of
default shall be
LOAN AGREEMENT - Page 9
<PAGE> 10
cumulative. The term "Obligated Party", as used herein, shall mean any party
other than Borrower who secures, guarantees and/or is otherwise obligated to
pay all or any portion of the indebtedness evidenced by the Note.
11. REMEDIES. Upon the occurrence of any one or more of the
foregoing Events of Default, (a) the entire unpaid balance of principal of the
Note, together with all accrued but unpaid interest thereon, and all other
indebtedness owing to Bank by Borrower at such time shall, at the option of
Bank, become immediately due and payable without further notice, demand,
presentation, notice of dishonor, notice of intent to accelerate, notice of
acceleration, protest or notice of protest of any kind, all of which are
expressly waived by Borrower, and (b) Bank may, at its option, cease further
advances under any of the Note; provided, however, concurrently and
automatically with the occurrence of an Event of Default under subparagraph (f)
in the immediately preceding paragraph (i) further advances under the Note
shall cease, and (ii) the Note and all other indebtedness owing to Bank by
Borrower at such time shall, without any action by Bank, become due and
payable, without further notice, demand, presentation, notice of dishonor,
notice of acceleration, notice of intent to accelerate, protest or notice of
protest of any kind, all of which are expressly waived by Borrower. All rights
and remedies of Bank set forth in this Loan Agreement and in any of the other
Loan Documents may also be exercised by Bank, at its option to be exercised in
its sole discretion, upon the occurrence of an Event of Default.
12. RIGHTS CUMULATIVE. All rights of Bank under the terms of this
Loan Agreement shall be cumulative of, and in addition to, the rights of Bank
under any and all other agreements between Borrower and Bank (including, but
not limited to, the other Loan Documents), and not in substitution or
diminution of any rights now or hereafter held by Bank under the terms of any
other agreement.
13. WAIVER AND AGREEMENT. Neither the failure nor any delay on
the part of Bank to exercise any right, power or privilege herein or under any
of the other Loan Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of such right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. No waiver of any provision in this Loan Agreement or in any of the
other Loan Documents and no departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by Bank, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Loan Agreement or to any of the other Loan Documents shall be valid or
effective unless the same is signed by the party against whom it is sought to
be enforced.
LOAN AGREEMENT - Page 10
<PAGE> 11
14. BENEFITS. This Loan Agreement shall be binding upon and inure
to the benefit of Bank and Borrower, and their respective successors and
assigns, provided, however, that Borrower may not, without the prior written
consent of Bank, assign any rights, powers, duties or obligations under this
Loan Agreement or any of the other Loan Documents.
15. NOTICES. All notices, requests, demands or other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the intended
addressee at the address set forth on the signature page hereof and shall be
deemed to have been received either, in the case of personal delivery, as of
the time of personal delivery, in the case of expedited delivery service, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of mail, upon the expiration of three (3) business days
from deposit in a depository receptacle under the care and custody of the
United States Postal Service. Either party shall have the right to change its
address for notice hereunder to any other location within the continental
United States by notice to the other party of such new address at least thirty
(30) days prior to the effective date of such new address.
16. CONSTRUCTION. This Loan Agreement and the other Loan
Documents have been executed and delivered in the State of Texas, shall be
governed by and construed in accordance with the laws of the State of Texas,
and shall be performable by the parties hereto in the county in Texas where the
Bank's address set forth on the signature page hereof is located.
17. INVALID PROVISIONS. If any provision of this Loan Agreement
or any of the other Loan Documents is held to be illegal, invalid or
unenforceable under present or future laws, such provision shall be fully
severable and the remaining provisions of this Loan Agreement or any of the
other Loan Documents shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its
severance.
18. EXPENSES. Borrower shall pay all costs and expenses
(including, without limitation, reasonable attorneys' fees) in connection with
(i) any action required in the course of administration of the indebtedness and
obligations evidenced by the Loan Documents, and (ii) any action in the
enforcement of Bank's rights upon the occurrence of Event of Default.
19. FEE. Borrower agrees to pay Bank a fee ("Commitment Fee") per
annum (based on a year of 365 days) equal to three-eighths percent (3/8%) of
the average daily unborrowed amount under the Loan. Such fee shall be payable
quarterly in arrears on the first day of each July, October, January and April
during the term of the Loan; provided,
LOAN AGREEMENT - Page 11
<PAGE> 12
however, such fee shall not accrue during the Clean Up Period nor following
termination of the Loan Documents. Borrower acknowledges that such fee is
required to be paid and is in consideration of Bank taking appropriate action
to ensure that all funds that Bank may advance hereunder are available to
Borrower when Borrower requests same.
20. PARTICIPATION OF THE LOAN. So long as Bank is the lead bank
and maintains primary responsibility for the administration of the Loan both
before and after any such sale, Borrower agrees that Bank may, at its option,
sell interests in the Loan and its rights under this Loan Agreement to a
financial institution or institutions and, in connection with each such sale,
Bank may disclose any financial and other information available to Bank
concerning Borrower to each perspective purchaser.
21. ENTIRE AGREEMENT. This Loan Agreement (together with the
other Loan Documents) contains the entire agreement among the parties regarding
the subject matter hereof and supersedes all prior written and oral agreements
and understandings among the parties hereto regarding same.
22. CONFLICTS. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the other Loan Documents,
the terms and provisions contained in this Loan Agreement shall be controlling.
23. COUNTERPARTS. This Loan Agreement may be separately executed
in any number of counterparts, each of which shall be an original, but all of
which, taken together, shall be deemed to constitute one and the same
instrument.
24. TERMINATION. It is contemplated by the parties hereto that
from time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Loan Agreement shall remain valid and shall be in full
force and effect as to subsequent outstanding amounts under the Loan. Upon (i)
the payment in full of the outstanding principal balance owing on the Note, all
accrued and unpaid interest owing on the Note, the Commitment Fee and all costs
and expenses incurred by Bank prior to the expiration of five (5) business days
after receipt of written request by Borrower of the termination hereof in
connection with the collection and administration of the Loan and Collateral,
(ii) written request for the termination hereof delivered by Borrower to Bank,
and (iii) written release or termination delivered by Bank to Borrower, this
Loan Agreement and the security interests described herein shall terminate.
Upon termination of this Loan Agreement and Borrower's written request, Bank
will, at Borrower's sole cost and expense, return to Borrower such of the
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof and execute and deliver to Borrower such documents
as Borrower shall
LOAN AGREEMENT - Page 12
<PAGE> 13
reasonably request to evidence such termination and Bank shall have no further
commitment to lend hereunder.
If the foregoing correctly sets forth our mutual agreement, please so
acknowledge by signing and returning this Loan Agreement to the undersigned.
Very truly yours,
BANK ONE, TEXAS, N.A.
By:
--------------------------------
Name: Mark Wade
------------------------------
Title: Vice President
-----------------------------
Bank's Address:
1717 Main Street
Dallas, Texas 75201
ACCEPTED as of the date first
written above.
BORROWER: Borrower's Address:
- -------- 5580 LBJ Freeway, #300
Dallas, Texas 75240
SOURCE SERVICES CORPORATION
By:
------------------------------
Name: D.L. Ward
----------------------------
Title: President
---------------------------
03:253499
LOAN AGREEMENT - Page 13
<PAGE> 1
EXHIBIT 10.7
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the ___21st_ day
of May, 1996, by SOURCE SERVICES CORPORATION (hereinafter called "Debtor",
whether one or more), in favor of BANK ONE, TEXAS, NATIONAL ASSOCIATION
("Bank"). Debtor hereby agrees with Bank as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings indicated below:
(a) The term "Borrower" shall mean Debtor.
(b) The term "Code" shall mean the Uniform Commercial Code as in
effect in the State of Texas on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "Collateral" shall mean all of the property set forth
below:
All present and future accounts, chattel paper, documents,
instruments, deposit accounts and general intangibles (including any right to
payment for goods sold or services rendered arising out of the sale or delivery
of personal property or work done or labor performed by Debtor), now or
hereafter owned, held, or acquired by Debtor, together with any and all books
of account, customer lists and other records relating in any way to the
foregoing (including, without limitation, computer software, whether on tape,
disk, card, strip, cartridge or any other form), and in any case where an
account arises from the sale of goods, the interest of Debtor in such goods.
The term Collateral, as used herein, shall also include all PRODUCTS
and PROCEEDS of all of the foregoing (including without limitation, insurance
payable by reason of loss or damage to the foregoing property) and any
property, securities, guaranties or monies of Debtor which may at any time come
into the possession of Secured Party (as hereinafter defined). The designation
of proceeds does not authorize Debtor to sell, transfer or otherwise convey any
of the foregoing property except finished goods intended for sale in the
ordinary course of Debtor's business or as otherwise provided herein.
(d) The term "Indebtedness" shall mean (i) all indebtedness,
obligations and liabilities of Borrower to Secured Party of any kind or
character, now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several
or joint and several, and regardless of whether such indebtedness, obligations
and liabilities may, prior to their acquisition by Secured Party, be or have
been payable to or in favor of a third party and subsequently acquired by
Secured Party (it being contemplated
SECURITY AGREEMENT - Page 1
<PAGE> 2
that Secured Party may make such acquisitions from third parties), including
without limitation all indebtedness, obligations and liabilities of Borrower to
Secured Party now existing or hereafter arising by note, draft, acceptance,
guaranty, endorsement, letter of credit, assignment, purchase, overdraft,
discount, indemnity agreement or otherwise, (ii) all accrued but unpaid
interest on any of the indebtedness described in (i) above, (iii) all
obligations of Borrower to Secured Party under any documents evidencing,
securing, governing and/or pertaining to all or any part of the indebtedness
described in (i) and (ii) above, (iv) all costs and expenses incurred by
Secured Party in connection with the collection and administration of all or
any part of the indebtedness and obligations described in (i), (ii) and (iii)
above or the protection or preservation of, or realization upon, the collateral
securing all or any part of such indebtedness and obligations, including
without limitation all reasonableattorneys' fees, and (v) all renewals,
extensions, modifications and rearrangements of the indebtedness and
obligations described in (i), (ii), (iii) and (iv) above.
(e) The term "Loan Documents" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining to
the Indebtedness.
(f) The term "Obligated Party" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all or
any portion of the Indebtedness.
(g) The term "Secured Party" shall mean Bank, its successors and
assigns, including without limitation, any party to whom Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section 1.201
or Chapter 9 of the Code shall have the meaning provided for therein. Other
words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Debtor,
for value received, hereby grants to Secured Party a continuing security
interest in the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants the following to Secured Party:
(a) Due Authorization. The execution, delivery and performance of
this Agreement and all of the other Loan Documents by Debtor have been duly
authorized by all necessary corporate action of Debtor, to the extent Debtor is
a corporation, or by all necessary partnership action, to the extent Debtor is
a partnership.
SECURITY AGREEMENT - Page 2
<PAGE> 3
(b) Enforceability. This Agreement and the other Loan Documents
constitute to the best of Debtor's knowledge legal, valid and binding
obligations of Debtor, enforceable in accordance with their respective terms,
except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and except to the
extent specific remedies may generally be limited by equitable principles
relating to the enforcement of Creditor's rights.
(c) Ownership and Liens. Debtor has good and marketable title to
the Collateral free and clear of all liens, security interests, encumbrances or
material adverse claims, except for the security interest created by this
Agreement. No material dispute, right of setoff, counterclaim or defense
exists with respect to all or any part of the Collateral. Debtor has not
executed any other security agreement currently affecting the Collateral and no
effective financing statement or other instrument similar in effect covering
all or any part of the Collateral is on file in any recording office except as
may have been executed or filed in favor of Secured Party.
(d) No Conflicts or Consents. To the best of Debtor's knowledge,
neither the ownership, the intended use of the Collateral by Debtor, the grant
of the security interest by Debtor to Secured Party herein, will (i) conflict
with any provision of (A) any domestic or foreign law, statute, rule or
regulation, (B) the articles or certificate of incorporation, charter, bylaws
or partnership agreement, as the case may be, of Debtor, or (C) any agreement,
judgment, license, order or permit applicable to or binding upon Debtor, or
(ii) result in or require the creation of any lien, charge or encumbrance upon
any assets or properties of Debtor or of any person except as may be expressly
contemplated in the Loan Documents. Except as expressly contemplated in the
Loan Documents, no consent, approval, authorization or order of, and no notice
to or filing with, any court, governmental authority or third party is required
in connection with the grant by Debtor of the security interest herein or the
exercise by Secured Party of its rights and remedies hereunder.
(e) Security Interest. Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral securing the Indebtedness. Possession by Secured Party of all
certificates, instruments and cash constituting Collateral from time to time
and/or the filing of the financing statements delivered prior hereto and/or
concurrently herewith by Debtor to Secured Party will perfect and establish the
first priority of Secured Party's security interest hereunder in the
Collateral.
(f) Location. Debtor's residence or chief executive office, as
the case may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof. Except
as specified elsewhere herein, all Collateral shall
SECURITY AGREEMENT - Page 3
<PAGE> 4
be kept at such address and such other addresses as may be listed in Schedule
"A" attached hereto and made a part hereof.
(g) Solvency of Debtor. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement, (i)
Debtor is and will be solvent, (ii) the fair saleable value of Debtor's assets
exceeds and will continue to exceed Debtor's liabilities (both fixed and
contingent), (iii) Debtor is paying and will continue to be able to pay its
debts as they mature, and (iv) if Debtor is not an individual, Debtor has and
will have sufficient capital to carry on Debtor's businesses and all businesses
in which Debtor is about to engage.
(h) Compliance with Environmental Laws. Except as disclosed in
writing to Secured Party: (i) Debtor is conducting Debtor's businesses in
material compliance with all applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, determinations and court
decisions, including without limitation, those pertaining to health or
environmental matters such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (collectively, together with any subsequent
amendments, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, and the Hazardous Substance Waste
Amendments of 1984 (collectively, together with any subsequent amendments,
hereinafter called "RCRA"), the Texas Water Code and the Texas Solid Waste
Disposal Act; (ii) none of the operations of Debtor is the subject of a
federal, state or local investigation evaluating whether any material remedial
action is needed to respond to a release or disposal of any toxic or hazardous
substance or solid waste into the environment; (iii) Debtor has not filed any
notice under any federal, state or local law indicating that Debtor is
responsible for the release into the environment, the disposal on any premises
in which Debtor is conducting its businesses or the improper storage, of any
material amount of any toxic or hazardous substance or solid waste or that any
such toxic or hazardous substance or solid waste has been released, disposed of
or is improperly stored, upon any premise on which Debtor is conducting its
businesses; and (iv) Debtor otherwise does not have any known material
contingent liability in connection with the release into the environment,
disposal or the improper storage, of any such toxic or hazardous substance or
solid waste. The terms "hazardous substance" and "release", as used herein,
shall have the meanings specified in CERCLA, and the terms "solid waste" and
"disposal", as used herein, shall have the meanings specified in RCRA;
provided, however, that to the extent that the laws of the State of Texas
establish meanings for such terms which are broader than that specified in
either CERCLA or RCRA, such broader meanings shall apply.
(i) Accounts. To the best of Debtor's knowledge, each account
represents the valid and legally binding indebtedness of a bona fide account
debtor arising from the sale or lease by Debtor of goods or the rendition by
Debtor of services and, except as may arise from time to time in good faith and
in the ordinary course of business regarding accounts receivable,
SECURITY AGREEMENT - Page 4
<PAGE> 5
is not subject to contra accounts, setoffs, defenses orcounterclaims by or
available to account debtors obligated on the accounts except as disclosed by
Debtor to Secured Party from time to time in writing. The amount shown as to
each account on Debtor's books is the true and undisputed amount owing and
unpaid thereon, subject only to discounts, allowances, rebates, credits and
adjustments to which the account debtor has a right and which have been
disclosed to Secured Party in writing.
(j) Chattel Paper, Documents and Instruments. The chattel paper,
documents and instruments of Debtor pledged hereunder have only one original
counterpart and no party other than Debtor or Secured Party is in actual or
constructive possession of any such chattel paper, documents or instruments.
4. AFFIRMATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 4 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) Ownership and Liens. Debtor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or material adverse claims, except for the security interest
created by this Agreement and the security interests and other encumbrances
expressly permitted by the other Loan Documents. Except as may arise from time
to time in the ordinary course of business regarding accounts receivables,
Debtor will not permit any dispute, right of setoff, counterclaim or defense to
exist with respect to all or any part of the Collateral. Debtor will cause any
financing statement or other security instrument with respect to the Collateral
to be terminated, except as may exist or as may have been filed in favor of
Secured Party. Debtor will defend at its expense Secured Party's right, title
and security interest in and to the Collateral against the claims of any third
party.
(b) Further Assurances. At the request of Secured Party, Debtor
will from time to time at its expense promptly execute and deliver all further
instruments and documents and take all further action necessary or appropriate
or that Secured Party may reasonably request in order (i) to perfect and
protect the security interest created or purported to be created hereby and the
first priority of such security interest, (ii) to enable Secured Party to
exercise and enforce its rights and remedies hereunder in respect of the
Collateral, and (iii) to otherwise effect the purposes of this Agreement,
including without limitation: (A) executing and filing such financing or
continuation statements, or amendments thereto; and (B) furnishing to Secured
Party from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral, all in reasonable detail satisfactory to Bank.
(c) Inspection of Collateral. Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all representatives
and agents appointed by
SECURITY AGREEMENT - Page 5
<PAGE> 6
Secured Party to inspect any of the Collateral and the books and records of or
relating to the Collateral at any time during normal business hours, to make
and take away photocopies, photographs and printouts thereof and to write down
and record any such information.
(d) Payment of Taxes. Debtor (i) will timely pay all property and
other taxes, assessments and governmental charges or levies imposed upon the
Collateral or any part thereof, (ii) will timely pay all lawful claims which,
if unpaid, might become a lien or charge upon the Collateral or any part
thereof, and (iii) will maintain appropriate accruals and reserves for all such
liabilities in a timely fashion in accordance with generally accepted
accounting principles. Debtor may, however, delay paying or discharging any
such taxes, assessments, charges, claims or liabilities so long as the validity
thereof is contested in good faith by proper proceedings and provided Debtor
has set aside on Debtor's books adequate reserves therefor; provided, however,
Debtor understands and agrees that in the event of any such delay in payment or
discharge and upon Secured Party's written request, Debtor will establish with
Secured Party anescrow acceptable to Secured Party adequate to cover the
payment of such taxes, assessments and governmental charges with interest,
costs and penalties and a reasonable additional sum to cover possible costs,
interest and penalties (which escrow shall be returned to Debtor upon payment
of such taxes, assessments, governmental charges, interests, costs and
penalties or disbursed in accordance with the resolution of the contest to the
claimant) or furnish Secured Party with an indemnity bond secured by a deposit
in cash or other security acceptable to Secured Party. Notwithstanding any
other provision contained in this Subsection, Secured Party may at its
discretion exercise its rights under Subsection 6(c) at any time to pay such
taxes, assessments, governmental charges, interest, costs and penalties.
(e) Mortgagee's and Landlord's Waivers. Debtor shall cause
landlord of the real property located at 5580 LBJ Freeway, #300, Dallas, Texas
or such other location as may be the corporate headquarters for Debtor and
leased by Debtor to execute and deliver agreements satisfactory in form and
substance to Secured Party by which such mortgagee or landlord waives or
subordinates any rights it may have in the Collateral.
(f) Accounts and General Intangibles. Debtor will, except as
otherwise provided in Subsection 6(f), collect, at Debtor's own expense, all
amounts due or to become due under each of the accounts and general
intangibles. In connection with such collections, Debtor may and, at Secured
Party's direction, will take such action not otherwise forbidden by Subsection
5(e) as Debtor or Secured Party may reasonably deem necessary or advisable to
enforce collection or performance of each of the accounts and general
intangibles. Debtor will also duly perform and cause to be performed all of
its obligations with respect to the goods or services, the sale or lease or
rendition of which gave rise or will give rise to each account and all of its
obligations to be performed under or with respect to the general intangibles.
Debtor also covenants and agrees to take any action and/or execute any
SECURITY AGREEMENT - Page 6
<PAGE> 7
documents that Secured Party may reasonably request in order to comply with the
Federal Assignment of Claims Act, as amended.
(g) Chattel Paper, Documents and Instruments. Debtor will take
such action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will cause all
chattel paper to have only one original counterpart. Upon request by Secured
Party, Debtor will deliver to Secured Party all originals of chattel paper,
documents or instruments and will mark all chattel paper with a legend
indicating that such chattel paper is subject to the security interest granted
hereunder.
5. NEGATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 5 at all times during the period of time this
Agreement is effective, unless Secured Party shall otherwise consent in
writing.
(a) Transfer or Encumbrance. Debtor will not (i) sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise dispose
of any of the Collateral, (ii) grant a lien or security interest in or execute,
file or record any financing statement or other security instrument with
respect to the Collateral to any party other than Secured Party, or (iii)
deliver actual or constructive possession of any of the Collateral to any party
other than Secured Party, except for (A) sales and leases of inventory in the
ordinary course of business, and (B) the sale or other disposal of any item of
equipment which is worn out or obsolete and which has been replaced by an item
of equal suitability and value, owned by Debtor and made subject to the
security interest under this Agreement, but which is otherwise free and clear
of any lien, security interest, encumbrance or adverse claim; provided,
however, the exceptions permitted in clauses (A) and (B) above shall
automatically terminate upon the occurrence of an Event of Default.
(b) Impairment of Security Interest. Debtor will not take or fail
to take any action which would in any manner impair the value materially or
enforceability of Secured Party's security interest in any Collateral.
(c) Possession of Collateral. Debtor will not cause or permit the
removal of any Collateral from its possession, control and risk of loss, nor
will Debtor cause or permit the removal of any Collateral from the address on
the signature page hereof and the addresses specified on Schedule "B" to this
Agreement other than (i) as permitted by Subsection 5(a), or (ii) in connection
with the possession of any Collateral by Secured Party or by its bailee.
(d) Goods. Debtor will not permit any Collateral which
constitutes goods to at any time (i) be covered by any document except
documents in the possession of the Secured Party, (ii) become so related to,
attached to or used in connection with any particular real property so as to
become a fixture upon such real property, or (iii) be installed in or affixed
SECURITY AGREEMENT - Page 7
<PAGE> 8
to other goods so as to become an accession to such other goods unless such
other goods are subject to a perfected first priority security interest under
this Agreement.
(e) Compromise of Collateral. Debtor will not adjust, settle,
compromise, amend or modify any Collateral, except an adjustment, settlement,
compromise, amendment or modification in good faith and in the ordinary course
of business; provided, however, this exception shall automatically terminate
upon the occurrence of an Event of Default or upon Secured Party's written
request. Debtor shall provide to Secured Party such information concerning (i)
any adjustment, settlement, compromise, amendment or modification of any
Collateral, and (ii) any claim asserted by any account debtor for credit,
allowance, adjustment, dispute, setoff or counterclaim, as Secured Party may
request from time to time.
(f) Financing Statement Filings. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed where Debtor
maintains any Collateral, has its records concerning any Collateral or has its
residence or chief executive office, as the case may be. Without limitation of
any other covenant herein, Debtor will not cause or permit any change in the
location of (i) any Collateral, (ii) any records concerning any Collateral, or
(iii) Debtor's residence or chief executive office, as the case may be, to a
jurisdiction other than as represented in Subsection 3(f) unless Debtor shall
have notified Secured Party in writing of such change at least thirty (30) days
prior to the effective date of such change, and shall have first taken all
action required by Secured Party for the purpose of further perfecting or
protecting the security interest in favor of Secured Party in the Collateral.
In any written notice furnished pursuant to this Subsection, Debtor will
expressly state that the notice is required by this Agreement and contains
facts that may require additional filings of financing statements or other
notices for the purpose of continuing perfection of Secured Party's security
interest in the Collateral.
6. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section 6 at all times during the period of time this
Agreement is effective.
(a) Additional Financing Statements Filings. Debtor hereby
authorizes Secured Party to file, without the signature of Debtor, one or more
financing or continuation statements, and amendments thereto, relating to the
Collateral where such signature is not required by applicable law. Debtor
further agrees that a carbon, photographic or other reproduction of this
Security Agreement or any financing statement describing any Collateral is
sufficient as a financing statement and may be filed in any jurisdiction
Secured Party may deem appropriate.
(b) Power of Attorney. Upon the occurrence of an Event of
Default, Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, such power of attorney being coupled with an interest, with
full authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time in Secured Party's discretion, to take any action
SECURITY AGREEMENT - Page 8
<PAGE> 9
and to execute any instrument which is necessary orappropriate to accomplish
the purposes of this Agreement, including without limitation: (i) to obtain
and adjust insurance required by Secured Party hereunder; (ii) to demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of the Collateral; (iii)
to receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clause (i) or (ii) above; and (iv) to file any
claims or take any action or institute any proceedings which Secured Party may
deem necessary or appropriate for the collection and/or preservation of the
Collateral or otherwise to enforce the rights of Secured Party with respect to
the Collateral.
(c) Performance by Secured Party. Notwithstanding anything
contained in Paragraph 7(a) and (b) below, if Debtor fails to perform any
agreement or obligation provided herein, Secured Party may, if such failure
continues for three (3) business days after written notice thereof from Secured
Party to Debtor itself perform, or cause performance of, such agreement or
obligation, and the expenses of Secured Party incurred in connection therewith
shall be a part of the Indebtedness, secured by the Collateral and payable by
Debtor on demand.
(d) Debtor's Receipt of Proceeds. Upon the occurrence of an Event
of Default, all amounts and proceeds (including instruments and writings)
received by Debtor in respect of such accounts or general intangibles shall be
received in trust for the benefit of Secured Party hereunder and, upon request
of Secured Party, shall be segregated from other property of Debtor and shall
be forthwith delivered to Secured Party in the same form as so received (with
any necessary endorsement) and applied to the Indebtedness in such manner as
Secured Party deems appropriate in its sole discretion.
(e) Notification of Account Debtors. Upon the occurrence of an
Event of Default, Secured Party may at its discretion from time to time notify
any or all obligors under any accounts or general intangibles (i) of Secured
Party's security interest in such accounts or general intangibles and direct
such obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Secured Party, and (ii) to verify the accounts or
general intangibles with such obligors. Secured Party shall have the right, at
the expense of Debtor, to enforce collection of any such accounts or general
intangibles and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as Debtor.
7. EVENTS OF DEFAULT. Each of the following constitutes an
"Event of Default" under this Agreement:
(a) Failure to Pay Indebtedness. The failure, refusal or neglect
of Borrower to make any payment of the Commitment Fee, principal or interest on
the Note (as hereinafter defined), or any portion thereof, within five (5) days
of when, the same shall become due and
SECURITY AGREEMENT - Page 9
<PAGE> 10
payable or within five (5) days of receipt of written notice from Secured Party
to Debtor detailing any other indebtedness or obligation owing to Secured Party
by Debtor from time to time; or
(b) Non-Performance of Covenants. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any covenant,
agreement, warranty or condition required herein or in any of the other Loan
Documents and such failure continues for thirty (30) days after receipt of
written notice thereof from Secured Party; or
(c) Default Under other Loan Documents. The occurrence of an
event of default under any of the other Loan Documents; or
(d) False Representation. Any representation contained herein or
in any of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect; or
(e) Default to Third Party. The occurrence of any event which
permits the acceleration of the maturity of any indebtedness owing byBorrower
or any Obligated Party to any third party under any agreement or undertaking
which, if accelerated, would have a material adverse effect on the financial
condition of Debtor; or
(f) Bankruptcy or Insolvency. If Borrower or any Obligated Party:
(i) becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts as they become due; (ii) generally is not paying its debts as
such debts become due; (iii) has a receiver, trustee or custodian appointed
for, or take possession of, all or substantially all of the assets of such
party or any of the Collateral, either in a proceeding brought by such party or
in a proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within sixty (60) days after
the effective date thereof or such party consents to or acquiesces in such
appointment or possession; (iv) files a petition for relief under the United
States Bankruptcy Code or any other present or future federal or state
insolvency, bankruptcy or similar laws (all of the foregoing hereinafter
collectively called "Applicable Bankruptcy Law") or an involuntary petition for
relief is filed against such party under any Applicable Bankruptcy Law and such
involuntary petition is not dismissed within sixty (60) days after the filing
thereof, or an order for relief naming such party is entered under any
Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged within a
period of sixty (60) days any attachment, sequestration or similar writ levied
upon any property of such party; or (vi) fails to pay within thirty (30) days
any final money judgment against such party.
SECURITY AGREEMENT - Page 10
<PAGE> 11
(g) Execution on Collateral. The Collateral or any portion
thereof is taken on execution or other process of law in any action against
Debtor; or
(h) Abandonment. Debtor abandons the Collateral or any portion
thereof; or
(i) Action by Other Lienholder. The holder of any lien or
security interest on any of the assets of Debtor, including without limitation,
the Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the Collateral),
declares a default thereunder or institutes foreclosure or other proceedings
for the enforcement of its remedies thereunder; or
(j) Liquidation, Death and Related Events. Subject to the terms
of the Loan Agreement, if Borrower or any Obligated Party is an entity, the
liquidation, dissolution, merger or consolidation of any such entity or, if
Borrower or any Obligated Party is an individual, the death or legal incapacity
of any such individual.
8. REMEDIES AND RELATED RIGHTS. If an Event of Default shall
have occurred, and without limiting any other rights and remedies provided
herein, under any of the other Loan Documents or otherwise available to Secured
Party, Secured Party may exercise one or more of the rights and remedies
provided in this Section.
(a) Remedies. Secured Party may from time to time at its
discretion, without limitation and without notice except as expressly provided
in any of the Loan Documents:
(i) exercise in respect of the Collateral all the rights
and remedies of a secured party under the Code (whether or not the
Code applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it
will at its expense and upon request of Secured Party, assemble the
Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties;
(iii) reduce its claim to judgment or foreclose or
otherwiseenforce, in whole or in part, the security interest granted
hereunder by any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on the
premises of Debtor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any
part of the Collateral shall not exhaust Secured Party's power of
sale, but sales or other dispositions may be made from time to time
until all of the Collateral has been sold or disposed of or until the
Indebtedness has been paid and performed in full), and
SECURITY AGREEMENT - Page 11
<PAGE> 12
at any such sale or other disposition it shall not be necessary to
exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any
public sale;
(vi) buy the Collateral, or any portion thereof, at any
private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely
distributed standard price quotations;
(vii) apply for the appointment of a receiver for the
Collateral, and Debtor hereby consents to any such appointment; and
(viii) at its option, retain the Collateral in satisfaction
of the Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice under
the Uniform Commercial Code, as it exists in the state governing any such
notice, of the sale or other disposition of any Collateral, reasonable notice
shall be deemed given three (3) business days following the date when such
notice is deposited in a depository receptacle under the care and custody of
the United States Postal Service, postage prepaid, at Debtor's address set
forth on the signature page hereof, five (5) days prior to the date of any
public sale, or after which a private sale, of any of such Collateral is to be
held. Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Secured Party may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) Application of Proceeds. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured Party in
respect of any sale or other disposition of, collection from, or other
realization upon, all or any part of the Collateral as follows in such order
and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable
costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by Secured Party in connection
with (A) the administration of the Loan Documents, (B) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
SECURITY AGREEMENT - Page 12
<PAGE> 13
(ii) to the payment or other satisfaction of any liens and
other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by
applicable law (including without limitation, Section 9.504(a)(3) of
the Code orany other applicable statutory provision); and
(vi) by delivery to Debtor or any other party lawfully
entitled to receive such cash or proceeds whether by direction of a
court of competent jurisdiction or otherwise.
(c) Deficiency. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the Collateral
by Secured Party are insufficient to pay all amounts to which Secured Party is
legally entitled, Borrower and any party who guaranteed or is otherwise
obligated to pay all or any portion of the Indebtedness shall be liable for the
deficiency, together with interest thereon as provided in the Loan Documents.
(d) Non-Judicial Remedies. In granting to Secured Party the power
to enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its rights
by judicial process. Debtor recognizes and concedes that non-judicial remedies
are consistent with the usage of trade, are responsive to commercial necessity
and are the result of a bargain at arm's length. Nothing herein is intended to
prevent Secured Party or Debtor from resorting to judicial process at either
party's option.
(e) Other Recourse. Debtor waives any right to require Secured
Party to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with Debtor in
any suit arising out of the Indebtedness or any of the Loan Documents, or
pursue any other remedy available to Secured Party. Debtor further waives any
and all notice of acceptance of this Agreement and of the creation,
modification, rearrangement, renewal or extension of the Indebtedness. Debtor
further waives any defense arising by reason of any disability or other defense
of any third party or by reason of the cessation from any cause whatsoever of
the liability of any third party. Until all of the Indebtedness shall have been
paid in full, Debtor shall have no right of subrogation and Debtor waives the
right to enforce any remedy which Secured Party has or may hereafter have
against any third party, and waives any benefit of and any right to participate
in any other security whatsoever now or hereafter held by Secured Party.
