<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE O'GARA COMPANY
(Exact name of registrant as specified in its charter)
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OHIO 3711 31-1470817
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
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9113 LESAINT DRIVE, FAIRFIELD, OHIO 45014
(513) 874-2112
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WILFRED T. O'GARA,
CHIEF EXECUTIVE OFFICER
THE O'GARA COMPANY
9113 LESAINT DRIVE FAIRFIELD, OHIO 45014
(513) 874-2112
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
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Timothy E. Hoberg, Esq. Peter S. Kolevzon, Esq.
Taft, Stettinius & Hollister Kramer, Levin, Naftalis &
1800 Star Bank Center Frankel
425 Walnut Street 919 Third Avenue
Cincinnati, Ohio 45202-3957 New York, New York 10022
(513) 381-2838 (212) 715-9100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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=================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------------
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Common Stock, $0.01 par value......... 6,650,000 shares $0.45 $3,019,000 $914.85
=================================================================================================================
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(1) The number of shares of common stock, par value $0.01 per share, of The
O'Gara Company ("O'Gara") being registered is based on the maximum number of
shares issuable to the shareholders of Kroll Holdings, Inc. ("Kroll") in
connection with the merger of a wholly owned subsidiary of O'Gara with and
into Kroll.
(2) Estimated solely for purposes of calculating the registration fee and based,
pursuant to Rule 457(f)(2) of the Securities Act of 1933, upon the book
value as of June 30, 1997 of the Kroll common stock to be exchanged in such
merger.
------------------
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
O'GARA LETTERHEAD
, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
The O'Gara Company ("O'Gara") at 9:00 a.m., local time, on November 14, 1997, at
The Omni Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to approve a merger of VDE, Inc., a wholly
owned subsidiary of O'Gara, into Kroll Holdings, Inc. ("Kroll"). In the proposed
merger, Kroll would become a wholly owned subsidiary of O'Gara and holders of
Kroll Class A common stock and Kroll common stock would receive (and options to
purchase Kroll common stock would be converted into options to purchase) an
aggregate of 6,650,000 shares of O'Gara common stock. Based on the number of
shares of Kroll common stock and the number of options to purchase Kroll common
stock outstanding as of the date hereof, holders of Kroll Class A common stock
or Kroll common stock would have been entitled to receive 62.52 shares of O'Gara
common stock for each share of Kroll Class A common stock or Kroll common stock
they held if the merger had been consummated on the date of this letter.
The Merger Proposal also provides for the change of O'Gara's corporate name
from "The O'Gara Company" to "The Kroll-O'Gara Company" and the election of four
additional members to the O'Gara Board of Directors, as more fully described in
the accompanying Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT, WHICH WAS
APPROVED UNANIMOUSLY BY THE BOARD, IS IN THE BEST INTEREST OF THE SHAREHOLDERS
OF O'GARA AND RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSAL. THE O'GARA BOARD
OF DIRECTORS HAS RECEIVED THE OPINION OF SBC WARBURG DILLON READ INC., AN
ADVISOR TO O'GARA, THAT THE CONSIDERATION TO BE PAID BY O'GARA IN THE MERGER IS
FAIR TO O'GARA FROM A FINANCIAL POINT OF VIEW. A COPY OF THE OPINION IS INCLUDED
IN THE PROXY STATEMENT/PROSPECTUS AS APPENDIX C THERETO.
At the Special Meeting, O'Gara shareholders also will be asked to (i)
approve an amendment to the O'Gara 1996 Stock Option Plan (the "Option Plan") to
increase the maximum number of shares available for issuance under the Option
Plan from 400,000 to 836,000 and to increase the maximum number of shares which
may be subject to options issued under the Option Plan to any one person in any
twelve-month period from 50,000 to 125,000 and (ii) approve a proposal to amend
and restate O'Gara's existing Amended and Restated Articles of Incorporation to
increase the number of shares of O'Gara's Preferred Stock, par value $0.01 per
share, and the number of shares of O'Gara's Common Stock, par value $0.01 per
share, which O'Gara is authorized to issue to 1,000,000 and 50,000,000,
respectively.
Approval of the Merger Proposal and the amendment and restatement of
O'Gara's Amended and Restated Articles of Incorporation, requires the
affirmative vote of the holders of a majority of the outstanding shares of
O'Gara common stock. Approval of the amendment to the Option Plan requires the
affirmative vote of a majority of the shares of O'Gara common stock present at
the Special Meeting. Your Chairman has agreed to vote all of his shares of
O'Gara common stock, constituting approximately 55.5% of those outstanding, in
favor of the Merger Proposal.
The enclosed Proxy Statement/Prospectus provides a detailed description of
the matters to be considered at the Special Meeting and extensive information
concerning O'Gara and Kroll. Please carefully review and consider all of this
information.
ALL HOLDERS OF O'GARA COMMON STOCK ARE INVITED TO ATTEND THE SPECIAL
MEETING IN PERSON. WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE.
THIS ACTION WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON AT THE SPECIAL MEETING
IF YOU WISH TO DO SO.
On behalf of the Board of Directors,
Thomas M. O'Gara
Chairman
<PAGE> 3
O'GARA LETTERHEAD
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 14, 1997
To the Shareholders of
The O'Gara Company:
Notice is hereby given that a Special Meeting of Shareholders of The O'Gara
Company, an Ohio corporation ("O'Gara"), will be held on November 14, 1997,
beginning at 9:00 a.m., local time, at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio, for the following purposes:
1. To consider and vote upon a proposal to (a)(i) approve and adopt a
Plan and Agreement to Merge, dated as of August 8, 1997, among O'Gara, VDE,
Inc., Kroll Holdings, Inc. ("Kroll") and Jules B. Kroll, providing for the
merger of VDE, Inc. into Kroll and (ii) amend and restate the Amended and
Restated Articles of Incorporation of O'Gara to change the name of O'Gara
to "The Kroll-O'Gara Company" and (b) increase the number of directors of
O'Gara to eleven and elect Jules B. Kroll, Howard I. Smith, Michael G.
Cherkasky and Marshall S. Cogan as directors of O'Gara;
2. To consider and act upon a proposed amendment to the 1996 O'Gara
Stock Option Plan (the "Option Plan") to increase the number of shares of
O'Gara Common Stock issuable upon exercise of stock options under the
Option Plan from 400,000 to 836,000 and to increase the maximum number of
shares of O'Gara Common Stock which may be subject to options issued under
the Option Plan to any one person in any twelve-month period from 50,000 to
125,000;
3. To consider and act upon a proposal to amend and restate the
existing Amended and Restated Articles of Incorporation of O'Gara to
increase the number of shares of O'Gara's Preferred Stock, $0.01 par value
per share, and the number of shares of O'Gara's Common Stock, $0.01 par
value per share, which O'Gara is authorized to issue to 1,000,000 and
50,000,000, respectively; and
4. To transact any other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on October 15, 1997, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE
PAID ENVELOPE. YOU MAY REVOKE SUCH PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN
THE MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors
Thomas M. O'Gara
Chairman
<PAGE> 4
THIS PROXY STATEMENT/PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE PROXY
STATEMENT/PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES
SHALL THIS PROXY STATEMENT/PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
PRELIMINARY COPY -- SUBJECT TO COMPLETION -- DATED SEPTEMBER 17, 1997
PROXY STATEMENT
FOR SPECIAL MEETING OF
SHAREHOLDERS OF THE O'GARA COMPANY
TO BE HELD NOVEMBER 14, 1997
THE O'GARA COMPANY
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $0.01 per share ("O'Gara Common Stock"), of The O'Gara Company,
an Ohio corporation ("O'Gara"), in connection with the solicitation of proxies
by the Board of Directors of O'Gara (the "O'Gara Board") for use at the special
meeting of shareholders of O'Gara to be held on November 14, 1997, or any
adjournment or postponement thereof (the "O'Gara Meeting").
The O'Gara Meeting has been called to consider and vote upon a proposal
(the "O'Gara Proposal") (a)(i) to approve and adopt a Plan and Agreement to
Merge (the "Merger Agreement"), dated as of August 8, 1997, among O'Gara, VDE,
Inc., a Delaware corporation and a wholly owned subsidiary of O'Gara ("Newco"),
Kroll Holdings, Inc., a Delaware corporation ("Kroll"), and Jules B. Kroll,
which provides for the merger of Newco into Kroll (the "Merger") and (ii) to
amend and restate the Amended and Restated Articles of Incorporation of O'Gara
(the "O'Gara Articles") to change the name of O'Gara to "The Kroll-O'Gara
Company" and (b) to increase the number of directors of O'Gara to eleven and to
elect Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S.
Cogan as directors of O'Gara. At the O'Gara Meeting, holders of O'Gara Common
Stock also will be asked to consider and approve (i) a proposal (the "O'Gara
Option Proposal") to amend O'Gara's 1996 Stock Option Plan (the "Plan") to
increase the maximum number of shares of O'Gara Common Stock available for
issuance thereunder from 400,000 to 836,000 and to increase the maximum number
of shares of O'Gara Common Stock which may be subject to options issued under
the Plan to any one person in any twelve-month period from 50,000 to 125,000 and
(ii) a proposal (the "O'Gara Capitalization Proposal") to amend and restate the
O'Gara Articles to increase the number of shares of O'Gara's preferred stock,
$0.01 par value per share ("O'Gara Preferred Stock"), and the number of shares
of O'Gara Common Stock which O'Gara is authorized to issue to 1,000,000 and
50,000,000, respectively.
This Proxy Statement/Prospectus is also being mailed to holders of shares
of Class A common stock, par value $0.01 per share ("Kroll Class A Common
Stock"), and common stock, par value $0.01 per share ("Kroll Common Stock" and,
together with Kroll Class A Common Stock, the "Kroll Stock"), of Kroll for their
information in connection with the special meeting of shareholders of Kroll to
be held on November 14, 1997 (the "Kroll Meeting" and, together with the O'Gara
Meeting, the "Special Meetings"). The Kroll Meeting has been called to consider
and vote upon a proposal (the "Kroll Proposal") to approve and adopt the Merger
Agreement.
As a result of the Merger, Kroll will become a wholly owned subsidiary of
O'Gara. The Merger is intended to be a tax-free reorganization and will be
accounted for as a pooling of interests.
This Proxy Statement/Prospectus also serves as a prospectus of O'Gara with
respect to up to 6,650,000 shares of O'Gara Common Stock that will be issued to
holders of outstanding Kroll Stock upon consummation of the Merger. See "THE
MERGER AGREEMENT -- Conversion of Kroll Stock" and "COMPARISON OF SHAREHOLDERS'
RIGHTS."
This Proxy Statement/Prospectus is first being mailed to the shareholders
of O'Gara and Kroll on or about October , 1997. Shareholders of O'Gara are
also being mailed the accompanying form of proxy.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS 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
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is October , 1997.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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SUMMARY............................................................... 1
The Companies....................................................... 1
Reasons for the Merger.............................................. 1
The Merger.......................................................... 1
The Merger Agreement................................................ 3
Risk Factors........................................................ 4
The O'Gara Meeting.................................................. 4
The Kroll Meeting................................................... 4
Market Prices and Dividends......................................... 5
Summary Historical and Unaudited Pro Forma Combined Condensed
Financial Information............................................ 6
Comparative Per Share Data.......................................... 14
RISK FACTORS.......................................................... 15
Risk Factors Associated with the Merger............................. 15
Risk Factors Relating to the Business of O'Gara..................... 17
Risk Factors Relating to the Business of Kroll...................... 20
THE MERGER............................................................ 23
General............................................................. 23
Background of the Merger............................................ 23
Reasons for the Merger and Recommendations of the Boards of
Directors........................................................ 24
Financing the Merger................................................ 29
Interests of Certain Persons in the Merger.......................... 29
Ownership of O'Gara after the Merger................................ 30
Management of O'Gara after the Merger............................... 30
Accounting Treatment................................................ 31
Certain Federal Income Tax Consequences............................. 31
Federal Securities Law Consequences................................. 33
Dissenters' Rights.................................................. 33
Regulatory Requirements............................................. 36
Merger Expenses and Fees and Other Costs............................ 36
THE MERGER AGREEMENT.................................................. 37
THE SPECIAL MEETINGS.................................................. 41
The O'Gara Meeting.................................................. 41
The Kroll Meeting................................................... 42
MARKET PRICES AND DIVIDENDS........................................... 44
O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 48
KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 55
BUSINESS OF O'GARA.................................................... 60
General............................................................. 60
Business Strategy................................................... 60
Products and Services............................................... 61
Customers........................................................... 65
Marketing and Sales................................................. 66
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i
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Engineering and Development......................................... 67
U.S. Government Contracts........................................... 68
Competition......................................................... 69
Seasonality, Backlog and Related Matters............................ 69
Properties and Facilities........................................... 70
Employees........................................................... 71
Government Regulation............................................... 71
Environmental Matters............................................... 72
Legal Proceedings................................................... 72
Patents, Trademarks and Copyrights.................................. 72
BUSINESS OF KROLL..................................................... 73
Background.......................................................... 73
Services............................................................ 73
Clients............................................................. 75
Marketing and Sales................................................. 76
Competition......................................................... 76
Employees........................................................... 76
Government Regulation............................................... 77
Properties.......................................................... 77
Litigation.......................................................... 78
MANAGEMENT OF O'GARA.................................................. 79
THE O'GARA OPTION PROPOSAL............................................ 85
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA........ 88
PRINCIPAL SHAREHOLDERS OF O'GARA...................................... 91
MANAGEMENT OF KROLL................................................... 92
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL......... 94
PRINCIPAL SHAREHOLDERS OF KROLL....................................... 96
THE O'GARA CAPITALIZATION PROPOSAL.................................... 97
DESCRIPTION OF O'GARA CAPITAL STOCK................................... 98
SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE................ 99
COMPARISON OF SHAREHOLDERS' RIGHTS.................................... 100
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............... 106
LEGAL MATTERS......................................................... 106
EXPERTS............................................................... 106
PROXY STATEMENT PROPOSALS............................................. 106
OTHER BUSINESS........................................................ 106
AVAILABLE INFORMATION................................................. 107
FINANCIAL STATEMENT INDEX............................................. F-1
APPENDICES
Plan and Agreement to Merge......................................... A-1
Amended and Restated Articles of Incorporation of O'Gara............ B-1
Opinion of SBC Warburg Dillon Read Inc. ............................ C-1
Sections 1701.84 and 1701.85 of the Ohio Revised Code............... D-1
Section 262 of the Delaware General Corporation Law................. E-1
</TABLE>
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Upon consummation of the Merger (the "Effective Time"), O'Gara will be
renamed "The Kroll-O'Gara Company." References to "O'Gara" in this Proxy
Statement/Prospectus refer to The O'Gara Company prior to the Effective Time and
The Kroll-O'Gara Company after the Effective Time, as the context indicates, and
include its subsidiaries on a consolidated basis, unless the context otherwise
requires. References herein to "Kroll" refer to Kroll Holdings, Inc., a Delaware
corporation, and its subsidiaries on a consolidated basis, unless the context
otherwise requires. This Proxy Statement/Prospectus contains forward-looking
statements which involve risks and uncertainties. O'Gara's and Kroll's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "RISK
FACTORS" and elsewhere in this Proxy Statement/Prospectus.