Debtor authorizes Secured Party, and without notice or demand and without any
reservation of rights against Debtor and without affecting Debtor's liability
hereunder or on the Indebtedness to (i) take or hold any
SECURITY AGREEMENT - Page 13
<PAGE> 14
other property of any type from any third party as security for the
Indebtedness, and exchange, enforce, waive and release any or all of such other
property, (ii) apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew, extend,
accelerate, modify, compromise, settle or release any of the Indebtedness or
other security for the Indebtedness, (iv) waive, enforce or modify any of the
provisions of any of the Loan Documents executed by any third party, and (v)
release or substitute any third party.
9. INDEMNITY. Debtor hereby indemnifies and agrees to hold
harmless Secured Party, and its officers, directors, employees, agents and
representatives (each an "Indemnified Person") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person arising in connection with the Loan Documents,
the Indebtedness or the Collateral (including without limitation, the
enforcement of the Loan Documents and the defense of any Indemnified Person's
actions and/or inactions in connection with the Loan Documents). WITHOUT
LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON
WITH RESPECT TO ANY CLAIMS, except to the limited extent the Claims against an
Indemnified Person are caused in whole or in part by such Indemnified Person's
gross negligence or willful misconduct. If Debtor or any third party ever
alleges such gross negligence or willful misconduct by any Indemnified Person,
the indemnification provided for in this Section shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement, until such time as a
court of competent jurisdiction enters a final judgment as to the extent and
effect of the alleged gross negligence or willful misconduct.
Theindemnification provided for in this Section shall survive the termination
of this Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
10. MISCELLANEOUS.
(a) Entire Agreement. This Agreement and the Loan Agreement dated
of even date herewith between Debtor and Secured Party, contains the entire
agreement of Secured Party and Debtor with respect to the Collateral. If the
parties hereto are parties to any prior agreement, either written or oral,
relating to the Collateral, the terms of this Agreement shall amend and
supersede the terms of such prior agreements as to transactions on or after
the effective date of this Agreement, but all security agreements, financing
statements, guaranties, other contracts and notices for the benefit of Secured
Party shall continue in full force and effect to secure the Indebtedness unless
Secured Party specifically releases its rights thereunder by separate release.
SECURITY AGREEMENT - Page 14
<PAGE> 15
(b) Amendment. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be valid
or effective unless the same is in writing and signed by the party against whom
it is sought to be enforced.
(c) Actions by Secured Party. The lien, security interest and
other security rights of Secured Party hereunder shall not be impaired by (i)
any renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional security by
Secured Party shall not release or impair the lien, security interest or other
security rights of Secured Party hereunder or affect the obligations of Debtor
hereunder.
(d) Waiver by Secured Party. Secured Party may waive any Event
of Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay by
Secured Party in exercising, any right or remedy upon any Event of Default
shall be construed as a waiver of such Event of Default or as a waiver of the
right to exercise any such right or remedy at a later date. No single or
partial exercise by Secured Party of any right or remedy hereunder shall
exhaust the same or shall preclude any other or further exercise thereof, and
every such right or remedy hereunder may be exercised at any time. No waiver
of any provision hereof or consent to any departure by Debtor therefrom shall
be effective unless the same shall be in writing and signed by Secured Party
and then such waiver or consent shall be effective only in the specific
instances, for the purpose for which given and to the extent therein specified.
No notice to or demand on Debtor in any case shall of itself entitle Debtor to
any other or further notice or demand in similar or other circumstances.
(e) Costs and Expenses. Debtor will upon demand and after
presentation of a detailed written accounting pay to Secured Party the amount
of any and all costs and expenses (including without limitation, attorneys'
fees and expenses), which Secured Party may reasonably incur in connection with
(i) the transactions which give rise to the Loan Documents, (ii) the
preparation of this Agreement and the perfection and preservation of the
security interests granted under the Loan Documents, (iii) the administration
of the Loan Documents, (iv) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, the Collateral, (v)
the exercise or enforcement of any of the rights of Secured Party under the
Loan Documents, or (vi) the failure by Debtor to perform or observe any of the
provisions hereof.
(F) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
FEDERAL LAWS, EXCEPT TO THE EXTENT
SECURITY AGREEMENT - Page 15
<PAGE> 16
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST GRANTED HEREUNDER, IN RESPECTOF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
(g) Venue. This Agreement has been entered into in the county in
Texas where Bank's address for notice purposes is located, and it shall be
performable for all purposes in such county. Courts within the State of Texas
shall have jurisdiction over any and all disputes arising under or pertaining
to this Agreement and venue for any such disputes shall be in the county or
judicial district where this Agreement has been executed and delivered.
(h) Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable, shall not
impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be illegal, invalid or
unenforceable.
(i) No Obligation. Nothing contained herein shall be construed as
an obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) Notices. All notices, requests, demands or other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and given by (i) personal delivery, (ii) expedited delivery
service with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the intended
addressee at the address set forth on the signature page hereof or to such
different address as the addressee shall have designated by written notice sent
pursuant to the terms hereof and shall be deemed to have been received either,
in the case of personal delivery, at the time of personal delivery, in the case
of expedited delivery service, as of the date of first attempted delivery at
the address and in the manner provided herein, or in the case of mail, within
three (3) business days of deposit in a depository receptacle under the care
and custody of the United States Postal Service. Either party shall have the
right to change its address for notice hereunder to any other location within
the continental United States by notice to the other party of such new address
at least thirty (30) days prior to the effective date of such new address.
(k) Binding Effect and Assignment. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on Debtor
and the heirs, executors, administrators, personal representatives, successors
and assigns of Debtor, and (iii) shall inure to the benefit of Secured Party
and its successors and assigns. Without limiting the generality of the
foregoing, Secured Party may pledge, assign or otherwise transfer the
Indebtedness and its rights under this Agreement and any of the other Loan
Documents to any other party.
SECURITY AGREEMENT - Page 16
<PAGE> 17
Debtor's rights and obligations hereunder may not be assigned or otherwise
transferred without the prior written consent of Secured Party.
(l) Termination. It is contemplated by the parties hereto that
from time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Agreement shall remain valid and shall be in full force
and effect as to subsequent outstanding Indebtedness. Upon (i) the payment in
full of the , outstanding principal balance owing on the Promissory Note
("Note") evidencing the loan ("Loan") of even date herewith in the amount of
$10,000,000.00 executed by Debtor and payable to Secured Party, all accrued and
unpaid interest owing on the Note, the Commitment Fee (as defined in the Loan
Agreement) and all costs and expenses incurred by Secured Party prior to the
expiration of five (5) business days after receipt of written request by Debtor
of the termination hereof in connection with the collection and administration
of the Loan and the Collateral, (ii) written request for the termination hereof
delivered by Debtor to Secured Party, and (iii) written release or termination
delivered by Secured Party to Debtor, this Agreement and the security interests
created hereby shall terminate. Upon termination of this Agreement and
Debtor's written request, Secured Party will, at Debtor's sole cost and
expense, return to Debtor such of the Collateral asshall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and execute and
deliver to Debtor such documents as Debtor shall reasonably request to evidence
such termination and Secured Party shall have no further Commitment to lend
hereunder.
(m) Cumulative Rights. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any of the other
Loan Documents, and the exercise of one or more of such rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of any
other rights or remedies.
(n) Gender and Number. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words in
the plural number shall be held and construed to include the singular, unless
in each instance the context requires otherwise.
(o) Descriptive Headings. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
EXECUTED as of the date first written above.
SECURITY AGREEMENT - Page 17
<PAGE> 18
Debtor's Address: DEBTOR:
------
5580 LBJ Freeway, #300 SOURCE SERVICES CORPORATION
Dallas, Texas, 75240
By:
-----------------------------------
Name: D.L. Ward
---------------------------------
Title: President
--------------------------------
Secured Party's Address:
Bank One, Texas, National Association
1717 Main Street
Dallas, Texas 75201
SECURITY AGREEMENT - Page 18
<PAGE> 19
SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED MAY ___, 1996
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
SOURCE SERVICES CORPORATION
The other addresses referenced in Subsection 3(f) are as follows:
SECURITY AGREEMENT - Page 19
<PAGE> 20
EXHIBIT "A" TO
SECURITY AGREEMENT
DATED MAY 21, 1996
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
SOURCE SERVICES CORPORATION
Location:
Owner of Record:
Legal Description:
SECURITY AGREEMENT - Page 20
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$10,000,000.00 May 21, 1996
FOR VALUE RECEIVED, on or before April 30, 1997 ("Maturity Date") the
undersigned and if more than one, each of them, jointly and severally
("Borrower"), does hereby unconditionally promise to pay to the order of BANK
ONE, TEXAS, NATIONAL ASSOCIATION ("Bank"), at its offices in Dallas County,
Texas at 1717 Main Street, Dallas, Texas 75201, the principal amount of TEN
MILLION AND NO/100 DOLLARS ($10,000,000.00) ("Total Principal Amount"), or such
amount less than the Total Principal Amount which is outstanding from time to
time if the total amount outstanding under this Promissory Note ("Note") is
less than the Total Principal Amount, in lawful money of the United States of
America, together with interest on such portion of the Total Principal Amount
which has been drawn until paid at the rates per annum provided below.
1. Definitions. For purposes of this Note, unless the context
otherwise requires, the following terms shall have the definitions assigned to
such terms as follows:
"Adjusted Base Rate" shall mean a rate equal to the Base Rate per
annum.
"Adjusted LIBOR Rate" shall mean with respect to each Interest Period,
on any day thereof an amount equal to the sum of (i) one and three-quarters of
one percent (1.75%), plus, (ii) the quotient of (a) the LIBOR Rate with respect
to such Interest Period, divided by (b) the remainder of 1.0 less the Reserve
Requirement in effect on such day. Each determination by Bank of the Adjusted
LIBOR Rate shall, in the absence of manifest error, be conclusive and binding.
"Base Rate" shall mean the rate established from time to time by Bank
as its Base Rate of interest (which may not be the lowest, best or most
favorable rate of interest which Bank may charge on loans to its customers).
"Base Rate Balance" shall mean that portion of the principal balance
of this Note bearing interest at a rate based upon the Adjusted Base Rate.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banking associations are authorized to be closed.
"Consequential Loss" shall mean, with respect to Borrower's payment of
all or any portion of the then-outstanding principal amount of any LIBOR
Balance on a day other than the last day of the Interest Period related
thereto, any loss, cost or expense incurred by Bank in redepositing such
principal amount, including the sum of (i) the interest which, but for such
payment, Bank would have earned in respect of such principal amount so paid,
for the remainder of the Interest Period applicable to such sum, reduced, if
Bank is able to redeposit such principal amount so paid for the balance of such
Interest Period, by the interest earned by Bank as a result of so redepositing
such principal amount plus (ii) any expense or penalty incurred by Bank on
redepositing such principal amount.
"Contract Rate" shall mean a rate of interest based upon the Adjusted
LIBOR Rate or Adjusted Base Rate in effect at any time pursuant to an Interest
Notice.
"Dollars" shall mean lawful currency of the United States of America.
"Event of Default" shall mean, subject to any notice and cure periods
provided in the Loan Agreement, the (a) failure of Borrower to pay any
installment of principal
PROMISSORY NOTE - Page 1
<PAGE> 2
of or interest on this Note to Bank when due, (b) the occurrence of an event of
default specified in any of the other Loan Documents, or (c) the bankruptcy or
insolvency of, the assignment for the benefit of creditors by, or the
appointment of a receiver for any of the property of, or the liquidation,
termination, dissolution or death or legal incapacity of, any part liable for
the payment of this Note, whether as maker, endorser, guarantor, surety or
otherwise.
"Excess Interest Amount" shall mean, on any date, the amount by which (i) the
amount of all interest which would have accrued prior to such date on the
principal of this Note, had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate, exceeds (ii) the aggregate
amount of interest accrued on this Note on or prior to such date.
"Interest Notice" shall mean the notice given by Borrower to Bank of
the Interest Options selected hereunder. Each Interest Notice shall specify
the Interest Option selected, the amount of the unpaid principal balance of
this Note to bear interest at the rate selected and, if the Adjusted LIBOR Rate
is specified, the length of the applicable Interest Period. An Interest Notice
may be written or oral (if promptly confirmed thereafter in writing) and Bank
is hereby authorized and directed to honor all telephonic Interest Notices from
any person authorized to request advances hereunder.
"Interest Option" shall have the meaning assigned to such term in
paragraph 6 hereof.
"Interest Payment Date" shall mean quarterly commencing on the first
day of July, 1996 and continuing on the first day of each October, January,
April and July thereafter and on the Maturity Date.
"Interest Period" shall mean, with respect to any LIBOR Balance, a
period commencing: (i) on any date which, pursuant to an Interest Notice, the
principal amount of such LIBOR Balance begins to accrue interest at the
Adjusted LIBOR Rate, or (ii) the Business Day following the last day of the
immediately preceding Interest Period in the case of a rollover to a successive
Interest Period and ending 30, 60 or 90 days thereafter as Borrower shall elect
in accordance with the provisions hereof; provided, that: (A) any Interest
Period which would otherwise end on a day which is not a LIBOR Business Day
shall be extended to the succeeding LIBOR Business Day and (B) any Interest
Period which would otherwise end after the Maturity Date shall end on the
Maturity Date.
"LIBOR Balance" shall mean any principal balance of this Note which,
pursuant to an Interest Notice, bears interest at a rate based upon the
Adjusted LIBOR Rate for the Interest Period specified in such Interest Notice.
"LIBOR Business Day" shall mean a day on which dealings in Dollars are
carried out in the London interbank eurodollar market.
"LIBOR Rate" shall mean, with respect to each Interest Period, the
rate of interest per annum at which deposits in Dollars are offered by the
major London clearing banks, as reported by Knight-Ridder news service (or such
other similar news reporting service as Bank may subscribe to at the time such
LIBOR Rate is determined), in the London interbank Eurodollar market for a
period of time equal or comparable to such Interest Period and in an amount
equal to or comparable to the principal amount of the LIBOR Balance to which
such Interest Period relates. The LIBOR Rate for such Interest Period to which
it relates shall (i) be determined as of 11:00 a.m. (London, England time) two
(2) LIBOR Business Days prior to the first day of such Interest
PROMISSORY NOTE - Page 2
<PAGE> 3
Period, or at such earlier time as determined by Bank, and (ii) shall be
rounded upward, if necessary, to the nearest one-one hundredth of one percent.
"Loan Agreement" shall mean that certain Loan Agreement of even date
herewith by and between Bank and Borrower, as amended from time to time.
"Loan Documents" shall mean this Note, the Loan Agreement and all
other documents evidencing, securing, governing, guaranteeing and/or pertaining
to this Note.
"Maximum Rate" shall mean, with respect to the holder hereof, the
maximum nonusurious interest rate, if any, that at any time, or from time to
time, may be contracted for, taken, reserved, charged, or received on the
indebtedness evidenced by this Note under the laws which are presently in
effect in the United States and the State of Texas applicable to such holder
and such indebtedness or, to the extent permitted by law, under such applicable
laws of the United States and the State of Texas which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow. To the extent that TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended (the "Act"), is relevant to any holder of this Note for
the purposes of determining the Maximum Rate, each such holder elects to
determine such applicable legal rate under the Act pursuant to the "indicated
rate ceiling," from time to time in effect, as referred to and defined in
article 1.04(a)(1) of the Act; subject, however, to the limitations on such
applicable ceiling referred to and defined in article 1.04(b)(2) of the Act,
and further subject to any right such holder may have subsequently, under
applicable law, to change the method of determining the Maximum Rate. If no
Maximum Rate is established by applicable law, then the Maximum Rate shall be
equal to eighteen percent (18%).
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Reserve Requirement" shall, on any day, mean that percentage
(expressed as a decimal fraction) which is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) for determining the reserve requirements (including without
limitation, basic, supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation. For purposes of
this definition, any LIBOR Balances hereunder shall be deemed "Eurocurrency
liabilities" under Regulation D without benefit of or credit for prorations,
exemptions or offsets under Regulation D. Bank's determination of the Reserve
Requirement shall be conclusive.
2. Payments of Interest and Principal. Interest on the unpaid
principal balance of this Note shall be due and payable on each Interest
Payment Date as it accrues and the entire unpaid principal balance of this
Note, and all accrued but unpaid interest thereon, shall be due and payable on
the Maturity Date.
3. Rates of Interest. The unpaid principal of the Base Rate
Balance shall bear interest at a rate per annum which shall from day to day be
equal to the lesser of (i) the Adjusted Base Rate in effect from day to day, or
(ii) the Maximum Rate. The unpaid principal of each LIBOR Balance shall bear
interest at a rate per annum which shall from day to day be equal to the lesser
of (i) the Adjusted LIBOR Rate for the Interest Period in effect with respect
to such LIBOR Balance, or (ii) the Maximum Rate. Each change in the interest
rate applicable to a Base Rate Balance shall become effective without prior
notice to Borrower automatically as of the opening of business
PROMISSORY NOTE - Page 3
<PAGE> 4
on the date of such change in the Adjusted Base Rate. Interest on this Note
shall be calculated on the basis of the actual days elapsed in a year
consisting of 360 days.
4. Interest Recapture. If on each Interest Payment Date or any
other date on which interest payments are required hereunder, Bank does not
receive interest on this Note computed at the Contract Rate because such
Contract Rate exceeds or has exceeded the Maximum Rate, then Borrower shall,
upon the written demand of Bank, pay to Bank in addition to the interest
otherwise required to be paid hereunder, on each Interest Payment Date
thereafter, the Excess Interest Amount (calculated as of such later Interest
Payment Date); provided that in no event shall Borrower be required to pay, for
any Interest Period, interest at a rate exceeding the Maximum Rate effective
during such period.
5. Interest on Past Due Amounts. To the extent any interest is
not paid on or before the fifth day after it becomes due and payable, Bank may,
at its option, add such accrued but unpaid interest to the principal of this
Note. Notwithstanding anything herein to the contrary, upon an Event of
Default or at maturity, whether by acceleration or otherwise, all principal of
this Note shall, at the option of Bank, bear interest at the Maximum Rate until
paid.
6. Interest Option. Subject to the provisions hereof, Borrower
shall have the option (an "Interest Option") of having designated portions of
the unpaid principal balance of this Note bear interest at a rate based upon
the Adjusted LIBOR Rate or Adjusted Base Rate as provided in paragraph 3
hereof; provided, however, that the selection of the Adjusted LIBOR Rate for a
particular Interest Period shall not be for less than $500,000.00 of unpaid
principal or an integral multiple thereof and the selection of Adjusted Base
Rate for a particular Interest Period shall not be for less than $25,000.00 of
unpaid principal or an integral multiple thereof. The Interest Option shall be
exercised in the manner provided below:
(i) At Time of Borrowing. Contemporaneously with each request for an advance
by Borrower under Paragraph 9 herein, Borrower shall give Bank an Interest
Notice indicating the initial Interest Option selected with respect to the
principal balance of such advance.
(ii) At Expiration of Interest Periods. Unless otherwise agreed to by Bank,
at least two (2) Business Days prior to the termination of any Interest Period,
Borrower shall give Bank an Interest Notice indicating the Interest Option to
be applicable to the corresponding LIBOR Balance upon the expiration of such
Interest Period. If the required Interest Notice shall not have been timely
received by Bank prior to the expiration of the then-relevant Interest Period,
Borrower shall be deemed to have selected a rate based upon the Adjusted Base
Rate to be applicable to such LIBOR Balance upon the expiration of such
Interest Period and to have given Bank notice of such selection.
(iii) Conversion From Adjusted Base Rate. During any period in which any
portion of the principal hereof bears interest at a rate based upon the
Adjusted Base Rate, Borrower shall have the right, on any Business Day (the
"Conversion Date"), to convert all or a portion of such principal amount from
the Base Rate Balance to a LIBOR Balance by giving Bank an Interest Notice of
such selection at least two (2) Business Days prior to such Conversion Date, or
as otherwise agreed to by Bank.
An Interest Notice may be written or oral and Bank is hereby authorized and
directed to honor all telephonic Interest Notices hereunder. Borrower agrees
to indemnify and hold Bank harmless from any loss or liability incurred by Bank
in connection with
PROMISSORY NOTE - Page 4
<PAGE> 5
honoring any telephonic or other oral Interest Notices. All written Interest
Notices are effective only upon receipt by Bank. Each Interest Notice shall be
irrevocable and binding upon Borrower.
7. Special Provisions For LIBOR Pricing.
a. Inadequacy of LIBOR Loan Pricing. If Bank determines
that, by reason of circumstances affecting the interbank eurodollar market
generally, deposits in Dollars (in the applicable amounts) are not being
offered to United States financial institutions in the interbank eurodollar
market for such Interest Period, or that the rate at which such Dollar deposits
are being offered will not adequately and fairly reflect the cost to Bank of
making or maintaining a LIBOR Balance for the applicable Interest Period, Bank
shall forthwith give notice thereof to Borrower, whereupon until Bank notifies
Borrower that the circumstances giving rise to such suspension no longer exist,
(i) the right of Borrower to select an Interest Option based upon the LIBOR
Rate shall be suspended, and (ii) Borrower shall be deemed to have converted
each LIBOR Balance to the Base Rate Balance in accordance with the provisions
hereof on the last day of the then-current Interest Period applicable to such
LIBOR Balance.
b. Illegality. If the adoption of any applicable law, rule
or regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Bank with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for Bank to make or maintain a LIBOR Balance,
Bank shall so notify Borrower. Upon receipt of such notice, Borrower shall be
deemed to have converted any LIBOR Balance to the Base Rate Balance, on either
(i) the last day of the then-current Interest Period applicable to such LIBOR
Balance if Bank may lawfully continue to maintain and fund such LIBOR Balance
to such day, or (ii) immediately, if Bank may not lawfully continue to maintain
such LIBOR Balance to such day.
8. Extension, Place and Application of Payments. Should the
principal of, or any interest on, this Note become due and payable on any day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable with respect to such
extension.
All payments of principal of, and interest on, this Note shall be made in
lawful money of the United States of America in immediately available funds.
Payments made to Bank by Borrower hereunder shall be applied first to accrued
but unpaid interest and then to outstanding principal.
9. Advances. Subject to the terms of this Note and the Loan
Agreement, Borrower may request advances ("Advances") hereunder and make
payments from time to time during the term of this Note, provided that it is
understood and agreed that the aggregate principal amount outstanding from time
to time hereunder shall not exceed the sum of the Total Principal Amount. The
unpaid balance of this Note shall increase and decrease with each new Advance
or payment hereunder as the case may be. This Note shall not be deemed
terminated or cancelled prior to the Maturity Date, although the entire
principal balance hereof may from time to time be paid in full. Subject to the
provisions of this Note and the Loan Agreement, Borrower may borrow, repay and
reborrow hereunder from the date hereof until the Maturity Date. Subject to
the provisions of Paragraph 6 herein, each Advance hereunder shall be in an
amount not less than $500,000.00 or an integral multiple thereof for Advances
for which the Adjusted Libor Rate is selected or $25,000.00 or an integral
multiple thereof for Advances for which the Adjusted Base Rate is selected. If
any Advance request is received by Bank on or
PROMISSORY NOTE - Page 5
<PAGE> 6
prior to 12:00 p.m. (Dallas, Texas time) on funds designated to accrue interest
at the Adjusted Base Rate, Bank shall make available at Bank's office in
Dallas, Texas not later than 2:00 p.m. (Dallas, Texas time) on the day of such
Advance request (or the date specified in such request), the amount of such
request in immediately available funds. If any Advance request is received by
Bank after 12:00 p.m. (Dallas, Texas time) on funds designated to accrue
interest at the Adjusted Base Rate, Bank shall make available at Bank's office
in Dallas, Texas not later than 2:00 p.m. (Dallas, Texas time) on the Business
Day after the day of such request (or a later date if specified in such
request), the amount of such request in immediately available funds. Each
request for an Advance on funds designated to accrue interest at the Adjusted
LIBOR Rate must be received by Bank not less than three (3) Business Days prior
to the date upon which the Advance requested is desired by Borrower. Each
request for an Advance hereunder must be accompanied by an Interest Notice for
the funds to be advanced thereunder; provided, however, if an Interest Notice
does not accompany an Advance request, Borrower shall be deemed to have
designated the Adjusted Base Rate. Each request for an Advance by Borrower
hereunder shall be irrevocable and binding on Borrower. An Advance request may
be written or oral and Bank is authorized and directed to honor all telephonic
requests for Advances from any person authorized to request Advances hereunder.
Borrower agrees to indemnify and hold Bank harmless from any loss or liability
incurred by Bank in connection with honoring any such telephonic or other oral
requests for Advances. All written Advance requests are effective only upon
receipt by Bank.
10. Loan Agreement. This Note is subject to the terms and
provisions of the Loan Agreement, which is incorporated herein by reference for
all purposes. The holder of this Note is entitled to the benefits provided in
the Loan Agreement.
11. Prepayments; Consequential Loss. Any prepayment made
hereunder shall be made together with all interest accrued but unpaid on this
Note through the date of such prepayment. Contemporaneously with each
prepayment of principal, Borrower shall give Bank written or oral notice
indicating whether such prepayment is to be applied to the Base Rate Balance or
a particular LIBOR Balance. If such notice is not timely received by Bank,
Borrower shall be deemed to have selected to prepay the Base Rate Balance and,
if any sums remain after satisfying all of the Base Rate Balance, the remaining
sums shall be applied to any LIBOR Balance(s) that Bank determines in its sole
discretion. Borrower agrees to indemnify and hold Bank harmless from any loss
or liability incurred by Bank in connection with honoring telephonic or other
oral notices indicating how a prepayment is to be applied. If Borrower makes
any payment of principal with respect to any LIBOR Balance on any day prior to
the last day of the Interest Period applicable to such LIBOR Balance, Borrower
shall reimburse Bank on demand the Consequential Loss incurred by Bank as a
result of the timing of such payment. A certificate of Bank setting forth the
basis for the determination of a Consequential Loss shall be delivered to
Borrower and shall, in the absence of manifest error, be conclusive and binding
as to such determination and amount.
12. Additional Costs. Borrower agrees to pay to Bank all
Additional Costs within ten (10) days of receipt by Borrower from Bank of a
statement setting forth the amount or amounts due and the basis for the
determination from time to time of such amount or amounts, which statement
shall be conclusive and binding upon Borrower absent manifest error. Failure
on the part of Bank to demand compensation for any Additional Costs in any
Interest Period shall not constitute a waiver of Bank's right to demand
compensation for any Additional Costs incurred during any such Interest Period
or in any other subsequent or prior Interest Period. The term "Additional
Costs" shall mean such additional amount or amounts as Bank shall reasonably
determine will compensate Bank for actual costs incurred by Bank in maintaining
LIBOR Rates on the LIBOR Balances or any portion thereof as a result of any
change, after the date of this Note, in
PROMISSORY NOTE - Page 6
<PAGE> 7
applicable law, rule or regulation or in the interpretation or administration
thereof by, or the compliance by Bank with any request or directive from, any
domestic or foreign governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law) or by any
domestic or foreign court changing the basis of taxation of payments to Bank of
the LIBOR Balances or interest on the LIBOR Balances or any portion thereof at
an Adjusted LIBOR Rate or any other fees or amounts payable under this Note or
the Loan Agreement (other than taxes imposed on all or any portion of the
overall net income of Bank by the State of Texas or the Federal government), or
imposing, modifying or applying any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, credit
extended by, or any other acquisition of funds for loans by Bank, or imposing
on Bank, as the case may be, or on the London interbank market any other
condition affecting this Note, the Loan Agreement or the LIBOR Balances so as
to increase the cost of Bank making or maintaining Adjustable LIBOR Rates with
respect to the LIBOR Balances or any portion thereof or to reduce the amount of
any sum received or receivable by Bank under this Note or the Loan Agreement
(whether of principal, interest or otherwise), by an amount deemed by Bank in
good faith to be material, but without duplication for Reserve Requirement.
13. Notices. Except as otherwise specified herein, all notices
and requests required or permitted hereunder shall be in writing and shall be
deemed to have been given when personally delivered or, if mailed, two Business
Days after deposited in a regularly maintained receptacle for the United States
Postal Service, postage prepaid, registered or certified, return receipt
requested, addressed to Borrower or Bank at the following respective addresses
or such other address as such party may from time to time designate by written
notice to the other: Borrower: 5580 LBJ Freeway, #300, Dallas, Texas 75240,
Attention: D. Les Ward; Bank: 1717 Main Street, Dallas, Texas 75201, Attention:
Mark Wade.
14. Legal Fees. If this Note is placed in the hands of any
attorney for collection, or if it is collected through any legal proceeding at
law or in equity or in bankruptcy, receivership or other court proceedings,
Borrower agrees to pay all costs of collection including, but not limited to,
court costs and reasonable attorneys' fees.
15. Waivers. Borrower and each surety, endorser, guarantor and
any other party ever liable for payment of any sums of money payable on this
Note, jointly and severally waive presentment and demand for payment, protest,
notice of protest, intention to accelerate, acceleration and non-payment, or
other notice of default, and agree that their liability under this Note shall
not be affected by any renewal or extension in the time of payment hereof, or
in any indulgences, or by any release or change in any security for the payment
of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes, regardless of the number of such renewals,
extensions, indulgences, releases or changes; provided, however, this Note may
not be amended or modified except by a written instrument signed by the
Borrower and the holder hereof.
No waiver by Bank of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Bank; no delay
or omission in the exercise or enforcement by Bank of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Bank; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Bank.
16. Remedies. Upon the occurrence of any Event of Default, the
holder hereof may, at its option, (i) declare the entire unpaid balance of
principal and accrued but
PROMISSORY NOTE - Page 7
<PAGE> 8
unpaid interest on this Note to be immediately due and payable, (ii) refuse to
advance any additional amounts under this Note, (iii) foreclose all liens
securing payment hereof, (iv) pursue any and all other rights, remedies and
recourses available to the holder hereof, including but not limited to, any
such rights, remedies or recourses under the Loan Documents, at law or in
equity, or (v) pursue any combination of the foregoing.
17. Spreading. Any provision herein, or in any document securing
this Note, or any other document executed or delivered in connection herewith,
or in any other agreement or commitment, whether written or oral, expressed or
implied, to the contrary notwithstanding, neither Bank nor any holder hereof
shall in any event be entitled to receive or collect, nor shall or may amounts
received hereunder be credited, so that Bank or any holder hereof shall be
paid, as interest, a sum greater than the maximum amount permitted by
applicable law to be charged to the person, partnership, firm or corporation
primarily obligated to pay this Note at the time in question. If any
construction of this Note or any document securing this Note, or any and all
other papers, agreements or commitments, indicate a different right given to
Bank or any holder hereof to ask for, demand or receive any larger sum as
interest, such is a mistake in calculation or wording which this clause shall
override and control, it being the intention of the parties that this Note, and
all other instruments securing the payment of this Note or executed or
delivered in connection herewith shall in all things comply with the applicable
law and proper adjustments shall automatically be made accordingly. In the
event that Bank or any holder hereof ever receives, collects or applies as
interest, any sum in excess of the Maximum Rate, if any, such excess amount
shall be applied to the reduction of the unpaid principal balance of this Note,
and if this Note is paid in full, any remaining excess shall be paid to
Borrower. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the Maximum Rate, if any, Borrower and Bank
or any holder hereof shall, to the maximum extent permitted under applicable
law: (a) characterize any nonprincipal payment as an expense or fee rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, (c)
"spread" the total amount of interest throughout the entire term of this Note;
provided that if this Note is paid and performed in full prior to the end of
the full contemplated term hereof, and if the interest received for the actual
period of existence thereof exceeds the Maximum Rate, if any, Bank or any
holder hereof shall refund to Borrower the amount of such excess, or credit the
amount of such excess against the aggregate unpaid principal balance of all
advances made by the Bank or any holder hereof under this Note at the time in
question.
18. Choice of Law. This Note is being executed and delivered, and
is intended to be performed in the State of Texas. Except to the extent that
the laws of the United States may apply to the terms hereof, the substantive
laws of the State of Texas shall govern the validity, construction, enforcement
and interpretation of this Note. In the event of a dispute involving this Note
or any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Dallas County, Texas.
SOURCE SERVICES CORPORATION,
a Delaware corporation
By:
-----------------------------------
Name: D.L. Ward
---------------------------------
Title: President
--------------------------------
PROMISSORY NOTE - Page 8
<PAGE> 1
EXHIBIT 10.9
IN MAKING AN INVESTMENT DECISION, THE DIRECTORS ("INVESTORS") MUST RELY ON
THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED,
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), ANY
STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. NONE OF THE
FOREGOING AUTHORITIES HAVE PASSED UPON, OR ENDORSED THE MERITS OF, THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF THE DIRECTOR INCENTIVE STOCK OPTION
BONUS PROGRAM OR THIS DIRECTOR INCENTIVE STOCK OPTION BONUS AGREEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SEC UNDER THE SECURITIES ACT
OF 1933 ("THE 1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES, AND ARE
BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND SUCH STATE LAWS. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE 1933 ACT AND SUCH APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREUNDER. THERE IS NO
PUBLIC OR OTHER MARKET FOR THESE SECURITIES, NOR IS IT LIKELY THAT ANY SUCH
MARKET WILL DEVELOP. THEREFORE, INVESTORS MUST EXPECT TO BE REQUIRED TO RETAIN
OWNERSHIP OF THE SECURITIES AND BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR
AN INDEFINITE PERIOD.
[The Following is for Florida Directors/Investors Only]
THESE SECURITIES ARE BEING SOLD TO, AND ACQUIRED BY, THE INVESTOR IN A
TRANSACTION EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES ACT.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THAT ACT IN THE STATE OF
FLORIDA. IN ADDITION, THE FLORIDA SECURITIES ACT PROVIDES THAT WHERE SALES ARE
MADE TO 5 OR MORE FLORIDA INVESTORS, ALL FLORIDA INVESTORS SHALL HAVE THE
PRIVILEGE OF VOIDING THE PURCHASE WITHIN 3 DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER
OR AN ESCROW AGENT, OR WITHIN 3 DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE
IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
<PAGE> 2
1995 DIRECTOR INCENTIVE STOCK OPTION BONUS AGREEMENT
Source Services Corporation
September 12, 1995
Source Services Corporation (the "Company"), granted to the Optionee an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Director Incentive Stock Option Bonus
Agreement ("Option Agreement").
1. Definitions:
(a) "Optionee" shall mean _____________________________________.
(b) "Date of Option Grant" shall mean September 12, 1995.
(c) "Number of Option Shares" shall mean Five Thousand (5,000) shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $10.15 per share as adjusted from time
to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring on January 1,
1995.
(f) "Initial Vesting Date" shall be the date occurring on January 1,
1996.
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date . . . . . . . . . . . . . . 0
On Initial Vesting Date, provided the
Optionee is continuously a Director of
the Company from the Date
of Option Grant until the Initial Vesting Date . . . . . . 1/2
Plus
----
On January 1, 1997, provided the
Optionee is continuously a Director of the
Company from the Initial Vesting Date to and
including December 31,1996 . . . . . . . . . . . . . . . . 1/2
In no event shall the Vested
Ratio exceed 1/1.
</TABLE>
2
<PAGE> 3
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Source Services Corporation, a Delaware
corporation, and any successor corporation thereto.
(k) "Program" shall mean the Source Services Corporation 1995 Director
Incentive Stock Option Bonus Program.
(l) "Stock" shall mean authorized but unissued common stock of the
Company.
2. Status of the Option. This Option is not intended to be an incentive
stock option as described in section 422 of the Code, but is rather a
nonstatutory stock option. The Optionee should consult with the Optionee's own
tax advisors regarding the tax effects of this Option.
3. Administration. All questions of interpretation concerning this Option
Agreement shall be determined by the Board of Directors of the Company (the
"Board"). The Board shall have the power to terminate or amend the Program at
any time and to make the grant set forth herein under the Program subject to the
terms of the Program and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option.
4. Exercise of the Option.
(a) Right to Exercise. The Option shall first become exercisable on the
Initial Exercise Date. The Option shall be exercisable on and after the Initial
Exercise Date and prior to the termination of the Option in the amount equal to
the Number of Option Shares multiplied by the Vested Ratio as set forth in
paragraph 1 above less the number of shares previously acquired upon exercise of
the Option. In no event shall the Option be exercisable for more shares than the
Number of Option Shares.
(b) Method of Exercise. The Option may be exercised by written notice
to the Company which must state the election to exercise the Option, the number
of shares for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares as may be required pursuant to the provisions of this Option Agreement.
The written notice must be signed by the Optionee and must be delivered in
person or by certified or registered mail, return receipt requested, to the
Chief Financial Officer of the Company, prior to the termination of the Option
as set forth in paragraph 6 below, accompanied by (i) full payment of the
exercise price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current forms of escrow and security
agreements referenced below.
3
<PAGE> 4
(c) Form of Payment of Option Exercise Price. Such payment shall be
made (i) in cash, by check, or cash equivalent, (ii) in the event of an
underwritten public offering of Stock occurring before the time of exercise, by
the delivery of cash by a broker-dealer to whom the Optionee has submitted a
notice of exercise (in accordance with Part 220, Chapter II, Title 12 of the
Code of Federal Regulation, so-called "cashless" exercise, or (iii) by tender to
the Company of shares of the Company's common stock owned by the Optionee having
a value not less than the option price, or (iv) by any combination of the
foregoing. Notwithstanding the foregoing, the Option may not be exercised by
tender to the Company of shares of the Company's common stock to the extent such
tender of stock would constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the Company's common
stock.
(d) Withholding. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee agrees
to make adequate provision for federal and state tax withholding obligations of
the Company, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part of any shares
acquired on exercise of the Option, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any restriction
with respect to any shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. No
Option may be exercised unless (i) a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS
THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
4
<PAGE> 5
5. Non-Transferability of the Option. The Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the
extent unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may
no longer be exercised on the first to occur of (a) the Option Term Date as
defined above, (b) the last date for exercising the Option following
termination of status as a Director as described in paragraph 7 below, or (c)
upon a Transfer of Control as described in paragraph 8 below.
7. Termination of Status as Director.
(a) Termination of the Option. If the Optionee ceases to be a Director
of the Company for any reason, except death or disability within the meaning of
section 422(c) of the Code, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee ceased to be a
Director of the Company, may be exercised by the Optionee within thirty (30)
days after the date on which the Optionee' ceased to be a Director of the
Company, but in any event no later than the Option Term Date. If the Optionee's
status as a Director with the Company is terminated because of the death or
disability of the Optionee within the meaning of section 422(c) of the Code, the
Option, to the extent unexercised and exercisable by the Optionee on the date on
which the Optionee ceased to be a Director of the Company, may be exercised by
the Optionee (or the Optionee's legal representative) at any time prior to the
expiration of six (6) months from the date on which the Optionee ceased to be a
Director of the Company, but in any event no later than the Option Term Date.
The Optionee's status as a Director of the Company shall be deemed to have
terminated on account of death if the Optionee dies within thirty (30) days
after the Optionee ceases to be a Director of the Company. Except as provided in
this paragraph 7(a), the Option shall terminate and may not be exercised after
the Optionee ceases to be a Director of the Company.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall remain exercisable until the earliest to occur of (i) the tenth (lOth) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (19Oth) day after the termination of
Optionee's status as a Director of the Company, or (iii) the Option Term Date.
5
<PAGE> 6
(d) Leave of Absence. For purposes hereof, the Optionee's status as a
Director of the Company shall not be deemed to terminate if the Optionee takes
any military leave, sick leave, or other bona fide leave of absence approved by
the Company of ninety (90) days or less. In the event of a leave in excess of
ninety (90) days, the Optionee's status as a Director of the Company shall be
deemed to terminate on the ninety-first (91st) day of the leave unless the
Optionee's right to return as a Director of the Company guaranteed by statute or
contract. Notwithstanding the foregoing, however, a leave of absence shall be
treated as maintaining the status of a Director of the Company for purposes of
determining the Optionee's Vested Ratio if and only if the leave of absence is
designated by the Company as (or required by law to be) a leave for which
vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership
Change" shall be deemed to have occurred in the event any of the following
occurs with respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations; or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean (i) an Ownership Change in which
the shareholders of the Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company after such transaction or in which the Company is
not the surviving corporation or (ii) a change in the membership of the Board
following and related to a proxy fight.
In the event of a Transfer of Control, the Board, in its sole
discretion, may accelerate the time during which such Options become vested or
may be exercised, may arrange with the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), for the Acquiring Corporation to assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock of the Option. The Option shall terminate and
cease to be outstanding effective as of the date of the Transfer of Control to
the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or
6
<PAGE> 7
otherwise become (whether or not pursuant to an Ownership Change) shares of
another corporation (the "New Shares"), the Company may unilaterally amend the
Option to provide that the Option is exercisable for New Shares. In the event
of any such amendment, the number of shares and the exercise price shall be
adjusted in a fair and equitable manner.
7
<PAGE> 8
10. Rights as a Shareholder or Status as Director. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate or certificates for the
shares for which the Option has been exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior
to the date such certificate or certificates are issued, except as provided in
paragraph 9 above. Nothing in the Option shall confer upon the Optionee any
right to continued status as a Director of the Company or interfere in any way
with any rights of the shareholders or the Board to terminate the Optionee's
status as a Director.
11. Notice of Sales Upon Certain Dispositions. The Optionee shall dispose
of the shares acquired pursuant to the Option only in accordance with the
provisions of this Option Agreement. At any time the Company may place a
legend or legends on any certificate or certificates representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers.
12. Legends. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option
Agreement. The Optionee shall, at the request of the Company, promptly present
to the Company any and all certificates representing shares acquired pursuant
to the Option in the possession of the Optionee in order to carry out the
provisions of this paragraph. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to
the legends set forth in all capitals and bold at the beginning of this Option
Agreement and the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT." and/or
(b) Any legend required to be placed thereon by the Securities Law of
the State in which the Optionee resides or works whichever may be relevant.
13. Initial Public Offering. The Optionee hereby agrees that in the event
of any underwritten public offering of Stock, including an initial public
offering of stock, made by the Company pursuant to an effective registration
statement filed under the Securities Act, the Optionee shall not offer, sell,
contract to sell, pledge, hypothecate, grant any option to purchase or make any
short sale of, or otherwise dispose of any shares of stock of the Company or
any rights to acquire stock of the Company for such period of time from and
after the effective date of such registration statement as may be established
by the underwriter for such public offering; provided, however,
8
<PAGE> 9
that such period of time shall not exceed one hundred eighty (180) days from
the effective date of the registration statement to be filed in connection with
such public offering. The foregoing limitation shall not apply to shares
registered in the initial public offering under the Securities Act and shall
cease to apply once a registration statement is effective covering shares
issuable pursuant to options granted pursuant to the Program, whether or not
such registration statement applies to any of the shares issued or issuable
pursuant to this Option Agreement.
14. Binding Effect. This Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
15. Termination or Amendment. The Board may terminate or amend
the Program and/or this Option Agreement at any time; provided, however, that
no such termination or amendment may adversely affect this Option Agreement or
any unexercised portion hereof without the consent of the Optionee.
16. Integrated Agreement. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Company with respect
to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Company other than those as set forth or provided for herein. To the
extent contemplated herein, the provisions of this Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
17. Applicable Law. This Option Agreement shall be governed by the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within the State
of Delaware.
Source Services Corporation
----------------------------------
By: D. Les Ward
Title: President
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject
to all of the terms and provisions thereof. The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under this Option Agreement.
Date:_____________________ __________________________________________
The undersigned, being the spouse of the above-named Optionee, does
hereby acknowledge that the undersigned has read and is familiar with the
provisions of the above Option Agreement, and the undersigned hereby agrees
thereto and joins therein to the extent, if any, that the agreement and joinder
of the undersigned may be necessary.
__________________________________________
9
<PAGE> 1
EXHIBIT 10.10
PLAN #012
NONSTANDARDIZED
ADOPTION AGREEMENT
REGIONAL
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING
PLAN AND TRUST
SPONSORED BY
CARLEY & MC CAW, INC.
The Employer named below hereby establishes a Cash or Deferred Profit-Sharing
Plan for eligible Employees as provided in this Adoption Agreement and the
accompanying Regional Prototype Plan and Trust Basic Plan Document #Rl.
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete
this section based on the lead Employer. Additional
Employers may adopt this Plan by attaching executed
signature pages to the back of the Employer's
Adoption Agreement.
(a) NAME AND ADDRESS:
SOURCE SERVICES CORPORATION
5580 LBJ FREEWAY, SUITE 300
DALLAS, TX 75240
(b) TELEPHONE NUMBER: (214)385-1754
(c) TAX ID NUMBER: 36-2690960
(d) FORM OF BUSINESS:
[ ] (i) Sole Proprietor
[ ] (ii) Partnership
[X] (iii) Corporation
[ ] (iv) "S" Corporation (formerly known as
Subchapter S)
[ ] (v) Other:
1
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(e) NAME(S) OF INDIVIDUAL(S) AUTHORIZED TO ISSUE
INSTRUCTIONS TO THE TRUSTEE: DAWN REYES, RICHARD DUPONT,
MIKE KNIGHT
(f) NAME OF PLAN: SOURCE SERVICES CORPORATION 401(K) PROFIT
SHARING PLAN
(g) THREE DIGIT PLAN NUMBER
FOR ANNUAL RETURN/REPORT: 002
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of JANUARY 01,
1996.
(b) This is an amended Plan.
The effective date of the original Plan was ______________.
The effective date of the amended Plan is _______________.
(c) If different from above, the Effective Date for the Plan's
Elective Deferral provisions shall be APRIL 30, 1996. (BUT
INCLUDING, FOR THE PLAN YEAR BEGINNING JANUARY 01, 1996, ALL
COMPENSATION PAID TO A PARTICIPANT FROM JANUARY 01, 1996
THROUGH DECEMBER 31, 1996 FOR PURPOSES OF CALCULATING THE
PERCENTAGE OF COMPENSATION THAT MAY BE DEFERRED FOR SUCH
YEAR.)
3. DEFINITIONS
(a) "Collective or Commingled Funds"
[ ] (i) Not Applicable - Non-Institutional Trustee.
[X] (ii) Investment in collective or commingled funds
as permitted at paragraph 13.3(b) of the
Basic Plan Document #R1 shall only be made to
the following specifically named fund(s):
SMALL CAP WORLD FUND; EUROPACIFIC GROWTH
FUND; INVESTMENT COMPANY OF AMERICA; INCOME
FUND OF AMERICA; BOND FUND OF AMERICA; CASH
MANAGEMENT TRUST OF AMERICA
Funds made available after the execution of this Adoption
Agreement will be listed on schedules attached to the end of
this Adoption Agreement.
2
<PAGE> 3
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(b) "Compensation" [paragraph 1.12]
(i) Compensation Measurement Period - Compensation shall
be determined on the basis of the:
[ ] (1) Plan Year.
[ ] (2) Employer's Taxable Year.
[X] (3) Calendar Year.
Compensation shall be determined on the basis of the
following safe-harbor definition of Compensation in
IRS Regulation Section 1.414(s)-l(c):
[X] (4) Code Section 6041 and 6051
Compensation,
[ ] (5) Code Section 3401(a) Compensation,
or
[ ] (6) Code Section 415 Compensation.
(ii) Application of Salary Savings Agreements:
Compensation shall exclude Employer contributions
made pursuant to a Salary Savings Agreement under:
[ ] (1) Not applicable, no such agreement
exists.
[ ] (2) Not applicable, no Employer
contributions made pursuant to a
Salary Savings Agreement shall be
excluded.
[ ] (3) A Cash or Deferred Profit-Sharing
Plan under Code Section 401(k) or
Simplified Employee Pension under
Code Section 402(h)(1)(B).
[ ] (4) A flexible benefit plan under Code
Section 125.
[ ] (5) A tax deferred annuity under Code
Section 403(b).
(iii) Exclusions From Compensation:
(1) overtime.
(2) bonuses.
3
<PAGE> 4
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(3) commissions.
(4) ____________________________________
Type of Contribution(s) Exclusion(s)
----------------------- ------------
Elective Deferrals [Section 7(b)] ________
Matching Contributions [Section 7(c)] ________
Qualified Non-Elective Contributions [Section 7(d)]
and Non-Elective Contributions [Section 7(e)] ________
(iv) Maximum Compensation:
For purposes of the Plan, Compensation shall be
limited to $______________, the maximum amount which
will be considered for Plan purposes. [If an amount is
specified, it will limit the amount of contributions
allowed on behalf of higher compensated Employees.
Completion of this section is not intended to
coordinate with the $200,000 of Code Section 415(d),
thus the amount should be less than the $200,000
limit as adjusted for cost-of-living increases.]
(c) "Entry Date" [paragraph 1.30]
(i) The first day of the Plan Year during which an
Employee meets the eligibility requirements.
(ii) The first day of the Plan Year nearest the date on
which an Employee meets the eligibility requirements.
(iii) The earlier of the first day of the Plan Year or the
first day of the seventh month of the Plan Year
coinciding with or following the date on which an
Employee meets the eligibility requirements.
(iv) The first day of the Plan Year following the date on
which the Employee meets the eligibility
requirements. If this election is made, the Service
requirement at 4(a)(ii) may not exceed 1/2 year and
the age requirement at 4(b)(ii) may not exceed
20-1/2.
(v) The first day of the month coinciding with or
following the date on which an Employee meets the
eligibility requirements.
4
<PAGE> 5
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(vi) The first day of the Plan Year, or the first day of
the fourth month, or the first day of the seventh
month or the first day of the tenth month, of the
Plan Year coinciding with or following the date on
which an Employee meets the eligibility requirements.
Indicate Entry Date(s) to be used by specifying option from
list above:
Type of Contribution(s) Entry Date(s)
----------------------- -------------
For Discretionary Profit-Sharing
Contributions under 7(e), (f) and (g) vi
For all other contributions (Option (i) not
available for these contributions) vi
(d) "Hour of Service" [paragraph 1.41]
Shall be determined on the basis of the method selected below.
Only one method may be selected. The method selected shall be
applied to all Employees covered under the Plan as follows:
[X] (i) On the basis of actual hours for which an
Employee is paid or entitled to payment.
[ ] (ii) On the basis of days worked.
An Employee shall be credited with ten (10)
Hours of Service if under paragraph 1.41 of
the Basic Plan Document #R1 such Employee
would be credited with at least one (1) Hour
of Service during the day.
[ ] (iii) On the basis of weeks worked.
An Employee shall be credited with forty-five
(45) Hours of Service if under paragraph 1.41
of the Basic Plan Document #R1 such Employee
would be credited with at least one (1) Hour
of Service during the week.
[ ] (iv) On the basis of semi-monthly payroll periods.
An Employee shall be credited with
ninety-five (95) Hours of Service if under
paragraph 1.41 of the Basic Plan Document #R1
such Employee would be credited with at least
one (1) Hour of Service during the
semi-monthly payroll period.
[ ] (v) On the basis of months worked.
5
<PAGE> 6
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
An Employee shall be credited with
one-hundred-ninety (190) Hours of Service if
under paragraph 1.41 of the Basic Plan
Document #R1 such Employee would be credited
with at least one (1) Hour of Service during
the month.
(e) "Limitation Year" [paragraph 1.44]
The 12-consecutive month period commencing on JANUARY 1ST and
ending on DECEMBER 31ST.
If applicable, the Limitation Year will be a short Limitation
Year commencing on _______ and ending on __________________.
Thereafter, the Limitation Year shall end on the date last
specified above.
(f) "Net Profit"
[X] (i) Not applicable (profits will not be required
for any contributions to the Plan).
[ ] (ii) As defined in paragraph 1.48 of the Basic
Plan Document #R1.
[ ] (iii) Shall be defined as:
_______________________________________
(Only use if definition in paragraph 1.48 of
the Basic Plan Document #R1 is to be
superseded.)
(g) "Plan Year" [paragraph 1.57]
The 12-consecutive month period commencing on JANUARY 1ST and
ending on DECEMBER 31ST.
If applicable, the Plan Year will be a short Plan Year
commencing on__________ and ending on ______. Thereafter, the
Plan Year shall end on the date last specified above.
(h) "Qualified Early Retirement Age"
For purposes of making distributions under the provisions of a
Qualified Domestic Relations Order, the Plan's Qualified Early
Retirement Age with regard to the Participant against whom the
order is entered [XI shall [ ] shall not be the date the order
is determined to be qualified. If "shall" is elected, this
will only allow payout to the alternate payee(s).
6
<PAGE> 7
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(i) "Qualified Joint and Survivor Annuity"
The safe-harbor provisions of paragraph 8.7 of the Basic Plan
Document #R1 [X] are [ ] are not applicable. If not
applicable, the survivor annuity shall be _% (50%, 66-2/3%,
75% or 100%) of the annuity payable during the lives of the
Participant and Spouse. If no answer is specified, 50% will be
used.
(j) "Taxable Wage Base" [paragraph 1.79]
[X] (i) Not Applicable - Plan is not integrated with
Social Security.
[ ] (ii) The maximum earnings considered wages for
such Plan Year under Code Section 3121(a).
[ ] (iii) ___% (not more than 100%) of the amount
considered wages for such Plan Year under
Code Section 3121(a).
[ ] (iv) $__________, provided that such amount is not
in excess of the amount determined under
paragraph 3(j)(ii) above.
[ ] (v) For the 1989 Plan Year $10,000. For all
subsequent Plan Years, 20% of the maximum
earnings considered wages for such Plan Year
under Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may
result in a change in the allocation formula
in Section 7.
(k) "Valuation Date(s)"
Allocations to Participant Accounts will be done in accordance
with Article V of the Basic Plan Document #R1:
(i) Daily (v) Quarterly
(ii) Weekly (vi) Semi-Annually
(iii) Monthly (vii) Annually
(iv) Bi-Monthly
Indicate Valuation Date(s) to be used by specifying option
from list above:
Type of Contribution(s) Valuation Date(s)
----------------------- -----------------
7
<PAGE> 8
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
After-Tax Voluntary Contributions [Section 6] i
Elective Deferrals [Section 7(b)] i
Matching Contributions [Section 7(c)] i
Qualified Non-Elective Contributions [Section 7(d)] i
Non-Elective Contributions [Section 7(e), (f) and (g)] i
Minimum Top-Heavy Contributions [Section 7(i)] i
(1) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month
period during which an Employee is credited with 1000
(not more than 1,000) Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive
month period during which an Employee is credited
with 501 (not more than 1,000) Hours of Service.
(iii) For Vesting Purposes: The 12-consecutive month period
during which an Employee is credited with 1000 (not
more than 1,000) Hours of Service.
4. ELIGIBILITY REQUIREMENTS [Article II]
(a) Service:
(i) For Elective Deferrals, and Required Voluntary
Contributions or Employer Contributions [unless
specified otherwise at (ii) below]:
[ ] (1) The Plan shall have no service
requirement.
[X] (2) The Plan shall cover only Employees
having completed at least 1 [not
more than three (3)] Years of
Service. If more that one (1) is
specified, for Plan Years beginning
in 1989 and later, the answer will
be deemed to be one (1).
(ii) For contributions [not covered at (i) above] specify
the Service requirements below:
8
<PAGE> 9
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
Service
Type of Contribution Requirement
-------------------- -----------
Employer Matching ________
Qualified Non-Elective ________
Discretionary Profit-Sharing ________
Required Voluntary ________
Not more than three (3) years may be specified. If
more than two (2) years is specified, for Plan Years
beginning in 1989 and later, the requirement will be
deemed to be two (2) years.
NOTE: If the eligibility period selected is or
includes a fractional year, an Employee will
not be required to complete any specified
number of Hours of Service to receive credit
for such period, Participants will be
eligible for Top-Heavy minimum contributions
after the period in (i) above, assuming they
satisfy the other requirements of this
Section 4.
(b) Age:
[ ] (i) The Plan shall have no minimum age
requirement.
[X] (ii) The Plan shall cover only Employees having
attained age 21 (not more than age 21).
(c) Classification:
The Plan shall cover all Employees who have met the age and
service requirements with the following exceptions:
[ ] (i) No exceptions.
[X] (ii) The Plan shall exclude Employees included in
a unit of Employees covered by a collective
bargaining agreement between the Employer and
Employee Representatives, if retirement
benefits were the subject of good faith
bargaining. For this purpose, the term
"Employee Representative" does not include
any organization more than half of whose
members are Employees who are owners,
officers, or executives of the Employer.
9
<PAGE> 10
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[X] (iii) The Plan shall exclude Employees who are
nonresident aliens and who receive no earned
income from the Employer which constitutes
income from sources within the United States.
[ ] (iv) The Plan shall exclude from participation any
classification of Employees determined as
follows:
__________________________________
(d) Employees on Effective Date:
[X] (i) Not Applicable. All Employees will be
required to satisfy both the age and Service
requirements specified above.
[ ] (ii) Employees employed on the Plan's Effective
Date do not have to satisfy the Service
requirements specified above at [ ](a)(i), [ ]
(a)(ii), [ ] both.
[ ] (iii) Employees employed on the Plan's Effective
Date do not have to satisfy the age
requirements specified above.
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire
upon reaching a specified age, the Normal Retirement Age
selected below may not exceed the Employer imposed mandatory
retirement age.
[X] (i) Normal Retirement Age shall be 59 1/2 (not to
exceed age 65).
[ ] (ii) Normal Retirement Age shall be the later of
attaining age ______ (not to exceed age 65)
or the ________ (not to exceed the 5th)
anniversary of the first day of the first
Plan Year in which the Participant commenced
participation in the Plan.
(b) Early Retirement Age:
[X] (i) Not Applicable.
[ ] (ii) The Plan shall have an Early Retirement Age
of _____ (not less than 55) and completion of
________ Years of Service.
10
<PAGE> 11
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
6. EMPLOYEE CONTRIBUTIONS
[X] (a) Participants shall be permitted to make Elective
Deferrals in any amount from 0% up to 15% of their
Compensation.
If (a) is applicable, Participants shall be permitted
to amend their Salary Savings Agreements to change
the contribution percentage as provided below:
[ ] (i) On the Anniversary Date of the Plan,
[ ] (ii) On the Anniversary Date of the Plan
and on the first day of the seventh
month of the Plan Year,
[ ] (iii) On the Anniversary Date of the Plan
and on the first day following any
Valuation Date, or
[X] (iv) Upon 30 days notice to the Employer.
[ ] (b) Participants shall be permitted to make after tax
Voluntary Contributions.
[ ] (c) Participants shall be required to make after tax
Voluntary Contributions as follows (Thrift Savings
Plan):
[ ] (i) _____% of Compensation.
[ ] (ii) A percentage determined by the
Employee on his or her enrollment
form.
[X] (d) If necessary to pass the Average Deferral Percentage
Test, Participants [ ] may [X] may not have Elective
Deferrals re-characterized as Voluntary
Contributions.
NOTE: The Average Deferral Percentage Test will
apply to contributions under (a) above. The
Average Contribution Percentage Test will
apply to contributions under (b) and (c)
above, and may apply to (a).
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in
accordance with the formula or formulas selected
below. The Employer's contribution shall be subject
to the limitations contained in Articles III and X.
For this purpose, a contribution for a Plan Year
shall be limited for the Limitation Year which ends
with or within such Plan Year. Also, the integrated
allocation formulas
11
<PAGE> 12
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
below are for Plan Years beginning in 1989 and later.
The Employer's allocation for earlier years shall be
as specified in its Plan prior to amendment for the
Tax Reform Act of 1986.
(a) Profits Requirement:
(i) Current or Accumulated Net Profits are required for:
[ ] (A) Matching Contributions.
[ ] (B) Qualified Non-Elective
Contributions.
[ ] (C) discretionary contributions.
(ii) No Net Profits are required for:
[X] (A) Matching Contributions.
[X] (B) Qualified Non-Elective
Contributions.
[X] (C) discretionary contributions.
NOTE: Elective Deferrals can always be contributed
regardless of profits.
[X] (b) Salary Savings Agreement:
The Employer shall contribute and allocate to each
Participant's account an amount equal to the amount withheld
from the Compensation of such Participant pursuant to his or
her Salary Savings Agreement. If applicable, the maximum
percentage is specified in Section 6 above.
An Employee who has terminated his or her election under the
Salary Savings Agreement other than for hardship reasons may
not make another Elective Deferral:
[ ] (i) until the first day of the next Plan Year.
[ ] (ii) until the first day of the [ ] next valuation
period. [ ] second valuation period following
termination. [ ] third valuation period
following termination.
[X] (iii) for a period of 3 month(s) (not to exceed 12
months).
12
<PAGE> 13
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[X] (c) Matching Employer Contribution [See paragraphs (h) and (i)]:
[ ] (i) PERCENTAGE MATCH: The Employer shall
contribute and allocate to each eligible
Participant's account an amount equal to
_________% of the amount contributed and
allocated in accordance with paragraph 7(b)
above and (if checked) ________% of [ ] the
amount of Voluntary Contributions made in
accordance with paragraph 4.1 of the Basic
Plan Document #R1. The Employer shall not
match Participant Elective Deferrals as
provided above in excess of $_____________ or
in excess of __________% of the Participant's
Compensation or if applicable, Voluntary
Contributions in excess of $___________ or in
excess of __________% of the Participant's
Compensation. In no event will the match on
both Elective Deferrals and Voluntary
Contributions exceed a combined amount of
$_______ or __________%.
[X] (ii) DISCRETIONARY MATCH: The Employer shall
contribute and allocate to each eligible
Participant's account a percentage of the
Participant's Elective Deferral contributed
and allocated in accordance with paragraph
7(b) above. The Employer shall set such
percentage prior to the end of the Plan Year.
The Employer shall not match Participant
Elective Deferrals in excess of
$_____________ or in excess of 6% of the
Participant's Compensation.
[ ] (iii) TIERED MATCH: The Employer shall contribute
and allocate to each Participant's account
an amount equal to __________ % of the first
____% the Participant's Compensation,
________% of the next ________% of the
Participant's Compensation,
________% of the next ________% of the
Participant's Compensation.
NOTE: Percentages specified in (iii) above may not
increase as the percentage of Participant's
contribution increases.
[ ] (iv) FLAT DOLLAR MATCH: The Employer shall
contribute and allocate to each Participant's
account $__________ if the Participant defers
at least 1% of Compensation.
[ ] (v) PERCENTAGE OF COMPENSATION MATCH: The
Employer shall contribute and allocate to
each Participant's account ________% of
Compensation if the Participant defers at
least 1% of Compensation.
13
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[ ] (vi) PROPORTIONATE COMPENSATION MATCH: The
Employer shall contribute and allocate to
each Participant who defers at least 1% of
Compensation, an amount determined by
multiplying such Employer Matching
Contribution by a fraction the numerator of
which is the Participant's Compensation and
the denominator of which is the Compensation
of all Participants eligible to receive such
an allocation. The Employer shall set such
discretionary contribution prior to the end
of the Plan Year.
[X] (vii) QUALIFIED MATCH: Employer Matching
Contributions will be treated as Qualified
Matching Contributions to the extent
specified below:
[ ] (A) All Matching Contributions.
[X] (B) None.
[ ] (C) ______% of the Employer's
Matching Contribution.
[ ] (D) Up to _____% of each
Participant's Compensation.
[ ] (E) The amount necessary to meet
the [ ] Average Deferral
Percentage (ADP) Test, [ ]
Average Contribution
Percentage (ACP) Test, [ ]
Both the ADP and ACP Tests.
(viii) MATCHING CONTRIBUTION COMPUTATION PERIOD: The
time period upon which matching contributions
will be based shall be
[ ] (A) weekly
[ ] (B) bi-weekly
[ ] (C) semi-monthly
[ ] (D) monthly
[X] (E) quarterly
[ ] (F) semi-annually
[ ] (G) annually
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(ix) ELIGIBILITY FOR MATCH: Employer Matching
Contributions, whether or not Qualified, will
only be made on Employee Contributions not
withdrawn prior to the end of the [X]
valuation period [ ] Plan Year.
[X] (d) Qualified Non-Elective Employer Contribution - [See paragraphs
(h) and (i)] These contributions are fully vested when
contributed.
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as
a percentage of the Compensation of all eligible Employees.
This part of the Employer's contribution and the allocation
thereof shall be unrelated to any Employee contributions made
hereunder. The amount of Qualified non-Elective Contributions
taken into account for purposes of meeting the ADP or ACP test
requirements is:
[ ] (i) All such Qualified non-Elective
Contributions.
[X] (ii) The amount necessary to meet [ ] the ADP
test, [ ] the ACP test, [X] Both the ADP and
ACP tests.
Qualified non-Elective Contributions will be made to:
[ ] (iii) All Employees eligible to participate.
[X] (iv) Only non-Highly Compensated Employees
eligible to participate.
[X] (e) Additional Employer Contribution Other Than Qualified
Non-Elective Contributions Non-Integrated [See paragraphs (h)
and (i)]
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as
a percentage of the Compensation of all eligible Employees.
This part of the Employer's contribution and the allocation
thereof shall be unrelated to any Employee contributions made
hereunder.
[ ] (f) Additional Employer Contribution - Integrated Allocation
Formula [See paragraphs (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution. The Employer's contribution for
the Plan Year plus any forfeitures shall be allocated to the
accounts of eligible Participants as follows:
15
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(i) First, to the extent contributions and forfeitures
are sufficient, all Participants will receive an
allocation equal to 3% of their Compensation.
(ii) Next, any remaining Employer Contributions and
forfeitures will be allocated to Participants who
have Compensation in excess of the Taxable Wage Base
(excess Compensation). Each such Participant will
receive an allocation in the ratio that his or her
excess compensation bears to the excess Compensation
of all Participants. Participants may only receive an
allocation of 3% of excess Compensation.
(iii) Next, any remaining Employer contributions and
forfeitures will be allocated to all Participants in
the ratio that their Compensation plus excess
Compensation bears to the total Compensation plus
excess Compensation of all Participants. Participants
may only receive an allocation of up to 2.7% of their
Compensation plus excess Compensation, under this
allocation method. If the Taxable Wage Base defined
at Section 3(j) is less than or equal to the greater
of $10,000 or 20% of the maximum, the 2.7% need not
be reduced, If the amount specified is greater than
the greater of $10,000 or 20% of the maximum Taxable
Wage Base, but not more than 80%, 2.7% must be
reduced to 1.3%. If the amount specified is greater
than 80% but less than 100% of the maximum Taxable
Wage Base, the 2.7% must be reduced to 2.4%.