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus. This summary is not
intended to be complete and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
Appendices hereto and the documents otherwise referred to herein. Shareholders
of O'Gara and Kroll are urged to review carefully this entire Proxy
Statement/Prospectus, including the Appendices hereto and such other documents.
THE COMPANIES
O'Gara. O'Gara is a worldwide integrated security company with three
business lines: security hardware products, security services and security
systems integration. The Security Hardware Products Group markets all of
O'Gara's armoring products, including ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components.
The Security Services Group offers security-related products and services, such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting. The
Security Systems Integration Group offers planning, design and hardware and
software integration services which are customized to meet specific portable
satellite communications needs of customers, and customized turn-key site
security systems to international customers. It also distributes global
positioning satellite equipment. The mailing address of O'Gara's principal
executive offices is 9113 LeSaint Drive, Fairfield, Ohio 45014; its telephone
number is (513) 874-2112. See "BUSINESS OF O'GARA."
Kroll. Kroll provides a broad array of corporate investigation, risk and
crisis management and business intelligence services on a global basis to
multinational and other large companies, including law firms, investment banks
and other financial institutions, government agencies and other clients. Kroll
believes that it is the largest company in the world providing this broad array
of services and that it enjoys strong name recognition within its customer base.
The mailing address of Kroll's principal executive offices is 900 Third Avenue,
New York, New York 10022; its telephone number is (212) 593-1000. See "BUSINESS
OF KROLL."
REASONS FOR THE MERGER
The O'Gara Board and the Board of Directors of Kroll (the "Kroll Board")
have approved the Merger for many reasons, including their belief that the
Merger will further the strategic objectives of each company by virtue of their
complementary businesses, managements and resources and that the Merger will
create a global integrated company with strong name recognition and
opportunities for cross selling of goods and services. See "THE
MERGER -- Reasons for the Merger and Recommendations of the Boards of
Directors."
THE MERGER
General. Upon consummation of the Merger, shareholders of Kroll will
receive (and options to purchase Kroll Stock will be converted into options to
purchase) an aggregate of up to 6,650,000 shares of O'Gara Common Stock and
Kroll will become a wholly owned subsidiary of O'Gara.
1
<PAGE> 8
Recommendation of O'Gara Board. The O'Gara Board, by unanimous vote, has
determined that the Merger is in the best interests of the holders of O'Gara
Common Stock and recommends that holders of O'Gara Common Stock vote in favor of
the O'Gara Proposal. The decision of the O'Gara Board to enter into the Merger
Agreement and to recommend that O'Gara shareholders vote in favor of the O'Gara
Proposal is based upon its evaluation of a number of factors, including, among
others, the indication by SBC Warburg Dillon Read Inc. ("Dillon Read"), an
advisor to O'Gara in connection with the Merger, that, subject to receipt of the
executed Merger Agreement substantially in the form and containing the terms as
presented at the August 6, 1997 O'Gara Board meeting, Dillon Read was prepared
to deliver an opinion (the "Dillon Read Opinion") to the O'Gara Board that the
consideration to be paid by O'Gara in connection with the Merger was fair to
O'Gara from a financial point of view. See "THE MERGER -- Reasons for the Merger
and Recommendations of the Boards of Directors" and "THE MERGER -- Opinion of
Dillon Read."
Recommendation of Kroll Board. The Kroll Board, by unanimous vote, has
determined that the Merger Agreement and the Merger are fair to, and in the best
interests of, Kroll and its shareholders and recommends that shareholders of
Kroll vote for approval and adoption of the Merger Agreement at the Kroll
Meeting. See "THE MERGER -- Reasons for the Merger and Recommendations of the
Boards of Directors."
Opinion of Dillon Read. At the O'Gara Board meeting on August 6, 1997,
Dillon Read set forth its analysis of the proposed transaction, and based on
discussions and materials provided at the O'Gara Board meeting and subject to
receipt of the executed Merger Agreement substantially in the form and
containing the terms as presented at the meeting, Dillon Read indicated that it
was prepared to deliver an opinion that the consideration to be paid by O'Gara
in connection with the Merger is fair to O'Gara from a financial point of view.
The full text of the Dillon Read Opinion, dated September 12, 1997, which sets
forth a description of the assumptions made, matters considered and limitations
on the review undertaken, is attached hereto as Appendix C. See "THE
MERGER -- Opinion of Dillon Read."
Interests of Certain Persons in the Merger. Certain members of the
management of O'Gara and Kroll and of the O'Gara Board and the Kroll Board have
certain interests in the Merger that may be different from, or in addition to,
the interests of shareholders of O'Gara and Kroll generally. O'Gara will cause
Kroll to repay certain indebtedness to Jules B. Kroll and American International
Group, Inc., a Delaware corporation ("AIG"). Jules B. Kroll and AIG are the
principal shareholders of Kroll. At the Effective Time, Jules B. Kroll, Howard
I. Smith (an executive officer of AIG), Michael G. Cherkasky and Marshall S.
Cogan will become directors of O'Gara, Jules B. Kroll will become Chairman and
Chief Executive Officer of O'Gara, Thomas M. O'Gara will become Vice Chairman of
O'Gara, Wilfred T. O'Gara will become President and Chief Operating Officer of
O'Gara and certain other executive officers of Kroll will become executive
officers of O'Gara. O'Gara has entered into employment agreements or amendments
to employment agreements with such executive officers which will become
effective at the Effective Time and it is contemplated that options to purchase
shares of O'Gara Common Stock will be issued to certain of such persons at the
Effective Time. " See "THE MERGER -- Interests of Certain Persons in the
Merger," "-- Management of O'Gara after the Merger," "PRINCIPAL SHAREHOLDERS OF
KROLL,""CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA," and
"CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL." O'Gara has
executed agreements with Jules B. Kroll, Thomas M. O'Gara and AIG granting them
rights to require O'Gara, under certain conditions, to register all or a portion
of the O'Gara Common Stock to be owned by them after the Merger. See "THE MERGER
AGREEMENT -- Registration Rights Agreements."
Ownership of O'Gara after the Merger. Immediately following the Merger (i)
the former holders of O'Gara Common Stock will collectively own approximately
52% of the issued and outstanding shares of O'Gara Common Stock, (ii) the former
holders of Kroll Stock will collectively hold approximately 48% of the issued
and outstanding shares of O'Gara Common Stock, and (iii) Thomas M. O'Gara, Jules
B. Kroll and AIG will hold approximately 29.0%, 26.5% and 10.4%, respectively,
of the issued and outstanding shares of O'Gara Common Stock. See "THE
MERGER -- Ownership of O'Gara after the Merger" and "PRINCIPAL SHAREHOLDERS OF
O'GARA."
Management of O'Gara after the Merger. At the Effective Time, Jules B.
Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S. Cogan will join the
O'Gara Board, Jules B. Kroll will become Chairman of the Board and Chief
Executive Officer of O'Gara, Thomas M. O'Gara will become Vice Chairman of
O'Gara,
2
<PAGE> 9
Wilfred T. O'Gara will become President and Chief Operating Officer of O'Gara,
and certain other changes in the executive officers of O'Gara will be effected.
See "THE MERGER -- Management of O'Gara after the Merger."
Financing the Merger. O'Gara contemplates that at the Effective Time it
will cause Kroll to repay approximately $14.3 million principal amount of
indebtedness to Kroll's principal shareholders and other lenders. O'Gara
anticipates that, to the extent necessary, such funds will be provided by
borrowings under O'Gara's bank credit agreement and a new one-year term loan
agreement. See "THE MERGER -- Financing the Merger."
Accounting Treatment. The Merger will be accounted for under the pooling
of interests method of accounting in accordance with generally accepted
accounting principles. See "THE MERGER -- Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger is intended to be a
tax-free reorganization for federal income tax purposes so that no gain or loss
will be recognized by the Kroll shareholders, the O'Gara shareholders, Kroll or
O'Gara, except as a result of cash received in lieu of fractional shares or upon
a shareholder's exercise of dissenters' or appraisal rights. See "THE
MERGER -- Certain Federal Income Tax Consequences."
Federal Securities Law Consequences. All shares of O'Gara Common Stock
received in the Merger by Kroll shareholders (other than persons who are
affiliates of Kroll prior to the Merger or O'Gara after the Merger) will be
freely transferable. O'Gara has agreed, under certain circumstances, to register
shares of O'Gara Common Stock held by Jules B. Kroll, Thomas M. O'Gara and AIG.
See "THE MERGER -- Federal Securities Law Consequences," "THE MERGER
AGREEMENT -- Registration Rights Agreements" and "SHARES OF O'GARA COMMON STOCK
ELIGIBLE FOR FUTURE SALE."
Dissenters' Rights. Holders of O'Gara Common Stock or Kroll Stock who do
not vote in favor of the Merger and who otherwise properly comply with Sections
1701.84 and 1701.85 of the Ohio General Corporation Law (the "OGCL") or Section
262 of the Delaware General Corporation Law (the "DGCL"), respectively, will be
entitled to dissenters' or appraisal rights. See "THE MERGER -- Dissenters'
Rights."
THE MERGER AGREEMENT
General. The Merger Agreement provides, among other things, for the merger
of Newco with and into Kroll, which will result in Kroll, as the surviving
corporation of the Merger, becoming a wholly owned subsidiary of O'Gara.
Conversion of Kroll Stock. At the Effective Time, all shares of Kroll
Stock then issued and outstanding (other than treasury shares and shares owned
by O'Gara or Newco and other than shares subject to dissenters' or appraisal
rights ("Dissenting Shares")), including shares of Kroll Stock subject to
outstanding warrants, options or other stock issuance agreements, will be
converted into an aggregate of 6,650,000 shares of O'Gara Common Stock. On the
date of this Proxy Statement/Prospectus, 106,367 shares of Kroll Stock were
outstanding or subject to warrants, options or other stock issuance agreements.
If the Merger had been consummated on the date of this Proxy
Statement/Prospectus, each outstanding share of Kroll Stock would have been
converted into 62.52 shares of O'Gara Common Stock and each outstanding right to
purchase one share of Kroll Common Stock would have been converted into a right
to purchase 62.52 shares of O'Gara Common Stock. See "THE MERGER
AGREEMENT -- Conversion of Kroll Stock."
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING KROLL
STOCK TO O'GARA OR KROLL AT THIS TIME. IF THE MERGER IS APPROVED, A LETTER OF
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING KROLL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. KROLL
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING KROLL STOCK TO O'GARA'S
TRANSFER AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS
CONTAINED IN THE LETTER OF TRANSMITTAL.
Conditions to the Merger. The obligations of O'Gara and Kroll to
consummate the Merger are subject to the fulfillment of various conditions,
including (i) the effectiveness of the Registration Statement of which this
Proxy Statement/Prospectus is a part and the absence of any stop order
suspending the effectiveness thereof or
3
<PAGE> 10
any threat thereof and (ii) approval of the Merger by the shareholders of O'Gara
and Kroll. See "THE MERGER AGREEMENT -- Conditions to the Merger."
Termination of the Merger Agreement. The Merger Agreement may be
terminated (i) by O'Gara or Kroll, if the Merger is not consummated on or prior
to January 31, 1998, (ii) by agreement of O'Gara, Newco, Kroll and Jules B.
Kroll, (iii) by the O'Gara Board, if any of the conditions to O'Gara's
obligations have not been satisfied prior to the closing of the Merger (the
"Closing"), or (iv) by the Kroll Board, if any of the conditions to Kroll's
obligations have not been satisfied prior to the Closing.
RISK FACTORS
An investment in O'Gara Common Stock involves a high degree of risk and
there are risks associated with the business of Kroll and with the Merger.
Accordingly, certain risk factors should be considered by shareholders of O'Gara
and Kroll in evaluating the Merger. See "RISK FACTORS."
THE O'GARA MEETING
The O'Gara Meeting will be held at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio on November 14, 1997, starting at 9:00 a.m.
local time. See "THE SPECIAL MEETINGS -- The O'Gara Meeting." At the O'Gara
Meeting, holders of O'Gara Common Stock will be asked to approve and adopt the
O'Gara Proposal. The Merger Agreement and the Amended and Restated Articles of
Incorporation of O'Gara are attached hereto as Appendices A and B, respectively.
At the O'Gara Meeting holders of O'Gara Common Stock also will be asked to
consider and approve the O'Gara Option Proposal and the O'Gara Capitalization
Proposal. The O'Gara Proposal, the O'Gara Option Proposal and the O'Gara
Capitalization Proposal are not conditioned upon one another.
Holders of record of O'Gara Common Stock at the close of business on
October 15, 1997 (the "O'Gara Record Date"), have the right to receive notice of
and to vote at the O'Gara Meeting. On the O'Gara Record Date, there were
7,279,310 shares of O'Gara Common Stock outstanding and entitled to vote. Each
share of O'Gara Common Stock is entitled to one vote on each matter that is
properly presented to O'Gara shareholders for a vote at the O'Gara Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
O'Gara Common Stock is required to approve and adopt the O'Gara Proposal and the
O'Gara Capitalization Proposal. The affirmative vote of a majority of the shares
of O'Gara Common Stock represented at the O'Gara Meeting in person or by proxy
and entitled to vote on the O'Gara Option Proposal is required to approve the
O'Gara Option Proposal.
As of the O'Gara Record Date, directors and executive officers of O'Gara as
a group beneficially owned 4,760,016 outstanding shares of O'Gara Common Stock,
or approximately 65.4% of those shares outstanding as of such date. See
"PRINCIPAL SHAREHOLDERS OF O'GARA." As of the O'Gara Record Date, Thomas M.
O'Gara beneficially owned 4,041,838 shares of O'Gara Common Stock, or
approximately 55.5% of those outstanding. He has agreed to vote such shares in
favor of the O'Gara Proposal. Accordingly, it is expected that the O'Gara
Proposal will be approved regardless of the votes cast by other holders of
O'Gara Common Stock. See "THE MERGER AGREEMENT -- Stock Agreements."
THE KROLL MEETING
The Kroll Meeting will be held at The Omni Netherland Plaza Hotel, Fifth
and Race Streets, Cincinnati, Ohio on November 14, 1997, starting at 11:00 a.m.
local time. See "THE SPECIAL MEETINGS -- The Kroll Meeting." At the Kroll
Meeting, holders of Kroll Stock will be asked to approve and adopt the Kroll
Proposal.
Holders of record of Kroll Stock at the close of business on
, 1997 (the "Kroll Record Date") have the right to receive
notice of and to vote at the Kroll Meeting. On the Kroll Record Date, there were
23,100 shares of Kroll Class A Common Stock and 74,446 shares of Kroll Common
Stock outstanding and entitled to vote. Each share of Kroll Stock is entitled to
one vote on each matter that is properly presented to Kroll shareholders for a
vote at the Kroll Meeting. The affirmative vote of the holders of a majority of
the outstanding
4
<PAGE> 11
shares of Kroll Stock and the affirmative vote of the holders of a majority of
the Kroll Class A Common Stock are required to approve and adopt the Kroll
Proposal.