NOTE: If the Plan is not Top-Heavy or if the
Top-Heavy minimum contribution or benefit is
provided under another Plan [see Section
11(c)(ii)] covering the same Employees, sub-
paragraphs (i) and (ii) above may be
disregarded and 5.7%, 4.3% or 5.4% may be
substituted for 2.7%, 1.3% or 2.4% where it
appears in (iii) above.
(iv) Next, any remaining Employer contributions and
forfeitures will be allocated to all Participants
(whether or not they received an allocation under the
preceding paragraphs) in the ratio that each
Participant's Compensation bears to all Participants'
Compensation.
[ ] (g) Additional Employer Contribution-Alternative Integrated
Allocation Formula. [See paragraph (i)]
The Employer shall have the right to make an additional
discretionary contribution. To the extent that such
contributions are sufficient, they shall be allocated as
follows:
______% of each eligible Participant's Compensation plus
_______% of Compensation in excess of the Taxable Wage Base
defined at Section 3(j) hereof. The percentage on excess
compensation may not exceed the lesser of (i) the amount first
specified in this paragraph or (ii) the greater of 5.7% or the
percentage rate of tax under Code Section
16
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
3111(a) as in effect on the first day of the Plan Year
attributable to the Old Age (OA) portion of the OASDI
provisions of the Social Security Act. If the Employer
specifies a Taxable Wage Base in Section 3(j) which is lower
than the Taxable Wage Base for Social Security purposes
(SSTWB) in effect as of the first day of the Plan Year, the
percentage contributed with respect to excess Compensation
must be adjusted. If the Plan's Taxable Wage Base is greater
than the larger of $10,000 or 20% of the SSTWRB but not more
than 80% of the SSTWB, the excess percentage is 4.3%. If the
Plan's Taxable Wage Base is greater than 80% of the SSTWRB but
less than 100% of the SSTWB, the excess percentage is 5.4%.
NOTE: Only one plan maintained by the Employer may be
integrated with Social Security.
(h) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an
Excess Amount, such excess shall be:
[X] (i) placed in a suspense account accruing no
gains or losses for the benefit of the
Participant.
[ ] (ii) reallocated as additional Employer
contributions to all other Participants to
the extent that they do not have any Excess
Amount.
(i) Minimum Employer Contribution Under Top-Heavy Plans:
For any Plan Year during which the Plan is Top-Heavy, the sum
of the contributions and forfeitures as allocated to eligible
Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of
this Adoption Agreement shall not be less than the amount
required under paragraph 14.2 of the Basic Plan document #Rl.
Top-Heavy minimums will be allocated to:
[ ] (i) all eligible Participants.
[X] (ii) only eligible non-Key Employees who are
Participants.
(j) Return of Excess Contributions and/or Excess Aggregate
Contributions:
In the event that one or more Highly Compensated Employees are
subject to both the ADP and ACP tests and the sum of such
tests exceeds the Aggregate Limit, the limit will be satisfied
by reducing the:
[ ] (i) the ADP of the affected Highly Compensated
Employees.
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[ ] (ii) the ACP of the affected Highly Compensated
Employees.
[X] (iii) a combination of the ADP and ACP of the
affected Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES [paragraph 5.3]
[ ] (a) The Employer will not allocate Employer related
contributions to Employees who terminate during a
Plan Year, unless required to satisfy the
requirements of Code Section 401(a)(26) and 410(b).
(These requirements are effective for 1989 and
subsequent Plan Years.)
[X] (b) The Employer will allocate Employer matching and
other related contributions as indicated below to
Employees who terminate during the Plan Year as a
result of:
<TABLE>
<CAPTION>
Matching Other
-------- -----
<S> <C> <C> <C>
[X] [X] (i) Retirement.
[X] [X] (ii) Disability.
[X] [X] (iii) Death.
[X] [X] (iv) Other termination of employment provided that the Participant
has completed a Year of Service as defined for Allocation
Accrual Purposes.
[ ] [ ] (v) Other termination of employment even though the Participant
has not completed a Year of Service.
[ ] [ ] (vi) Termination of employment (for any reason) provided that the
Participant had completed a Year of Service for Allocation
Accrual Purposes.
</TABLE>
9. ALLOCATION OF FORFEITURES
NOTE: Subsections (a), (b) and (c) below apply to
forfeitures of amounts other than Excess Aggregate
Contributions.
18
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(a) Allocation Alternatives:
[ ] (i) Not Applicable. All contributions are always
fully vested.
[ ] (ii) Forfeitures shall be allocated to
Participants in the same manner as the
Employer's contribution.
If allocation to other Participants is
selected, the allocation shall be as follows:
[1] Amount attributable to Employer
discretionary contributions and
Top-Heavy minimums will be allocated
to:
[ ] all eligible Participants
under the Plan.
[ ] only those Participants
eligible for an allocation of
Employer contributions in the
current year.
[ ] only those Participants
eligible for an allocation of
matching contributions in the
current year.
[2] Amounts attributable to Employer
Matching contributions will be
allocated to:
[ ] all eligible Participants.
[ ] only those Participants
eligible for allocations of
matching contributions in the
current year.
[X] (iii) Forfeitures shall be applied to reduce the
Employer's contribution for such Plan Year.
[ ] (iv) Forfeitures shall be applied to offset
administrative expenses of the Plan. If
forfeitures exceed these expenses, (iii)
above shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former
Participant, sub-section (i) below will apply to such
Participant even if the Employer elects (ii), (iii)
or (iv) below as its normal administrative policy.
19
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[ ] (i) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Participant incurs his or her fifth
consecutive one year Break In Service.
[X] (ii) Forfeitures will be reallocated immediately
(as of the next Valuation Date).
[ ] (iii) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Employee incurs his or her ___ (1st, 2nd,
3rd, or 4th) consecutive one year Break In
Service.
[ ] (iv) Forfeitures will be reallocated immediately
(as of the Plan Year end).
(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year
Breaks in Service, the Funds for restoration of account
balances will be obtained from the following resources in the
order indicated (fill in the appropriate number):
[1] (i) Current year's forfeitures.
[2] (ii) Additional Employer contribution.
[3] (iii) Income or gain to the Plan.
(d) Forfeitures of Excess Aggregate Contributions shall be:
[X] (i) Applied to reduce Employer contributions,
[ ] (ii) Allocated, after all other forfeitures under
the Plan, to the Matching Contribution
account of each non-highly compensated
Participant who made Elective Deferrals or
Voluntary Contributions in the ratio which
each such Participant's Compensation for the
Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such
forfeitures cannot be allocated to the
account of any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so
applied at the end of the Plan Year in which they occur.
20
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
10. CASH OPTION
[ ] (a) The Employer may permit a Participant to elect to
defer to the Plan, an amount not to exceed ______% of
any Employer paid cash bonus made for such Participant
for any year. A Participant must file an election to
defer such contribution at least fifteen (15) days
prior to the end of the Plan Year. If the Employee
fails to make such an election, the entire Employer
paid cash bonus to which the Participant would be
entitled shall be paid as cash and not to the Plan.
Amounts deferred under this section shall be treated
for all purposes as Elective Deferrals.
Notwithstanding the above, the election to defer must
be made before the bonus is made available to the
Participant.
[X] (b) Not Applicable.
11. LIMITATIONS ON ALLOCATIONS [ARTICLE XI
[ ] This is the only Plan the Employer maintains or ever
maintained; therefore, this section is not applicable.
[X] The Employer does maintain or has maintained another Plan
(including a Welfare Benefit Fund or an individual medical
account [as defined in Code Section 415(l)(2)], under which
amounts are treated as Annual Additions) and has completed the
proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or
ever maintained another qualified plan, including a Welfare
Benefit Fund or an individual medical account [as defined in
Code Section 415(l)(2)] in which any Participant in this Plan
is (or was) a participant or could possibly become a
participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a
Regional Prototype Plan:
[X] (i) the provisions of Article X of the Basic Plan
Document #Rl will apply, as if the other plan
were a Regional Prototype Plan.
[ ] (ii) Attach provisions stating the method under
which the plans will limit total Annual
Additions to the Maximum Permissible Amount,
and will properly reduce any Excess Amounts,
in a manner that precludes Employer
discretion.
(b) If a Participant is or ever has been a participant in a
Defined Benefit Plan maintained by the Employer:
21
<PAGE> 22
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
Attach provisions which will satisfy the 1.0 limitation of
Code Section 415(e). Such language must preclude Employer
discretion. The Employer must also specify the interest and
mortality assumptions used in determining Present Value in the
Defined Benefit Plan.
(c) The minimum contribution or benefit required under Code
Section 416 relating to Top-Heavy Plans shall be satisfied by:
[X] (i) this Plan.
[ ] (ii) ____________________________________________
(Name of other qualified plan of the
Employer).
[ ] (iii) Attach provisions stating the method under
which the minimum contribution and benefit
provisions of Code Section 416 will be
satisfied. If a Defined Benefit Plan is or
was maintained, an attachment must be
provided showing interest and mortality
assumptions used in the Top-Heavy Ratio.
12. VESTING [Article IX]
Employees shall have a fully vested and nonforfeitable interest in any
Employer contribution and the investment earnings thereon made in
accordance with paragraphs (select one or more options) [ ] 7(c), [ ]
7(e), [ ] 7(f), [ ] 7(g) and [ ] 7(i) hereof. Contributions under
paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or
more of the foregoing options are not selected, such Employer
contributions shall be subject to the vesting table selected by the
Employer.
Each Participant shall acquire a vested and nonforfeitable percentage
in his or her account balance attributable to Employer contributions
and the earnings thereon under the procedures selected below except
with respect to any Plan Year during which the Plan is Top-Heavy, in
which case the Two-twenty vesting schedule [option (b)(iv)] shall
automatically apply unless the Employer has already elected a faster
vesting schedule. If the Plan is switched to option (b)(iv), because
of its Top-Heavy status, that vesting schedule will remain in effect
even if the Plan later becomes non-Top-Heavy until the Employer
executes an amendment of this Adoption Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of
Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account
balance derived from Employer contributions:
22
<PAGE> 23
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[ ] (i) shall not be applicable since Participants
are always fully vested,
[X] (ii) shall commence on the date on which an
Employee first performs an Hour of Service
for the Employer and each subsequent
12-consecutive month period shall commence on
the anniversary thereof, or
[ ] (iii) shall commence on the first day of the Plan
Year during which an Employee first performs
an Hour of Service for the Employer and each
subsequent 12-consecutive month period shall
commence on the anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she
completes at least 1,000 Hours of Service [or if lesser, the number of
hours specified at 3(l)(iii) of this Adoption Agreement] at any time
during the 12-consecutive month computation period. Consequently, a
Year of Service may be earned prior to the end of the 12-consecutive
month computation period and the Participant need not be employed at
the end of the 12-consecutive month computation period to receive
credit for a Year of Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a
Participant who has at least one Hour of Service
during or after the 1989 Plan Year. If applicable,
Participants who separated from Service prior to the
1989 Plan Year will remain under the vesting schedule
as in effect in the Plan prior to amendment for the
Tax Reform Act of 1986.
(i) Full and immediate vesting.
<TABLE>
<CAPTION>
Years of Service
----------------
1 2 3 4 5 6 7
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) ___% 100%
(iii) ___% ___% 100%
(iv) ___% 20% 40% 60% 80% 100%
(v) ___% ___% 20% 40% 60% 80% 100%
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) ___% ___% ___% ___% 100%
(viii) 0% 10% 30% 60% 100% 100% 100%
</TABLE>
23
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
NOTE: The percentages selected for schedule (viii) may not
be less for any year than the percentages shown at
schedule (v).
[X] All contributions other than those which are fully
vested when contributed will vest under schedule VIII
above.
[ ] Contributions other than those which are fully vested
when contributed will vest as provided below:
<TABLE>
<CAPTION>
Vesting
Option Selected Type Of Employer Contribution
--------------- -----------------------------
<S> <C>
________ 7(c) Employer Match on Salary Savings
________ 7(c) Employer Match on Employee Voluntary
________ 7(e) Employer Discretionary
________ 7(f) & (g) Employer
Discretionary - Integrated
</TABLE>
(c) Service disregarded for Vesting:
[X] (i) Not Applicable. All Service shall be
considered.
[ ] (ii) Service prior to the Effective Date of this
Plan or a predecessor plan shall be
disregarded when computing a Participant's
vested and nonforfeitable interest.
[ ] (iii) Service prior to a Participant having
attained age 18 shall be disregarded when
computing a Participant's vested and
nonforfeitable interest.
13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility,
Hours of Service shall include Service with the following predecessor
organization(s):
(These hours will also be used for vesting purposes.)
24
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REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the
Basic Plan Document #Rl, [X] shall [ ] shall not be permitted.
If permitted, Employees [ ] may [X] may not make Rollover
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
(b) Transfer Contributions, as described at paragraph 4.4 of the
Basic Plan Document #RI [X] shall [ ] shall not be permitted.
If permitted, Employees [ ] may [X] may not make Transfer
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept
such contributions if its Plan meets the safe-harbor
rules of paragraph 8.7 of the Basic Plan Document
#Rl.
15. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic
Plan Document #Rl, [X] are [ ] are not permitted.
16. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.4 of the Basic Plan
Document #Rl, [X] are [ ] are not permitted. If permitted, repayments
of principal and interest shall be repaid to [X] the Participant's
segregated account or [ ] the general Fund.
17. INSURANCE POLICIES
The insurance provisions of paragraph 13.5 of the Basic Plan Document
#Rl [ ] shall [X] shall not be applicable.
18. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in
paragraph 13.6 of the Basic Plan Document #Rl, [ ] shall [X] shall not
be applicable.
19. EMPLOYEE STATEMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in
paragraph 13.7 of the Basic Plan Document #Rl, [X] shall [ ]
shall not be applicable.
If applicable, Participants may direct their investments:
25
<PAGE> 26
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
[X] (i) among funds offered by the Trustee.
[ ] (ii) among any allowable investments.
(b) Participants may direct the following kinds of contributions
and the earnings thereon (check all applicable):
[X] (i) All Contributions
[ ] (ii) Elective Deferrals
[ ] (iii) Employee Voluntary Contributions (after-tax)
[ ] (iv) Employee Mandatory Contributions (after-tax)
[ ] (v) Employer Qualified Matching Contributions
[ ] (vi) Other Employer Matching Contributions
[ ] (vii) Employer Qualified Non-Elective Contributions
[ ] (viii) Employer Discretionary Contributions
[ ] (ix) Rollover Contributions
[ ] (x) Transfer Contributions
[ ] (xi) All of above which are checked, but only to
the extent that the Participant is vested in
those contributions.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement,
death or Disability [X] may [ ] may not make application to
the Employer requesting an early payment of his or her vested
account balance.
(b) A Participant who has not separated from Service [ ] may [X]
may not obtain a distribution of his or her vested Employer
contributions. Distribution can only be made if the
Participant is 100% vested.
(c) A Participant who has attained the Plan's Normal Retirement
Age and who has not separated from Service [X] may not receive
a distribution of his or her vested account balance.
26
<PAGE> 27
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
NOTE: If the Participant has had the right to withdraw his
or her account balance in the past, this right may
not be taken away. Notwithstanding the above, to the
contrary, required minimum distributions will be paid.
For timing of distribution see item 21(a) below.
21. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[X] (i) As soon as administratively feasible,
following the close of the valuation period
during which a distribution is requested or
is otherwise payable.
[ ] (ii) As soon as administratively feasible
following the close of the Plan Year during
which a distribution is requested or is
otherwise payable.
[ ] (iii) As soon as administratively feasible,
following the date on which a distribution is
requested or is otherwise payable.
[ ] (iv) As soon as administratively feasible, after
the close of the Plan Year during which the
Participant incurs _______ consecutive
one-year Breaks in Service.
[ ] (v) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early
Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be
paid:
[ ] (vi) As soon as administratively feasible,
following the close of the valuation period
during which a distribution is requested or
is otherwise payable.
[ ] (vii) As soon as administratively feasible
following the close of the Plan Year during
which a distribution is requested or is
otherwise payable.
[X] (viii) As soon as administratively feasible,
following the date on which a distribution is
requested or is otherwise payable.
27
<PAGE> 28
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(b) Optional Forms of Payment:
[X] (i) Lump Sum.
[ ] (ii) Installment Payments.
[ ] (iii) Life Annuity*.
[ ] (iv) Life Annuity Term Certain*.
Life Annuity with payments guaranteed for
____________ years (not to exceed 20 years,
specify all applicable).
[ ] (v) Joint and [ ] 50%, [ ] 66-2/3%, [ ] 75% or [ ]
100% survivor annuity* (specify all
applicable).
[ ] (vi) Other form(s) specified:______________________
*Not available in Plan meeting provisions of paragraph 8.7 of
Basic Plan Document #R1.
(c) Recalculation of Life Expectancy:
In determining required distributions under the Plan,
Participants and/or their Spouse (Surviving Spouse) [X] shall
[ ] shall not have the right to have their life expectancy
recalculated.
If "shall",
[ ] only the Participant shall be recalculated.
[ ] both the Participant and Spouse shall be
recalculated.
[X] who is recalculated shall be determined by the
Participant.
28
<PAGE> 29
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
22. SIGNATURES:
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
This agreement and the corresponding provisions of the Plan
and Trust Basic Plan Document #R1 were adopted by the Employer
the 29 day of April, 1996.
Signed for the Employer by: RICHARD DUPONT
Title: CHIEF FINANCIAL OFFICER
Signature: /s/ RICHARD DUPONT
------------------------------
THE EMPLOYER UNDERSTANDS THAT ITS FAILURE TO PROPERLY COMPLETE
THE ADOPTION AGREEMENT MAY RESULT IN DISQUALIFICATION OF ITS
PLAN.
Employer's Reliance: The adopting Employer may not rely on a
notification letter issued by the National Office of the
Internal Revenue Service as evidence that the Plan is
qualified under Code Section 401. In order to obtain reliance
with respect to Plan qualification, the Employer must apply to
the appropriate Key District Office for a determination
letter.
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #R1.
29
<PAGE> 30
REGIONAL PROTOTYPE
CASH OR DEFERRED
PROFIT-SHARING PLAN
#012
(b) TRUSTEE:
Name of Trustee:
BANK ONE TEXAS, N.A.
The Employer's Plan as contained herein was accepted by the Trustee(s)
the 30th day of April, 1996.
Signed for the Trustee by:
Title: V. P. AND TRUST OFFICER
Signature: [ILLEGIBLE]
(c) SPONSOR:
The Employer's Agreement and the corresponding provisions of the Plan
and Trust/Custodial Account Basic Plan Document #R1 were accepted by
the Sponsor the 26th day of April, 1996.
Signed for the Sponsor by: JOHN E. ANDERSON
Title: CONTRACT ADMINISTRATOR
Signature: /s/ JOHN E. ANDERSON
----------------------------------
30
<PAGE> 31
SEPTEMBER 25, 1995
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
1100 COMMERCE STREET
DALLAS, TX 75242
Employer Identification Number:
Date: September 19, 1995 75-1721253
File Folder Number:
740017654
CARLEY & MCCAW INC Person to Contact:
14400 JONES MALTSBERGER RD BRIAN C. BALL
STE 100 Contact Telephone Number:
SAN ANTONIO, TX 78247 (214) 767-0197
Plan Name:
NONSTANDARDIZED PROFIT SHARING/401K
PLAN
Plan Number: 012
Letter Serial Number:
D8752138
Dear Applicant:
The form of plan, identified above, and the related trust or custodial
account are acceptable under sections 401(a), 403(a), and 501(a) of the
Internal Revenue Code for use by employers for the benefit of their employees.
This letter relates only to the acceptability of the form of the plan under the
Internal Revenue Code. It is not a determination of the effect of other federal
or local statutes.
You must furnish a copy of this letter and the enclosed publication to
each employer who adopts this plan. You must also send a copy of this letter, a
copy of the approved form of the plan, and any approved amendments and related
documents to each key District Director of the Internal Revenue Service in
whose jurisdiction there are adopting employers.
The acceptability of the form of the plan is not a ruling or determination
as to whether an employer's plan qualifies under Code section 401(a). To adopt
the form of the plan, the employer should apply for a determination letter by
filing an application with the key District Director of the Internal Revenue
Service on Form 5307, Application for Determination for Adopters of Master or
Prototype, Regional Prototype or Volume Submitter Plans.
For purposes of sections 15.02 and 15.03 of Rev. Proc. 89-13, 1989-1 C.B.
801, your application was received before March 31, 1991.
Please advise those adopting the plan to contact you if they have any
questions about the operation of the plan.
This letter may not be relied upon with respect to whether the plan
satisfies the qualification requirements as amended by the Uruguay Round
Agreements Act, Pub. L. 103-465.
We have sent a copy of this letter to your representative as indicated in
your Power of Attorney.
Letter 2026 (DO/CG)
<PAGE> 32
SEPTEMBER 25, 1995
-2-
CARLEY & MCCAW INC
If you have any questions on our processing of this case, please call the
above telephone number. If you write, please provide your telephone number and
the most convenient time for us to call in case we need more information.
Whether you call or write, please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record.
Sincerely yours,
/s/ BOBBY E. SCOTT
Bobby E. Scott
District Director
Enclosure(s)
Publication 1488
Letter 2026 (DO/CG)
<PAGE> 33
[LOGO]
Department of the Treasury
Internal Revenue Service
PUBLICATION 1488
(Rev. February 1991)
Favorable Notification Letter
INTRODUCTION
This publication is issued in conjunction with a favorable notification letter.
It explains the significance of your letter, points out some features that may
affect the qualified status of the plan, and provides information on the
reporting requirements for the plan.
An employee retirement plan qualified under Internal Revenue Code
section 401(a) or 403(a) (qualified plan) is entitled to favorable tax
treatment. For example, contributions made in accordance with the plan document
are generally currently deductible. Participants will not include these
contributions into income until the time they receive a distribution from the
plan, at which time special income averaging rates for lump sum distributions
may serve to reduce the tax liability. In some cases, taxation may be further
deferred by rollover to another qualified plan or individual retirement
arrangement. See Publication 575, Pension and Annuity Income (Including
Simplified General Rule), for further details. Finally, plan earnings may
accumulate free of tax.
Employee retirement plans that fail to satisfy the requirements under
section 401(a) or 403(a) are not entitled to this favorable tax treatment.
Therefore, many employers desire advance assurance that the terms of their
plans satisfy the qualification requirements. The Service provides such advance
assurance for regional prototype plans by issuing favorable notification
letters. However, in some cases, a determination letter is also required for
reliance.
SIGNIFICANCE OF A FAVORABLE NOTIFICATION LETTER
Notification letters are issued by the Service to sponsors of regional
prototype plans. Plan sponsors then make the plan available to employers who
may adopt the plans for the benefit of their employees.
The significance of a favorable notification letter differs for
standardized plans and nonstandardized plans. A standardized plan can be
identified by the number 2, 5, or 7 appearing in the second position of the
letter serial number (the number following the alpha character which appears in
the upper right portion of the letter). A nonstandardized plan may be
identified by the number 3, 6, or 8 appearing in the second position.
STANDARDIZED PLANS. A standardized plan is designed to be
automatically acceptable under any fact pattern, except as indicated below.
Therefore, there is no need to request a determination letter for such plans,
provided the employer does not amend the plan and chooses only those options in
the adoption agreement that were approved by the Service. Although a
determination letter is not requested, the employer must still inform
interested parties of the establishment or amendment of the plan. However, a
determination letter is required for advance assurance that the provisions of
the plan satisfy the qualification requirements if the employer maintains or
has maintained another qualified plan. The employer is not considered to have
maintained another plan merely because the plan was previously not a
standardized plan. Under certain circumstances, employers who have adopted
standardized defined benefit plans may wish to request a determination letter
than their plans' prior benefit structure satisfies the requirements of
Internal Revenue Code section 401(a)(26).
Paired plans are standardized plans that are designed to work
together. A paired plan may be recognized by the phrase "other than a specified
paired plan" appearing in the firth or sixth paragraph of the notification
letter. If the employer maintains and has maintained only paired plans, a
determination letter is not needed.
NONSTANDARDIZED PLANS. It is possible that the unique fact patterns applicable
to a specific employer may cause a nonstandardized plan to fail qualification.
Therefore, to obtain advance assurance the that plan is qualified, the plan
must be submitted for a determination letter. A determination letter is similar
to an insurance policy that will, in many cases, protect the employer and plan
beneficiaries from adverse tax consequences if the plan is later found to be
nonqualified in the absence of a change in law, provided the plan is being
operated in good faith in accordance with plan provisions. This advance
assurance is a service provided by the Internal Revenue Service, and is not
required for qualification. Form 5307, Application for Determination for
Adopters of Master of Prototype Regional Prototype or Volume Submitter plans,
is used to request a determination letter, along with Form 5302, Employee
Census, Form 8717 (explained later), a copy of the adoption agreement, a copy
of the notification letter, a certification from the plan sponsor that the plan
has not been withdrawn and is still in effect, and a copy of any separate trust
or custodial account document.
USER FEE. There is a charge for requesting a determination letter, but the
charge is significantly reduced for regional prototype plans. Please complete
and attach Form 8717, User Fee for Employee Plan Determination Letter Request,
to Form 5307 when requesting a determination.
LAW CHANGES AFFECTING THE PLAN. Plans must be amended to retain their qualified
status if any plan provision fails qualification requirements because of
changes in the law becoming effective subsequent to the issuance of the
notification letter. If the plan is not amended, the plan will become
nonqualified without specific notice from the Service. this will occur even if
the employer has received a favorable determination letter in addition to the
notification letter. The employer and plan participants may be subject to
adverse tax consequences if the plan is nonqualified.
The first character of the serial number assigned to the plan
indicates the latest law change for which the plan has been amended. For
example, the letter "D" indicates that the plan had been amended for the Tax
Reform Act of 1986, which generally became effective for plan years after the
1988 plan year.
A notification letter will not be applicable after a change in
qualification requirements unless the plan sponsor requests a new notification
letter within 12 months after the change. The plan sponsor must provide those
employers for whom the employer is continuing to sponsor the plan with a copy
of the amendments and the new notification letter within 60 days of the receipt
of the new letter. If a change requires modification of the adoption agreement,
employers must execute the
<PAGE> 34
new agreement by the later of 6 months after issuance of the new notification
letter, or the end of the period specified in Internal Revenue Code section
401(b).
If the application for a notification letter was submitted to the
Service within certain time frames, the plan generally need not be amended
again unless required to do so by legislation. The application was submitted
to the Service within these time frames, if the following paragraph appears in
the notification letter: "For purposes of sections 15.02 and 15.03 of Rev.
Proc. 89-13, 1989-1 C.B. 801, your application was received timely".
REQUIRED NOTIFICATIONS TO ADOPTING EMPLOYERS. The plan sponsor must provide
adopting employers with annual notifications indicating whether the sponsor
intends to continue to sponsor the plan, and whether amendments have been made
to the plan. The plan sponsor must also notify employers within 60 days if the
plan sponsor discontinues its sponsoring of the plan.
REQUIRED NOTIFICATIONS TO THE INTERNAL REVENUE SERVICE. On each anniversary of
the date of issuance of the notification letter, the plan sponsor must advise
the Service whether the sponsor has made any changes to the plan, and whether
the plan is still being made available for adoption by employers. The plan
sponsor must also provide a listing of adopting employers, and a statement that
the plan sponsor has provided employers with the notification described in the
above paragraph.
REPORTING REQUIREMENTS. Most plan administrators or employers who maintain an
employee benefit plan must file an annual return/report with the Internal
Revenue Service. The following forms should be used for this purpose:
Form 5500EZ - generally for a "One-Participant Plan," which is a plan that
covers only: (1) an individual, or an individual or his or her spouse who
wholly own a business, whether incorporated or not, or (2) partner(s) in a
partnership or the partner(s) and their spouse(s). If Form 5500EZ cannot be
used, the one-participant plan should use 5500-C or 5500-R, whichever applies.
Note: Keogh (H.R. 10) plans are required to file an annual return even if the
only participants are owner-employees. The term "owner-employee" includes a
partner who owns more than 10% interest in either the capital or the profits of
the partnership. This applies to both defined contribution and defined benefit
plans.
FILING EXCEPTION FOR PLANS THAT HAVE NO MORE THAN $100,000 IN ASSETS. An annual
return is not required to be filed for one participant plans having $100,000 or
less in assets that otherwise qualify for filing Form 5500EZ.
Form 5500 - for a pension benefit plan with 100 or more participants at the
beginning of the plan year.
Form 5500-C - for a pension benefit plan with more than one but fewer than 100
participants at the beginning of the plan year.
Form 5500-R - for a pension benefit plan with more than one but fewer than 100
participants at the start of the plan year for which 5500-C is not filed. NOTE:
For 1989 and subsequent years Form 5500-R is part of the Form 5500C/R package.
Filing only the first two pages of the Form 5500C/R package constitutes the
filing of Form 5500-R.
WHEN TO FILE. Forms 5500 and 5500EZ must be filed annually. Form 5500-C must be
filed for (i) the initial plan year, (ii) the year a final return/report would
be filed, and (iii) at three-year intervals. Form 5500-R must be filed in the
years when Form 5500-C is not filed (See Note above). However, 5500-C will be
accepted in place of 5500-R.
DISCLOSURE. The Internal Revenue Service will process the returns and provide
the Department of Labor and the Pension Benefit Guarantee Corporation with the
necessary information and copies of the returns on microfilm for disclosure
purposes.
<PAGE> 35
REGIONAL PROTOTYPE DEFINED CONTRIBUTION
PLAN AND TRUST
SPONSORED BY
CARLEY & MC CAW, INC.
BASIC PLAN DOCUMENT #R1
FEBRUARY 1993
COPYRIGHT 1993 MCKAY HOCHMAN CO., INC.