As of the Kroll Record Date, directors and executive officers of Kroll who
will be directors or executive officers of O'Gara after the Merger as a group
beneficially owned 60,920 outstanding shares of Kroll Common Stock, or
approximately 81.8% of those shares outstanding on that date, and AIG
beneficially owned all of the outstanding Kroll Class A Common Stock. See
"PRINCIPAL SHAREHOLDERS OF KROLL." As of that date, Jules B. Kroll and AIG owned
an aggregate of 82,041 shares of Kroll Stock, or approximately 84.1% of those
outstanding. Jules B. Kroll and AIG have agreed to vote such shares in favor of
the Kroll Proposal. Accordingly, it is expected that the Kroll Proposal will be
approved regardless of the votes cast by other holders of Kroll Stock. See "THE
MERGER AGREEMENT -- Stock Agreements."
MARKET PRICES AND DIVIDENDS
The O'Gara Common Stock is traded on the Nasdaq National Market under the
symbol OGAR.
On August 7, 1997, the last full trading day preceding public announcement
of the proposed Merger, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $12.75. On , 1997,
the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $ . See "MARKET PRICES
AND DIVIDENDS -- Price Range Of O'Gara Common Stock."
There is no established market for the Kroll Stock.
HOLDERS OF KROLL STOCK AND O'GARA COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE O'GARA COMMON STOCK PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
O'Gara anticipates that any future earnings will be retained to finance
O'Gara's operations and for the growth and development of its business.
Accordingly, O'Gara currently does not anticipate paying cash dividends on the
O'Gara Common Stock in the foreseeable future. See "MARKET PRICES AND
DIVIDENDS -- Dividend Policy."
5
<PAGE> 12
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
O'GARA HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial data set forth below with
respect to O'Gara's consolidated statements of operations for each of the three
years in the period ended December 31, 1996, and with respect to O'Gara's
consolidated balance sheets at December 31, 1995 and 1996, are derived from the
audited consolidated financial statements of O'Gara included elsewhere in this
Proxy Statement/Prospectus. The summary historical financial data set forth
below with respect to O'Gara's consolidated statement of operations for the year
ended December 31, 1993 and with respect to O'Gara's consolidated balance sheet
at December 31, 1994 is derived from audited consolidated financial statements
of O'Gara not included in this Proxy Statement/Prospectus. The summary
historical financial data set forth below with respect to O'Gara's consolidated
balance sheets at December 31, 1992 and 1993 and O'Gara's consolidated statement
of operations for the year ended December 31, 1992 are derived from unaudited
consolidated financial statements.
The summary historical financial data for O'Gara for the six months ended
June 30, 1996 and 1997 are derived from unaudited consolidated financial
statements of O'Gara included elsewhere in this Proxy Statement/Prospectus.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," included elsewhere in this Proxy
Statement/Prospectus. Unaudited interim data reflects, in the opinion of
O'Gara's management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of results for such
interim periods. Results of operations for unaudited interim periods are not
necessarily indicative of results which may be expected for any other interim or
annual period.
6
<PAGE> 13
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997(3)
------- ------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $16,860 $21,054 $33,912 $32,817 $ 82,778 $41,521 $ 51,853
Cost of sales................ 11,511 14,640 24,505 25,237 61,523 31,383 37,484
------- ------- ------- ------- --------- ------- ---------
Gross profit............ 5,349 6,414 9,407 7,580 21,255 10,138 14,369
Selling and marketing
expenses................... 2,432 1,933 2,736 3,628 4,810 2,159 3,794
General and administrative
expenses................... 1,464 3,169 4,441 4,129 7,930 3,286 5,121
------- ------- ------- ------- --------- ------- ---------
Operating income
(loss)................ 1,453 1,312 2,230 (177) 8,515 4,693 5,454
Interest expense............. (481) (269) (410) (842) (1,300) (613) (1,404)
Other income (expense),
net........................ 92 (81) 60 (103) (38) (78) 329
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
minority interest,
provision for income
taxes and extraordinary
item.................... 1,064 962 1,880 (1,122) 7,177 4,002 4,379
Minority interest............ -- -- -- -- -- -- (74)
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
provision for income
taxes and extraordinary
item.................... 1,064 962 1,880 (1,122) 7,177 4,002 4,305
Provision for income
taxes(1)................... -- -- -- -- 518 -- 1,623
------- ------- ------- ------- --------- ------- ---------
Income (loss) before
extraordinary item...... 1,064 962 1,880 (1,122) 6,659 4,002 2,682
Extraordinary item, net of
tax benefit................ -- -- -- -- -- -- 194
------- ------- ------- ------- --------- ------- ---------
Net income (loss)............ $ 1,064 $ 962 $ 1,880 $(1,122) $ 6,659 $ 4,002 $ 2,488
======= ======= ======= ======= ========= ======= =========
Pro Forma earnings per
share(2)................... $ 0.69
=========
Earnings per share........... $ 0.35
=========
Pro Forma weighted average
shares outstanding......... 6,449,050
=========
Weighted average shares
outstanding................ 7,141,389
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....... $(4,468) $(2,238) $(1,999) $(4,094) $ 4,279 $ (616) $32,332
Net property, plant and
equipment..................... 2,236 2,622 2,945 3,171 4,925 3,669 9,083
Total assets.................... 10,504 11,372 19,243 27,817 43,938 36,265 89,747
Total debt...................... 4,715 4,752 7,900 12,372 12,241 15,808 41,974
Shareholders' equity
(deficit)..................... (1,713) (1,023) 1,273 239 12,656 4,016 20,752
</TABLE>
- ---------------
(1) Prior to its initial public offering consummated in November 1996 (the
"Offering"), O'Gara's business was conducted by a group of corporations
affiliated by substantially common management and control (the "Related
Corporations"), which were combined on October 28, 1996 (the
"Reorganization"). The most significant of the Related Corporations had
elected to be treated as an S Corporation for federal and state income tax
purposes, rather than be taxed at the corporate level. Accordingly, the
O'Gara Historical Financial Data does not contain a provision for income
taxes prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
(2) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
purchase of net assets of Palmer Associates, S.C. ("Palmer"), the
elimination of interest expense relating to the retirement of bank debt and
the application of corporate income taxes to O'Gara's consolidated income
before income taxes at an effective rate of approximately 40%. See the
Consolidated Statements of Operations and Notes to O'Gara's Consolidated
Financial Statements included elsewhere in this Proxy Statement/Prospectus.
(3) O'Gara completed certain acquisitions in the first quarter of 1997
(including the acquisition of Labbe, S.A. ("Labbe") which was effective for
accounting purposes on January 1, 1997) and the results of the acquired
entities are included from the dates of their respective acquisitions in the
consolidated statement of operations as well as in the consolidated balance
sheet data as of June 30, 1997.
7
<PAGE> 14
KROLL HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial data set forth below with
respect to Kroll's consolidated statements of operations for each of the three
years in the period ended December 31, 1996, and with respect to Kroll's
consolidated balance sheets at December 31, 1995 and 1996, are derived from the
audited consolidated financial statements of Kroll included elsewhere in this
Proxy Statement/Prospectus. The summary historical financial data set forth
below with respect to Kroll's consolidated statement of operations for the year
ended December 31, 1993, and with respect to Kroll's consolidated balance sheets
at December 31, 1993 and 1994, are derived from audited consolidated financial
statements of Kroll not included in this Proxy Statement/Prospectus. The summary
historical combined financial data presented for Kroll in 1992 is that of Kroll
Associates, Inc. and affiliated subsidiaries group ("KAI"). Kroll Holdings, Inc.
commenced operations in June 1993.
The summary historical financial data for Kroll for the six months ended
June 30, 1996 and 1997 are derived from unaudited consolidated financial
statements of Kroll included elsewhere in this Proxy Statement/Prospectus.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," included elsewhere in this Proxy
Statement/Prospectus. Unaudited interim data reflects, in the opinion of Kroll's
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of results for such interim
periods. Results of operations for unaudited interim periods are not necessarily
indicative of results which may be expected for any other interim or annual
period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
TWELVE MONTHS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $57,144 $56,161 $52,872 $53,024 $70,883 $33,374 $36,746
Cost of sales(3)................ 29,181 31,024 31,684 35,206 47,900 21,772 21,073
------- ------- ------- ------- ------- ------- -------
Gross profit............... 27,963 25,137 21,188 17,818 22,983 11,602 15,673
Selling and marketing
expenses...................... 3,784 4,084 4,700 5,490 4,632 2,097 2,581
General and administrative
expenses...................... 17,273 16,301 18,076 16,788 18,350 8,689 9,513
------- ------- ------- ------- ------- ------- -------
Operating income (loss).... 6,906 4,752 (1,588) (4,460) 1 816 3,579
Interest expense................ (2,426) (2,423) (2,188) (1,970) (1,840) (950) (783)
Other income (expense), net..... 1,915 515 406 (282) 358 71 (135)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax
provision (benefit) and
cumulative effect of
accounting change............. 6,395 2,844 (3,370) (6,712) (1,481) (63) 2,661
Provision (benefit) for income
taxes(1)...................... 635 7,070 (1,751) (1,298) (679) (57) 1,326
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative
effect of accounting change... 5,760 (4,226) (1,619) (5,414) (802) (6) 1,335
Cumulative effect of accounting
change(2)..................... -- (295) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)(3)............ $ 5,760 $(4,521) $(1,619) $(5,414) $ (802) $ (6) $ 1,335
======= ======= ======= ======= ======= ======= =======
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $15,630 $26,158 $16,510 $ 8,181 $ 6,321 $10,257 $ 3,838
Net property, plant and
equipment..................... 5,075 4,582 4,067 3,705 3,639 3,576 4,227
Total assets.................... 39,639 48,179 44,659 38,950 37,296 38,703 37,414
Total debt...................... 21,643 20,622 19,666 18,543 15,173 18,124 14,597
Stockholders' equity............ 5,126 11,362 9,803 4,418 4,212 4,376 3,019
</TABLE>
- ---------------
(1) Prior to 1993, Kroll had elected to be treated as an S Corporation for
federal and state income tax purposes and as such, income was allocable to
its shareholders for income tax purposes, rather than being taxed at the
corporate level. Income tax expense reflected in the consolidated statement
of operations for the year ended December 31, 1992, relates to those
jurisdictions which did not recognize Kroll's S Corporation status. During
1993, Kroll changed its tax filing status from an S to a C Corporation. The
deferred tax liability resulting from this tax status change has been
included in income tax expense for the year ended December 31, 1993.
(2) Effective January 1, 1993, Kroll adopted SFAS 109 and reported the
cumulative effect of a change in the method of accounting for income taxes
in the 1993 consolidated statement of operations.
(3) The net income (loss) and costs of sales for the year ended December 31,
1996 reflect a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
9
<PAGE> 16
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The selected unaudited pro forma combined condensed financial data is
derived from the unaudited pro forma combined condensed financial statements,
which give effect to the Merger as a pooling of interests, and should be read in
conjunction with, and are qualified by reference to, such pro forma statements
and the notes thereto included elsewhere in this Proxy Statement/Prospectus. For
purposes of the unaudited pro forma operating data, O'Gara's consolidated
financial statements for the three fiscal years ended December 31, 1996, and for
the six months ended June 30, 1996 and 1997 have been combined with the
consolidated financial statements of Kroll for the three fiscal years ended
December 31, 1996 and for the six months ended June 30, 1996 and 1997,
respectively. For purposes of the unaudited pro forma combined balance sheet
data, O'Gara's consolidated financial data at June 30, 1997 has been combined
with Kroll's consolidated financial data at June 30, 1997. No dividends have
been declared or paid on the O'Gara Common Stock.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it indicative of future financial position or results
of operations.
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997(1)
------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........................... $86,784 $85,841 $ 153,661 $74,895 $ 88,599
Cost of sales....................... 56,189 60,443 109,423 53,155 58,557
------- ------- ---------- ------- ----------
Gross profit................... 30,595 25,398 44,238 21,740 30,042
Selling and marketing expenses...... 7,436 9,118 9,442 4,256 6,375
General and administrative
expenses.......................... 22,517 20,917 26,280 11,975 14,634
------- ------- ---------- ------- ----------
Operating income (loss)........ 642 (4,637) 8,516 5,509 9,033
Interest expense.................... (2,598) (2,812) (3,140) (1,563) (2,187)
Other income (expense), net......... 466 (385) 320 (7) 194
------- ------- ---------- ------- ----------
Income (loss) before minority
interest, provision (benefit)
for income taxes and
extraordinary item........... (1,490) (7,834) 5,696 3,939 7,040
Minority interest................... -- -- -- -- (74)
------- ------- ---------- ------- ----------
Income (loss) before provision
(benefit) for income taxes
and extraordinary item....... (1,490) (7,834) 5,696 3,939 6,966
Income tax provision (benefit)(2)... (1,751) (1,298) (161) (57) 2,949
------- ------- ---------- ------- ----------
Income (loss) before
extraordinary item........... 261 (6,536) 5,857 3,996 4,017
Extraordinary item, net of tax
benefit........................... -- -- -- -- 194
------- ------- ---------- ------- ----------
Net income (loss) (3)............... $ 261 $(6,536) $ 5,857 $ 3,996 $ 3,823
======= ======= ========== ======= ==========
Pro Forma earnings per share (4).... $ 0.28
==========
Earnings per share.................. $ 0.28
==========
Weighted average shares
outstanding....................... 13,099,050 13,791,389
========== ==========
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 36,170
Net property, plant and equipment........................... 13,310
Total assets................................................ 127,161
Total debt.................................................. 56,571
Shareholders' equity........................................ 23,771
</TABLE>
- ---------------
(1) O'Gara completed certain acquisitions in the first quarter of 1997
(including Labbe, which was effective for accounting purposes on January 1,
1997) and the results of the acquired entities are included from the
effective dates of their respective acquisitions in the consolidated
statement of operations as well as in the consolidated balance sheet data as
of June 30, 1997.
(2) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined on October 28, 1996, in the
Reorganization. The most significant of the Related Corporations had elected
to be treated as an S Corporation for federal and state income tax purposes,
rather than be taxed at the corporate level. Accordingly, the O'Gara
Historical Financial Data does not contain a provision for income taxes
prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
(3) The unaudited pro forma net income (loss) for the year ended December 31,
1996 reflects a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
(4) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements.
NOTES TO SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
1. The unaudited pro forma combined condensed financial statements of O'Gara and
Kroll give retroactive effect to the Merger using the pooling of interests
method of accounting, and, as a result, the unaudited pro forma combined
condensed balance sheet and statements of operations are presented as if the
combining companies had been combined for all periods presented. The unaudited
pro forma combined condensed financial statements will become the historical
financial statements of O'Gara upon issuance of financial statements for a
period that includes the date on which the Merger is consummated. The unaudited
pro forma combined condensed financial statements reflect the issuance of
6,650,000 shares of O'Gara Common Stock in exchange for all shares of Kroll
Stock outstanding or subject to stock options to effect the Merger. The
unaudited pro forma combined condensed financial statements, including the notes
thereto, should be read in conjunction with the historical financial statements
of O'Gara and Kroll included elsewhere in this Proxy Statement/Prospectus.