<PAGE> 36
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. UNAUTHORIZED
USE, DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENT
<TABLE>
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ARTICLE I
DEFINITIONS
1.1 Actual Deferral Percentage 1
1.2 Adoption Agreement 1
1.3 Aggregate Limit 1
1.4 Annual Additions 2
1.5 Annuity Starting Date 2
1.6 Applicable Calendar Year 2
1.7 Applicable Life Expectancy 2
1.8 Average Contribution Percentage (ACP) 2
1.9 Average Deferral Percentage (ADP) 2
1.10 Break In Service 3
1.11 Code 3
1.12 Compensation 3
1.13 Contribution Percentage 5
1.14 Defined Benefit Plan 5
1.15 Defined Benefit (Plan) Fraction 5
1.16 Defined Contribution Dollar Limitation 5
1.17 Defined Contribution Plan 6
1.18 Defined Contribution (Plan) Fraction 6
1.19 Designated Beneficiary 6
1.20 Disability 6
1.21 Distribution Calendar Year 6
1.22 Early Retirement Age 6
1.23 Earned Income 6
1.24 Effective Date 7
1.25 Election Period 7
1.26 Elective Deferral 7
1.27 Eligible Participant 7
1.28 Employee 7
1.29 Employer 7
1.30 Entry Date 7
1.31 Excess Aggregate Contributions 7
1.32 Excess Amount 8
1.33 Excess Contribution 8
1.34 Excess Elective Deferrals 8
1.35 Family Member 8
1.36 First Distribution Calendar Year 8
1.37 Fund 8
1.38 Hardship 8
1.39 Highest Average Compensation 8
1.40 Highly Compensated Employee 8
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
1.41 Hour Of Service 9
1.42 Key Employee 10
1.43 Leased Employee 10
1.44 Limitation Year 10
1.45 Master Or Prototype Plan 11
1.46 Matching Contribution 11
1.47 Maximum Permissible Amount 11
1.48 Net Profit 11
1.49 Normal Retirement Age 11
1.50 Owner-Employee 11
1.51 Paired Plans 11
1.52 Participant 11
1.53 Participant's Benefit 11
1.54 Permissive Aggregation Group 11
1.55 Plan 11
1.56 Plan Administrator 12
1.57 Plan Year 12
1.58 Present Value 12
1.59 Projected Annual Benefit 12
1.60 Qualified Deferred Compensation Plan 12
1.61 Qualified Domestic Relations Order 12
1.62 Qualified Early Retirement Age 12
1.63 Qualified Joint And Survivor Annuity 12
1.64 Qualified Matching Contribution 13
1.65 Qualified Non-Elective Contributions 13
1.66 Qualified Voluntary Contribution 13
1.67 Regional Prototype Plan 13
1.68 Required Aggregation Group 13
1.69 Required Beginning Date 13
1.70 Rollover Contribution 13
1.71 Salary Savings Agreement 14
1.72 Self-Employed Individual 14
1.73 Service 14
1.74 Shareholder Employee 14
1.75 Simplified Employee Pension Plan 14
1.76 Sponsor 14
1.77 Spouse (Surviving Spouse) 14
1.78 Super Top-Heavy Plan 14
1.79 Taxable Wage Base 14
1.80 Top-Heavy Determination Date 14
1.81 Top-Heavy Plan 14
1.82 Top-Heavy Ratio 15
1.83 Top-Paid Group 16
1.84 Transfer Contribution 16
1.85 Trustee 16
1.86 Valuation Date 16
1.87 Vested Account Balance 16
1.88 Voluntary Contribution 17
1.89 Welfare Benefit Fund 17
1.90 Year Of Service 17
</TABLE>
<PAGE> 38
<TABLE>
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation 18
2.2 Change In Classification Of Employment 18
2.3 Computation Period 18
2.4 Employment Rights 18
2.5 Service With Controlled Groups 18
2.6 Owner-Employees 18
2.7 Leased Employees 19
2.8 Thrift Plans 19
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount 20
3.2 Expenses And Fees 20
3.3 Responsibility For Contributions 20
3.4 Return Of Contributions 20
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions 21
4.2 Qualified Voluntary Contributions 21
4.3 Rollover Contribution 21
4.4 Transfer Contribution 22
4.5 Employer Approval Of Transfer Contributions 22
4.6 Elective Deferrals 22
4.7 Required Voluntary Contributions 23
4.8 Direct Rollover Of Benefits 23
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts 24
5.2 Adjustments To Participant Accounts 24
5.3 Allocating Employer Contributions 25
5.4 Allocating Investment Earnings And Losses 25
5.5 Participant Statements 25
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits 26
6.2 Early Retirement Benefits 26
6.3 Benefits On Termination Of Employment 26
6.4 Restrictions On Immediate Distributions 27
6.5 Normal Form Of Payment 28
6.6 Commencement Of Benefits 28
6.7 Claims Procedures 29
6.8 In-Service Withdrawals 29
6.9 Hardship Withdrawal 30
</TABLE>
<PAGE> 39
<TABLE>
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements 32
7.2 Minimum Distribution Requirements 32
7.3 Limits On Distribution Periods 32
7.4 Required Distributions On Or After The
Required Beginning Date 32
7.5 Required Beginning Date 33
7.6 Transitional Rule 34
7.7 Designation Of Beneficiary For Death Benefit 35
7.8 Nonexistence Of Beneficiary 35
7.9 Distribution Beginning Before Death 35
7.10 Distribution Beginning After Death 35
7.11 Distribution Of Excess Elective Deferrals 36
7.12 Distributions Of Excess Contributions 37
7.13 Distribution Of Excess Aggregate Contributions 37
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions 39
8.2 Payment Of Qualified Joint And Survivor
Annuity 39
8.3 Payment of Qualified Pre-Retirement
Survivor Annuity 39
8.4 Qualified Election 39
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 40
8.6 Notice Requirements For Qualified Pre-
Retirement Survivor Annuity 40
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 40
8.8 Transitional Joint And Survivor
Annuity Rules 41
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 41
8.10 Annuity Contracts 42
ARTICLE IX
VESTING
9.1 Employee Contributions 43
9.2 Employer Contributions 43
9.3 Computation Period 43
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 43
9.5 Requalification After Five Consecutive
One-Year Breaks In Service 43
9.6 Calculating Vested Interest 43
9.7 Forfeitures 44
9.8 Amendment Of Vesting Schedule 44
9.9 Service With Controlled Groups 44
9.10 Application Of Prior Vesting Rules 44
</TABLE>
<PAGE> 40
<TABLE>
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ARTICLE X
LIMITATIONS ON ALLOCATIONS AND
ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only 45
10.2 Disposition Of Excess Annual Additions 45
10.3 Participation In This Plan And Another
Regional Prototype Defined Contribution
Plan, Welfare Benefit Fund, Or Individual
Medical Account Maintained By The Employer 46
10.4 Disposition Of Excess Annual Additions
Under Two Plans 46
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Regional Prototype Plan 47
10.6 Participation In This Plan And A Defined
Benefit Plan 47
10.7 Limitations On Allocations 47
10.8 Average Deferral Percentage (ADP) Test 47
10.9 Special Rules Relating To Application
Of ADP Test 48
10.10 Recharacterization 48
10.11 Average Contribution Percentage (ACP) Test 49
10.12 Special Rules Relating To Application
Of ACP Test 49
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator 51
11.2 Trustee 51
11.3 Administrative Fees And Expenses 52
11.4 Division Of Duties And Indemnification 52
ARTICLE XII
TRUST FUND ACCOUNT
12.1 The Fund 54
12.2 Control Of Plan Assets 54
12.3 Exclusive Benefit Rules 54
12.4 Assignment And Alienation Of Benefits 54
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) 54
</TABLE>
<PAGE> 41
<TABLE>
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ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards 56
13.2 Trustee Appointment 56
13.3 Investment Alternatives Of The Trustee 56
13.4 Participant Loans 57
13.5 Insurance Policies 58
13.6 Employer Investment Direction 59
13.7 Employee Investment Direction 60
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules 61
14.2 Minimum Contribution 61
14.3 Minimum Vesting 61
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor 62
15.2 Amendment By Employer 62
15.3 Termination 62
15.4 Qualification Of Employer's Plan 63
15.5 Mergers And Consolidations 63
15.6 Resignation And Removal 63
15.7 Qualification Of Prototype 63
ARTICLE XVI
GOVERNING LAW
</TABLE>
<PAGE> 42
REGIONAL PROTOTYPE DEFINED CONTRIBUTION
PLAN AND TRUST
SPONSORED BY
CARLEY & MC CAW, INC.
The Sponsor hereby establishes the following Regional Prototype Defined
Contribution Plan and Trust for use by those of its adopting Employers who
qualify and wish to provide a qualified retirement program for its Employees.
Any Plan and Trust Account established hereunder shall be administered for the
exclusive benefit of Participants and their beneficiaries under the following
terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE The ratio (expressed as a percentage
and calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c)
and (d)] actually paid over to the Fund on behalf of such
Participant for the Plan Year to
(b) the Participant's Compensation for such Plan Year.
Compensation will only include amounts for the period
during which the Employee was eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's
deferral election, including Excess Elective Deferrals,
but excluding Elective Deferrals that are taken into
account in the Contribution Percentage test (provided the
ADP test is satisfied both with and without exclusion of
these Elective Deferrals) or are returned as excess Annual
Additions; and
(d) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated
as a Participant on whose behalf no Elective Deferrals are made.
1.2 ADOPTION AGREEMENT The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust account
under the terms of this Regional Prototype Defined Contribution Plan and Trust.
1.3 AGGREGATE LIMIT The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly
Compensated Employees for the Plan Year or the ACP of
non-Highly Compensated Employees under the Plan subject to
Code Section 401(m) for the Plan Year beginning with or
within the Plan Year of the cash or deferred arrangement
as described in Code Section 401(k) or Code Section
402(h)(1)(B) and
1
<PAGE> 43
(b) the lesser of 200% or two plus the lesser of such ADP or
ACP.
Alternatively, the Aggregate Limit may be expressed by substituting the word
"lesser" for the word "greater" where it appears in the first line of
sub-paragraph (a) and substituting the word "greater" for the word "lesser"
where it appears for the second time in the first line of sub-paragraph (b).
1.4 ANNUAL ADDITIONS The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures, and
(d) 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 (these amounts are treated as Annual
Additions to a Defined Contribution Plan though they arise
under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after
1985, in taxable years ending after 1985, which are either
attributable to post-retirement medical benefits,
allocated to the account of a Key Employee, or a Welfare
Benefit Fund maintained by the Employer are also treated
as Annual Additions to a Defined Contribution Plan. For
purposes of this paragraph, an Employee is a Key Employee
if he or she meets the requirements of paragraph 1.42 at
any time during the Plan Year or any preceding Plan Year.
Welfare Benefit Fund is defined at paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 ANNUITY STARTING DATE The first day of the first period for which
an amount is paid as an annuity or in any other form.
1.6 APPLICABLE CALENDAR YEAR The first Distribution Calendar Year,
and in the event of the recalculation of life expectancy, such succeeding
calendar year. If payments commence in accordance with paragraph 7.4(e) before
the Required Beginning Date, the Applicable Calendar Year is the year such
payments commence. If distribution is in the form of an immediate annuity
purchased after the Participant's death with the Participant's remaining
interest, the Applicable Calendar Year is the year of purchase.
1.7 APPLICABLE LIFE EXPECTANCY Used in determining the required
minimum distribution. The life expectancy (or joint and last survivor
expectancy) calculated using the attained age of the Participant (or Designated
Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in
the applicable calendar year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the Applicable Life Expectancy shall be the
life expectancy as so recalculated. The life expectancy of a non-Spouse
Beneficiary may not be recalculated.
1.8 AVERAGE CONTRIBUTION PERCENTAGE (ACP) The average of the Actual
Contribution Percentages for each Highly Compensated Employee and for each
non-Highly Compensated Employee.
1.9 AVERAGE DEFERRAL PERCENTAGE (ADP) The average of the Percentages
for each Highly Compensated Employee and for each non-Highly Compensated
Employee.
2
<PAGE> 44
1.10 BREAK IN SERVICE A 12-consecutive month period during which an
Employee fails to complete more than 500 Hours of Service.
1.11 CODE The Internal Revenue Code of 1986, including any amendments.
1.12 COMPENSATION The Employer may select one of the following three
safe-harbor definitions of Compensation in the Adoption Agreement.
Compensation shall only include amounts earned while a Participant if Plan Year
is chosen as the applicable computation period.
(a) CODE SECTION 3401(A) WAGES. Compensation is defined as
wages within the meaning of Code Section 3401(a) for the
purposes of Federal income tax withholding at the source
but determined without regard to any rules that limit the
remuneration included in wages based on the nature or
location of the employment or the services performed [such
as the exception for agricultural labor in Code Section
3401(a)(2)].
(b) CODE SECTION 6041 AND 6051 WAGES. Compensation is defined
as wages as defined in Code Section 3401(a) and all other
payments of Compensation to an Employee by the Employer
(in the course of the Employer's trade or business) for
which the Employer is required to furnish the Employee a
written statement under Code Section 6041(d) and
6051(a)(3). Compensation must be determined without
regard to any rules under Code Section 3401(a) that limit
the remuneration included in wages based on the nature or
location of the employment or the services performed [such
as the exception for agricultural labor in Code Section
3401(a)(2)].
(c) CODE SECTION 415 COMPENSATION. For purposes of applying
the limitations of Article X and Top-Heavy Minimums, the
definition of Compensation shall be Code Section 415
Compensation defined as follows: a Participant's Earned
Income, wages, salaries, and fees for professional
services and other amounts received (without regard to
whether or not an amount is paid in cash) for personal
services actually rendered in the course of employment
with the Employer maintaining the Plan to the extent that
the amounts are includible in gross income [including, but
not limited to, commissions paid salesmen, Compensation
for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe
benefits and reimbursements or other expense allowances
under a nonaccountable plan (as described in Regulation
1.62-2(c)], and excluding the following:
1. 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 or any
distributions from a plan of deferred
compensation,
2. Amounts realized from the exercise of a
non-qualified 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,
3. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified
stock option; and
3
<PAGE> 45
4. 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 Code Section 403(b)
(whether or not the contributions are actually
excludible from the gross income of the
Employee).
For purposes of applying the limitations of Article X and Top-Heavy Minimums,
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.12(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined contribution 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 [as defined in Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in Code
Section 3401(a) [as defined in this paragraph 1.12(a)]. In nonstandardized
Adoption Agreements 004, 005 and 006, the Employer may choose to eliminate or
exclude categories of Compensation which do not violate the provisions of Code
Sections 401(a)(4), 414(s) the regulations thereunder and Revenue Procedure
89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the
Compensation of a Participant for purposes of this limitation, the rules of
Code Section 414(q)(6) shall apply, except 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 end of
the Plan 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 provides for
permitted disparity), 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.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the Compensation period begins,
multiplied by a fraction the numerator of which is the number of full months in
the Short Plan Year and the denominator of which is 12. If Compensation for
any prior Plan Year is taken into account in determining an Employee's
contributions or benefits for the current year, the Compensation for such prior
year is subject to the applicable annual Compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Compensation limit is $200,000.
Compensation shall not include deferred Compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self- Employed
Individual, Compensation shall mean Earned Income.
4
<PAGE> 46
1.13 CONTRIBUTION PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the Participant's Contribution Percentage Amounts [as
defined at (c)-(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year.
Compensation will only include amounts for the period
during which the Employee was eligible to participate.
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary Contributions, Matching
Contributions, and Qualified Matching Contributions (to
the extent not taken into account for purposes of the ADP
test) made under the Plan on behalf of the Participant for
the Plan Year,
(d) forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Participant's account which
shall be taken into account in the year in which such
forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective
Contributions, and
(f) the Employer also may elect to use Elective Deferrals in
the Contribution Percentage Amounts so long as the ADP
test is met before the Elective Deferrals are used in the
ACP test and continues to be met following the exclusion
of those Elective Deferrals that are used to meet the ACP
test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, that are forfeited either to correct Excess Aggregate
Contributions, or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.14 DEFINED BENEFIT PLAN A Plan under which a Participant's benefit
is determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.15 DEFINED BENEFIT (PLAN) FRACTION 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 the 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 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
Section 415 for all Limitation Years beginning before January 1, 1987.
1.16 DEFINED CONTRIBUTION DOLLAR LIMITATION Thirty thousand dollars
($30,000) or if greater, one-fourth of the defined benefit dollar limitation
set forth in Code Section 415(b)(1)(A) as in effect for the Limitation Year.
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1.17 DEFINED CONTRIBUTION PLAN A Plan under which individual accounts
are maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted.
A Participant's benefit under such Plan is based solely on the fair market
value of his or her account balance.
1.18 DEFINED CONTRIBUTION (PLAN) FRACTION 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 Employee
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
Welfare Benefit Funds, as defined in paragraph 1.89 and individual medical
accounts, as defined in Code Section 415(1)(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 the Limitation Year is the lesser
of 125 percent of the dollar limitation determined under Code Sections 415(b)
and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the
Participant's Compensation for such year.
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 6,
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
(a) the excess of the sum of the fractions over 1.0 times (b) 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 6, 1986, but using the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987. The Annual Addition for
any Limitation Year beginning before January 1, 1987, shall not be re-computed
to treat all Employee Contributions as Annual Additions.
1.19 DESIGNATED BENEFICIARY The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.20 DISABILITY An illness or injury of a potentially permanent
nature, expected to last for a continuous period of not less than 12 months,
certified by a physician selected by or satisfactory to the Employer which
prevents the Employee from engaging in any occupation for wage or profit for
which the Employee is reasonably fitted by training, education or experience.
1.21 DISTRIBUTION CALENDAR YEAR A calendar year for which a minimum
distribution is required.
1.22 EARLY RETIREMENT AGE The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
1.23 EARNED INCOME Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income-producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self- employment taxes
allowed to the Employer under Code Section 164(f) to the extent deductible.
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1.24 EFFECTIVE DATE The date on which the Employer's retirement plan
or amendment to such plan becomes effective. For amendments reflecting
statutory and regulatory changes post Tax Reform Act of 1986, the Effective
Date will be the earlier of the date upon which such amendment is first
administratively applied or the first day of the Plan Year following the date
of adoption of such amendment.
1.25 ELECTION PERIOD The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from Service prior to the
first day of the Plan Year in which age 35 is attained, the Election Period
shall begin on the date of separation, with respect to the account balance as
of the date of separation.
1.26 ELECTIVE DEFERRAL Employer contributions made to the Plan at the
election of the Participant, in lieu of cash Compensation. Elective Deferrals
shall also include contributions made pursuant to a Salary Savings Agreement or
other deferral mechanism, such as a cash option contribution. With respect to
any taxable year, a Participant's Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursuant to an election to
defer under any qualified cash or deferred arrangement as described in Code
Section 401(k), any simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code Section 501(c)(18),
and any Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Code Section 403(b) pursuant to a Salary
Savings Agreement. Elective Deferrals shall not include any deferrals
properly distributed as Excess Annual Additions.
1.27 ELIGIBLE PARTICIPANT Any Employee who is eligible to make a
Voluntary Contribution, or an Elective Deferral (if the Employer takes such
contributions into account in the calculation of the Contribution Percentage),
or to receive a Matching Contribution (including forfeitures) or a Qualified
Matching Contribution. If a Voluntary Contribution or Elective Deferral is
required as a condition of participation in the Plan, any Employee who would be
a Participant in the Plan if such Employee made such a contribution shall be
treated as an Eligible Participant even though no Voluntary Contributions or
Elective Deferrals are made.
1.28 EMPLOYEE Any person employed by the Employer (including
Self-Employed Individuals and partners), all Employees of a member of an
affiliated service group [as defined in Code Section 414(m)], Employees of a
controlled group of corporations [as defined in Code Section 414(b)], all
Employees of any incorporated or unincorporated trade or business which is
under common control [as defined in Code Section 414(c)], Leased Employees [as
defined in Code Section 414(n)] and any Employee required to be aggregated by
Code Section 414(o). All such Employees shall be treated as employed by a
single Employer.
1.29 EMPLOYER The Self-Employed Individual, partnership, corporation
or other organization which adopts this Plan including any firm that succeeds
the Employer and adopting this Plan. For purposes of Article X, Limitations
shall mean the Employer that adopts this Plan, and all members of a controlled
group of corporations [as defined in Code Section 414(b) as modified by Code
Section 415(h)], all commonly controlled trades or businesses [as defined in
Code Section 414(c) as modified by Code Section 415(h)] or affiliated service
groups [as defined in Code Section 414(m)] of which the adopting Employer is a
part, and other entities required to be aggregated with the Employer pursuant
to Regulations under Code Section 414(o).
1.30 ENTRY DATE The date on which an Employee commences participation
in the Plan as determined by the Employer in the Adoption Agreement. Unless
the Employer specifies otherwise in the Adoption Agreement, Entry into the Plan
shall be on the first day of the Plan Year or the first day of the seventh
month of the Plan Year coinciding with or following the date on which an
Employee meets the eligibility requirements.
1.31 EXCESS AGGREGATE CONTRIBUTIONS The excess, with respect to any
Plan Year, of:
(a) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly
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Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by
the ACP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of
such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.34 and then determining Excess Contributions
pursuant to paragraph 1.33.
1.32 EXCESS AMOUNT The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
1.33 EXCESS CONTRIBUTION With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the
ADP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of the
ADPs, beginning with the highest of such percentages).
1.34 EXCESS ELECTIVE DEFERRALS Those Elective Deferrals that are
includible in a Participant's gross income under Code Section 402(g) to the
extent such Participant's Elective Deferrals for a taxable year exceed the
dollar limitation under such Code Section. Excess Elective Deferrals shall be
treated as Annual Additions under the Plan, unless such amounts are distributed
no later than the first April 15 following the close of the Participant's
taxable year.
1.35 FAMILY MEMBER The Employee's Spouse, any lineal descendants and
ascendants and the Spouse of such lineal descendants and ascendants.
1.36 FIRST DISTRIBUTION CALENDAR YEAR For distributions beginning
before the Participant's death, the First Distribution Calendar Year is the
calendar year immediately preceding the calendar year which contains the
Participant's Required Beginning Date. For distributions beginning after the
Participant's death, the First Distribution Calendar Year is the calendar year
in which distributions are required to begin pursuant to paragraph 7.10.
1.37 FUND All contributions received by the Trustee under this Plan
and Trust Account, investments thereof and earnings and appreciation thereon.
1.38 HARDSHIP An immediate and heavy financial need of the Employee
where such Employee lacks other available resources.
1.39 HIGHEST AVERAGE COMPENSATION 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 the Adoption Agreement.
1.40 HIGHLY COMPENSATED EMPLOYEE Any Employee who performs service for
the Employer during the determination year and who, during the immediate prior
year:
(a) received Compensation from the Employer in excess of
$75,000 [as adjusted pursuant to Code Section 415(d)]; or
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(b) received Compensation from the Employer in excess of
$50,000 [as adjusted pursuant to Code Section 415(d)] and
was a member of the Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation
during such year that is greater than 50 percent of the
dollar limitation in effect under Code Section
415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time
during the immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
For purposes of determining those employees that are to be treated as Highly
Compensated for a determination year, an Employer maintaining a fiscal year
Plan may elect to make the look-back year calculation as defined in Section
1.414(q)- 1T, Q&A 14(b) of the Treasury Regulations for a determination year on
the basis of the calendar year ending with or within the applicable
determination year. For purposes of this election, a determination year that
is shorter than twelve (12) months, the look-back year calculation may be made
based upon the calendar year ending with or within the twelve-month period
ending with the end of the applicable determination year. Where such election
is made, the employer shall make its determination year calculation pursuant to
the provisions of Treasury Regulation Section 1.414(q)-1T, Q&A 14(b).
1.41 HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours shall be credited to the Employee for the
computation period in which the duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service shall be
credited under this paragraph for any single continuous
period (whether or not such period occurs in a single
computation period). Hours under this paragraph shall be
calculated and credited pursuant to Department of Labor
Regulations Section 2530.200b-2 which are incorporated
herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the
Employer. The same Hours of Service shall not be credited
both under paragraph (a) or paragraph (b), as the case may
be, and under this paragraph (c). These hours shall be
credited to the Employee for the computation period or
periods to which the award or agreement pertains rather
than the computation period in which the award, agreement
or payment is made.
(d) Hours of Service shall be credited for employment with the
Employer and with other members of an affiliated service
group [as defined in Code Section 414(m)], a
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controlled group of corporations [as defined in Code
Section 414(b)], or a group of trades or businesses under
common control [as defined in Code Section 414(c)] of
which the adopting Employer is a member, and any other
entity required to be aggregated with the Employer
pursuant to Code Section 414(o) and the regulations
thereunder. Hours of Service shall also be credited for
any individual considered an Employee for purposes of this
Plan under Code Section 414(n) or Code Section 414(o) and
the regulations thereunder.
(e) Solely for purposes of determining whether a Break in
Service, as defined in paragraph 1.10, for participation
and vesting purposes has occurred in a computation period,
an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of
Service which would otherwise have been credited to such
individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per
day of such absence. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means
an absence by reason of the pregnancy of the individual,
by reason of a birth of a child of the individual, by
reason of the placement of a child with the individual in
connection with the adoption of such child by such
individual, or for purposes of caring for such child for a
period beginning immediately following such birth or
placement. The Hours of Service credited under this
paragraph shall be credited in the computation period in
which the absence begins if the crediting is necessary to
prevent a Break in Service in that period, or in all other
cases, in the following computation period. No more than
501 hours will be credited under this paragraph.
(f) Unless specified otherwise in the Adoption Agreement,
Hours of Service shall be determined on the basis of the
actual hours for which an Employee is paid or entitled to
pay.
1.42 KEY EMPLOYEE Any Employee or former Employee (and the
beneficiaries of such employee) who at any time during the determination period
was an officer of the Employer if such individual's annual Compensation exceeds
50% of the dollar limitation under Code Section 415(b)(1)(A) (the defined
benefit maximum annual benefit), an owner (or considered an owner under Code
Section 318) of one of the ten largest interests in the employer if such
individual's Compensation exceeds 100% of the dollar limitation under Code
Section 415(c)(1)(A), a 5% owner of the Employer, or a 1% owner of the Employer
who has an annual Compensation of more than $150,000. For purposes of
determining who is a Key Employee, annual Compensation shall mean Compensation
as defined for Article X, but including amounts deferred through a salary
reduction agreement to a cash or deferred plan under Code Section 401(k), a
Simplified Employee Pension Plan under Code Section 408(k), a cafeteria plan
under Code Section 125 or a tax-deferred annuity under Code Section 403(b).
The determination period is the Plan Year containing the Determination Date and
the four preceding Plan Years. The determination of who is a Key Employee will
be made in accordance with Code Section 416(i)(1) and the regulations
thereunder.
1.43 LEASED EMPLOYEE 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.
1.44 LIMITATION YEAR The calendar year or such other 12-consecutive
month period designated by the Employer in the Adoption Agreement for purposes
of determining the maximum Annual Addition to a Participant's account. 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.
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1.45 MASTER OR PROTOTYPE PLAN A plan, the form of which is the subject
of a favorable opinion letter from the Internal Revenue Service.
1.46 MATCHING CONTRIBUTION An Employer contribution made to this or
any other defined contribution plan on behalf of a Participant on account of an
Employee Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
1.47 MAXIMUM PERMISSIBLE AMOUNT The maximum Annual Addition that may
be contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation
Year.
The Compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(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 Limitation multiplied by the number of months in
the short Limitation Year divided by 12.
1.48 NET PROFIT The current and accumulated operating earnings of the
Employer before Federal and State income taxes, excluding nonrecurring or
unusual items of income, and before contributions to this and any other
qualified plan of the Employer. Alternatively, the Employer may fix another
definition in the Adoption Agreement.
1.49 NORMAL RETIREMENT AGE The age, set by the Employer in the
Adoption Agreement, at which a Participant may retire and receive his or her
benefits under the Plan.
1.50 OWNER-EMPLOYEE A sole proprietor, or a partner owning more than
10% of either the capital or profits interest of the partnership.
1.51 PAIRED PLANS Two or more Plans maintained by the Sponsor designed
so that a single or any combination of Plans adopted by an Employer will meet
the antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.52 PARTICIPANT Any Employee who has met the eligibility requirements
and is participating in the Plan.
1.53 PARTICIPANT'S BENEFIT The account balance as of the last
Valuation Date in the calendar year immediately preceding the Distribution
Calendar Year (valuation calendar year) increased by the amount of any
contributions or forfeitures allocated to the account balance as of the dates
in the valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the Valuation Date. A
special exception exists for the second distribution Calendar Year. For
purposes of this paragraph, if any portion of the minimum distribution for the
First Distribution Calendar Year is made in 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 immediately preceding Distribution Calendar Year.
1.54 PERMISSIVE AGGREGATION GROUP Used for Top-Heavy testing purposes,
it is the Required Aggregation Group of plans plus any other plan or plans of
the Employer which, when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Code Sections 401(a)(4)
and 410.
1.55 PLAN The Employer's qualified retirement plan as embodied herein
and in the Adoption Agreement.
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1.56 PLAN ADMINISTRATOR The Employer.
1.57 PLAN YEAR The 12-consecutive month period designated by the
Employer in the Adoption Agreement.
1.58 PRESENT VALUE Used for Top-Heavy test and determination purposes,
when determining the Present Value of accrued benefits, with respect to any
Defined Benefit Plan maintained by the Employer, interest and mortality rates
shall be determined in accordance with the provisions of the respective plan.
If applicable, interest and mortality assumptions will be specified in the
section of the Adoption Agreement entitled "Limitations on Allocations".
1.59 PROJECTED ANNUAL BENEFIT Used to test the maximum benefit which
may be obtained from a combination of retirement plans, it is the annual
retirement benefit (adjusted to an actuarial 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 a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal
Retirement Age under the plan (or current age, if later),
and
(b) 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.
1.60 QUALIFIED DEFERRED COMPENSATION PLAN Any pension, profit-sharing,
stock bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a), which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
1.61 QUALIFIED DOMESTIC RELATIONS ORDER A QDRO is a signed Domestic
Relations Order issued by a State Court which creates, recognizes or assigns to
an alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.62 QUALIFIED EARLY RETIREMENT AGE Qualified Early Retirement Age is
the latest of:
(a) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits, or
(b) the first day of the 120th month beginning before the
Participant attains Normal Retirement Age, or
(c) the date the Participant begins participation.
1.63 QUALIFIED JOINT AND SURVIVOR ANNUITY An immediate annuity for the
life of the Participant with a survivor annuity for the life of the
Participant's Spouse which is at least one-half of but not more than the amount
of the annuity payable during the joint lives of the Participant and the
Participant's Spouse. The exact amount of the Survivor Annuity is to be
specified by the Employer in the Adoption Agreement. If not designated by the
Employer, the Survivor Annuity will be one-half of the amount paid to the
Participant during
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his or her lifetime. The Qualified Joint and Survivor Annuity will be the
amount of benefit which can be provided by the Participant's Vested Account
Balance.
1.64 QUALIFIED MATCHING CONTRIBUTION Matching Contributions which when
made are subject to the distribution and nonforfeitability requirements under
Code Section 401(k).
1.65 QUALIFIED NON-ELECTIVE CONTRIBUTIONS Contributions (other than
Matching Contributions or Qualified Matching Contributions) made by the
Employer and allocated to Participants' accounts that the Participants may not
elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in accordance with
the distribution provisions that are applicable to Elective Deferrals and
Qualified Matching Contributions.
1.66 QUALIFIED VOLUNTARY CONTRIBUTION A tax-deductible voluntary
Employee contribution. Qualified Voluntary Contributions are not permitted in
this Plan.
1.67 REGIONAL PROTOTYPE PLAN A plan, the form of which is subject to a
favorable notification letter from the Internal Revenue Service.
1.68 REQUIRED AGGREGATION GROUP Used for Top-Heavy testing purposes,
it consists of:
(a) each qualified plan of the Employer in which at least one
Key Employee participates or participated at any time
during the determination period (regardless of whether the
plan has terminated), and
(b) any other qualified plan of the Employer which enables a
plan described in (a) to meet the requirements of Code
Sections 401(a)(4) or 410.
1.69 REQUIRED BEGINNING DATE The date on which a Participant is
required to take his or her first minimum distribution under the Plan. The
rules are set forth at paragraph 7.5.
1.70 ROLLOVER CONTRIBUTION A contribution made by a Participant of an
amount distributed to such Participant from another Qualified Deferred
Compensation Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) 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
Participant or the joint lives (or joint life
expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten
years or more;
(b) any distribution to the extent such distribution is
required under Code Section 401(a)(9); and
(c) 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).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
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1.71 SALARY SAVINGS AGREEMENT An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold a
specified amount or percentage of his or her Compensation for deposit to the
Plan on behalf of such Employee.
1.72 SELF-EMPLOYED INDIVIDUAL An individual who has Earned Income for
the taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.73 SERVICE The period of current or prior employment with the
Employer. If the Employer maintains a plan of a predecessor employer, Service
for such predecessor shall be treated as Service for the Employer.
1.74 SHAREHOLDER EMPLOYEE An Employee or Officer who owns [or is
considered as owning within the meaning of Code Section 318(a)(1)], on any day
during the taxable year of an electing small business corporation (S
Corporation), more than 5% of such corporation's outstanding stock.
1.75 SIMPLIFIED EMPLOYEE PENSION PLAN An individual retirement account
which meets the requirements of Code Section 408(k), and to which the Employer
makes contributions pursuant to a written formula. These plans are considered
for contribution limitation and Top-Heavy testing purposes.
1.76 SPONSOR CARLEY & MC CAW, INC., or any successor(s) or assign(s).
1.77 SPOUSE (SURVIVING SPOUSE) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.78 SUPER TOP-HEAVY PLAN A Plan under which the Top-Heavy Ratio [as
defined at paragraph 1.81] exceeds 90%.
1.79 TAXABLE WAGE BASE For plans with an allocation formula which
takes into account the Employer's contribution under the Federal Insurance
Contributions Act (FICA), the maximum amount of earnings which may be
considered wages for such Plan Year under the Social Security Act [Code Section
3121(a)(1)], or the amount selected by the Employer in the sub-section of the
Adoption Agreement entitled "Taxable Wage Base".
1.80 TOP-HEAVY DETERMINATION DATE For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that year.
1.81 TOP-HEAVY PLAN For any Plan Year beginning after 1983, the
Employer's Plan is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60%
and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation
Group and the Top-Heavy Ratio for the group of plans
exceeds 60%.
(c) If the Employer's plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of plans
and the Top-Heavy Ratio for the Permissive Aggregation
Group exceeds 60%.
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1.82 TOP-HEAVY RATIO
(a) If the Employer maintains one or more Defined Contribution
plans (including any Simplified Employee Pension Plan) and
the Employer has not maintained any Defined Benefit Plan
which during the 5-year period ending on the Determination
Date(s) has or has had accrued benefits, the Top-Heavy
Ratio for this Plan alone, or for the Required or
Permissive Aggregation Group as appropriate, is a
fraction,
(1) the numerator of which is the sum of the account
balances of all Key Employees as of the
Determination Date(s) [including any part of any
account balance distributed in the 5-year period
ending on the Determination Date(s)], and
(2) the denominator of which is the sum of all
account balances [including any part of any
account balance distributed in the 5-year period
ending on the Determination Date(s)], both
computed in accordance with Code Section 416 and
the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio
are increased to reflect any contribution not actually
made as of the Determination Date, but which is required
to be taken into account on that date under Code Section
416 and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and
the Employer maintains or has maintained one or more
Defined Benefit Plans which during the 5-year period
ending on the Determination Date(s) has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate is a fraction,
(1) the numerator of which is the sum of account
balances under the aggregated Defined
Contribution Plan or Plans for all Key Employees,
determined in accordance with (a) above, and the
Present Value of accrued benefits under the
aggregated Defined Benefit Plan or Plans for all
Key Employees as of the Determination Date(s),
and
(2) the denominator of which is the sum of the
account balances under the aggregated Defined
Contribution Plan or Plans for all Participants,
determined in accordance with (a) above, and the
Present Value of accrued benefits under the
Defined Benefit Plan or Plans for all
Participants as of the Determination Date(s), all
determined in accordance with Code Section 416
and the regulations thereunder. The accrued
benefits under a Defined Benefit Plan in both the
numerator and denominator of the Top-Heavy Ratio
are increased for any distribution of an accrued
benefit made in the 5-year period ending on the
Determination Date.