2. The unaudited pro forma data is presented for informational purposes only and
does not give effect to any synergies that may occur due to the combining of
O'Gara's and Kroll's existing operations. O'Gara expects to incur charges
currently estimated to be approximately $2.1 million, net of estimated tax
benefit of approximately $1.4 million, to reflect costs associated with
transaction fees and costs incident to the Merger. In addition, following the
Merger, O'Gara expects to incur additional expenses, net of any tax benefits,
associated with integrating the operations of the two companies. These
nonrecurring charges cannot at this time be estimated and are not reflected in
the unaudited pro forma combined condensed balance sheet or statement of
operations.
11
<PAGE> 18
3. In connection with the Merger, O'Gara will realize a charge to shareholders'
equity of $ million, net of an estimated tax benefit of $
million, related to the accelerated vesting of certain stock options issued by
Kroll.
4. Following the consummation of the Merger, O'Gara will cause Kroll to repay
its indebtedness to certain of the Kroll shareholders of approximately $6.2
million.
5. In 1997, O'Gara incurred an extraordinary charge resulting from the
refinancing of certain debt obligations.
6. The accounting policies of the separate companies are currently being studied
from a conformity perspective. The impact of conforming accounting policies, if
any, is not presently estimable.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA INCLUDING LABBE
The following selected unaudited pro forma combined condensed financial
data is derived from the unaudited pro forma combined condensed financial
statements, which give effect to the Merger as a pooling of interests, after
giving effect to O'Gara's acquisition of Labbe. The selected unaudited pro forma
combined condensed financial data should be read in conjunction with, and are
qualified by reference to, such pro forma statements and the notes thereto
included elsewhere in this Proxy Statement/Prospectus. For purposes of the
unaudited pro forma operating data, O'Gara's pro forma consolidated financial
statements for the fiscal year ended December 31, 1996 have been combined with
the consolidated financial statements of Kroll for the fiscal year ended
December 31, 1996.
The pro forma data is presented for illustrative purposes only, and is not
indicative of the operating results that would have been achieved if the
acquisition of Labbe or the Merger had been consummated as of the beginning of
the period indicated, nor is it indicative of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
O'GARA
PRO FORMA KROLL TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 106,896 $ 70,883 $ 177,779
Cost of sales......................................... 81,179 47,900 129,079
---------- ---------- -----------
Gross profit..................................... 25,717 22,983 48,700
Selling and marketing expenses........................ 5,894 4,632 10,526
General and administrative expenses................... 9,323 18,350 27,673
---------- ---------- -----------
Operating income (loss).......................... 10,500 1 10,501
Interest expense...................................... (2,769) (1,840) (4,609)
Other income (expense), net........................... (201) 358 157
---------- ---------- -----------
Income (loss) before provision (benefit) for
income taxes................................... 7,530 (1,481) 6,049
Provision (benefit) for income taxes (1).............. 676 (679) (3)
---------- ---------- -----------
Net income (loss) (2)................................. $ 6,854 $ (802) $ 6,052
========== ========== ===========
Pro Forma net income (loss) (3)....................... $ 4,644 $ (802) $ 3,842
========== ========== ===========
Earnings per share.................................... $ 0.68 $ 0.29
========== ===========
Weighted average shares outstanding................... 6,825,647 6,650,000 13,475,647
========== ========== ===========
</TABLE>
(1) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined on October 28, 1996, in the
Reorganization. The most significant of the Related Corporations had elected
to be treated as an S Corporation for federal and state income tax purposes,
rather than be taxed at the corporate level. Accordingly, the O'Gara
Historical Financial Data does not contain a provision for income taxes
prior to 1996. The provision for income taxes in 1996 reflects a tax
provision for the period subsequent to the Reorganization.
12
<PAGE> 19
(2) The unaudited pro forma net income (loss) for the year ended December 31,
1996 reflects a write-off by Kroll of approximately $5.0 million ($2.8
million, net of tax benefit) of uncollectible accounts receivable. See
"KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
(3) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
13
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of O'Gara
and Kroll and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis of accounting. This
data should be read in conjunction with the selected historical financial data,
the unaudited pro forma combined condensed financial data and the separate
historical consolidated financial statements of O'Gara and Kroll, and notes
thereto and the O'Gara and Kroll Managements' Discussion and Analyses of
Financial Condition and Results of Operations included elsewhere in this Proxy
Statement/Prospectus. The pro forma combined financial data is not indicative of
the operating results that would have been achieved had the Merger been
consummated as of the beginning of the periods indicated nor is such data
indicative of future financial condition or results of operations. For purposes
of the comparative per share data, O'Gara's financial data at December 31, 1996
and June 30, 1997 have been combined with Kroll's financial data at December 31,
1996 and June 30, 1997, respectively.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Historical -- O'Gara:
Net income per share(3).................................. $ 0.69 $ 0.35
Book value per share(1).................................. $ 1.90 $ 2.85
Dividends per share...................................... $ -- $ --
Pro Forma -- O'Gara(4):
Net income (loss) per share.............................. $ 0.68 $ 0.35
Book value per share(1).................................. $ 2.36 $ 2.85
Dividends per share...................................... $ --
Historical -- Kroll:
Net income (loss) per share(5)........................... $ (7.35) $ 12.54
Book value per share(1).................................. $ 38.62 $ 28.38
Dividends per share...................................... $ -- $ --
Pro Forma Combined Per O'Gara Share(6):
Net income per share..................................... $ 0.28 $ 0.28
Book value per share(1).................................. $ 1.27 $ 1.71
Dividends per share...................................... $ -- $ --
Equivalent Pro Forma Combined Per Kroll Share(2):
Net income (loss) per share.............................. $ 17.51 $ 17.51
Book value per share..................................... $ 79.40 $ 106.91
Dividends per share...................................... $ -- $ --
</TABLE>
- ---------------
(1) The historical book value per share of each of O'Gara and Kroll,
respectively, is computed by dividing the respective shareholders' equity by
the number of shares of common stock outstanding at the end of each period.
The pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares of O'Gara Common
Stock outstanding at the end of each period.
(2) The equivalent Kroll pro forma per share amounts are calculated by
multiplying the O'Gara combined pro forma per share amounts by the exchange
ratio.
(3) Represents pro forma earnings per share reflecting the pro forma effects on
the historical consolidated financial information of certain transactions as
if they occurred on January 1, 1996. The pro forma adjustments include
amortization on intangible assets resulting from the purchase of net assets
of Palmer, the elimination of interest expense relating to the retirement of
bank debt and the application of corporate income taxes to O'Gara's
consolidated income before income taxes at an effective rate of
approximately 40%. See the Consolidated Statements of Operations and Notes
to O'Gara's Consolidated Financial Statements included elsewhere in this
Proxy Statement/Prospectus.
(4) Represents pro forma earnings per share assuming the acquisition of Labbe
occurred on January 1, 1996 and reflecting the pro forma effects on the
historical O'Gara and Labbe consolidated financial information of certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
acquisition of Labbe and the purchase of net assets of Palmer, the
additional interest expense relating to debt incurred to fund the Labbe
acquisition (net of debt retired upon completion of the Offering) and the
application of corporate income taxes to O'Gara's consolidated income before
income taxes at an effective rate of approximately 40% (net of recognition
of the benefit for income taxes from Labbe pro forma adjustments at an
effective rate of approximately 37%). See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
(5) Includes Class A and common stock as well as the dilutive impact of
outstanding common stock equivalents.
(6) The unaudited pro forma data are presented for informational purposes only
and do not give effect to any synergies that may occur due to the combining
of O'Gara's and Kroll's existing operations. O'Gara expects to incur charges
currently estimated to be approximately $2.1 million, net of estimated tax
benefit of approximately $1.4 million, to reflect costs associated with
transaction fees and costs incident to the Merger. In addition, following
the Merger, O'Gara expects to incur additional expenses, net of any tax
benefits, associated with integrating the operations of the two companies.
These nonrecurring charges cannot at this time be estimated and are not
reflected in the unaudited pro forma combined condensed balance sheet or
statement of operations.
14
<PAGE> 21
RISK FACTORS
The following risk factors should be considered by shareholders of O'Gara
and Kroll in evaluating the Merger. After the Effective Time, the risk factors
described under "Risk Factors Relating to the Business of O'Gara" and "Risk
Factors Relating to the Business of Kroll" will relate to the business of the
combined companies.
RISK FACTORS ASSOCIATED WITH THE MERGER
Uncertainties Relating to Integration of Operations. The anticipated
benefits of the Merger may not be achieved unless the operations of Kroll are
combined successfully with those of O'Gara in a coordinated, timely and
efficient manner, and there can be no assurance that this will occur. Even if
the two companies' operations are integrated successfully, there can be no
assurance that the benefits anticipated by the Merger will be achieved. The
transition to a combined company will require substantial attention from
management. The diversion of the attention of management and any difficulties
encountered in the transition process could have an adverse impact on the
revenues and operating results of the combined companies. These difficulties may
be increased by the necessity of integrating personnel with disparate business
backgrounds and combining two different corporate cultures. In addition, the
process of combining the two organizations could cause the interruption of, or a
loss of momentum in, the activities of either or both of the companies'
businesses, which could have an adverse effect on their combined operations. The
uncertainties associated with such integration may result in the loss of key
management and other employees. Failure to achieve the anticipated benefits of
the Merger or to integrate successfully the operations of the companies could
have a material adverse effect upon the business, operating results and
financial condition of O'Gara after the Merger. Even if the benefits of the
Merger are achieved and the two companies' operations are integrated
successfully, there can be no assurance that the operating results and financial
condition of O'Gara after the Merger will not be materially and adversely
affected by any number of economic, market or other factors that are not related
to the Merger, including those described under "Risk Factors Relating to the
Business of O'Gara" and "Risk Factors Relating to the Business of Kroll."
Transaction Expenses; Costs of Integration. O'Gara and Kroll estimate that
they will together incur direct transaction costs (including financial advisors,
legal, accounting, registration and printing fees) of approximately $3.5 million
associated with the Merger. In addition, following the Merger, O'Gara expects to
incur additional expenses which cannot at this time be estimated. These costs
(except for any such costs which are capitalized) are expected to be charged
against income of O'Gara in the fiscal quarter in which they are incurred. There
can be no assurance that O'Gara will not incur additional material costs in
subsequent periods to reflect additional costs associated with the Merger.
Dependence on Key Personnel. After the Merger, the combined companies'
operations will depend on the continued efforts of their executive officers and
senior management, particularly Jules B. Kroll, Thomas M. O'Gara and Wilfred T.
O'Gara. If the executive officers of O'Gara and Kroll become unable or decide
not to continue with O'Gara after the Merger, or if a number of senior managers
fail to continue with O'Gara and O'Gara is unable to attract and retain
appropriate replacements, the combined companies' business could be materially
and adversely affected. See "THE MERGER -- Management of O'Gara after the
Merger."
Control by Management. After the Merger, O'Gara's directors and executive
officers will beneficially own approximately 62.3% of the outstanding O'Gara
Common Stock and will be able to control most matters requiring approval by
shareholders, including the election of directors. See "THE MERGER -- Ownership
of O'Gara after the Merger" and "PRINCIPAL SHAREHOLDERS OF O'GARA."
Possible Volatility of Stock. The market price for the O'Gara Common Stock
may be highly volatile after the Merger. O'Gara believes that a variety of
factors, including announcements by O'Gara or its competitors, quarterly
variations in financial results, trading volume, general market trends and other
factors, could cause the market price of the O'Gara Common Stock to fluctuate
substantially. In addition, the stock market has experienced extreme price and
volume fluctuations that are often unrelated to the operating performance of
particular companies. These market fluctuations may adversely affect the price
of the O'Gara Common Stock. Changes in the market value of the O'Gara Common
Stock will affect the value to be received by holders of Kroll Stock in the
Merger.
15
<PAGE> 22
Dilutive Effect of the Merger on Current Shareholders' Voting Power. After
the Merger, the current shareholders of O'Gara will initially own approximately
52% of the outstanding O'Gara Common Stock, and the current shareholders of
Kroll will initially own approximately 48% of the outstanding O'Gara Common
Stock. This represents substantial dilution of their current percentage voting
power in O'Gara and Kroll, respectively.
Dilutive Effect of the Merger on O'Gara's Earnings Per Share. On a pro
forma basis, the Merger is dilutive to O'Gara's net income per share for the
twelve months ended December 31, 1996 and the six months ended June 30, 1997.
See "SUMMARY -- Comparative Per Share Data." There can be no assurance that the
Merger will not similarly dilute O'Gara's net income per share for future
periods.
Shares Eligible for Future Sale. Sales of a substantial number of shares
of O'Gara Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the O'Gara Common Stock and may
make it more difficult for O'Gara to sell shares of O'Gara Common Stock in the
future at times and for prices that it deems appropriate. Upon consummation of
the Merger, there will be outstanding 13,929,310 shares of O'Gara Common Stock
(assuming the exercise of all Kroll stock options and no exercise of outstanding
O'Gara stock options). The 6,650,000 shares of O'Gara Common Stock to be issued
in the Merger (except for any shares received by affiliates of O'Gara or Kroll),
and the shares of O'Gara Common Stock issued in the Offering, will be or are
freely tradeable without restriction under the Securities Act of 1933 (the
"Act"). The remaining approximately 4.8 million shares (the "Restricted Shares")
of currently outstanding O'Gara Common Stock have been owned beneficially by
certain of O'Gara's executive officers and directors since prior to the Offering
or were issued in the Acquisitions or as stock bonuses to certain executive
officers of O'Gara paid in the first quarter of 1997 and may not be resold
unless they are registered under the Act or sold pursuant to an applicable
exemption from registration, including Rule 144 under the Act. Pursuant to Rule
145 under the Act, resale of the shares of O'Gara Common Stock acquired in the
Merger by affiliates of Kroll prior to the Merger or O'Gara thereafter will be
subject to the provisions of Rule 144 (other than the holding period
requirements). See "SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE."
Absence of Dividends. O'Gara does not anticipate paying any dividends on
the O'Gara Common Stock in the foreseeable future. Additionally, the terms of
the $35.0 million principal amount of O'Gara's Senior Notes due May 30, 2004,
issued and sold by O'Gara to certain institutional investors on June 3, 1997
(the "Senior Notes"), and O'Gara's credit agreement with its bank require
maintenance of certain financial ratios which may limit the funds available for
cash dividends. See "MARKET PRICES AND DIVIDENDS -- Dividend Policy."
Potential Anti-Takeover Effect and Potential Adverse Impact on Market Price
of Certain Charter and Code of Regulations Provisions and the OGCL. Certain
provisions of the O'Gara Articles and O'Gara's Code of Regulations (the "O'Gara
Code") and of the OGCL, together or separately, could discourage potential
acquisition proposals, delay or prevent a change in control of O'Gara and limit
the price that certain investors might be willing to pay in the future for
O'Gara Common Stock.