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits will 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. The account
balances and accrued benefits of a participant (1) who is
not a Key Employee but who was a Key Employee in a prior
year, or (2) who has not been credited with at least one
hour of service with any
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Employer maintaining the Plan at any time during the
5-year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio, and
the extent to which distributions, rollovers, and
transfers are taken into account will be made in
accordance with Code Section 416 and the Regulations
thereunder. Qualified Voluntary Employee Contributions
will not be taken into account for purposes of computing
the Top-Heavy Ratio. When aggregating plans the value of
account balances and accrued benefits will be calculated
with reference to the Determination Dates that fall within
the same calendar year. The accrued benefit of a
Participant other than a Key Employee shall be determined
under (1) the method, if any, that uniformly applies for
accrual purposes under all Defined Benefit Plans
maintained by the Employer, or (2) if there is no such
method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional
rule of Code Section 411(b)(1)(C).
1.83 TOP-PAID GROUP The group consisting of the top 20% of Employees
when ranked on the basis of Compensation paid during such year. For purposes
of determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per
week.
(c) Employees who normally do not work more than 6 months
during any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit,
covered by an agreement between employee representatives
and the Employer, where retirement benefits were the
subject of good faith bargaining and provided that 90% or
more of the Employer's Employees are covered by the
agreement.
(f) Employees who are nonresident aliens and who receive no
earned income which constitutes income from sources within
the United States.
1.84 TRANSFER CONTRIBUTION A non-taxable transfer of a Participant's
benefit directly from a Qualified Deferred Compensation Plan to this Plan.
1.85 TRUSTEE Shall be the individual, individuals or institution
appointed by the Employer to serve as Trustee of the Plan. In the event the
Employer does not name an individual, individuals or institution to serve as
Trustee of the Plan, the Employer will be deemed to be the Trustee.
1.86 VALUATION DATE The last day of the Plan Year or such other date
as agreed to by the Employer and the Trustee on which Participant accounts are
revalued in accordance with Article V hereof. For Top-Heavy purposes, the date
selected by the Employer as of which the Top-Heavy Ratio is calculated.
1.87 VESTED ACCOUNT BALANCE The aggregate value of the Participant's
vested account balances derived from Employer and Employee contributions
(including Rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's life. The
provisions of Article VIII shall apply to a Participant who is vested in
amounts attributable to Employer contributions, Employee contributions (or
both) at the time of death or distribution.
For purposes of paragraph 8.7, Vested Account Balance shall mean, in the case
of a money purchase pension plan, the Participant's separate account balance
attributable solely to Qualified Voluntary Contributions. For profit-sharing
plans the above definition shall apply.
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1.88 VOLUNTARY CONTRIBUTION An Employee contribution by or on behalf
of a Participant that is included in the Participant's gross income in the year
in which made and that is maintained under a separate account to which earnings
and losses are allocated. For Plan Years beginning after the Plan Year in
which this Plan is adopted (or restated) by the Employer, Voluntary
Contributions are only permitted in Standardized Adoption Agreement 003 or
Nonstandardized Adoption Agreement 006 whether or not the Employer utilizes the
salary deferral provisions. Voluntary Contributions for Plan Years beginning
after 1986, together with any Matching Contributions as defined in Code Section
401(m), will be limited so as to meet the nondiscrimination test of Code
Section 401(m).
1.89 WELFARE BENEFIT FUND Any fund that is part of a plan of the
Employer, or has the effect of a plan, through which the Employer provides
welfare benefits to Employees or their beneficiaries. For these purposes,
Welfare Benefit means any benefit other than those with respect to which Code
Section 83(h) (relating to transfers of property in connection with the
performance of services), Code Section 404 (relating to deductions for
contributions to an Employee's trust or annuity and Compensation under a
deferred payment plan), Code Section 404A (relating to certain foreign deferred
compensation plans) apply. A "Fund" is any social club, voluntary employee
benefit association, supplemental unemployment benefit trust or qualified group
legal service organization described in Code Section 501(c)(7), (9), (17) or
(20); any trust, corporation, or other organization not exempt from income tax,
or to the extent provided in regulations, any account held for an Employer by
any person.
1.90 YEAR OF SERVICE A 12-consecutive month period during which an
Employee is credited with not less than 1,000 (or such lesser number as
specified by the Employer in the Adoption Agreement) Hours of Service.
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION Employees who meet the eligibility requirements in
the Adoption Agreement on the Effective Date of the Plan shall become
Participants as of the Effective Date of the Plan. If so elected in the
Adoption Agreement, all Employees employed on the Effective Date of the Plan
may participate, even if they have not satisfied the Plan's specified
eligibility requirements. Other Employees shall become Participants on the
Entry Date coinciding with or immediately following the date on which they meet
the eligibility requirements. Depending on the Plan's eligibility
requirements, the entry date may actually be earlier than the date on which the
Employee satisfies the eligibility requirements. The Employee must satisfy the
eligibility requirements specified in the Adoption Agreement and be employed on
the Entry Date to become a Participant in the Plan. In the event an Employee
who is not a member of the eligible class of Employees becomes a member of the
eligible class, such Employee shall participate immediately if such Employee
has satisfied the minimum age and service requirements and would have
previously become a Participant had he or she been in the eligible class.
Employees may waive participation in the Plan. However, this is only permitted
if the Employer's adoption is on Nonstandardized Adoption Agreement 004, 005 or
006, and the Plan will meet the minimum coverage requirements in Code Section
410(b) and the minimum participation requirements of Code Section 401(a)(26).
[To the extent so provided by regulations, a partner (or other employee)
waiving participation in the Plan may cause Code Section 401(k) and the
regulations thereunder to apply.] A former Participant shall again become a
Participant upon returning to the employ of the Employer at the next Entry Date
or if earlier, the next Valuation Date. For this purpose, Participant's
Compensation and Service shall be considered from date of rehire.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant
becomes ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in
Service for purposes of eligibility, the 12-consecutive month period shall
commence on the date on which an Employee first performs an Hour of Service for
the Employer and each anniversary thereof, such that the succeeding
12-consecutive month period commences with the employee's first anniversary of
employment and so on. If, however, the period so specified is one year or
less, the succeeding 12-consecutive month period shall commence on the first
day of the Plan Year prior to the anniversary of the date they first performed
an Hour of Service regardless of whether the Employee is entitled to be
credited with 1,000 (or such lesser number as specified by the Employer in the
Adoption Agreement) Hours of Service during their first employment year.
2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon
a Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be credited for purposes of determining an Employee's eligibility
to participate.
2.6 OWNER-EMPLOYEES 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 trades or businesses, 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 trades or businesses.
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<PAGE> 60
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.
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 contributions or benefits of the Employees under
the plan of the trades or businesses which are controlled must be as favorable
as those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50% of either
the capital interest or the profits interest in the
partnership.
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.
2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an
Employee of the recipient Employer; however, contributions or benefits provided
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 such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least
10% of Compensation, [as defined in Code Section 415(c)(3)
but including amounts contributed by the Employer pursuant
to a salary reduction agreement, which are excludable from
the Employee's gross income under a cafeteria plan
covered by Code Section 125, a cash or deferred
profit-sharing plan under Code Section 401(k), a
Simplified Employee Pension Plan under Code Section 408(k)
and a tax-sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more
than twenty percent (20%) of the recipient's non-highly compensated work force.
2.8 THRIFT PLANS If the Employer makes an election in Adoption
Agreements 003 or 006 to require Voluntary Contributions to participate in this
Plan, the Employer shall notify each eligible Employee in writing of his or her
eligibility for participation at least 30 days prior to the appropriate Entry
Date. The Employee shall indicate his or her intention to join the Plan by
authorizing the Employer to withhold a percentage of his or her Compensation as
provided in the Plan. Such authorization shall be returned to the Employer at
least 10 days prior to the Employee's Entry Date. The Employee may decline
participation by so indicating on the enrollment form or by failure to return
the enrollment form to the Employer prior to the Employee's Entry Date. If the
Employee declines to participate, such Employee shall be given the opportunity
to join the Plan on the next Entry Date. The taking of a Hardship Withdrawal
under the provisions of paragraph 6.9 will impact the Participant's ability to
make these contributions.
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ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT The Employer intends to make periodic contributions to the
Plan in accordance with the formula or formulas selected in the Adoption
Agreement. However, the Employer's contribution for any Plan Year shall be
subject to the limitations on allocations contained in Article X. A
Participant may elect to waive an Employer contribution on his or her behalf
for a given Plan Year. However, a Participant may only make this election if
the Employer's adoption is on Nonstandardized Adoption Agreement 004, 005 or
006. [In the event a partner in a partnership makes this election, in
accordance with Proposed Regulations Section 1.401(k)-1(a)(6), the Plan will be
deemed to constitute a cash or deferred arrangement with respect to the
partners. Thus, contributions made on behalf of any partners may be limited to
$7,000 indexed as set forth in Code Section 402(g)]. Any waiver made pursuant
to this paragraph will be made prior to the time such Participant accrues a
benefit for that Plan Year.
3.2 EXPENSES AND FEES The Employer shall also be authorized to
reimburse the Fund for all expenses and fees incurred in the administration of
the Plan or Trust Account and paid out of the assets of the Fund. Such
expenses shall include, but shall not be limited to, fees for professional
services, printing and postage. Brokerage Commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS Neither the Trustee nor the
Sponsor shall be required to determine if the Employer has made a contribution
or if the amount contributed is in accordance with the Adoption Agreement or
the Code. The Employer shall have sole responsibility in this regard. The
Trustee shall be accountable solely for contributions actually received by it.
3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the
Employer shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee because of a
mistake of fact, provided that the contribution is
returned to the Employer within one year of the
contribution.
(b) In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under
the Internal Revenue Code, any contribution made incident
to that initial qualification by the Employer must be
returned to the Employer within one year after the date
the initial qualification is denied, but only if the
application for the qualification is made by the time
prescribed by law for filing the Employer's return for the
taxable year in which the Plan is adopted, or such later
date as the Secretary of the Treasury may prescribe.
(c) Contributions forwarded to the Trustee are presumed to be
deductible and are conditioned on their deductibility.
Contributions which are determined to not be deductible
will be returned to the Employer.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS An Employee may make Voluntary
Contributions to the Plan established hereunder if so authorized by the
Employer in a uniform and nondiscriminatory manner. Such contributions are
subject to the limitations on Annual Additions and are subject to
antidiscrimination testing. Voluntary Contributions are permitted only in
Adoption Agreements 003 and 006.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant may no longer
make Qualified Voluntary Contributions to the Plan. Such amounts already
contributed may remain in the Trust Fund Account until distributed to the
Participant.
4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement, a Participant may make a Rollover Contribution to any Defined
Contribution Plan established hereunder of all or any part of an amount
distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited to
the Plan no later than the sixtieth day after such
distribution was received by the Participant,
(b) the amount distributed is not one of a series of
substantially equal periodic payments made for the life
(or life expectancy) of the Participant or the joint lives
(or joint life expectancies) of the Participant and the
Participant's Designated Beneficiary, or for a specified
period of ten years or more;
(c) the amount distributed is not required under section
401(a)(9) of the Code;
(d) if the amount distributed included property such property
is rolled over, or if sold the proceeds of such property
may be rolled over,
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net
unrealized appreciation with respect to employer
securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.70) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
(f) The distribution from the Qualified Deferred Compensation
Plan constituted the Participant's entire interest in such
Plan and was distributed within one taxable year to the
Participant:
(1) on account of separation from Service, a Plan
termination, or in the case of a profit- sharing
or stock bonus plan, a complete discontinuance of
contributions under such plan within the meaning
of Section 402(a)(6)(A) of the Code, or
(2) in one or more distributions which constitute a
qualified lump sum distribution within the
meaning of Code Section 402(e)(4)(A), determined
without reference to subparagraphs (B) and (H).
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Such Rollover Contribution may also be made through an Individual Retirement
Account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is
made in accordance with the rules provided under paragraphs (a) through (e) and
the Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and
additional requirements as provided in the previous sentence. The Trustee
shall not be held responsible for determining the tax-free status of any
Rollover Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS The Employer
maintaining a Safe-Harbor Profit-Sharing Plan in accordance with the provisions
of paragraph 8.7, acting in a nondiscriminatory manner, may in its sole
discretion refuse to allow Transfer Contributions to its profit-sharing plan,
if such contributions are directly or indirectly being transferred from a
defined benefit plan, a money purchase pension plan (including a target benefit
plan), a stock bonus plan, or another profit-sharing plan which would otherwise
provide for a life annuity form of payment to the Participant.
4.6 ELECTIVE DEFERRALS A Participant may enter into a Elective
Deferrals Agreement with the Employer authorizing the Employer to withhold a
portion of such Participant's Compensation not to exceed $7,000 per calendar
year as adjusted for inflation or, if lesser, the percentage of Compensation
specified in the Adoption Agreement and to deposit such amount to the Plan. No
Participant shall be permitted to have Elective Deferrals made under this Plan
or any other qualified plan maintained by the Employer, during any taxable
year, in excess of the dollar limitation contained in Code Section 402(g) in
effect at the beginning of such taxable year. Thus, the $7,000 limit may be
reduced if a Participant contributes pre-tax contributions to qualified plans
of this or other Employers. Any such contribution shall be credited to the
Employee's Elective Deferrals Account. Unless otherwise specified in the
Adoption Agreement, a Participant may amend his or her Elective Deferrals
Agreement to increase, decrease or terminate the percentage upon 30 days
written notice to the Employer. If a Participant terminates his or her
agreement, such Participant shall not be permitted to put a new Elective
Deferrals Agreement into effect until the first pay period in the next Plan
Year, unless otherwise stated in the Adoption Agreement. The Employer may also
amend or terminate said agreement on written notice to the Participant. If a
Participant has not authorized the Employer to withhold at the maximum rate and
desires to increase the total withheld for a Plan Year, such Participant may
authorize the Employer upon 30 days notice to withhold a supplemental amount up
to 100% of his or her Compensation for one or more pay periods. In no event
may the sum of the amounts withheld under the Elective Deferrals Agreement plus
the supplemental withholding exceed 25% of a Participant's Compensation for a
Plan Year. The Employer may also recharacterize as after-tax Voluntary
Contributions all or any portion of amounts previously withheld under any
Elective Deferrals Agreement within the Plan Year as provided for at paragraph
10.10. This may be done to insure that the Plan will meet one of the
antidiscrimination tests under Code Section 401(k). Elective Deferrals shall
be deposited in the Trust within 30 days after being withheld from the
Participant's pay. Elective Deferrals are permitted only in Standardized
Adoption Agreement 003, Nonstandardized Adoption Agreement 006, and
Standardized Adoption Agreement 009.
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4.7 REQUIRED VOLUNTARY CONTRIBUTIONS If the Employer makes a thrift
election in the Adoption Agreement, each eligible Participant shall be required
to make Voluntary Contributions to the Plan for credit to his or her account as
provided in the Adoption Agreement. Such Voluntary Contributions shall be
withheld from the Employee's Compensation and shall be transmitted by the
Employer to the Trustee as agreed between the Employer and Trustee. A
Participant may discontinue participation or change his or her Voluntary
Contribution percentage by so advising the Employer at least 10 days prior to
the date on which such discontinuance or change is to be effective. If a
Participant discontinues his or her Voluntary Contributions, such Participant
may not again authorize Voluntary Contributions for a period of one year from
the date of discontinuance. A Participant may voluntarily change his or her
Voluntary Contribution percentage once during any Plan Year and may also agree
to have a reduction in his or her contribution, if required to satisfy the
requirements of the ACP test. Voluntary Contributions are permitted only in
Standardized Adoption Agreement 003 and Nonstandardized Adoption Agreement 006.
4.8 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a Participant's election under
this paragraph, for distributions made on or after January 1, 1993, a
Participant may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Participant in a
Direct Rollover. Any portion of a distribution which is not paid directly to
an Eligible Retirement Plan shall be distributed to the Participant. For
purposes of this paragraph, a Surviving Spouse or a Spouse or former Spouse who
is an alternate payee under a Qualified Domestic Relations Order as defined in
Code Section 414(p), will be permitted to elect to have any Eligible Rollover
Distribution paid directly to an individual retirement account (IRA) or an
individual retirement annuity (IRA).
The Plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS The Employer shall establish a separate
bookkeeping account for each Participant showing the total value of his or her
interest in the Fund. Each Participant's account shall be separated for
bookkeeping purposes into the following sub-accounts:
(a) Employer Contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including,
required contributions and if applicable, either
repayments of loans previously defaulted on and treated as
"deemed distributions" on which a tax report has been
issued, and amounts paid out upon a separation from
service which have been included in income and which are
repaid after being re-hired by the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously
accepted these).
(d) Rollover Contributions.
(e) Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of
the Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer
Contributions made by the Participant.
(c) any repayment of amounts previously paid out to a
Participant upon a separation from Service and repaid by
the Participant since the last Valuation Date, and
(d) the Participant's proportionate share of any investment
earnings and increase in the fair market value of the Fund
since the last Valuation Date, as determined at paragraph
5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's
account since the last Valuation Date, and
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(f) the Participant's proportionate share of any decrease in
the fair market value of the Fund since the last Valuation
Date, as determined at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution
shall be allocated to Participants in accordance with the allocation formula
selected by the Employer in the Adoption Agreement, and the minimum
contribution and allocation requirements for Top-Heavy Plans. Beginning with
the 1990 Plan Year and thereafter, for plans on Standardized Adoption
Agreements 001, 002, 003, 007, 008 and 009, Participants who are credited with
more than 500 Hours of Service or are employed on the last day of the Plan Year
must receive a full allocation of Employer contributions. In Nonstandardized
Adoption Agreements 004, 005, and 006, Employer contributions shall be
allocated to the accounts of Participants employed by the Employer on the last
day of the Plan Year unless indicated otherwise in the Adoption Agreement. In
the case of a non-Top-Heavy, Nonstandardized Plan, Participants must also have
completed a Year of Service unless otherwise specified in the Adoption
Agreement. For Nonstandardized Adoption Agreements 004, 005, and 006, the
Employer may only apply the last day of the Plan Year and Year of Service
requirements, if the Plan satisfies the requirements of Code Sections
401(a)(26) and 410(b) and the regulations thereunder including the exception
for 401(k) plans. If, when applying the last day and Year of Service
requirements, the Plan fails to satisfy the aforementioned requirements,
additional Participants will be eligible to receive an allocation of Employer
Contributions until the requirements are satisfied. Participants who are
credited with a Year of Service, but not employed at Plan Year end, are the
first category of additional Participants eligible to receive an allocation.
If the requirements are still not satisfied, Participants credited with more
than 500 Hours of Service and employed at Plan Year end are the next category
of Participants eligible to receive an allocation. Finally, if necessary to
satisfy the said requirements, any Participant credited with more than 500
Hours of Service will be eligible for an allocation of Employer Contributions.
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES A Participant's share
of investment earnings and any increase or decrease in the fair market value of
the Fund shall be based on the proportionate value of all active accounts
(other than accounts with segregated investments) as of the last Valuation Date
less withdrawals since the last Valuation Date. If Employer and/or Employee
contributions are made monthly, quarterly, or on some other systematic basis,
the adjusted value of such accounts for allocation of investment income and
gains or losses shall include one-half the Employer contributions for such
period. If Employer and/or Employee contributions are not made on a systematic
basis, it is assumed that they are made at the end of the valuation period and
therefore will not receive an allocation of investment earnings and gains or
losses for such period.
Alternatively, at the Plan Administrator's option, all Employer contributions
will be credited with an allocation of the actual investment earnings and gains
and losses from the actual date of deposit of each such contribution until the
end of the period. Accounts with segregated investments shall receive only the
income or loss on such segregated investments. In no event shall the selection
of a method of allocating gains and losses be used to discriminate in favor of
the Highly Compensated Employees.
5.5 PARTICIPANT STATEMENTS Upon completing the allocations described
above for the Valuation Date coinciding with the end of the Plan Year, the
Employer shall prepare a statement for each Participant showing the additions
to and subtractions from his or her account since the last such statement and
the fair market value of his or her account as of the current Valuation Date.
Employers so choosing may prepare Participant statements for each Valuation
Date.
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to
receive the balance held in his or her account from Employer contributions upon
attaining Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected in one of the optional forms of payment
provided below.
6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the
Adoption Agreement, an Early Retirement benefit will be available to
individuals who meet the age and Service requirements. An individual who meets
the Early Retirement Age requirements and separates from Service, will become
fully vested, regardless of any vesting schedule which otherwise might apply.
If a Participant separates from Service before satisfying the age requirements,
but after having satisfied the Service requirement, the Participant will be
entitled to elect an Early Retirement benefit upon satisfaction of the age
requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT
(a) If a Participant terminates employment prior to Normal
Retirement Age, such Participant shall be entitled to
receive the vested balance held in his or her account
payable at Normal Retirement Age in the normal form, or if
elected, in one of the optional forms of payment provided
hereunder. If applicable, the Early Retirement Benefit
provisions may be elected. Notwithstanding the preceding
sentence, a former Participant may, if allowed in the
Adoption Agreement, make application to the Employer
requesting early payment of any deferred vested and
nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of
that Participant's Vested Account Balance derived from
Employer and Employee contributions is not greater than
$3,500, the Participant may receive a lump sum
distribution of the value of the entire vested portion of
such account balance and the non-vested portion will be
treated as a forfeiture. The Employer shall continue to
follow their consistent policy, as may be established,
regarding immediate cash-outs of Vested Account Balances
of $3,500 or less. For purposes of this article, if the
value of a Participant's Vested Account Balance is zero,
the Participant shall be deemed to have received a
distribution of such Vested Account Balance immediately
following termination. Likewise, if the Participant is
reemployed prior to incurring 5 consecutive 1-year Breaks
in Service they will be deemed to have immediately repaid
such distribution. For Plan Years prior to 1989, a
Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions. Notwithstanding the
above, if the Employer maintains or has maintained a
policy of not distributing any amounts until the
Participant's Normal Retirement Age, the Employer can
continue to uniformly apply such policy.
(c) If a Participant terminates Service with a Vested Account
Balance derived from Employer and Employee contributions
in excess of $3,500, and elects (with his or her Spouse's
consent) to receive 100% of the value of his or her Vested
Account Balance in a lump sum, the non-vested portion will
be treated as a forfeiture. Except as provided at
paragraph 6.4(c), the Participant (and his or her Spouse)
must consent to
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any distribution, when the Vested Account Balance
described above exceeds $3,500 or if at the time of any
prior distribution it exceeded $3,500. For purposes of
this paragraph, a Participant's Vested Account Balance
shall not include Qualified Voluntary Contributions, for
Plan Years beginning prior to 1989.
(d) Distribution of less than 100% of the Participant's Vested
Account Balance shall only be permitted if the Participant
is fully vested upon termination of employment.
(e) If a Participant who is not 100% vested receives or is
deemed to receive a distribution pursuant to this
paragraph, and such Participant's non-vested benefit is
forfeited hereunder, and if such Participant resumes
employment covered under this Plan, the Participant shall
have the right to repay to the Plan the full amount of the
distribution attributable to Employer contributions on or
before the earlier of the date that the Participant incurs
5 consecutive 1-year Breaks in Service following the date
of distribution or five years after the first date on
which the Participant is subsequently reemployed. In such
event, the Participant's forfeiture shall be restored to
his or her account as of the Valuation Date at the end of
the Plan Year following the date on which repayment of the
distribution is received. Restoration of the forfeiture
amount shall be accomplished in accordance with the
procedure selected by the Employer in the Adoption
Agreement.
(f) A Participant shall also have the option, to postpone
payment of his or her Plan benefits until the first day of
April following the calendar year in which he or she
attains age 70-1/2. Any balance of a Participant's account
resulting from his or her Employee contributions not
previously withdrawn, if any, may be withdrawn by the
Participant immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a
result of a Disability as defined at paragraph 1.20, such
Participant shall be able to make an application for a
disability retirement benefit payment. The Participant's
account balance will be deemed "immediately distributable"
as set forth in paragraph 6.4, and will be fully vested
pursuant to paragraph 9.2.
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS
(a) An account balance is immediately distributable if any
part of the account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained whether or not deceased)
the later of the Normal Retirement Age or age 62.
(b) If the value of a Participant's Vested Account Balance
derived from Employer and Employee Contributions exceeds
(or at the time of any prior distribution exceeded)
$3,500, and the account balance is immediately
distributable, the Participant and his or her Spouse (or
where either the Participant or the Spouse has died, the
survivor) must consent to any distribution of such account
balance. The consent of the Participant and the Spouse
shall be obtained in writing within the 90- day period
ending on the annuity starting date, which is the first
day of the first period for which an amount is paid as an
annuity or any other form. The Plan Administrator shall
notify the Participant and the Participant's Spouse of the
right to defer any distribution until the Participant's
account balance is no longer immediately distributable.
Such notification shall include a general description of
the material features, and an explanation of the relative
values of, the optional forms of benefit available under
the plan in a manner that would satisfy the notice
requirements of Code Section 417(a)(3),
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and shall be provided no less than 30 days and no more
than 90 days prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form
of a qualified Joint and Survivor Annuity while the
account balance is immediately distributable.
Furthermore, if payment in the form of a Qualified Joint
and Survivor Annuity is not required with respect to the
Participant pursuant to paragraph 8.7 of the Plan, only
the Participant need consent to the distribution of an
account balance that is immediately distributable.
Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that
a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon
termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the
Participant's account balance may, without the
Participant's consent, be distributed to the Participant
or transferred to another Defined Contribution Plan [other
than an employee stock ownership plan as defined in Code
Section 4975(e)(7)] within the same controlled group.
(d) For purposes of determining the applicability of the
foregoing consent requirements to distributions made
before the first day of the first Plan Year beginning
after 1988, the Participant's Vested Account Balance shall
not include amounts attributable to Qualified Voluntary
Contributions.
6.5 NORMAL FORM OF PAYMENT The normal form of payment for a profit-
sharing plan satisfying the requirements of paragraph 8.7 hereof shall be a
lump sum with no option for annuity payments. For all other plans, the normal
form of payment hereunder shall be a Qualified Joint and Survivor Annuity as
provided under Article VIII. A Participant whose Vested Account Balance
derived from Employer and Employee contributions exceeds $3,500, or if at the
time of any prior distribution it exceeds $3,500, shall (with the consent of
his or her Spouse) have the right to receive his or her benefit in a lump sum
or in monthly, quarterly, semi-annual or annual payments from the Fund over any
period not extending beyond the life expectancy of the Participant and his or
her Beneficiary. For purposes of this paragraph, a Participant's Vested
Account Balance shall not include Qualified Voluntary Contributions, for Plan
Years beginning prior to 1989. The normal form of payment shall be automatic,
unless the Participant files a written request with the Employer prior to the
date on which the benefit is automatically payable, electing a lump sum or
installment payment option. No amendment to the Plan may eliminate one of the
optional distribution forms listed above.
6.6 COMMENCEMENT OF BENEFITS
(a) Unless the Participant elects otherwise, distribution of
benefits will begin no later than the 60th day after the
close of the Plan Year in which the latest of the
following events occurs:
(1) the Participant attains age 65 (or normal
retirement age if earlier),
(2) occurs the 10th anniversary of the year in which
the Participant commenced participation in the
Plan, or
(3) the Participant terminates Service with the
Employer.
(b) Notwithstanding the foregoing, the failure of a
Participant and Spouse (if necessary) to consent to a
distribution while a benefit is immediately distributable,
within the meaning of paragraph 6.4 hereof, shall be
deemed an election to defer commencement of payment of any
benefit sufficient to satisfy this paragraph.
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(c) Unless the Employer provides otherwise in the Adoption
Agreement, distributions of benefits will be made within
60 days following the close of the Plan Year during which
a distribution is requested or otherwise becomes payable.
6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application
to the Employer requesting payment of benefits due and the manner of payment.
If no application for benefits is made, the Employer shall automatically pay
any vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.6. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on
which the denial is based,
(c) provide a description of any additional material or
information necessary for the Participant or his
representative to perfect the claim and an explanation of
why such material or information is necessary, and
(d) explain the Plan's claim review procedure as contained in this Plan.
In the event the request is rejected or modified, the Participant or his
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction; for this purpose, process would be
served on the Employer.
6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part
of the fair market value of his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions or Rollover Contributions,
upon written request to the Employer. Transfer Contributions, which
originate from a Plan meeting the safe-harbor provisions of paragraph 8.7, may
also be withdrawn by an Employee upon written request to the Employer.
Transfer Contributions not meeting the safe-harbor provisions may only be
withdrawn upon retirement, death, Disability, termination or termination of the
Plan, and will be subject to Spousal consent requirements contained in Code
Sections 411(a)(11) and 417. No such withdrawals are permitted from a money
purchase plan until the Participant reaches Normal Retirement Age. Such
request shall include the Participant's address, social security number,
birthdate, and amount of the withdrawal. If at the time a distribution of
Qualified Voluntary Contributions is received the Participant has not attained
age 59-1/2 and is not disabled, as defined at Code Section 22(e)(3), the
Participant will be subject to a federal income tax penalty, unless the
distribution is rolled over to a qualified plan or individual retirement plan
within 60 days of the date of distribution. A Participant may withdraw all or
any part of the fair market value of his or her pre-1987 Voluntary
Contributions with or without withdrawing the earnings attributable thereto.
Post-1986 Voluntary Contributions may only be withdrawn along with a portion of
the earnings thereon. The amount of the earnings to be withdrawn is determined
by using the formula: DA[1-(V / V + E)], where DA is the distribution amount,
V is the amount of Voluntary Contributions and V + E is the amount of Voluntary
Contributions plus the earnings attributable thereto. A Participant
withdrawing his or her other contributions prior to attaining age 59-1/2, will
be subject to a federal tax penalty to the extent that the withdrawn amounts
are includible in income. Unless the Employer provides otherwise in the
Adoption Agreement, any Participant in a profit-sharing plan who is 100% fully
vested in his or her Employer contributions may withdraw all or any part of the
fair market value of any of such contributions that have been in the account at
least two years, plus the investment earnings thereon, without separation from
Service. Such distributions shall not be eligible for redeposit to the Fund.
A withdrawal under this paragraph shall not prohibit such Participant from
sharing in any future Employer
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Contribution he or she would otherwise be eligible to share in. A request to
withdraw amounts pursuant to this paragraph must if applicable, be consented to
by the Participant's Spouse. The consent shall comply with the requirements of
paragraph 6.4 relating to immediate distributions. Elective Deferrals,
Qualified Non-elective Contributions, and Qualified Matching Contributions, and
income allocable to each are not distributable to a Participant or his or her
Beneficiary or Beneficiaries, in accordance with such Participant's or
Beneficiary's or Beneficiaries' election, earlier than upon separation from
Service, death, or Disability. Such amounts may also be distributed upon:
(a) Termination of the Plan without the establishment of
another Defined Contribution Plan.
(b) The disposition by a corporation to an unrelated
corporation of substantially all of the assets [within the
meaning of Code Section 409(d)(2)] used in a trade or
business of such corporation if such corporation continues
to maintain this Plan after the disposition, but only with
respect to Employees who continue employment with the
corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary [within the
meaning of Code Section 409(d)(3)] if such corporation
continues to maintain this plan, but only with respect to
Employees who continue employment with such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph
6.9.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the Spousal and Participant consent
requirements, if applicable, contained in Code Sections 401(a)(11) and 417.
6.9 HARDSHIP WITHDRAWAL If permitted by the Employer in the Adoption
Agreement, a Participant in a profit- sharing plan may request a hardship
withdrawal prior to attaining age 59-1/2. If the Participant has not attained
age 59-1/2, the Participant may be subject to a federal income tax penalty.
Such request shall be in writing to the Employer who shall have sole authority
to authorize a hardship withdrawal, pursuant to the rules below. Hardship
withdrawals may include Elective Deferrals and any earnings accrued and
credited thereon as of the last day of the Plan Year ending before July 1, 1989
and Employer related contributions, including but not limited to Employer
Matching Contributions, plus the investment earnings thereon to the extent
vested. Qualified Matching Contributions, Qualified Non-Elective Contributions
and Elective Deferrals reclassified as Voluntary Contributions, plus the
investment earnings thereon are only available for a Hardship Withdrawal prior
to age 59-1/2 to the extent that they were credited to the Participant's
Account as of the last day of the Plan Year ending prior to July 1, 1989. The
Plan Administrator may limit withdrawals to Elective Deferrals and the earnings
thereon as stipulated above. Hardship withdrawals are subject to the Spousal
consent requirements contained in Code Sections 401(a)(11) and 417. Only the
following reasons are valid to obtain hardship withdrawal:
(a) medical expenses [within the meaning of Code Section
213(d)] of the Participant, his or her Spouse, children
and other dependents,
(b) the purchase (excluding mortgage payments) of the
principal residence for the Participant,
(c) payment of tuition and related educational expenses for
the next twelve (12) months of post- secondary education
for the Participant, his or her Spouse, children or other
dependents, or
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(d) the need to prevent eviction of the Employee from or a
foreclosure on the mortgage of, the Employee's principal
residence.
Furthermore, for Plans on Adoption Agreements 003 and 006, the following
conditions must be met in order for a withdrawal to be authorized:
(e) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer,
(f) all plans maintained by the Employer provide that the
Employee's Elective Deferrals and Voluntary Contributions
will be suspended for twelve months after the receipt of
the Hardship distribution,
(g) the distribution is not in excess of the amount of the
immediate and heavy financial need [(a) through (d)]
above, and
(h) all plans maintained by the Employer provide that an
Employee may only make Elective Deferrals for the
Employee's taxable year immediately following the taxable
year of the hardship distribution of the applicable limit
under Code Section 402(g) for such taxable year, less the
amount of such Employee's pre-tax contributions for the
taxable year of the hardship distribution.
If a distribution is made from any Plan at a time when a Participant has a
nonforfeitable right to less than 100% of the account balance derived from
Employer contributions and the Participant may increase the nonforfeitable
percentage in the account:
(a) A separate account will be established for the
Participant's interest in the Plan as of the time of the
distribution, and
(b) At any relevant time the Participant's nonforfeitable
portion of the separate account will be equal to an amount
("X") determined by the formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the nonforfeitable percentage at
the relevant time, "AB" is the account balance at the relevant time, "D" is the
amount of the distribution and "R" is the ratio of the account balance at the
relevant time to the account balance after distribution.
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made
under the terms of this Plan must comply with the provisions of Article VIII
including, if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required
under this Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401(a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found
at Regulations Section 1.401(a)(9)-2. The entire interest of a Participant
must be distributed or begin to be distributed no later than the Participant's
Required Beginning Date. Life expectancy and joint and last survivor life
expectancy are computed by using the expected return multiples found in Tables
V and VI of Regulations Section 1.72-9.
7.3 LIMITS ON DISTRIBUTION PERIODS As of the First Distribution
Calendar Year, distributions if not made in a single-sum, may only be made over
one of the following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy
of the participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a Designated
Beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) If a participant's benefit is to be distributed over (1) 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 or (2) a period not extending beyond the life
expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year,
beginning with distributions for the First Distribution
Calendar Year, must at least equal the quotient obtained
by dividing the Participant's benefit by the Applicable
Life Expectancy.
(b) For calendar years beginning before 1989, if the
Participant's Spouse is not the Designated Beneficiary,
the method of distribution selected must have assured that
at least 50% of the Present Value of the amount available
for distribution was to be paid within the life expectancy
of the Participant.
(c) For calendar years beginning after 1988, the amount to be
distributed each year, beginning with distributions for
the First Distribution Calendar Year shall not be less
than the quotient obtained by dividing the Participant's
benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's Spouse is not the
Designated Beneficiary, the applicable divisor determined
from the table set forth in Q&A-4 of Regulations Section
1.401(a)(9)-2. Distributions after the death of the
Participant shall be distributed using the Applicable Life
Expectancy as the relevant divisor without regard to
Regulations Section 1.401(a)(9)-2.
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<PAGE> 74
(d) The minimum distribution required for the Participant's
First Distribution Calendar Year must be made on or before
the Participant's Required Beginning Date. The minimum
distribution for other calendar years, including the
minimum distribution for the Distribution Calendar Year in
which the Participant's Required Beginning Date occurs,
must be made on or before December 31 of that Distribution
Calendar Year.
(e) If the Participant's benefit is distributed in the form of
an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with
the requirements of Code Section 401(a)(9) and the
regulations thereunder.
(f) For purposes of determining the amount of the required
distribution for each Distribution Calendar Year, the
account balance to be used is the account balance
determined as of the last valuation preceding the
Distribution Calendar Year. This balance will be
increased by the amount of any contributions or
forfeitures allocated to the account balance after the
valuation date in such preceding calendar year. Such
balance will also be decreased by distributions made after
the Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), if any portion of the
minimum distribution for the First Distribution Calendar
Year is made in 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 immediately preceding Distribution Calendar Year.
7.5 REQUIRED BEGINNING DATE
(a) General Rule. The Required Beginning Date of a
Participant is the first day of April of the calendar year
following the calendar year in which the Participant
attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a
Participant who attained age 70-1/2 before 1988, shall be
determined in accordance with (1) or (2) below:
(1) Non-5-percent owners. The Required Beginning
Date of a Participant who is not a 5-percent
owner is the first day of April of the calendar
year following the calendar year in which the
later of retirement or attainment of age 70-1/2
occurs. The Required Beginning Date of a
Participant who is not a 5-percent owner, who
attains age 70-1/2 during 1988 and who has not
retired as of 1989, is April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of
a Participant who is a 5-percent owner during any
year beginning after 1979, is the first day of
April following the later of:
(i) the calendar year in which the
Participant attains age 70-1/2, or
(ii) the earlier of the calendar year with or
within which ends the plan year in which
the Participant becomes a 5-percent
owner, or the calendar year in which the
Participant retires.
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(c) A Participant is treated as a 5-percent owner for purposes
of this Paragraph if such Participant is a 5-percent owner
as defined in Code Section 416(i) (determined in
accordance with Code Section 416 but without regard to
whether the Plan is Top-Heavy) at any time during the Plan
Year ending with or within the calendar year in which such
Owner attains age 66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under
this paragraph, they must continue to be distributed, even
if the Participant ceases to be a 5-percent owner in a
subsequent year.
7.6 TRANSITIONAL RULE
(a) Notwithstanding the other requirements of this article and
subject to the requirements of Article VIII, Joint and
Survivor Annuity Requirements, distribution on behalf of
any Employee, including a 5-percent owner, may be made in
accordance with all of the following requirements
(regardless of when such distribution commences):
(i) The distribution by the trust is one which would
not have disqualified such trust under Code
Section 401(a)(9) as in effect prior to amendment
by the Deficit Reduction Act of 1984.
(ii) The distribution is in accordance with a method
of distribution designated by the employee whose
interest in the trust is being distributed or, if
the employee is deceased, by a beneficiary of
such employee.
(iii) Such designation was in writing, was signed by
the employee or the beneficiary, and was made
before January 1, 1984.
(iv) The Employee has accrued a benefit under the Plan
as of December 31, 1983.
(v) The method of distribution designated by the
Employee or the beneficiary specifies the time at
which distribution will commence, the period over
which distributions will be made, and in the case
of any distribution upon the Employee's death,
the beneficiaries of the Employee listed in order
of priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the
designation contains the required information described
above with respect to the distributions to be made upon
the death of the Employee.
(c) For any distribution which commences before January 1,
1984, but continues after December 31, 1983, the Employee,
or the beneficiary, to whom such distribution is being
made, will be presumed to have designated the method of
distribution under which the distribution is being made if
the method of distribution was specified in writing and
the distribution satisfies the requirements in sub-
paragraphs (a)(i) and (a)(v) above.
(d) If a designation is revoked, any subsequent distribution
must satisfy the requirements of Code Section 401(a)(9)
and the Regulations thereunder. If a designation is
revoked subsequent to the date distributions are required
to begin, the Plan must distribute by the end of the
calendar year following the calendar year in which the
revocation occurs
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the total amount not yet distributed which would have been
required to have been distributed to satisfy Code Section
401(a)(9) and the Regulations thereunder, but for the Tax
Equity and Fiscal Responsibility Act Section 242(b)(2)
election. For calendar years beginning after December 31,
1988, such distributions must meet the minimum
distribution incidental benefit requirements in
Regulations Section 1.401(a)(9)-2. Any changes in the
designation will be considered to be a revocation of the
designation. However, the mere substitution or addition
of another beneficiary (one not named in the designation)
under the designation will not be considered to be a
revocation of the designation, so long as such
substitution or addition does not alter the period over
which distributions are to be made under the designation,
directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount
is transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 of Regulations
Section 1.401(a)(9)-2 shall apply.
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant
shall file a written designation of beneficiary with the Employer upon
qualifying for participation in this Plan. Such designation shall remain in
force until revoked by the Participant by filing a new beneficiary form with
the Employer. The Participant may elect to have a portion of his or her
account balance invested in an insurance contract. If an insurance contract is
purchased under the Plan, the Trustee must be named as Beneficiary under the
terms of the contract. However, the Participant shall designate a Beneficiary
to receive the proceeds of the contract after settlement is received by the
Trustee. Under a profit-sharing plan satisfying the requirements of paragraph
8.7 hereof, the Designated Beneficiary shall be the Participant's Surviving
Spouse, if any, unless such Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable
hereunder which is not disposed of because of the Participant's or former
Participant's failure to designate a beneficiary, or because all of the
Designated Beneficiaries are deceased, shall be paid to his or her Spouse. If
the Participant had no Spouse at the time of death, payment shall be made to
the personal representative of his or her estate in a lump sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (a)
or (b) below:
(a) If any portion of the Participant's interest is payable to
a Designated Beneficiary, distributions may be made over
the life or over a period certain not greater than the
life expectancy of the Designated Beneficiary commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Participant died;
(b) If the Designated Beneficiary is the Participant's
Surviving Spouse, the date distributions are required to
begin in accordance with (a) above shall not be earlier
than the later of (1) December 31 of the calendar year
immediately following the calendar year in which the
participant died, or (2) December 31 of the calendar year
in which the Participant would have attained age 70-1/2.
If the Participant has not made an election pursuant to this paragraph by the
time of his or her death, the Participant's Designated Beneficiary must elect
the method of distribution no later than the earlier of (1) December 31 of the
calendar year in which distributions would be required to begin under this
section, or (2)
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December 31 of the calendar year which contains the fifth anniversary of the
date of death of the participant. If the Participant has no Designated
Beneficiary, or if the Designated Beneficiary does not elect a method of
distribution, then distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor
or incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) Notwithstanding any other provision of the Plan, Excess
Elective Deferrals plus any income and minus any loss
allocable thereto, shall be distributed no later than
April 15, 1988, and each April 15 thereafter, to
Participants to whose accounts Excess Elective Deferrals
were allocated for the preceding taxable year, and who
claim Excess Elective Deferrals for such taxable year.
Excess Elective Deferrals shall be treated as Annual
Additions under the Plan, unless such amounts are
distributed no later than the first April 15th following
the close of the Participant's taxable year. A
Participant is deemed to notify the Plan Administrator of
any Excess Elective Deferrals that arise by taking into
account only those Elective Deferrals made to this Plan
and any other plans of this Employer. Furthermore, a
Participant who participates in another plan allowing
Elective Deferrals may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the
Participant, by notifying the Plan Administrator of the
amount of the Excess Elective Deferrals to be assigned.
(b) The Participant's claim shall be in writing; shall be
submitted to the Plan Administrator not later than March 1
of each year; shall specify the amount of the
Participant's Excess Elective Deferrals for the preceding
taxable year; and shall be accompanied by the
Participant's written statement that if such amounts are
not distributed, such Excess Elective Deferrals, when
added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k)
[Simplified Employee Pensions], or 403(b) [annuity
programs for public schools and charitable organizations]
will exceed the $7,000 limit as adjusted under Code
Section 415(d) imposed on the Participant by Code Section
402(g) for the year in which the deferral occurred.
(c) Excess Elective Deferrals shall be adjusted for any income
or loss up to the end of the taxable year, during which
such excess was deferred. Income or loss will be
calculated under the method used to calculate investment
earnings and losses elsewhere in the Plan.
(d) If the Participant receives a return of his or her
Elective Deferrals, the amount of such contributions which
are returned must be brought into the Employee's taxable
income.
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7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the
last day of each Plan Year to Participants to whose
accounts such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts are
distributed more than 2-1/2 months after the last day of
the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax will be imposed on the Employer
maintaining the Plan with respect to such amounts. Such
distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such
Employees. Excess Contributions shall be allocated to
Participants who are subject to the Family Member
aggregation rules of Code Section 414(q)(6) in the manner
prescribed by the regulations thereunder.
(b) Excess Contributions (including the amounts
recharacterized) shall be treated as Annual Additions
under the Plan.
(c) Excess Contributions shall be adjusted for any income or
loss up to the end of the Plan Year. Income or loss will
be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
(d) Excess Contributions shall be distributed from the
Participant's Contribution account and Qualified Matching
Contribution account (if applicable) in proportion to the
Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the
Plan Year. Excess Contributions shall be distributed from
the Participant's Qualified Non-Elective Contribution
account only to the extent that such Excess Contributions
exceed the balance in the Participant's Elective Deferral
account and Qualified Matching Contribution account.
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any
loss allocable thereto, shall be forfeited, if
forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to
whose accounts such Excess Aggregate Contributions were
allocated for the preceding Plan Year. Excess Aggregate
Contributions shall be allocated to Participants who are
subject to the Family Member aggregation rules of Code
Section 414(q)(6) in the manner prescribed by the
regulations. If such Excess Aggregate Contributions are
distributed more than 2-1/2 months after the last day of
the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax will be imposed on the Employer
maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as Annual
Additions under the plan.
(b) Excess Aggregate Contributions shall be adjusted for any
income or loss up to the end of the Plan Year. The income
or loss allocable to Excess Aggregate Contributions is the
sum of income or loss for the Plan Year allocable to the
Participant's Voluntary Contribution account, Matching
Contribution account, (if any, and if all amounts therein
are not used in the ADP test) and, if applicable,
Qualified Non-Elective Contribution account and Elective
Deferral account. Income or loss will be calculated under
the method used to calculate investment earnings and
losses elsewhere in the Plan.
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(c) Forfeitures of Excess Aggregate Contributions may either
be reallocated to the accounts of non- Highly Compensated
Employees or applied to reduce Employer contributions, as
elected by the employer in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such
amount is not vested. If vested, such excess shall be
distributed on a pro-rata basis from the Participant's
Voluntary Contribution account (and, if applicable, the
Participant's Qualified Non-Elective Contribution account
or Elective Deferral account, or both).
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ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall
apply to any Participant who is credited with at least one Hour of Service with
the Employer on or after August 23, 1984 and such other Participants as
provided in paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an
optional form of benefit is selected pursuant to a Qualified Election within
the 90-day period ending on the Annuity Starting Date, a married Participant's
Vested Account Balance will be paid in the form of a Qualified Joint and
Survivor Annuity and an unmarried Participant's Vested Account Balance will be
paid in the form of a life annuity. The Participant may elect to have such
annuity distributed upon attaining Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an
optional form of benefit has been selected within the Election Period pursuant
to a Qualified Election, if a Participant dies before benefits have commenced
then one-half of the Participant's Vested Account Balance shall be paid to the
Surviving Spouse in the form of a life annuity. The Surviving Spouse may elect
to have such annuity distributed within a reasonable period after the
Participant's death.
A Participant who does not meet the age 35 requirement set forth in the
Election Period as of the end of any current Plan Year may make a special
qualified election to waive the qualified Pre-retirement Survivor Annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
Qualified Pre- retirement Survivor Annuity in such terms as are comparable to
the explanation required under paragraph 8.5. Qualified Pre-retirement
Survivor Annuity coverage will be automatically reinstated as of the first day
of the Plan Year in which the Participant attains age 35. Any new waiver on or
after such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION A waiver of a Qualified Joint and Survivor
Annuity or a qualified pre-retirement survivor annuity. Any waiver of a
Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity shall not be effective unless:
(a) the Participant's Spouse consents in writing to the
election;
(b) the election designates a specific beneficiary, including
any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal
consent (or the Spouse expressly permits designations by
the Participant without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the
election; and
(d) the Spouse's consent is witnessed by a Plan representative
or notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit
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<PAGE> 81
where applicable, and that the Spouse voluntarily elects to relinquish either
or both of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before the
commencement of benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless the Participant has
received notice as provided in paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY In
the case of a Qualified Joint and Survivor Annuity, the Plan Administrator
shall, no less than 30 days and no more than 90 days prior to the Annuity
Starting date, provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(b) the Participant's right to make and the effect of an
election to waive the qualified Joint and Survivor
Annuity form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and
Survivor Annuity.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY
In the case of a qualified pre- retirement survivor annuity as described in
paragraph 8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The
applicable period for a Participant is whichever of the following periods ends
last:
(a) 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;
(b) a reasonable period ending after the individual becomes a
Participant;
(c) a reasonable period ending after this Article first
applies to the Participant. Notwithstanding the
foregoing, notice must be provided within a reasonable
period ending after separation from Service in the case of
a Participant who separates from Service before attaining
age 35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns
to employment with the Employer, the applicable period for such Participant
shall be re-determined.
8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS
(a) To the extent that the following conditions are met, the
Qualified Joint and Survivor Annuity requirements of this
Article VIII shall be inapplicable 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
1988, from or under a separate account attributable solely
to Qualified Voluntary contributions, as maintained on
behalf of a Participant in a money purchase pension plan,
(including a target benefit plan) if the following
conditions are satisfied:
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(1) the Participant does not or cannot elect payments
in the form of a life annuity; and
(2) on the death of a Participant, the Participant's
Vested Account Balance will be paid to the
Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified
Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the
Vested Account Balance commence within the 90-day period
following the date of the Participant's death. The
account balance shall be adjusted for gains or losses
occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment
of account balances for other types of distributions.
These safe-harbor rules shall not be operative with
respect to a Participant in a profit-sharing plan if that
Plan is a direct or indirect transferee of a Defined
Benefit Plan, money purchase plan, a target benefit plan,
stock bonus plan, or profit-sharing plan which is subject
to the survivor annuity requirements of Code Section
401(a)(11) and Code Section 417, and would therefore have
a Qualified Joint and Survivor Annuity as its normal form
of benefit.
(b) The Participant may waive the spousal death benefit
described in this paragraph at any time provided that no
such waiver shall be effective unless it satisfies the
conditions (described in paragraph 8.4) that would apply
to the Participant's waiver of the Qualified
Pre-Retirement Survivor Annuity.
(c) If this paragraph 8.7 is operative, then all other
provisions of this Article other than paragraph 8.8 are
inoperative.
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES Special transition
rules apply to Participants who were not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits
prescribed by the previous paragraphs of this Article,
must be given the opportunity to elect to have the prior
paragraphs of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan
or a predecessor Plan in a Plan Year beginning on or after
January 1, 1976 and such Participant had at least 10 Years
of Service for vesting purposes when he or she separated
from Service.
(b) Any living Participant not receiving benefits on August
23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor Plan on or after
September 2, 1974, and who is not otherwise credited with
any Service in a Plan Year beginning on or after January
1, 1976, must be given the opportunity to have his or her
benefits paid in accordance with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a)
and (b) above] must be afforded to the appropriate
Participants during the period commencing on August 23,
1984 and ending on the date benefits would otherwise
commence to said Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY
Any Participant who has elected pursuant to paragraph 8.8(b) and any
Participant who does not elect under paragraph 8.8(a) or who meets the
requirements of paragraph 8.8(a), except that such Participant does not have at
least 10 years of vesting Service
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when he or she separates from Service, shall have his or her benefits
distributed in accordance with all of the following requirements if benefits
would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the
form of a life annuity become payable to a married
Participant who:
(1) begins to receive payments under the Plan on or
after Normal Retirement Age, or
(2) dies on or after Normal Retirement Age while
still working for the Employer, or
(3) begins to receive payments on or after the
Qualified Early Retirement Age, or
(4) separates from Service on or after attaining
Normal Retirement (or the Qualified Early
Retirement Age) and after satisfying the
eligibility requirements for the payment of
benefits under the Plan and thereafter dies
before beginning to receive such benefits, then
such benefits will be received under this Plan in
the form of a Qualified Joint and Survivor
Annuity, unless the Participant has elected
otherwise during the Election Period. The
Election Period must begin at least 6 months
before the Participant attains Qualified Early
Retirement Age and end not more than 90 days
before the commencement of benefits. Any
election hereunder will be in writing and may be
changed by the Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is
employed after attaining the Qualified Early Retirement
Age will be given the opportunity to elect, during the
Election Period, to have a survivor annuity payable on
death. If the Participant elects the survivor annuity,
payments under such annuity must not be less than the
payments which would have been made to the Spouse under
the Qualified Joint and Survivor Annuity if the
Participant had retired on the day before his or her
death. Any election under this provision will be in
writing and may be changed by the Participant at any time.
The Election Period begins on the later of:
(1) the 90th day before the Participant attains the
Qualified Early Retirement Age, or
(2) the date on which participation begins, and ends
on the date the Participant terminates
employment.
8.10 ANNUITY CONTRACTS Any annuity contract distributed under this
Plan must be nontransferable. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
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ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100%
vested and nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2 hereof) will occur solely as a result of an Employee's withdrawal of any
Employee contributions.
9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 COMPUTATION PERIOD The computation period for purposes of
determining Years of Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance derived from
Employer contributions shall be determined by the Employer in the Adoption
Agreement. If the Employer provides for other than full and immediate vesting
and does not designate otherwise, the computation period will be the Plan Year.
In the event a former Participant with no vested interest in his or her
Employer contribution account requalifies for participation in the Plan after
incurring a Break in Service, such Participant shall be credited for vesting
with all pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN
SERVICE The account balance of such Participant shall consist of any
undistributed amount in his or her account as of the date of re-employment plus
any future contributions added to such account plus the investment earnings on
the account. The Vested Account Balance of such Participant shall be
determined by multiplying the Participant's account balance (adjusted to
include any distribution or redeposit made under paragraph 6.3) by such
Participant's vested percentage. All Service of the Participant, both prior to
and following the break, shall be counted when computing the Participant's
vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE
If such Participant is not fully vested upon re-employment, a new account shall
be established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive
one-year Breaks in Service shall acquire a larger vested and nonforfeitable
interest in his or her prior account balance as a result of requalification
hereunder.
9.6 CALCULATING VESTED INTEREST A Participant's vested and
nonforfeitable interest shall be calculated by multiplying the fair market
value of his or her account attributable to Employer contributions on the
Valuation Date preceding distribution by the decimal equivalent of the vested
percentage as of his or her termination date. The amount attributable to
Employer contributions for purposes of the calculation includes amounts
previously paid out pursuant to paragraph 6.3 and not repaid. The
Participant's vested and nonforfeitable interest, once calculated above, shall
be reduced to reflect those amounts previously paid out to the Participant and
not repaid by the Participant. The Participant's vested and nonforfeitable
interest so determined shall continue to share in the investment earnings and
any increase or decrease in the fair market value of the Fund up to the
Valuation Date preceding or coinciding with payment.
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<PAGE> 85
9.7 FORFEITURES Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. If not specified otherwise in the Adoption Agreement, forfeitures
will be allocated to Participants in the same manner as the Employer's
contribution. A forfeiture may only occur if the Participant has received a
distribution from the Plan or if the Participant has incurred five consecutive
1-year Breaks in Service. Forfeitures shall inure only to the accounts of
Participants of the adopting Employer's plan. If not specified otherwise in
the Adoption Agreement, forfeitures shall be allocated at the end of the Plan
Year during which the former Participant incurs five consecutive one-year
Breaks in Service. Furthermore, a Highly Compensated Employee's Matching
Contributions may be forfeited, even if vested, if the contributions to which
they relate are Excess Deferrals, Excess Contributions or Excess Aggregate
Contributions.
9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have
the effect of decreasing a Participant's vested interest determined without
regard to such amendment as of the later of the date such amendment is adopted
or the date it becomes effective. Further, if the vesting schedule of the Plan
is amended, or the Plan is amended in any way that directly or indirectly
affects the computation of any Participant's nonforfeitable percentage, or if
the Plan is deemed amended by an automatic change to or from a Top-Heavy
vesting schedule, each Participant with at least three Years of Service with
the Employer may elect, within a reasonable period after the adoption of the
amendment or change, to have his or her nonforfeitable percentage computed
under the Plan without regard to such amendment or change. For Participants
who do not have at least one Hour of Service in any Plan Year beginning after
1988, the preceding sentence shall be applied by substituting "Five Years of
Service" for "Three Years of Service" where such language appears. The period
during which the election may be made shall commence with the date the
amendment is adopted or deemed to be made and shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of
the amendment by the Employer or the Trustee. If the
Trustee is asked to so notify, the Fund will be charged
for the costs thereof unless the Employer pays the charges
as permitted in paragraph 11.3.
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's account balance may be reduced to the
extent permitted under section 412(c)(8) of the Code (relating to financial
hardships). For purposes of this paragraph, a Plan amendment which has the
effect of decreasing a Participant's account balance or eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit.
9.9 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be considered for purposes of determining a Participant's
nonforfeitable percentage.
9.10 APPLICATION OF PRIOR VESTING RULES This Article reflects the
vesting rules in effect after amendment for the Tax Reform Act of 1986. Any
Participant who separated from Service prior to rendering an Hour of Service in
the 1989 Plan Year, will continue to have his or her vesting governed by the
Plan's prior vesting rules, including, if applicable, the "rules of parity"
which would allow for certain Years of Service to be disregarded.
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ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY If the Participant does not
participate in and has never participated in another qualified plan, a Welfare
Benefit Fund (as defined in paragraph 1.89) or an individual medical account,
as defined in Code Section 415(l)(2), maintained by the adopting Employer,
which provides an Annual Addition as defined in paragraph 1.4, the amount of
Annual Additions which may be credited to the Participant's account for any
Limitation Year will 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 account 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. 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 estimate of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated. 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.
10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS If pursuant to paragraph
10.1 or as a result of the allocation of forfeitures, there is an Excess
Amount, the excess will be disposed of under one of the following methods as
determined in the Adoption Agreement. If no election is made in the Adoption
Agreement then method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the
Excess Amount will be returned to the
Participant. To the extent necessary to reduce
the Excess Amount, non-Highly Compensated
Employees will have all Elective Deferrals
returned whether or not there was a corresponding
match.
(2) If after the application of paragraph (1) 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;
(3) If after the application of paragraph (1) an
Excess Amount still exists, and the Participant
is not covered by the Plan at the end of the
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;
(4) If a suspense account is in existence at any time
during the Limitation Year pursuant to this
paragraph, 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
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in the suspense account must be allocated and
reallocated to Participants' accounts before any
Employer contributions or any Employee or
Voluntary Contributions may be made to the Plan
for that Limitation Year. Excess amounts may not
be distributed to Participants or former
Participants.
(b) Spillover Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the
Excess Amount will be returned to the
Participant. To the extent necessary to reduce
the Excess Amount, non-Highly Compensated
Employees will have all Elective Deferrals
returned whether or not there was a corresponding
match.
(2) Any Excess Amount which would be allocated to the
account of an individual Participant under the
Plan's allocation formula will be reallocated to
other Participants in the same manner as other
Employer contributions. No such reallocation
shall be made to the extent that it will result
in an Excess Amount being created in such
Participant's own account.
(3) To the extent that amounts cannot be reallocated
under (1) above, the suspense account provisions
of (a) above will apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER REGIONAL PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND, OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER The Annual Additions which may be credited to a
Participant's account under this Plan for any Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under the other Regional Prototype Defined Contribution
plans and Welfare Benefit Funds and individual medical accounts as defined in
Code Section 415(l)(2), maintained by the Employer, which provide an Annual
Addition as defined in paragraph 1.4, 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 account 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 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. 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 paragraph 10.1. As soon as 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.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If,
pursuant to paragraph 10.3 or as a result 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 an individual medical account as defined in Code
Section 415(l)(2) will be deemed to have been allocated first regardless of the
actual allocation date. 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:
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(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant
for the Limitation Year as of such date under the
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
Master or Prototype Defined Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN
WHICH IS NOT A REGIONAL PROTOTYPE PLAN If the Participant is covered under
another qualified Defined Contribution Plan maintained by the Employer which is
not a Regional 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 paragraphs 10.3 and 10.4 as though the other plan were a
Master or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN 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. For any Plan Year during which the Plan is
Top-Heavy, the Defined Benefit and Defined Contribution Plan Fractions shall be
calculated in accordance with Code Section 416(h). 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 provisions set forth in the
Adoption Agreement.
10.7 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the
Top-Heavy Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the
denominators of the Defined Benefit Fraction (as defined in paragraph 1.15) and
Defined Contribution Fraction (as defined in paragraph 1.18) shall be computed
using 100% of the dollar limitation instead of 125%.
10.8 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST With respect to any Plan
Year, the Average Deferral Percentage for Participants who are Highly
Compensated Employees and the Average Deferral Percentage for Participants who
are non- Highly Compensated Employees must satisfy one of the following tests:
(a) BASIC TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the
Plan Year is not more than 1.25 times the Average Deferral
Percentage for Participants who are non-Highly Compensated
Employees for the same Plan Year, or
(b) ALTERNATIVE TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the
Plan Year does not exceed the Average Deferral Percentage
for Participants who are non-Highly Compensated Employees
for the same Plan Year by more than 2 percentage points
provided that the Average Deferral Percentage for
Participants who are Highly Compensated Employees is not
more than 2.0 times the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees.
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<PAGE> 89
10.9 SPECIAL RULES RELATING TO APPLICATION OF ADP TEST
(a) The Actual Deferral Percentage for any Participant who is
a Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals
for purposes of the ADP test) allocated to his or her
accounts under two or more arrangements described in Code
Section 401(k), that are maintained by the Employer, shall
be determined as if such Elective Deferrals (and, if
applicable, such Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements
that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(b) In the event that this Plan satisfies the requirements of
Code Sections 401(k), 401(a)(4), or 410(b), only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Code Sections
only if aggregated with this Plan, then this Section shall
be applied by determining the Actual Deferral Percentage
of Employees as if all such plans were a single plan. For
Plan Years beginning after 1989, plans may be aggregated
in order to satisfy Code Section 401(k) only if they have
the same Plan Year.
(c) For purposes of determining the Actual Deferral Percentage
of a Participant who is a 5-percent owner or one of the
ten most highest-paid Highly Compensated Employees, the
Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or
both, if treated as Elective Deferrals for purposes of the
ADP test) and Compensation of such Participant shall
include the Elective Deferrals (and, if applicable,
Qualified Non-Elective Contributions and Qualified
Matching Contributions, or both) for the Plan Year of
Family Members as defined in paragraph 1.35 of this Plan.
Family Members, with respect to such Highly Compensated
Employees, shall be disregarded as separate Employees in
determining the ADP both for Participants who are
non-Highly Compensated Employees and for Participants who
are Highly Compensated Employees. In the event of repeal
of the family aggregation rules under Code Section
414(q)(6), all applications of such rules under this Plan
will cease as of the effective date of such repeal.
(d) For purposes of determining the ADP test, Elective
Deferrals, Qualified Non-Elective Contributions and
Qualified Matching Contributions must be made before the
last day of the twelve-month period immediately following
the Plan Year to which contributions relate.
(e) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(f) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy such
other requirements as may be prescribed by the Secretary
of the Treasury.
10.10 RECHARACTERIZATION If the Employer allows for Voluntary
Contributions in the Adoption Agreement, a Participant may treat his or her
Excess Contributions as an amount distributed to the Participant and then
contributed by the Participant to the Plan. Recharacterized amounts will
remain nonforfeitable and subject to the same distribution requirements as
Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated
Employee to the extent that such amount in combination with other Employee
Contributions made by that Employee would exceed any stated limit under the
Plan on Voluntary Contributions. Recharacterization must occur no later than
two and one-half months after the last day of the Plan Year in which such
Excess Contributions arose and is deemed to occur no earlier than the date the
last
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<PAGE> 90
Highly Compensated Employee is informed in writing of the amount
recharacterized and the consequences thereof. Recharacterized amounts will be
taxable to the Participant for the Participant's tax year in which the
Participant would have received them in cash.
10.11 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST If the Employer makes
Matching Contributions or if the Plan allows Employees to make Voluntary
Contributions the Plan must meet additional nondiscrimination requirements
provided under Code Section 401(m). If Employee Contributions (including any
Elective Deferrals recharacterized as Voluntary Contributions) are made
pursuant to this Plan, then in addition to the ADP test referenced in paragraph
10.8, the Average Contribution Percentage test is also applicable. The Average
Contribution Percentage for Participants who are Highly Compensated Employees
for each Plan Year and the Average Contribution Percentage for Participants who
are Non- Highly Compensated Employees for the same Plan Year must satisfy one
of the following tests:
(a) The Average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall
not exceed the Average Contribution Percentage for
Participants who are non-Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
(b) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the Average
Contribution Percentage for Participants who are Highly
Compensated Employees does not exceed the Average
Contribution Percentage for Participants who are
non-Highly Compensated Employees by more than two (2)
percentage points.
10.12 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST
(a) If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to
the ACP test maintained by the Employer and the sum of the
ADP and ACP of those Highly Compensated Employees subject
to either or both tests exceeds the Aggregate Limit, then
the ADP or ACP of those Highly Compensated Employees who
also participate in a cash or deferred arrangement will be
reduced (beginning with such Highly Compensated Employee
whose ACP is the highest) as set forth in the Adoption
Agreement so that the limit is not exceeded. The amount
by which each Highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an
Excess Aggregate Contribution. The ADP and ACP of the
Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests.
Multiple use does not occur if both the ADP and ACP of the
Highly Compensated Employees does not exceed 1.25
multiplied by the ADP and ACP of the non-Highly
Compensated Employees.
(b) For purposes of this Article, the Contribution Percentage
for any Participant who is a Highly Compensated Employee
and who is eligible to have Contribution Percentage
Amounts allocated to his or her account under two or more
plans described in Code Section 401(a), or arrangements
described in Code Section 401(k) that are maintained by
the Employer, shall be determined as if the total of such
Contribution Percentage Amounts was made under each Plan.