The O'Gara Board has authority to issue up to 100,000 (to be increased to
1,000,000 if the O'Gara Capitalization Proposal is approved) shares of O'Gara
Preferred Stock without further shareholder approval. Such O'Gara Preferred
Stock could have dividend, liquidation, conversion, voting and other rights and
privileges that are superior or senior to the O'Gara Common Stock. Issuance of
shares of O'Gara Preferred Stock could result in the dilution of the voting
power of the O'Gara Common Stock, adversely affect holders of the O'Gara Common
Stock in the event of liquidation of O'Gara or delay, defer or prevent a change
in control of O'Gara.
In addition, Sections 1701.01 and 1701.831 of the OGCL contain provisions
that require shareholder approval of any proposed "control share acquisition" of
any Ohio corporation at any of three ownership thresholds: 20%, 33 1/3% and 50%;
and Chapter 1704 of the Ohio Revised Code contains provisions that restrict
certain business combinations and other transactions between an Ohio corporation
and interested shareholders. See "DESCRIPTION OF O'GARA CAPITAL
STOCK -- Provisions Affecting Business Combinations and Changes in Control."
16
<PAGE> 23
RISK FACTORS RELATING TO THE BUSINESS OF O'GARA
An investment in O'Gara Common Stock involves a high degree of risk. O'Gara
operates in a highly competitive environment that involves a number of risks,
some of which are beyond its control. The following discussion highlights some
of these risks, which should be considered by shareholders of O'Gara and Kroll
in considering the Merger.
Risks Associated with Business Strategy. O'Gara's strategy is to become a
fully integrated global security company. Part of this strategy requires
developing relatively new lines of business by expanding O'Gara's Security
Systems Integration and Security Services Groups. Historically, O'Gara has not
generated substantial revenues from these lines of business. O'Gara's primary
business and experience has been in vehicle armoring. Although the O'Gara Board
believes the Merger will further this strategy, it believes that full
implementation of this strategy will require further steps to continue the
development of these lines of business. There can be no assurance that O'Gara
will be able to build or manage profitably these businesses without substantial
costs, delays or other problems, which could have a material adverse effect upon
O'Gara's financial condition, results of operations and cash flows.
As O'Gara's business develops and expands, O'Gara will need to implement
enhanced operational and financial systems and will require additional
employees, management and operational and financial resources. There can be no
assurance that O'Gara will successfully implement and maintain such operational
and financial systems or successfully obtain, integrate or utilize the
employees, management and operational and financial resources required to manage
a developing and expanding business. Failure to implement such systems
successfully and use such resources effectively could have a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
O'Gara's business strategy requires substantial capital. In addition, the
expansion of O'Gara's business into related products and services may require
additional capital. Such capital may be obtained by borrowings under O'Gara's
credit facilities, through the issuance of long-term or short-term indebtedness
or through the issuance of equity securities in private or public transactions.
This strategy could result in increased interest expense and/or dilution of
existing equity positions. There can be no assurance that acceptable capital
financing for future growth can be obtained on suitable terms, if at all. See
"O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
Risks Associated with Acquisition Strategy. A further part of O'Gara's
strategy is to grow through the acquisition of companies that will complement
its existing operations or provide it with an entry into markets it does not
currently serve. Although the O'Gara Board believes the Merger is consistent
with this strategy, growth through acquisitions involves substantial risks,
including the risk of improper valuation of the acquired business and the risk
of inadequate integration. There can be no assurance that O'Gara will be able to
acquire suitable companies or manage them profitably or that acquisitions will
produce returns that justify O'Gara's investments. In addition, O'Gara may
compete for acquisition and expansion opportunities with companies that have
significantly greater resources than O'Gara.
O'Gara may finance future acquisitions with cash from operations or
additional debt or equity financings. There can be no assurance that O'Gara will
be able to generate internal cash or obtain financing from external sources or
that, if available, such financing will be on terms acceptable to O'Gara. The
issuance of additional O'Gara Common Stock to finance acquisitions may result in
substantial dilution to holders of O'Gara Common Stock. Any debt financing may
significantly increase O'Gara's leverage and may involve restrictive covenants
which limit O'Gara's operations. See "O'GARA MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
If O'Gara is successful in its acquisition strategy, O'Gara may experience
a period of rapid growth which could place significant additional demands on
O'Gara's management, resources and management information systems. O'Gara's
failure to manage any such rapid growth effectively could have a material
adverse effect on O'Gara's financial condition, results of operations and cash
flows.
Competition. The markets in which O'Gara does or intends to do business
are highly competitive. There are a large number of companies, both public and
private, involved in one or more aspects of security hardware, security systems
integration and security services, as well as distribution of satellite
telecommunications and
17
<PAGE> 24
navigation products and services. Furthermore, O'Gara may encounter additional
competition from future industry entrants. Certain of O'Gara's current
competitors have, and new competitors may have, substantially greater financial
and other resources than O'Gara. There can be no assurance that O'Gara will
continue to develop and market products or services that will be accepted in the
marketplace or that it will be able to compete effectively in the future, either
of which could have a material adverse effect on O'Gara's financial condition,
results of operations and cash flows. See "BUSINESS OF O'GARA -- Competition."
Risks Associated with U.S. Military Contracts. Since August 1993, U.S.
Military contracts have accounted for a substantial portion of O'Gara's
business, representing 28.5%, 50.1%, 45.6%, 66.0% and 37.3% of net sales for
1993, 1994, 1995, 1996 and the six months ended June 30, 1997, respectively.
Prior to August 1993, O'Gara's business did not include armoring military
vehicles. O'Gara's U.S. Military contracts are funded in annual increments and
require subsequent authorization and appropriation which may not occur or which
may provide less than the total amount of the contract due to budgetary or other
considerations. O'Gara's current prime contract to armor and blast protect 360
High Mobility Multi-Purpose Wheeled Vehicles ("HMMWVs"; a HMMWV which has been
armored and blast-protected is referred to herein as an "Up-Armored HMMWV") is
scheduled to be completed by July 31, 1998. of these HMMWVs had been
shipped as of , 1997. There can be no assurance that future
contracts will be received or as to the size of any contracts that are received.
Fluctuations in spending by the U.S. Government for national defense could
adversely affect O'Gara's ability to receive future contracts. Moreover, U.S.
Government contracts, in general, are cancelable unilaterally at the convenience
of the U.S. Government and a variety of international and/or domestic political
factors or decisions could result in the cancellation of the HMMWV armoring
project or a curtailing of its scope. The loss of, or a significant reduction
in, this business would have a material adverse effect on O'Gara's financial
condition, results of operations and cash flows. See "BUSINESS OF O'GARA -- U.S.
Government Contracts."
Risk of U.S. Government Shut Down. On several occasions during the U.S.
Government's 1996 fiscal year, certain operations of the U.S. Government
essentially were "shut down" because of budget impasses between the U.S.
Congress and the President. During these periods, payments to O'Gara under its
U.S. Military contracts were delayed. Future U.S. Government shut downs, if
sufficiently prolonged, could have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows.
Single and Primary Source Suppliers. The HMMWVs armored by O'Gara are
manufactured under separate U.S. Military contracts by AM General Corporation
("AM General"). Should AM General for any reason be unable to deliver HMMWVs to
O'Gara, as occurred during 1995, or should the U.S. Military elect or be
obligated to select a new HMMWV supplier, there could be a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
O'Gara currently obtains the majority of the glass used in armoring its
vehicles from Pilkington Aerospace Limited. Should O'Gara at some time find it
necessary to select one or more additional or substitute suppliers, delays could
be encountered in obtaining glass which meets O'Gara's specifications.
A majority of O'Gara's cost of armoring HMMWVs consists of components which
are purchased from various vendors and suppliers. Component prices are generally
negotiated based on, among other things, O'Gara's expected manufacturing volume.
There can be no assurance that O'Gara will be able to predict accurately the
anticipated manufacturing volume. As a result, O'Gara may be subject to future
cost increases which could have a material adverse effect on O'Gara's financial
condition, results of operations and cash flows.
Fluctuations in Operating Results. Approximately 37.3% of O'Gara's net
sales for the six months ended June 30, 1997 were derived from U.S. Military
contracts and an additional 5.0% were derived from commercial contracts with
U.S. governmental agencies or foreign governments. These contracts generally are
awarded on a periodic and/or sporadic basis. O'Gara frequently receives
substantial orders, and begins to incur related expenses, in one quarter, the
revenues from which will not be received until one or more subsequent quarters.
As a result, O'Gara generally has significant fluctuations from time to time in
its business. Historically, these fluctuations have not been seasonal.
Period-to-period comparisons within a given year or between years may not be
meaningful or indicative of operating results over a full fiscal year. See
"BUSINESS OF O'GARA -- Seasonality, Backlog and Related Matters" and "O'GARA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
18
<PAGE> 25
Risks Associated with Fixed Price Contracts. A substantial portion of
O'Gara's projects are currently performed on a fixed-price basis. O'Gara
attempts to cover anticipated increases in labor, material and service costs of
long-term fixed-price contracts through an estimation of such increases which is
reflected in the original price. Despite these attempts, however, the revenue,
cost and gross profit realized on a fixed-price contract will often vary from
the estimated amounts due to unforeseen conditions or changes in job conditions
and variations in productivity over the term of the contract. These variations
and the risks generally inherent in fixed-price contracts may result in the
gross profits realized by O'Gara being different from those originally estimated
and may result in O'Gara's experiencing reduced profitability or losses on
projects. Depending on the size of a contract, these variations from estimated
contract performance could have a material adverse effect on O'Gara's results of
operations for any quarter or year.
Risks Associated with Percentage-of-Completion Accounting. O'Gara's net
sales from government contracts and most commercial contracts are recognized
using the percentage-of-completion method. Under this method, estimated contract
revenues are accrued based generally on the percentage that costs to date bear
to total estimated costs. Estimated contract losses are recognized in full when
determined. Accordingly, contract revenues and total cost estimates are reviewed
and revised periodically as the work progresses and as change orders are
approved, and adjustments based upon the percentage of completion are reflected
in contract revenues in the period when such estimates are revised. To the
extent that these adjustments result in an increase, a reduction or an
elimination of previously reported contract revenues, O'Gara would recognize a
credit or a charge against current earnings, which could be material. See
"O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Impact on Operations."
Political and Economic Risks of Doing Business Outside the United
States. In addition to its U.S. facilities, O'Gara has operations and assets in
Brazil, France, Italy, Mexico, the Philippines, Russia and the United Kingdom.
In addition, O'Gara sells its products and services in other foreign countries
and is seeking to increase its level of international business activity.
Accordingly, O'Gara is subject to various risks, including exchange rate
fluctuations, foreign currency restrictions, U.S. imposed embargoes of sales to
specific countries, expropriation of assets, war, civil uprisings and riots,
government instability and legal systems of decrees, laws, regulations,
interpretations and court decisions which are not always fully developed and
which may be retroactively applied. O'Gara's operations in foreign countries may
be materially adversely affected in that certain governmental agencies in such
countries may interpret laws, regulations or court decisions in a manner which
might be considered inconsistent or inequitable in other countries. O'Gara may
be subject to unanticipated income taxes, excise duties, import taxes, export
taxes or other governmental assessments. There can be no assurance that such
risks will not result in a loss of business or other unexpected costs which
could have a material adverse effect on O'Gara's financial condition, results of
operations and cash flows. See "BUSINESS OF O'GARA."
Government Regulation. As a contractor with agencies of the U.S.
Government, O'Gara is obligated to comply with a variety of regulations
governing certain aspects of its operations and the workplace. Additionally,
O'Gara's contracts give the contracting agency the right to conduct audits of
O'Gara's facilities and operations, and such audits occur routinely. An audit
involves a U.S. Governmental agency's review of O'Gara's compliance with the
prescribed procedures established in connection with the applicable government
contract. O'Gara also may be subject to investigations as a result of an audit
or for other causes. Adverse findings in an audit or other investigation,
including violations of environmental or labor laws, could result in fines or
other penalties up to and including disqualification as a U.S. Government
contractor. In addition, U.S. Government contracts may contain cost or
performance incentives based on stated targets or other criteria. Failure to
meet these stated targets or other criteria could result in penalties or lost
profits to O'Gara. Any or all of these matters could have a material adverse
effect on O'Gara's financial condition, results of operations and cash flows.
O'Gara is subject to federal licensing requirements with respect to the
sale in foreign countries of certain of its hardware products. Regulations
promulgated by the U.S. Commerce Department require O'Gara to obtain a general
destination license in connection with the sale of certain commercial products
in foreign countries, and certain U.S. State Department regulations require
O'Gara to file an export license in connection with sales of military equipment
in foreign countries. Furthermore, the U.S. State Department prohibits all sales
of military equipment to certain countries, including Cuba, Iran, Iraq, Libya
and China. There can be no assurance that such
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regulations will not become more restrictive in the future, which could limit
O'Gara's ability to market its products internationally. If such additional
restrictions were imposed, they could have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows. See "BUSINESS OF
O'GARA -- U.S. Government Regulation."
Management of Labor Force. Due to the nature of O'Gara's contracts, which
are awarded periodically and are not assured for future periods, O'Gara may need
to hire, lay-off and rehire workers. As a result, O'Gara may spend substantial
time and effort training and supervising new, essentially unskilled, personnel
hired to supplement its existing trained work force. There can be no assurance
that sufficient workers will be available at any time, or can be trained in
time, so as not to interfere with O'Gara's ability to accept large new orders or
to meet contractual delivery deadlines. Alternatively, if O'Gara were to
experience production delays, as occurred with respect to O'Gara's Up-Armored
HMMWV production in 1995, it may be necessary to maintain manufacturing and
engineering support personnel in order to meet contract deadlines once
production resumes. These circumstances could have a material adverse effect on
O'Gara's financial condition, results of operations and cash flows.
Dependence on Key Personnel. O'Gara's operations currently depend on the
continued efforts of its executive officers and on its senior management,
particularly Thomas M. O'Gara, its current Chairman of the Board, and Wilfred T.
O'Gara, its current President and Chief Executive Officer. If the executive
officers of O'Gara become unable or decide not to continue in their present
positions, or if a number of senior managers fail to continue with O'Gara and
O'Gara is unable to attract and retain replacements, O'Gara's business could be
materially and adversely affected. See "MANAGEMENT OF O'GARA."
Product Liability. Although O'Gara has never had a product liability claim
made against it, there can be no assurance that O'Gara will not be subject to
claims of liability in the future. O'Gara carries liability insurance in the
amount of $10.0 million; however, a successful claim could result in liability
in excess of coverage limits and have a material adverse effect on O'Gara's
financial condition, results of operations and cash flows.
RISK FACTORS RELATING TO THE BUSINESS OF KROLL
Kroll operates in a highly competitive environment that involves a number
of risks, some of which are beyond its control. The following discussion
highlights some of these risks, which should be considered by shareholders of
O'Gara and Kroll in considering the Merger.
Dependence on Key Employees. Jules B. Kroll founded Kroll in 1972 and has
been actively involved in the management and growth of Kroll since that date as
its chairman and chief executive officer. Other members of Kroll's senior
management play key roles in the management and direction of Kroll, and Kroll is
highly dependent on the quality and efforts of its professional staff to provide
its services and attract and retain clients. Competition for these types of
employees is intense. If Jules B. Kroll ceased to be employed by Kroll or if the
services of any of Kroll's other senior management, or the services of any
significant number of its professional staff, were no longer available to Kroll,
Kroll's financial condition, results of operations and cash flows could be
materially and adversely affected. See "MANAGEMENT OF KROLL."
Competition. Kroll faces significant and increasing competition in the
United States and elsewhere in the world from a variety of companies that
provide some of the services offered by Kroll. These competitors consist of
local, regional, national and international firms. In most service areas in
which Kroll operates, there is at least one competitor that is significantly
larger or more established than Kroll. Many of the national and international
accounting firms provide consulting services similar to some of the services
provided by Kroll. Some of these firms have indicated an interest in providing
corporate investigation and business intelligence services on a broader scale.
The accounting firms have significantly larger financial and other resources
than Kroll and have long-established relationships with their clients, which are
also likely to be clients or prospective clients of Kroll. In addition, large
multinational security product and service providers have indicated an interest
in expanding their services to include value-added services such as certain of
the investigation and consulting services provided by Kroll. The accounting
firms and other service providers could prove to be formidable competitors if
they elect to devote the necessary resources to such competitive businesses. In
that event, there can be no assurance that Kroll will be able to continue to
provide its services on existing financial terms and conditions, which would
have a material adverse effect on Kroll's financial condition, results of
operations and cash flows.
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Dependance on Key Customer. In 1995, 1996 and the first six months of
1997, services performed for AIG, a principal shareholder of Kroll, constituted
7.3%, 7.5% and 9.3% of Kroll's revenues, respectively. The loss of, or a
significant reduction in, this business could have a material adverse effect on
Kroll's financial condition, results of operations and cash flows.
Fluctuations in Operating Results. Kroll generally does not have long term
contracts with its clients and its ability to generate net sales is dependent
upon obtaining many new projects each year, most of which are of relatively
short duration. As a result, Kroll's net sales and net income from year to year
are not necessarily predictable and historically there has not been a consistent
year-to-year pattern of growth. See "BUSINESS OF KROLL -- Clients."
The demand for Kroll's services is affected by general economic conditions
and the level of corporate acquisitions and other financial transactions, and
clients may reduce their reliance on Kroll's services during periods when there
is a decline in such activities.
Political and Economic Risks of Doing Business Outside the United
States. Kroll provides services in many foreign countries and has offices in a
number of foreign countries, including Australia, Brazil, China, France,
Germany, India, Japan, the Philippines, Russia, Singapore and the United
Kingdom. Kroll plans to expand its marketing efforts for services. There can be
no assurance that Kroll will be successful in such expansion or that any such
expansion will increase Kroll's net income. See "BUSINESS OF KROLL."
Kroll is and will be subject to various risks in the foreign countries in
which it operates, including exchange rate fluctuations, foreign currency
restrictions, U.S. imposed embargoes on doing business with specific countries,
expropriation of assets, war, civil uprisings and riots, government instability
and legal systems of decrees, laws, regulations, interpretations and court
decisions which are not always fully developed and which may be retroactively
applied. Kroll's operations in foreign countries may be adversely affected in
that certain governmental agencies in such countries may interpret laws,
regulations or court decisions in a manner which might be considered
inconsistent or inequitable in other countries. In addition, Kroll may be
subject to unanticipated income taxes, excise duties or other governmental
assessments. There can be no assurance that such risks will not result in a loss
of business or significant unexpected write-offs of assets or other unexpected
costs which could have a material adverse effect on Kroll's financial condition,
results of operations and cash flows.
Collection of Accounts Receivable. In the past Kroll occasionally
encountered difficulties in collecting significant accounts receivable for
services. This problem has been exacerbated if the receivable obligor is located
in a foreign country. If such problems recur, they could have a material adverse
effect on Kroll's financial condition, results of operations and cash flows.
Liability to Clients and Others. Although Kroll has never had a
substantial claim by a client alleging negligence in the performance of its
services, there can be no assurance that such a claim may not be asserted
against it in the future. Certain of the matters with respect to which Kroll
provides services are extremely large and complex financial transactions in
which very substantial amounts of money may be at risk. Kroll maintains a
Miscellaneous Professional Liability Coverage, Errors and Omissions insurance
policy with limits of $10.0 million; however, no assurance can be given that
this will afford Kroll adequate protection if such a claim is asserted against
Kroll. Furthermore, in the ordinary course of its business, Kroll is subject to
claims of third parties other than clients alleging trespass, invasion of
privacy and other tortious conduct by its investigators and other personnel. See
"BUSINESS OF KROLL -- Litigation." Although Kroll endeavors to minimize the risk
of such claims, there can be no assurance that such a claim could not have a
material adverse effect on Kroll's financial condition, results of operations
and cash flows.
Government Regulation. Kroll's services are subject to various federal,
state, local and foreign laws, including laws designed to protect the privacy of
persons. A wholly owned subsidiary of Kroll holds private investigative licenses
from, and its investigative activities are regulated by, government agencies in
the following jurisdictions: California, Connecticut, Florida, Illinois,
Maryland, Michigan, New Jersey, New York, Pennsylvania and the District of
Columbia. In addition, applications to obtain private detective licenses on
behalf of such subsidiary are pending with the Georgia Board of Private
Detective and Security Agencies and with the Massachusetts Department of State
Police Special Licensing Unit. See "BUSINESS OF KROLL -- Government
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Regulation." Kroll utilizes certain data from outside sources, including data
from third party vendors and various government and public record services, in
performing its services. To the present time, laws and regulations of the
foregoing jurisdictions have not interfered materially with the conduct of the
business or operations of Kroll, including Kroll's access to data used in its
business. However, there can be no assurance that new regulations, such as
changes in governmental regulations relating to the protection of privacy, will
not be enacted that could interfere materially with the manner in which Kroll
obtains information, conducts its operations and provides its services, with a
resulting material adverse effect on Kroll's financial condition, results of
operations and cash flows.
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THE MERGER
GENERAL
Upon consummation of the Merger, shareholders of Kroll will receive (and
options to purchase Kroll Stock will be converted into options to purchase) an
aggregate of 6,650,000 shares of O'Gara Common Stock and Kroll will become a
wholly owned subsidiary of O'Gara.
BACKGROUND OF THE MERGER
Background. Over the last several years Kroll has considered strategies
to: (i) increase the size and scope of its organization, (ii) increase its
domestic and international presence, (iii) increase its access to capital to
fund its plans for growth, (iv) continue to attract and retain talented
professionals, and (v) diversify and expand its products and services. The
alternatives Kroll considered included a sale of its business to a publicly
traded or other entity pursuant to a merger or other business combination or a
public offering by Kroll. Either solution would have provided Kroll with an
increased presence in the competitive marketplace, access to capital and the
ability to provide key employees with equity interests having greater liquidity.
In furtherance of these strategies, the Kroll Board retained Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") in January 1996 to advise it on
strategic alternatives.
In the fall of 1996, Kroll examined several potential transactions. In
January 1997, Kroll determined to focus on merger discussions with ChoicePoint,
Inc. ("ChoicePoint"), a subsidiary of Equifax, Inc. that was planned to be spun
off to the shareholders of Equifax as an independent public company, and
terminated all other discussions. ChoicePoint is much larger than Kroll and
provides a variety of investigative, security and other services that are
similar to certain services provided by Kroll. The discussions with ChoicePoint
led to an announcement on April 1, 1997 of an agreement in principle under which
ChoicePoint would acquire Kroll after it had been spun off from Equifax, Inc.
ChoicePoint and Kroll subsequently were unable to reach agreement on several
substantive issues and thereafter terminated the agreement in principle.
Following its November 12, 1996 initial public offering, O'Gara pursued its
strategy of expanding its business by acquiring compatible businesses. See
"BUSINESS OF O'GARA -- Business Strategy." In furtherance of this strategy,
during the first three months of 1997, O'Gara acquired the businesses of Next
Destination Limited ("Next Destination"), Labbe, and International Training,
Incorporated ("ITI"). See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- General."
In continuation of this strategy, in the spring of 1997, after learning of
the announcement of the agreement in principle between ChoicePoint and Kroll
described above, Thomas M. O'Gara, Chairman of the Board of O'Gara, discussed
with Jules B. Kroll, Chairman of the Board of Kroll, the potential purchase by
O'Gara of certain divisions of Kroll that might be available for sale after the
then contemplated acquisition of Kroll by ChoicePoint. In April 1997, O'Gara
instructed J. Jeffrey Brausch & Company ("Brausch"), one of O'Gara's advisors,
to develop a proposal to acquire these divisions and, depending upon the status
of Kroll's transaction with ChoicePoint, to acquire Kroll in its entirety.
In June 1997, after receiving assurances from Kroll that its negotiations
with ChoicePoint had not been concluded and that several substantive issues
remained unresolved, Thomas M. O'Gara, Wilfred T. O'Gara and J. Jeffrey Brausch
met with Jules B. Kroll to propose that O'Gara acquire Kroll in a merger in
which the shareholders of Kroll would receive shares of O'Gara Common Stock.
Although Kroll did not then accept this proposal, during July 1997, several
discussions and meetings between senior executive officers of O'Gara and senior
executive officers of Kroll and their respective financial advisors took place.
At these meetings, the respective businesses of O'Gara and Kroll, among other
matters, were discussed.
On July 30, 1997, the parties determined that discussions relating to a
proposed combination of Kroll and O'Gara had advanced to the point where the
parties thought it might be possible to reach a definitive agreement on the
essential terms of such a transaction. Commencing on August 1, 1997, members of
senior management of O'Gara and Kroll, together with their respective legal,
accounting and other advisors, exchanged financial and
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legal due diligence materials, conducted other due diligence and negotiated the
definitive terms and conditions of the Merger Agreement.
On August 3, 1997, Dillon Read was engaged by the O'Gara Board to provide
an opinion as to the fairness of the Merger to O'Gara from a financial point of
view.
The O'Gara Board held a special meeting on August 6, 1997, to consider the
proposed Merger Agreement and the transaction contemplated thereby, including
the proposed consideration to be paid to Kroll shareholders. At this meeting,
members of O'Gara's senior management, together with Taft, Stettinius &
Hollister, its legal advisors, representatives of Brausch, and Arthur Andersen
LLP, its independent public accountants, reviewed with the O'Gara Board, among
other things, the strategic fit between the two companies, the background of the
proposed transaction, financial evaluation analysis of the transaction, the
terms of the Merger Agreement and the accounting treatment of the transaction.
Representatives of Taft, Stettinius & Hollister and Arthur Andersen LLP made
presentations to the O'Gara Board and discussed with the O'Gara Board their
views and analysis of various aspects of the proposed transaction. In addition,
at the August 6, 1997, meeting, Dillon Read set forth its analysis of the
proposed transaction to the O'Gara Board and, based on discussions and materials
provided at the meeting and subject to receipt of the executed Merger Agreement
substantially in the form and containing the terms as presented at the meeting,
Dillon Read indicated that it was prepared to deliver an opinion that the
consideration to be paid by O'Gara in connection with the Merger is fair to
O'Gara from a financial point of view. O'Gara did not request an opinion as to
the fairness of the Merger to the shareholders of O'Gara from Brausch. After
extensive discussion and consideration, the O'Gara Board unanimously approved
the Merger substantially on the terms presented to it and authorized the
execution of the Merger Agreement on such terms with such changes as the
executive officers approved.
The Kroll Board unanimously approved the Merger and the Merger Agreement by
written consent dated August 8, 1997.
On August 8, 1997, Kroll and O'Gara agreed to a merger that provided for
the issuance of up to 6,750,000 shares of O'Gara Common Stock and announced such
agreement; however the parties subsequently agreed to revise the terms of the
merger to reduce the number of shares of O'Gara Common Stock to be issued to
6,650,000 based on further consideration of Kroll's liabilities to a former
shareholder. This revision is reflected in the Merger Agreement.
REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
O'Gara Reasons for the Merger. At the meeting held on August 6, 1997, the
O'Gara Board, by unanimous vote, determined that the terms of the Merger
Agreement and the Merger are in the best interests of O'Gara and its
shareholders, and approved the Merger Agreement and the Merger. At such meeting
the O'Gara Board also recommended that O'Gara shareholders approve the O'Gara
Proposal. In reaching these conclusions and recommendations, the O'Gara Board
consulted with O'Gara management and its legal counsel and financial advisors
and considered a number of factors, including the following:
(i) the O'Gara Board's belief that the combination of the two
companies will continue and enhance O'Gara's strategy to become a global
integrated company due to:
(a) the nature and scope of Kroll's business, including the quality
and breadth of its assets, strong name recognition in the security
industry, competitive position and prospects for future development;
(b) the strategic fit between O'Gara and Kroll, including the
complementary nature of the businesses of the two companies, which have
little overlap and which present opportunities for cross promotion and
cross selling by each company with respect to the operations of the
other and which would create significant opportunities for developing
the combined businesses;
(c) the quality and breadth of the Kroll management, which would
enhance the management of the combined companies;
(d) the belief that the combined companies would be better able to
respond to the needs of their customers and clients and to exploit
opportunities that changes in the security industry may bring; and
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(e) the stronger platform for future acquisitions within the
security industry that would be provided by the combined companies;
(ii) the long-term interests of O'Gara and its shareholders, as well
as the interests of its employees, customers, clients, creditors and
suppliers;
(iii) the indication by Dillon Read that, subject to receipt of the
executed Merger Agreement substantially in the form and containing the
terms as presented at such meeting, it was prepared to deliver an opinion
to the O'Gara Board that the consideration to be paid by O'Gara in
connection with the Merger was fair to O'Gara from a financial point of
view (see "-- Opinion of Dillon Read");
(iv) the terms of recent comparable transactions in the security
industry;
(v) the terms and conditions of the Merger Agreement;
(vi) the results of the due diligence review of Kroll conducted by
O'Gara management and its legal and financial advisors; and
(vii) the sources of capital available to O'Gara to finance the Merger
and the effects of the Merger on the financial condition of the combined
companies.
The O'Gara Board considered not only the benefits that could arise from the
Merger, but considered also certain adverse effects relating to the Merger,
including the dilution to O'Gara shareholders resulting from the issuance of
shares of O'Gara Common Stock pursuant to the Merger, certain nonrecurring costs
that would result from the Merger, the risks inherent in any merger, and other
risks and uncertainties relating to the business of O'Gara and Kroll, including
those described in "RISK FACTORS."
The foregoing discussion of the information and factors considered by the
O'Gara Board is not intended to be exhaustive, but includes all material factors
considered by the O'Gara Board. In view of the variety of factors considered in
connection with its evaluation of the Merger, the O'Gara Board did not quantify
or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. A determination of the relative weight
of such factors would, in the view of the O'Gara Board, be impractical. Rather,
the O'Gara Board viewed its position and recommendations as being based on the
totality of the information presented to, and considered by, it. In addition,
individual members of the O'Gara Board may have given different weight to
different factors.
Recommendation of O'Gara Board. The O'Gara Board believes the terms of the
Merger Agreement and the Merger are in the best interests of O'Gara and its
shareholders.