If a Highly Compensated Employee participates in two or
more cash or deferred arrangements that have different
plan years, all cash or deferred arrangements ending with
or within the same calendar year shall be treated as a
single arrangement.
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(c) In the event that this Plan satisfies the requirements of
Code Sections 401(a)(4), 401(m), or 410(b) only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Code Sections
only if aggregated with this Plan, then this Section shall
be applied by determining the Contribution Percentage of
Employees as if all such plans were a single plan. For
Plan Years beginning after 1989, plans may be aggregated
in order to satisfy Code Section 401(m) only if the
aggregated plans have the same Plan Year.
(d) For purposes of determining the Contribution percentage of
a Participant who is a five-percent owner or one of the
ten most highest-paid, Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such
Participant shall include the Contribution Percentage
Amounts and Compensation for the Plan Year of Family
Members as defined in paragraph 1.35 of this Plan. Family
Members, with respect to Highly Compensated Employees,
shall be disregarded as separate Employees in determining
the Contribution Percentage both for Participants who are
non- Highly Compensated Employees and for Participants who
are Highly Compensated Employees. In the event of repeal
of the family aggregation rules under Code Section
414(q)(6), all applications of such rules under this Plan
will cease as of the effective date of such repeal.
(e) For purposes of determining the Contribution Percentage
test, Employee Contributions are considered to have been
made in the Plan Year in which contributed to the trust.
Matching Contributions and Qualified Non-Elective
Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period
beginning on the day after the close of the Plan Year.
(f) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(g) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
(h) Qualified Matching Contributions and Qualified
Non-Elective Contributions used to satisfy the ADP test
may not be used to satisfy the ACP test.
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ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR The Employer shall be the named fiduciary and
Plan Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary,
custodian or any other party needed to administer the Plan
or the Fund,
(b) directing the Trustee or custodian with respect to
payments from the Fund,
(c) communicating with Employees regarding their participation
and benefits under the Plan, including the administration
of all claims procedures,
(d) filing any returns and reports with the Internal Revenue
Service, Department of Labor, or any other governmental
agency,
(e) reviewing and approving any financial reports, investment
reviews, or other reports prepared by any party appointed
by the Employer under paragraph (a),
(f) establishing a funding policy and investment objectives
consistent with the purposes of the Plan and the Employee
Retirement Income Security Act of 1974, and
(g) construing and resolving any question of Plan
interpretation. The Plan Administrator's interpretation
of Plan provisions including eligibility and benefits
under the Plan is final, and unless it can be shown to be
arbitrary and capricious will not be subject to "de novo"
review.
11.2 TRUSTEE The Trustee shall be responsible for the administration
of investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with
written instructions received from an authorized
representative of the Employer,
(c) keeping accurate records reflecting its administration of
the Fund and making such records available to the Employer
for review and audit. Within 90 days after each Plan Year,
and within 90 days after its removal or resignation, the
Trustee shall file with the Employer an accounting of its
administration of the Fund during such year or from the
end of the preceding Plan Year to the date of removal or
resignation. Such accounting shall include a statement of
cash receipts and disbursements since the date of its last
accounting and shall contain an asset list showing the
fair market value of investments held in the Fund as of
the end of the Plan Year. The value of marketable
investments shall be determined using the most recent
price quoted on a national securities exchange or over the
counter market. The value of non-marketable investments
shall be determined in the sole judgement of the Trustee
which determination shall be binding and conclusive. The
value of investments in securities or obligations of the
Employer in which there is no market shall be determined
in the sole judgement of the Employer and the Trustee
shall have no responsibility with respect to the valuation
of such assets. The Employer shall review the Trustee's
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accounting and notify the Trustee in the event of its
disapproval of the report within 90 days, providing the
Trustee with a written description of the items in
question. The Trustee shall have 60 days to provide the
Employer with a written explanation of the items in
question. If the Employer again disapproves, the Trustee
shall file its accounting in a court of competent
jurisdiction for audit and adjudication, and
(d) employing such agents, attorneys or other professionals as
the Trustee may deem necessary or advisable in the
performance of its duties.
The Trustee's duties shall be limited to those described above. The Employer
shall be responsible for any other administrative duties required under the
Plan or by applicable law.
11.3 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges
and expenses incurred by the Trustee in connection with the administration of
the Fund and all reasonable costs, charges and expenses incurred by the Plan
Administrator in connection with the administration of the Plan (including fees
for legal services rendered to the Trustee or Plan Administrator) may be paid
by the Employer, but if not paid by the Employer when due, shall be paid from
the Fund. Such reasonable compensation to an institutional Trustee as may be
agreed upon from time to time between the Employer and the Trustee and such
reasonable compensation to the Plan Administrator as may be agreed upon from
time to time between the Employer and Plan Administrator may be paid by the
Employer, but if not paid by the Employer when due shall be paid by the Fund.
The Trustee shall have the right to liquidate trust assets to cover its fees.
Notwithstanding the foregoing, no compensation other than reimbursement for
expenses shall be paid to a Trustee or Plan Administrator who is the Employer
or a full-time Employee of the Employer. In the event any part of the Trust
Account becomes subject to tax, all taxes incurred will be paid from the Fund
unless the Plan Administrator advises the Trustee not to pay such tax.
11.4 DIVISION OF DUTIES AND INDEMNIFICATION
(a) The Trustee shall have the authority and discretion to
manage and govern the Fund to the extent provided in this
instrument, but does not guarantee the Fund in any manner
against investment loss or depreciation in asset value, or
guarantee the adequacy of the Fund to meet and discharge
all or any liabilities of the Plan.
(b) The Trustee shall not be liable for the making, retention
or sale of any investment or reinvestment made by it, as
herein provided, or for any loss to, or diminution of the
Fund, or for any other loss or damage which may result
from the discharge of its duties hereunder except to the
extent it is judicially determined that the Trustee has
failed to exercise the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character with like aims.
(c) The Employer warrants that all directions issued to the
Trustee by it or the Plan Administrator will be in
accordance with the terms of the Plan and not contrary to
the provisions of the Employee Retirement Income Security
Act of 1974 and Regulations issued thereunder.
(d) The Trustee shall not be answerable for any action taken
pursuant to any direction, consent, certificate, or other
paper or document on the belief that the same is genuine
and signed by the proper person. All directions by the
Employer or the Plan Administrator shall be in writing.
The Employer shall deliver to the Trustee certificates
evidencing the individual or individuals authorized to
act as set forth in the Adoption Agreement or as the
Employer may subsequently inform the Trustee in writing
and shall deliver to the Trustee specimens of their
signatures.
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(e) The duties and obligations of the Trustee shall be limited
to those expressly imposed upon it by this instrument or
subsequently agreed upon by the parties. Responsibility
for administrative duties required under the Plan or
applicable law not expressly imposed upon or agreed to by
the Trustee shall rest solely with the Employer.
(f) The Trustee shall be indemnified and saved harmless by the
Employer from and against any and all liability to which
the Trustee may be subjected, including all expenses
reasonably incurred in its defense, for any action or
failure to act resulting from compliance with the
instructions of the Employer, the employees or agents of
the Employer, the Plan Administrator, or any other
fiduciary to the Plan, and for any liability arising from
the actions or nonactions of any predecessor trustee,
custodian or other fiduciaries of the Plan.
(g) The Trustee shall not be responsible in any way for the
application of any payments it is directed to make or for
the adequacy of the Fund to meet and discharge any and all
liabilities under the Plan.
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<PAGE> 95
ARTICLE XII
TRUST FUND ACCOUNT
12.1 THE FUND The Fund shall consist of all contributions made under
Article III and Article IV of the Plan and the investment thereof and earnings
thereon. All contributions and the earnings thereon less payments made under
the terms of the Plan, shall constitute the Fund. The Fund shall be
administered as provided in this document.
12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of
ownership shall be held by the Trustee under the terms of the Plan and Trust
Account. If the assets represent amounts transferred from another trustee or
custodian under a former plan, the Trustee named hereunder shall not be
responsible for the propriety of any investment under the former plan.
12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of Participants,
former Participants with a vested interest, and the beneficiary or
beneficiaries of a deceased Participant having a vested interest in the Fund at
the death of the Participant.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or
interest in, any part of the Fund, or any payment from the Fund, shall be
assignable, transferable, or subject to sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution, or levy of any
kind. The Trustee shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a Qualified Domestic Relations Order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A
domestic relations order shall specifically state all of the following in order
to be deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the
domestic relations order. However, if the domestic
relations order does not specify the current mailing
address of the alternate payee, but the Plan Administrator
has independent knowledge of that address, the domestic
relations order may still be a valid QDROs.
(b) The dollar amount or percentage of the Participant's
benefit to be paid by the Plan to each alternate payee, or
the manner in which the amount or percentage will be
determined.
(c) The number of payments or period for which the domestic
relations order applies.
(d) The specific plan (by name) to which the domestic
relations order applies.
A domestic relations order shall not be deemed a QDRO if it requires the Plan
to provide:
(e) any type or form of benefit, or any option not already
provided for in the Plan;
(f) increased benefits, or benefits in excess of the
Participant's vested rights;
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(g) payment of a benefit earlier than allowed by the Plan's
earliest retirement provisions or in the case of a
profit-sharing plan, prior to the allowability of
in-service withdrawals, or
(h) payment of benefits to an alternate payee which are
required to be paid to another alternate payee under
another QDRO.
Promptly, upon receipt of a domestic relations order ("Order") which may or may
not be "Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to
the Plan's legal counsel for an opinion as to whether or not the Order is in
fact "Qualified" as defined in Code Section 414(p). Within a reasonable time
after receipt of the Order, not to exceed 60 days, the Plan's legal counsel
shall make a determination as to its "Qualified" status and the Participant and
any alternate payee(s) shall be promptly notified in writing of the
determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is
resolved. In such event, the Plan Administrator shall segregate the amount
that would have been payable to the alternate payee(s) if the Order had been
deemed a QDRO. If the Order is not Qualified, or the status is not resolved
(for example, it has been sent back to the Court for clarification or
modification) within 18 months beginning with the date the first payment would
have to be made under the Order, the Plan Administrator shall pay the
segregated amounts plus interest to the person(s) who would have been entitled
to the benefits had there been no Order. If a determination as to the
Qualified status of the Order is made after the 18-month period described
above, then the Order shall only be applied on a prospective basis. If the
Order is determined to be a QDRO, the Participant and alternate payee(s) shall
again be notified promptly after such determination. Once an Order is deemed a
QDRO, the Plan Administrator shall pay to the alternate payee(s) all the
amounts due under the QDRO, including segregated amounts plus interest which
may have accrued during a dispute as to the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
55
<PAGE> 97
ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS The Trustee shall invest and reinvest
principal and income in the same Fund in accordance with the investment
objectives established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement
Income Security Act of 1974 and the regulations
promulgated thereunder,
(b) such investments are sufficiently diversified or otherwise
insured or guaranteed to minimize the risk of large
losses, and
(c) such investments are similar to those which would be
purchased by another professional money manager for a like
plan with similar investment objectives.
13.2 TRUSTEE APPOINTMENT Shall be appointed by the Employer in
accordance with paragraph 1.85.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE The Trustee shall
implement an investment program based on the Employer's investment objectives
and the Employee Retirement Income Security Act of 1974. In addition to powers
given by law, the Trustee may:
(a) invest the Fund in any form of property, including common
and preferred stocks, exchange traded put and call
options, bonds, money market instruments, mutual funds
(including funds for which the Trustee or its affiliates
serve as investment advisor), savings accounts,
certificates of deposit, Treasury bills, insurance
policies and contracts, or in any other property, real or
personal, having a ready market. The Trustee may invest
in time deposits (including, if applicable, its own or
those of affiliates) which bear a reasonable interest
rate. No portion of any Qualified Voluntary Contribution,
or the earnings thereon, may be invested in life insurance
contracts or, as with any Participant-directed investment,
in tangible personal property characterized by the IRS as
a collectible, other than U.S. Government or State issued
gold and silver coins,
(b) transfer any assets of the Fund to a group or collective
trust established to permit the pooling of funds of
separate pension and profit-sharing trusts, provided the
Internal Revenue Service has ruled such group or
collective trust to be qualified under Code Section
401(a) and exempt under Code Section 501(a) or to any
other common, collective, or commingled trust fund. Such
commingling of assets of the Fund with assets of other
qualified trusts is specifically authorized, and to the
extent of the investment of the Fund in such a group or
collective trust, the terms of the instrument establishing
the group or collective trust shall be a part hereof as
though set forth herein,
(c) invest up to 100% of the Fund in the common stock, debt
obligations, or any other security issued by the Employer
or by an affiliate of the Employer within the limitations
provided under Sections 406, 407, and 408 of the Employee
Retirement Income Security Act of 1974 and further
provided that such investment does not constitute a
prohibited transaction under Code Section 4975. Any such
investment in Employer securities shall only be made upon
written direction of the Employer who shall be solely
responsible for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or
savings institution,
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<PAGE> 98
(e) join in or oppose the reorganization, recapitalization,
consolidation, sale or merger of corporations or
properties, including those in which it is interested as
Trustee, upon such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and, if appropriate, pass them on to any
investment manager which may have directed the investment
in the equity giving rise to the proxy,
(h) exercise all ownership rights with respect to assets held
in the Fund.
13.4 PARTICIPANT LOANS If permitted by the Employer in the Adoption
Agreement, a Plan Participant may make application to the Employer requesting a
loan from the Fund. The Employer shall have the sole right to approve or
disapprove a Participant's application provided that loans shall be made
available to all Participants on a reasonably equivalent basis. Loans shall not
be made available to Highly Compensated Employees [as defined in Code Section
414(q)] in an amount greater than the amount made available to other Employees.
Any loan granted under the Plan shall be made subject to the following rules:
(a) No loan, when aggregated with any outstanding Participant
loan(s), shall exceed the lesser of (i) $50,000 reduced by
the excess, if any, of the highest outstanding balance of
loans during the one year period ending on the day before
the loan is made, over the outstanding balance of loans
from the Plan on the date the loan is made or (ii)
one-half of the fair market value of a Participant's
Vested Account Balance built up from Employer
Contributions, Voluntary Contributions, and Rollover
Contributions. If the Participant's Vested Account
Balance is $20,000 or less, the maximum loan shall not
exceed the lesser of $10,000 or 100% of the Participant's
Vested Account Balance. For the purpose of the above
limitation, all loans from all plans of the Employer and
other members of a group of employers described in Code
Sections 414(b), 414(c), and 414(m) are aggregated. An
assignment or pledge of any portion of the Participant's
interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the
Plan, will be treated as a loan under this paragraph.
(b) All applications must be made on forms provided by the
Employer and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the
time of application, considering the purpose of the loan
and the rate being charged by representative commercial
banks in the local area for a similar loan unless the
Employer sets forth a different method for determining
loan interest rates in its loan procedures. The loan
agreement shall also provide that the payment of principal
and interest be amortized in level payments not less
frequently than quarterly.
(d) The term of such loan shall not exceed five years except
in the case of a loan for the purpose of acquiring any
house, apartment, condominium, or mobile home (not used on
a transient basis) which is used or is to be used within a
reasonable time as the principal residence of the
Participant. The term of such loan shall be determined by
the Employer considering the maturity dates quoted by
representative commercial banks in the local area for a
similar loan.
(e) The principal and interest paid by a Participant on his or
her loan shall be credited to the Fund in the same manner
as for any other Plan investment. If elected in the
Adoption Agreement, loans may be treated as segregated
investments of the individual
57
<PAGE> 99
Participants. This provision is not available if its
election will result in discrimination in operation of the
Plan.
(f) If a Participant's loan application is approved by the
Employer, such Participant shall be required to sign a
note, loan agreement, and assignment of one-half of his or
her interest in the Fund as collateral for the loan. The
Participant, except in the case of a profit-sharing plan
satisfying the requirements of paragraph 8.7 must obtain
the consent of his or her Spouse, if any, within the 90
day period before the time his or her account balance is
used as security for the loan. A new consent is required
if the account balance is used for any renegotiation,
extension, renewal or other revision of the loan,
including an increase in the amount thereof. The consent
must be written, must acknowledge the effect of the loan,
and must be witnessed by a plan representative or notary
public. Such consent shall subsequently be binding with
respect to the consenting Spouse or any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the
portion of the Participant's Vested Account Balance used
as a security interest held by the Plan by reason of a
loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the
account balance payable at the time of death or
distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the
Participant's vested account balance (determined without
regard to the preceding sentence) is payable to the
Surviving Spouse, then the account balance shall be
adjusted by first reducing the Vested Account Balance by
the amount of the security used as repayment of the loan,
and then determining the benefit payable to the Surviving
Spouse.
(h) The Employer may also require additional collateral in
order to adequately secure the loan.
(i) A Participant's loan shall immediately become due and
payable if such Participant terminates employment for any
reason or fails to make a principal and/or interest
payment as provided in the loan agreement. If such
Participant terminates employment, the Employer shall
immediately request payment of principal and interest on
the loan. If the Participant refuses payment following
termination, the Employer shall reduce the Participant's
Vested Account Balance by the remaining principal and
interest on his or her loan. If the Participant's Vested
Account Balance is less than the amount due, the Employer
shall take whatever steps are necessary to collect the
balance due directly from the Participant. However, no
foreclosure on the Participant's note or attachment of the
Participant's account balance will occur until a
distributable event occurs in the Plan.
13.5 INSURANCE POLICIES If permitted by the Employer in the Adoption
Agreement, Employees may elect the purchase of life insurance policies under
the Plan. If elected, the maximum annual premium for a whole life policy shall
not exceed 50% of the aggregate Employer contributions allocated to the account
of a Participant. For profit- sharing plans the 50% test need only be applied
against Employer contributions allocated in the last two years. Whole life
policies are policies with both nondecreasing death benefits and nonincreasing
premiums. The maximum annual premium for term contracts or universal life
policies and all other policies which are not whole life shall not exceed 25%
of aggregate Employer contributions allocated to the account of a Participant.
The two year rule for profit-sharing plans again applies. The maximum annual
premiums for a Participant with both a whole life and a term contract or
universal life policies shall be limited to one-half of the whole life premium,
plus the term premium, but shall not exceed 25% of the aggregate Employer
contributions allocated to the account of a Participant, subject to the two
year rule for profit-sharing plans. Any policies purchased under this Plan
shall be held subject to the following rules:
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<PAGE> 100
(a) The Trustee shall be applicant and owner of any policies
issued.
(b) All policies or contracts purchased, shall be endorsed as
nontransferable, and must provide that proceeds will be
payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the contracts to the
Participant's Designated Beneficiary in accordance with
the distribution provisions of this Plan. Under no
circumstances shall the Trust retain any part of the
proceeds.
(c) Each Participant shall be entitled to designate a
beneficiary under the terms of any contract issued;
however, such designation will be given to the Trustee
which must be the named beneficiary on any policy. Such
designation shall remain in force, until revoked by the
Participant, by filing a new beneficiary designation form
with the Trustee. A Participant's Spouse will be the
Designated Beneficiary of the proceeds in all
circumstances unless a Qualified Election has been made in
accordance with paragraph 8.4. The beneficiary of a
deceased Participant shall receive in addition to the
proceeds of the Participant's policy or policies, the
amount credited to such Participant's investment account.
(d) A Participant who is uninsurable or insurable at
substandard rates, may elect to receive a reduced amount
of insurance, if available, or may waive the purchase of
any insurance.
(e) All dividends or other returns received on any policy
purchased, shall be applied to reduce the next premium due
on such policy, or if no further premium is due, such
amount shall be credited to the Fund as part of the
account of the Participant for whom the policy is held.
(f) If Employer contributions are inadequate to pay all
premiums on all insurance policies, the Trustee may, at
the option of the Employer, utilize other amounts
remaining in each Participant's account to pay the
premiums on his or her respective policy or policies,
allow the policies to lapse, reduce the policies to a
level at which they may be maintained, or borrow against
the policies on a prorated basis, provided that the
borrowing does not discriminate in favor of the policies
on the lives of officers, shareholders, and Highly
Compensated Employees.
(g) On retirement or termination of employment of a
Participant, the Employer shall direct the Trustee to cash
surrender the Participant's policy and credit the proceeds
to his or her account for distribution under the terms of
the Plan. However, before so doing, the Trustee shall
first offer to transfer ownership of the policy to the
Participant in exchange for payment by the Participant of
the cash value of the policy at the time of transfer.
Such payment shall be credited to the Participant's
account for distribution under the terms of the Plan. All
distributions resulting from the application of this
paragraph shall be subject to the Joint and Survivor
Annuity Rules of Article VIII, if applicable.
(h) The Employer shall be solely responsible to see that these
insurance provisions are administered properly and that if
there is any conflict between the provisions of this Plan
and any insurance contracts issued that the terms of this
Plan will control.
13.6 EMPLOYER INVESTMENT DIRECTION If approved by the Employer in the
Adoption Agreement, the Employer shall have the right to direct the Trustee
with respect to investments of the Fund, may appoint an investment manager
(registered as an investment advisor under the Investment Advisors Act of 1940)
to direct investments,
59
<PAGE> 101
or may give the Trustee sole investment management responsibility. The
Employer may purchase and sell interests in a registered investment company
(i.e., mutual funds) for which the Sponsor, its parent, affiliates, or
successors, may serve as investment advisor and receive compensation from the
registered investment company for its services as investment advisor. The
Employer shall advise the Trustee in writing regarding the retention of
investment powers, the appointment of an investment manager, or the delegation
of investment powers to the Trustee. Any investment directive shall be made in
writing by the Employer or investment manager, as the case may be. In the
absence of such written directive, the Trustee shall automatically invest the
available cash in its discretion in an appropriate interim investment until
specific investment directions are received. Such instructions regarding the
delegation of investment responsibility shall remain in force until revoked or
amended in writing. The Trustee shall not be responsible for the propriety of
any directed investment made and shall not be required to consult with or
advise the Employer regarding the investment quality of any directed investment
held hereunder. If the Employer fails to designate an investment manager, the
Trustee shall have full investment authority. If the Employer does not issue
investment directions, the Trustee shall have authority to invest the Fund in
its sole discretion. While the Employer may direct the Trustee with respect to
Plan investments, the Employer may not:
(a) borrow from the Fund or pledge any of the assets of the
Fund as security for a loan,
(b) buy property or assets from or sell property or assets to
the Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential
basis.
13.7 EMPLOYEE INVESTMENT DIRECTION If approved by the Employer in the
Adoption Agreement, Participants shall be given the option to direct the
investment of their personal contributions and their share of the Employer's
contribution among alternative investment funds established as part of the
overall Fund, unless otherwise specified by the Employer in the Adoption
Agreement. Such investment funds shall be under the full control of the
Trustee. If investments outside the Trustee's control are allowed,
Participants may not direct that investments be made in collectibles, other
than U.S. Government or State issued gold and silver coins. In this
connection, a Participant's right to direct the investment of any contribution
shall apply only to selection of the desired fund. The following rules shall
apply to the administration of such funds.
(a) At the time an Employee becomes eligible for the Plan, he
or she shall complete an investment designation form
stating the percentage of his or her contributions to be
invested in the available funds.
(b) A Participant may change his or her election with respect
to future contributions by filing a new investment
designation form with the Employer in accordance with the
procedures established by the Plan Administrator.
(c) A Participant may elect to transfer all or part of his or
her balance from one investment fund to another by filing
an investment designation form with the Employer in
accordance with the procedures established by the Plan
Administrator.
(d) The Employer shall be responsible when transmitting
Employee and Employer contributions to show the dollar
amount to be credited to each investment fund for each
Employee.
(e) Except as otherwise provided in the Plan, neither the
Trustee, nor the Employer, nor any fiduciary of the Plan
shall be liable to the Participant or any of his or her
beneficiaries for any loss resulting from action taken at
the direction of the Participant
60
<PAGE> 102
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES If the Plan is or becomes Top-Heavy in any
Plan Year beginning after December 31, 1983, the provisions of this Article
will supersede any conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, the aggregate Employer contributions and forfeitures allocated on
behalf of any Participant (without regard to any Social Security contribution)
under this Plan and any other Defined Contribution Plan of the Employer shall
be the lesser of 3% of such Participant's Compensation or the largest
percentage of Employer contributions and forfeitures, as a percentage of the
first $200,000, as adjusted under Code Section 415(d), of the Key Employee's
Compensation, allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Voluntary Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired
profit-sharing plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees. Unless
the Employer specifies otherwise in the Adoption Agreement, the minimum
Top-Heavy contribution will be allocated to the accounts of all eligible
Participants even if they are Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in paragraph 1.12(c) of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in the Adoption Agreement that the minimum allocation
or benefit requirements applicable to Top-Heavy Plans will be met in the other
plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
contributions made to his or her account, a Top-Heavy minimum will be required
for all non-Key Employees who are Participants. However, neither Elective
Deferrals by nor Matching Contributions to non-Key Employees may be taken into
account for purposes of satisfying the Top-Heavy minimum contribution
requirement.
14.3 MINIMUM VESTING For any Plan Year in which this Plan is
Top-Heavy, the minimum vesting schedule elected by, or deemed elected by, the
Employer in the Adoption Agreement will automatically apply to the Plan. If
the vesting schedule selected by the Employer in the Adoption Agreement is less
liberal than the allowable schedule, the schedule will be automatically
modified. If the vesting schedule under the Plan shifts in or out of the
Top-Heavy schedule for any Plan Year, such shift is an amendment to the vesting
schedule and the election in paragraph 9.8 of the Plan applies. The minimum
vesting schedule applies to all accrued 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 reduction in
vested benefits may occur in the event the Plan's status as Top-Heavy changes
for any Plan Year. However, this paragraph does not apply to the account
balances of any Employee who does not have an Hour of Service after the Plan
initially becomes Top-Heavy and such Employee's account balance attributable to
Employer contributions and forfeitures will be determined without regard to
this paragraph.
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<PAGE> 103
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR The Sponsor of this Regional Prototype may
amend any or all provisions of this Plan and Trust Account at any time without
obtaining the approval or consent of any Employer which has adopted this Plan
and Trust Account provided that no amendment shall authorize or permit any part
of the corpus or income of the Fund to be used for or diverted to purposes
other than for the exclusive benefit of Participants and their beneficiaries,
or eliminate an optional form of distribution. In the case of a mass-submitted
plan, the mass-submitter shall amend the Plan on behalf of the Sponsor.
15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the
Adoption Agreement, and may include language as permitted in the Adoption
Agreement,
(a) to satisfy Code Section 415,
(b) to avoid duplication of minimums under Code Section 416
because of the required aggregation of multiple plans,
The Employer may 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 individually designed.
An Employer that has adopted a Standardized Regional Prototype Plan (Adoption
Agreements 001, 002, 003, 007, or 008) may amend the trust document provided
such amendment merely involves the specifications of the names of the Plan,
Employer, Trustee, Plan Administrator and other fiduciaries, the Trust year or
the name of any pooled Trust in which the Plan's Trust will participate.
An Employer that has adopted a Nonstandardized Regional Prototype Plan
(Adoption Agreement 004, 005 or 006) will not be considered to have an
individually designed plan merely because the Employer amends administrative
provisions of the Trust document (such as provisions relating to investments
and duties of Trustees) so long as the amended provisions are not in conflict
with any other provision of the Plan and do not cause the plan to fail to
qualify under Code Section 401(a).
If the Employer amends the Plan and Trust Account other than as provided above,
the Employer's Plan shall no longer participate in this Prototype Plan and will
be considered an individually designed plan for which the Employer must obtain
a separate determination letter.
15.3 TERMINATION Employers shall have the right to terminate their
Plans upon 60 days notice in writing to the Trustee. If the Plan is
terminated, partially terminated, or if there is a complete discontinuance of
contributions under a profit-sharing plan maintained by the Employer, all
amounts credited to the accounts of Participants shall vest and become
nonforfeitable. In the event of termination, the Employer shall direct the
Trustee with respect to the distribution of accounts to or for the exclusive
benefit of Participants or their beneficiaries. In the event of a partial
termination, only those who are affected by such partial termination shall be
fully vested. In the event of termination, the Trustee shall dispose of the
Fund in accordance with the written directions of the Plan Administrator,
provided that no liquidation of assets and payment of benefits, (or provision
therefore), shall actually be made by the Trustee until after it is established
by the Employer in a manner satisfactory to the Trustee, that the applicable
requirements, if any, of the Employee Retirement Income Security Act of 1974
and the Internal Revenue Code governing the termination of employee benefit
plans, have been or are being, complied with, or that appropriate
authorizations, waivers, exemptions, or variances have been, or are being
obtained.
62
<PAGE> 104
15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails
to attain or retain Internal Revenue Service qualification, such Employer's
Plan shall no longer participate in this Regional Prototype Plan and will be
considered an individually designed plan.
15.5 MERGERS AND CONSOLIDATIONS
(a) In the case of any merger or consolidation of the
Employer's Plan with, or transfer of assets or liabilities
of the Employer's Plan to, any other plan, Participants in
the Employer's Plan shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer
which are equal to or greater than the benefits they would
have been entitled to receive immediately before the
merger, consolidation, or transfer if the Plan had then
terminated.
(b) In the event that the Trustee is an institution, that
corporation into which the Trustee or any successor
trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger
or consolidation to which the Trustee or any successor
trustee may be a party, or any corporation to which all or
substantially all the trust business of the Trustee or any
successor trustee may be transferred, shall be the
successor of such Trustee without the filing of any
instrument or performance of any further act, before any
court.
15.6 RESIGNATION AND REMOVAL The Trustee may resign by written notice
to the Employer or may be removed by written notice from the Employer. Either
such notification shall be effective 60 days after delivery. The Employer may
discontinue its participation in this Prototype Plan and Trust Account
effective upon 60 days written notice to the Sponsor. In such event the
Employer shall, prior to the effective date thereof, amend the Plan to
eliminate any reference to this Prototype Plan and Trust Account and appoint a
successor trustee or arrange for another funding agent. The Trustee shall
deliver the Fund to its successor on the effective date of the resignation or
removal, or as soon thereafter as practicable, provided that this shall not
waive any lien the Trustee, if an institution, may have upon the Fund for its
compensation or expenses. If the Employer fails to appoint a successor trustee
with the said 60 days, or such longer period as the Trustee may specify in
writing, the Employer shall be deemed the successor trustee. The Employer must
then obtain its own determination letter.
15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Regional
Prototype Plan will meet the requirements of the Code as a qualified Prototype
Retirement Plan and Trust Account. Should the Commissioner of Internal Revenue
or any delegate of the Commissioner at any time determine that the Plan and
Trust Account fails to meet the requirements of the Code, the Sponsor will
amend the Plan and Trust Account to maintain its qualified status.
63
<PAGE> 105
ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Regional Prototype Retirement
Plan and Trust, and any Employer Plan and Trust as embodied in the Regional
Prototype document and accompanying Adoption Agreement, shall be governed by
Federal law to the extent applicable and to the extent not applicable by the
laws of the State/Commonwealth in which the principal office of the Employer is
located.
64
<PAGE> 106
PART I - SECTION 401(A)(17) LIMITATION
[MAY BE ADOPTED BY DEFINED CONTRIBUTION
AND DEFINED BENEFIT PLANS]
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
65
<PAGE> 107
MODEL AMENDMENT
REVENUE PROCEDURE 93-47
(This model amendment allows Participants receiving distribution from
safe-harbored profit sharing plans to waive the 30-day period required under
the Unemployment Compensation Act of 1992. Non-safe harbored plans must still
provide notice not less than 30 days and not more than 90 days prior to the
distribution.)
If a distribution is one to which Section 401(a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the Participant
that the Participant has a right to a period of at least
30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
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<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 31, 1996, relating
to the financial statements of Source Services Corporation, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1995 listed
under Item 16(b) of this Registration Statement when such schedules are read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included these schedules. We also consent to the
reference to us under the headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
May 29, 1996
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<FISCAL-YEAR-END> DEC-31-1995 DEC-29-1996
<PERIOD-START> JAN-02-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,388 434
<SECURITIES> 0 0
<RECEIVABLES> 26,656 27,889
<ALLOWANCES> 1,357 1,482
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,837 28,190
<PP&E> 6,322 7,241
<DEPRECIATION> 3,542 3,687
<TOTAL-ASSETS> 30,624 31,744
<CURRENT-LIABILITIES> 13,195 13,488
<BONDS> 0 0
<COMMON> 144 144
0 0
0 0
<OTHER-SE> 17,150 17,964
<TOTAL-LIABILITY-AND-EQUITY> 30,624 31,744
<SALES> 0 0
<TOTAL-REVENUES> 141,832 40,833
<CGS> 0 0
<TOTAL-COSTS> 63,052 18,535
<OTHER-EXPENSES> 71,518 20,844
<LOSS-PROVISION> 887 449
<INTEREST-EXPENSE> 61 29
<INCOME-PRETAX> 6,722 1,280
<INCOME-TAX> 2,547 478
<INCOME-CONTINUING> 4,175 802
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,175 802
<EPS-PRIMARY> .58 .11
<EPS-DILUTED> .58 .11
</TABLE>