THE O'GARA BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF O'GARA COMMON STOCK
VOTE FOR THE O'GARA PROPOSAL.
Kroll Reasons for the Merger. The Kroll Board believes that the Merger
will further Kroll's strategic objectives because: (i) the greater market float
and liquidity represented by the shares of O'Gara Common Stock after the Merger
should provide the combined companies with additional and better alternatives to
meet their capital needs to fund their growth and allow the implementation of an
equity incentive plan that should be helpful in attracting and retaining
talented key employees, (ii) the greater marketing and financial resources of
the combined companies compared to Kroll alone and the opportunities that should
emerge from the cross selling of goods and services among the clients of Kroll
and O'Gara should allow the combined companies to broaden their domestic and
international customer base, (iii) by virtue of Jules B. Kroll being named
Chairman of the Board of Directors and Chief Executive Officer of O'Gara and the
large position of Kroll shareholders in the combined companies, former
shareholders of Kroll can expect to have a meaningful role in the management and
policies of O'Gara after the Merger, (iv) the expected accounting treatment of
the Merger as a pooling of interests will avoid the reduction in future earnings
of the combined companies that would result from the creation and amortization
of goodwill under the purchase method of accounting, and (v) the expected
federal income tax treatment of the Merger as a tax-free reorganization to the
parties and to Kroll's shareholders.
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Recommendation of Kroll Board. The Kroll Board unanimously has determined
that the Merger Agreement and the Merger are fair to, and in the best interests
of, Kroll and its shareholders, and has approved the Merger Agreement and the
transactions contemplated thereby.
THE KROLL BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF KROLL STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE KROLL MEETING.
Opinion of Dillon Read. At the O'Gara Board meeting held on August 6, 1997,
Dillon Read advised the O'Gara Board that based on the terms of the Merger as
presented to Dillon Read, and, subject to receipt of the executed Merger
Agreement substantially in the form and containing the terms presented to such
meeting, Dillon Read was prepared to render an opinion as to the fairness to
O'Gara from a financial point of view of the consideration to be paid by O'Gara
pursuant to the Merger. The Dillon Read Opinion, dated September 12, 1997, that
the consideration to be paid by O'Gara, as set forth in the Merger Agreement, is
fair to O'Gara from a financial point of view, is attached hereto as Appendix C.
SHAREHOLDERS ARE ENCOURAGED TO READ THE FULL TEXT OF THE DILLON READ
OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
DILLON READ IN ARRIVING AT ITS OPINION. THE DILLON READ OPINION DOES NOT ADDRESS
THE FAIRNESS OF THE MERGER TO THE SHAREHOLDERS OF O'GARA OR KROLL, NOR DOES IT
CONSTITUTE A RECOMMENDATION REGARDING WHETHER OR NOT IT IS ADVISABLE FOR SUCH
SHAREHOLDERS TO VOTE IN FAVOR OF THE MERGER. THE SUMMARY OF THE DILLON READ
OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Dillon Read has consented to the use of Appendix C, containing its opinion
dated September 12, 1997 and incorporated elsewhere in this Proxy
Statement/Prospectus, and to the references to Dillon Read under the headings
"Summary" and "The Merger" in this Proxy Statement/Prospectus. In giving such
consent, Dillon Read does not admit that it comes within the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, nor does Dillon Read admit that it is an expert with
respect to any part of the Registration Statement in which this Proxy
Statement/Prospectus is included, within the meaning of the term "experts" as
used in the Act or the rules and regulations of the Commission promulgated
thereunder.
In arriving at its opinion, Dillon Read has, among other things: (i)
reviewed the Merger Agreement and the exhibits thereto; (ii) reviewed certain
publicly available business and financial information relating to O'Gara; (iii)
reviewed the reported price and trading activity for the O'Gara Common Stock;
(iv) reviewed certain internal financial information and other data provided to
Dillon Read by each of O'Gara and Kroll relating to the business and prospects
of O'Gara and Kroll, respectively, including financial projections prepared by
the management of O'Gara and Kroll, respectively, and the Consolidated Financial
Statements for the year ended December 31, 1996, and other audited financial
statements for Kroll and O'Gara; (v) conducted discussions with members of the
senior management of O'Gara and Kroll; (vi) reviewed the financial terms, to the
extent publicly available, of certain acquisition transactions which Dillon Read
believed to be generally comparable to the Merger; (vii) reviewed publicly
available financial and securities market data pertaining to certain publicly
held companies in lines of business which Dillon Read believed to be generally
comparable to Kroll; and (viii) conducted such other financial studies, analyses
and investigations, and considered such other information, as Dillon Read deemed
necessary and appropriate.
In connection with its review, with O'Gara's consent, Dillon Read did not
assume any responsibility for independent verification of any of the foregoing
information and relied upon its being complete and accurate in all material
respects. Dillon Read was not requested to and did not make an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of Kroll, nor was Dillon Read furnished with any such evaluation or appraisal.
Further, Dillon Read assumed, with O'Gara's consent, that all of the
information, including the projections, provided to Dillon Read by management of
O'Gara and Kroll was prepared in good faith and was reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of O'Gara and Kroll as to the future financial performance of Kroll,
and was based upon the historical performance of Kroll
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and certain estimates and assumptions which were reasonable at the time made.
With O'Gara's consent, Dillon Read assumed that the Merger would be accounted
for as a pooling of interests. In addition, the Dillon Read Opinion was based on
economic, monetary and market conditions as they existed and could be evaluated
on the date of the Dillon Read Opinion.
In rendering its opinion, Dillon Read considered a variety of valuation
methods. The following discussion constitutes a summary of the material analyses
considered by Dillon Read assuming the terms of the Merger Agreement as
presented at the August 6, 1997 meeting of the O'Gara Board (the "Proposed
Merger"):
Contribution Analysis. Dillon Read calculated the contribution of Kroll to
O'Gara with respect to historical 1996 and projected 1997 (based on management
estimates) net income available to common shareholders, operating income, and
revenues, as well as historical 1996 assets, debt and book value of common
equity. These calculations yielded amounts reflecting Kroll's contribution
ranging from 33% to 49% of the total pro forma combined amount, with an average
contribution of 43%. Based on the terms of the Proposed Merger and giving effect
to the Proposed Merger, Kroll Shareholders would own approximately 48% of O'Gara
Common Stock outstanding.
Public Company Analysis. Using publicly available information, Dillon Read
compared, based upon market trading values at the time, multiples of certain
financial criteria of Kroll to certain other companies in the security related
business that were deemed generally comparable to Kroll for purposes of this
analysis. The group of companies used in the comparison consisted of Armor
Holdings, Inc.; Borg-Warner Security Corporation; Code-Alarm, Inc.; Command
Security Corporation; Detection Systems, Inc.; ICTS International N.V.; ITI
Technologies, Inc.; NAPCO Security Systems, Inc.; Pinkerton's, Inc.; Pittston
Brink's Group; Pittway Corporation; Protection One, Inc.; and The Wackenhut
Corporation (collectively, the "Comparison Companies").
Dillon Read analyzed the unlevered market value (equity market value plus
debt, minus cash) of the Comparison Companies as multiples of revenues,
operating income, and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the latest twelve month period ("LTM"), the equity
market value of the Comparison Companies as multiples of LTM net income and the
stock price of the Comparison Companies as multiples ("P/E ratios") as provided
by First Call, Inc., estimated 1997 earnings per share ("EPS") and estimated
1998 EPS, and compared these figures to similar multiples based on financial
data for Kroll and Kroll management estimates for 1997 and 1998 for Kroll at the
Proposed Merger price.
An analysis of the unlevered market value to LTM revenues yielded ranges of
0.2x to 2.0x with a mean of 0.9x for the Comparison Companies, which compares
with an implied ratio of 1.3x for Kroll at the Proposed Merger price. An
analysis of the unlevered market value to LTM EBITDA yielded ranges of 5.5x to
15.4x with a mean of 8.3x for the Comparison Companies, which compares with an
implied ratio of 10.8x for Kroll at the Proposed Merger price. An analysis of
the unlevered market value to LTM operating income yielded ranges of 8.1x to
18.4x with a mean of 12.2x for the Comparison Companies, which compares with an
implied ratio of 18.7x for Kroll at the Proposed Merger price. An analysis of
the equity market value to LTM net income yielded ranges of 13.3x to 41.2x with
a mean of 23.2x for the Comparison Companies, which compares with an implied
ratio of 23.6x for Kroll at the Proposed Merger price. An analysis of 1997
estimated P/E ratios yielded ranges of 14.2x to 36.0x with a mean of 21.6x for
the Comparison Companies, which compares with an implied 1997 estimated P/E
ratio of 12.5x for Kroll at the Proposed Merger price. An analysis of 1998
estimated P/E ratios yielded ranges of 10.5x to 21.6x with a mean of 16.7x for
the Comparison Companies, which compares with an implied 1998 estimated P/E
ratio of 8.6x for Kroll at the Proposed Merger price.
Discounted Cash Flow Analysis. Dillon Read performed a discounted cash
flow evaluation of Kroll based upon projections supplied by the management of
O'Gara and Kroll. Utilizing these projections, Dillon Read discounted to present
value, under varying assumed discount rates, estimated future unlevered cash
flows. Such analysis indicated that assuming terminal value multiples ranging
from 4.0x to 8.0x EBITDA and discount rates ranging from 12% to 16%, the net
present value of Kroll's unlevered future after-tax cash flows ranged from $75.5
million to $164.1 million.
Acquisition Analysis. Using publicly available information, Dillon Read
compared, based upon the total transaction values, price multiples of certain
financial criteria of Kroll to certain completed acquisitions which
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<PAGE> 34
Dillon Read deemed relevant. Dillon Read determined that there was limited
publicly available financial data on acquisitions in the security services
industry, and there were few completed acquisitions of companies generally
comparable to Kroll because of Kroll's substantial revenue base, unique business
mix, and leading market position. Two acquisitions were analyzed: Armor
Holdings, Inc.'s acquisition of DSL Holdings Limited and O'Gara's acquisition of
Palmer (collectively, the "Comparison Acquisitions"). For the Comparison
Acquisitions, Dillon Read analyzed the adjusted aggregate purchase price (equity
value plus debt less cash, where available) of the acquired company as multiples
of the acquired company's LTM revenues. Dillon Read determined that other
financial data for the acquired companies was not available or not meaningful in
this analysis. Based on analysis of the unlevered market value to LTM, revenues
yielded ranges of 0.9x to 1.0x with a mean of 0.95x, which compares with an
implied ratio of 1.3x for Kroll at the Proposed Merger price.
Pro Forma Merger Analysis. Dillon Read also analyzed certain pro forma
financial effects of the Merger on O'Gara. This analysis was based upon certain
assumptions made by Dillon Read with O'Gara's consent, O'Gara's management
projections, and Kroll projections for the fiscal years 1997 through 1999
prepared by the management of O'Gara and Kroll, respectively. No revenue
enhancements or operating cost savings were assumed in these projections.
Based upon such assumptions, Dillon Read's pro forma analysis of the
financial effects of the Merger indicated that these effects (before the impact
of one-time transaction related costs) were neutral to O'Gara's net income per
share for the forecasted period ended December 31, 1997 and accretive to
O'Gara's net income per share for the years in the forecasted periods ending
December 31, 1998 through December 31, 1999.
Subsequent to (i) Dillon Read's analysis of the Proposed Merger (as
summarized above), (ii) the August 6, 1997 meeting of the O'Gara Board at which
the Proposed Merger was unanimously approved, (iii) the August 8, 1997 approval
of the Proposed Merger by the Kroll Board, (iv) the August 8, 1997 agreement to
a merger between Kroll and O'Gara that provided for the issuance of up to
6,750,000 shares of O'Gara Common Stock, and (v) the public announcement of such
agreement, Kroll and O'Gara agreed to revise the terms of the Merger to reduce
the number of shares of O'Gara Common Stock to be issued to 6,650,000, based on
further consideration of Kroll's liabilities to a former shareholder. Dillon
Read reviewed the revised terms of the Merger as reflected in the Merger
Agreement, and the Dillon Read Opinion, dated September 12, 1997, and attached
hereto as Appendix C, considers and reflects such revised terms of the Merger.
In arriving at its opinion, Dillon Read did not assign any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments based upon its experience in rendering such opinions and on economic,
monetary, and market conditions then present as to the significance and
relevance of each analysis and factor. Accordingly, Dillon Read believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and other factors considered by it, without considering all factors and
analyses, could create a misleading or incomplete view of the valuation process
underlying its opinion. With O'Gara's consent, Dillon Read made numerous
assumptions with respect to Kroll's historical and projected financial
performance, industry performance, general business and economic conditions and
other matters discussed herein, many of which are beyond Kroll's, O'Gara's and
Dillon Read's control. Any assumed estimates contained in Dillon Read's analyses
are not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth herein.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The O'Gara Board selected Dillon Read on the basis
of the firm's expertise and reputation.
Dillon Read has performed and continues to perform investment banking
services for O'Gara. Dillon Read is familiar with O'Gara, having served (i) as
lead underwriter in O'Gara's initial public offering on November 12, 1996; (ii)
as financial advisor to O'Gara in the acquisition of Labbe on February 12, 1997;
and (iii) as sole placement agent for the Senior Notes. For such services,
Dillon Read has received customary fees. Pursuant to the terms of an engagement
letter dated August 4, 1997, Dillon Read received $450,000 for services rendered
in connection with providing its opinion and O'Gara has agreed to reimburse
Dillon Read for all of its expenses
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associated with this engagement. O'Gara has also agreed to indemnify Dillon Read
and its officers, directors, employees, agents and controlling persons against
certain liabilities arising in connection with its engagement. In addition, in
the ordinary course of business, Dillon Read trades securities of O'Gara for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
FINANCING THE MERGER
The Merger Agreement provides that, promptly after the Effective Time,
O'Gara will cause Kroll to repay certain of its indebtedness to Jules B. Kroll
and all of its indebtedness to AIG in an aggregate principal amount not to
exceed $7.5 million. At August 31, 1997, the aggregate outstanding principal
amount of the debt to be repaid was $6.2 million, of which $2.0 million was owed
to AIG and $4.2 million was owed to Jules B. Kroll. The $2.0 million principal
amount of indebtedness to AIG is due on demand and bears interest at an annual
rate 2% in excess of the base rate of Citibank N.A. All of the indebtedness to
be repaid to Jules B. Kroll represents the net amount of advances made by him on
account, which advances are due on demand. Of the indebtedness to be repaid to
Jules B. Kroll, $3.0 million bears interest at an annual rate 1% in excess of
the prime rate and the balance bears interest at the broker loan rate, currently
7.625% per annum. The approximately $0.3 million net principal amount of certain
other loans by Jules B. Kroll to Kroll will remain outstanding, will be
evidenced by a new promissory note issued by O'Gara and will bear interest at an
annual rate 1/2% below the Prime Rate. See "CERTAIN RELATED PARTY
TRANSACTIONS -- KROLL." In addition, O'Gara contemplates that, at the Effective
Time, it will cause Kroll to repay all of its indebtedness under the Note
Purchase Agreement, dated as of December 15, 1989, as amended, among Kroll,
certain of its subsidiaries and Teachers Insurance and Annuity Association of
America ("Teachers"). At June 30, 1997, the outstanding principal amount of such
indebtedness was $8.1 million. This indebtedness bears interest at an annual
rate of 10.95% and matures December 15, 1999. Prepayment of this indebtedness
will require payment of a $37,500 additional fee to Teachers. O'Gara
contemplates that the source of funds for repayment of such indebtedness will be
the cash on hand of O'Gara and Kroll (an aggregate of $ at ,
1997) and, to the extent necessary, borrowings under O'Gara's existing credit
agreement with KeyBank National Association ("KeyBank") and a $14.0 million
principal amount one-year term loan from KeyBank which will bear interest at %
per annum to be entered into in connection with the Merger. See "O'GARA
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the O'Gara Board and the
Kroll Board with respect to the Merger Agreement and the transactions
contemplated thereby, shareholders of O'Gara and Kroll should be aware that
certain members of the management of O'Gara and Kroll, the O'Gara Board and the
Kroll Board may have certain interests in the Merger that may be different from,
or in addition to, the interests of shareholders of O'Gara and Kroll generally.
At the Effective Time, the O'Gara Board will be expanded to eleven members
and Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and Marshall S. Cogan
will become directors of O'Gara. Non-employee directors of O'Gara receive
certain fees. See "-- Management of O'Gara after the Merger" and "MANAGEMENT OF
O'GARA -- Directors' Compensation."
Pursuant to the Merger Agreement, at the Effective Time, Jules B. Kroll
will become Chairman and Chief Executive Officer of O'Gara and certain other
executive officers of Kroll will become executive officers of O'Gara. Executive
officers of O'Gara and Kroll have entered into new employment agreements or
amendments to existing employment agreements which will become effective at the
Effective Time. It is also contemplated that options to purchase shares of
O'Gara Common Stock will be granted to certain of such executive officers at the
Effective Time. See "-- Management of O'Gara after the Merger."
O'Gara has executed agreements with Jules B. Kroll, Thomas M. O'Gara and
AIG granting them rights to require O'Gara, under certain conditions, to
register for sale under the Act all or a portion of the O'Gara Common Stock
owned by them after the Merger. See "THE MERGER AGREEMENT -- Registration Rights
Agreements."
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Kroll is currently indebted to Jules B. Kroll and AIG for money borrowed in
the net principal amounts of $4.5 million and $2.0 million, respectively. At the
Effective Time, O'Gara will cause Kroll to repay all of such indebtedness to AIG
and all but approximately $0.3 million principal amount of such indebtedness to
Jules B. Kroll, together in each case with accrued interest thereon. The
remaining indebtedness to Jules B. Kroll will be reflected by a promissory note
issued by O'Gara and will bear interest at an annual rate 1/2% below the Prime
Rate. See "-- Financing the Merger" and "CERTAIN RELATED PARTY
TRANSACTIONS -- KROLL."
OWNERSHIP OF O'GARA AFTER THE MERGER
Immediately following the Merger (i) the former holders of O'Gara Common
Stock will collectively own approximately 52% of the issued and outstanding
shares of O'Gara Common Stock, (ii) the former holders of Kroll Stock will
collectively hold approximately 48% of the issued and outstanding shares of
O'Gara Common Stock, and (iii) Thomas M. O'Gara, Jules B. Kroll and AIG will
hold approximately 29.0%, 26.5% and 10.4%, respectively, of the issued and
outstanding shares of O'Gara Common Stock. See "PRINCIPAL SHAREHOLDERS OF
O'GARA."
MANAGEMENT OF O'GARA AFTER THE MERGER
At the Effective Time, the number of directors of O'Gara will be increased
to eleven, and Jules B. Kroll, Howard I. Smith, Michael G. Cherkasky and
Marshall S. Cogan will join the O'Gara Board. For biographical information
relating to Messrs. Kroll, Smith and Cherkasky, see "MANAGEMENT OF KROLL."
Marshall S. Cogan has been Vice Chairman of Foamex International Inc. since
May 30, 1997 and Chairman and Chief Executive Officer of United Auto Group since
April 17, 1997. Mr. Cogan was Chairman of the Board and Chairman of the
Executive Committee of Foamex International Inc. from September 1993 until May
30, 1997, and was Chief Executive Officer of Foamex International Inc. from
January 1994 until May 30, 1997. In addition, Mr. Cogan was Vice Chairman of
Foamex L.P. from January 1993 until January 1994, and was Chairman and Chief
Executive Officer of Foamex L.P. from January 1994 until May 30, 1997. Since
1974, Mr. Cogan has been the principal stockholder, Chairman or Co-Chairman of
the Board of Directors of and Chief Executive Officer or Co-Chief Executive
Officer of Trace International Holdings, Inc. Mr. Cogan has also served as
director or chairman of companies formerly owned by Trace Holdings
International, Inc., including General Felt Industries, Inc., Knoll
International, Inc. and Sheller-Globe Corporation. Mr. Cogan is 59 years old.
The following table sets forth the names and titles of the persons expected
to be the executive officers of O'Gara immediately following the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Jules B. Kroll................ 56 Chairman of the Board and Chief Executive
Officer
Thomas M. O'Gara.............. 47 Vice Chairman of the Board
Wilfred T. O'Gara............. 40 President, Chief Operating Officer and
Director
Michael G. Cherkasky.......... 47 Chief Operating Officer -- Kroll
Michael J. Lennon............. 41 Chief Operating Officer -- O'Gara-Hess &
Eisenhardt Armoring Co.
Nazzareno E. Paciotti......... 51 Chief Financial Officer
Nicholas P. Carpinello........ 47 Controller and Treasurer
Abram S. Gordon............... 34 Vice President, General Counsel and Secretary
</TABLE>
For biographical information relating to these executive officers, see
"MANAGEMENT OF O'GARA" and "MANAGEMENT OF KROLL."
O'Gara, Kroll or one of their respective subsidiaries has entered into new
employment agreements, or amendments to existing employment agreements, which
will commence at the Effective Time and expire on , with
each of these executive officers, providing for annual base salaries in the
respective amounts set forth in the table below. Each executive officer will
also be entitled to participate in an annual bonus plan to be established by the
Compensation Committee of the O'Gara Board and to receive up to % of such
bonus in shares of O'Gara Common Stock. Employment may be terminated by O'Gara
at any time with or
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without cause, except that, in a case of termination without cause, the employee
is entitled to receive compensation for the balance of the term of the
agreement. Each employment agreement restricts the executive officer from
competing with O'Gara during the term of the agreement, and for years
thereafter if termination of employment is for cause or at the volition of the
employee. Each of Thomas M. O'Gara and Wilfred T. O'Gara has further agreed that
during his employment and for a period of years thereafter he will not
directly or indirectly own any interest in or perform any services for any
entity which uses the word "O'Gara" as a business or trade name and competes
with O'Gara. Additionally, Jules B. Kroll has agreed that during his employment
with O'Gara and for a period of years thereafter he will not directly or
indirectly own any interest in or perform any services for any entity which uses
the word "Kroll" as a business or trade name and competes with O'Gara. It is
also contemplated that, at the Effective Time, O'Gara will issue to certain of
the executive officers options to purchase shares of O'Gara Common Stock as set
forth in the following table:
<TABLE>
<CAPTION>
OPTIONS TO PURCHASE
SHARES OF O'GARA
NAME BASE SALARY COMMON STOCK(1)
------------------------------------------------------- ----------- -------------------
<S> <C> <C>
Jules B. Kroll.........................................
Thomas M. O'Gara.......................................
Wilfred T. O'Gara......................................
Michael G. Cherkasky...................................
Michael J. Lennon......................................
Nazzareno E. Paciotti..................................
Nicholas P. Carpinello.................................
Abram S. Gordon........................................
</TABLE>
- ---------
(1) All of such options will be issued pursuant to the Plan and will be priced
at the market price of the O'Gara Common Stock at the Effective Time.
ACCOUNTING TREATMENT
O'Gara will account for the Merger in its consolidated financial statements
by the pooling of interests method of accounting. Under the pooling of interests
method of accounting, the recorded assets and liabilities of Kroll and O'Gara
will be carried forward to the O'Gara financial statements at their recorded
amounts; income of O'Gara will include income of O'Gara and Kroll for the entire
fiscal year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of O'Gara
on a consolidated basis. It is a condition to the consummation of the Merger
that O'Gara receive an opinion from Arthur Andersen LLP, its independent public
accountants, confirming the appropriateness of this accounting treatment under
generally accepted accounting principles. Each of Arthur Andersen LLP and
Deloitte & Touche LLP, Kroll's independent public accountants, have issued a
letter to the effect that no state of facts exists with respect to O'Gara or
Kroll, respectively, which would be reasonably expected to result in a failure
of the Merger to constitute a pooling of interests. Availability of the pooling
of interests method requires, among other things, that not more than 10% of the
Merger consideration be paid in cash. Accordingly, if holders of a sufficient
number of shares of O'Gara Common Stock or Kroll Stock were to exercise
dissenters' or appraisal rights, this condition would not be satisfied. See "THE
MERGER AGREEMENT -- Conditions to the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS NOT
INTENDED TO CONSTITUTE ADVICE REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER. THIS SUMMARY DOES NOT DISCUSS TAX CONSEQUENCES UNDER THE LAWS OF
STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER JURISDICTION OR TAX CONSEQUENCES TO
CATEGORIES OF SHAREHOLDERS THAT MAY BE SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN
PERSONS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND
DEALERS IN STOCKS AND SECURITIES. EACH HOLDER OF KROLL STOCK
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AND/OR O'GARA COMMON STOCK IS URGED TO OBTAIN, AND SHOULD RELY ONLY UPON, HIS OR
HER OWN TAX ADVICE.
The Merger is intended to be a tax-free reorganization for federal income
tax purposes so that no gain or loss will be recognized by the Kroll
shareholders, the O'Gara shareholders, Kroll or O'Gara, except as a result of
cash received in lieu of fractional shares or a shareholder's exercise of
appraisal rights.
If the Merger constitutes a reorganization within the meaning of Section
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended ("the Code"), the
federal income tax consequences of the Merger to the Kroll shareholders, the
O'Gara shareholders, Kroll and O'Gara will be as follows:
(i) No gain or loss will be recognized to the shareholders of Kroll
upon their receipt of shares of O'Gara Common Stock in exchange for their
Kroll Stock;
(ii) The basis in the shares of O'Gara Common Stock to be received by
the shareholders of Kroll in the Merger will be the same as their basis in
the Kroll Stock exchanged therefor, reduced by the basis allocable to
fractional shares;
(iii) The holding period of the shares of O'Gara Common Stock to be
received by the shareholders of Kroll will include the period during which
they held their Kroll Stock exchanged therefor, provided such Kroll Stock
was held as a capital asset at the time of the Merger;
(iv) Neither O'Gara nor Kroll will recognize gain or loss as a result
of the Merger;
(v) Cash payments received by holders of Kroll Stock in lieu of a
fractional share will be treated as if a fractional share of O'Gara Common
Stock had been issued in the Merger and then redeemed by O'Gara for cash. A
holder of Kroll Stock will generally recognize gain or loss upon such
payment, equal to the difference (if any) between such holder's basis in
the fractional share and the amount of cash received; and
(vi) A holder of Kroll Stock or O'Gara Common Stock who exercises
appraisal rights in respect to all of such holder's shares will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the holder's basis in such shares and the amount of cash
received, provided that the payment is not essentially equivalent to a
dividend within the meaning of Section 302 of the Code, which will be the
case if the dissenting shareholder does not directly or constructively own
any shares of O'Gara Common Stock or Kroll Stock after the Merger. Such
gain or loss will be a capital gain or loss, provided that such shares are
held as a capital asset at the time of the Merger. If the payment is
essentially equivalent to a dividend, it will be treated as ordinary income
to the extent of the paying corporation's current and accumulated earnings
and profits, and any remaining amount will first be applied against the
holder's basis in his, her, or its shares and will then be treated as gain
from the exchange of property, as described above.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. Kroll and O'Gara have received opinions
(the "Tax Opinions") from their respective legal counsel to the effect that for
federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. The Tax Opinions neither bind
the IRS or the courts nor preclude the IRS from adopting a contrary position. In
addition, the Tax Opinions are subject to certain assumptions and qualifications
and are based on the truth and accuracy of certain representations made by
Kroll, O'Gara and certain shareholders of Kroll. Of particular importance are
those assumptions and representations relating to the "continuity of interest,"
"control" and "continuity of business enterprise" requirements.
To satisfy the continuity of interest requirement, Kroll shareholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose of
or transfer so much of either (i) their Kroll Stock prior to the Merger or (ii)
their shares of O'Gara Common Stock to be received in the Merger (collectively,
"Planned Dispositions"), such that the Kroll shareholders, as a group, would no
longer have a substantial proprietary interest in the Kroll business being
conducted by O'Gara after the Merger. Planned Dispositions include, among other
things, shares disposed of pursuant to the exercise of dissenters' or appraisal
rights. Kroll shareholders will generally be regarded as having retained a
substantial proprietary interest as long as the shares of O'Gara Common Stock
received in the Merger (after reduction for any Planned Dispositions), in the
aggregate, represent at least 50% of the entire consideration received by the
Kroll shareholders in the Merger. To satisfy the "continuity of business
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enterprise" requirement, O'Gara must either (i) continue the historic business
conducted by Kroll, or (ii) use a significant portion of the historic business
assets of Kroll in a business. To satisfy the control requirement, Kroll
shareholders owning (1) at least 80% of the total voting power of all classes of
Kroll Stock entitled to vote, and (2) at least 80% of the total number of shares
of all other classes of Kroll Stock must exchange their shares of Kroll Stock
for shares of O'Gara Common Stock. For purposes of the control requirement, the
amount of stock constituting control is measured immediately before the
transaction, and therefore, is affected by the number of shares of Kroll Stock
voted against the merger by shareholders who thereafter exercise their appraisal
rights as dissenting shareholders and receive cash provided by O'Gara.
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure to satisfy the "continuity of interest" or "continuity of
business enterprise" requirements or otherwise) would result in a Kroll
shareholder recognizing gain or loss with respect to each share of Kroll Stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Effective Time of the Merger, of the
shares of O'Gara Common Stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the shares of O'Gara Common Stock so received
would equal their fair market value and the holding period for such shares would
begin the day after the Merger.
Holders of options to acquire shares of Kroll Stock granted pursuant to the
Kroll Holdings, Inc. Management Stock Option Plan (the "Kroll Management Stock
Option Plan") will not recognize income upon the conversion of the options into
options to purchase O'Gara Common Stock. Holders will recognize ordinary income
when the options are exercised in an amount equal to the difference between the
fair market value of the O'Gara Common Stock received upon exercise and the
exercise price of the options.
Holders of non-vested restricted shares of Kroll Stock awarded pursuant to
the Kroll Holdings, Inc. Restricted Stock Plan (the "Kroll Restricted Stock
Plan") will recognize ordinary income upon the exchange of such shares for fully
vested unrestricted shares of O'Gara Common Stock in an amount equal to the fair
market value of the O'Gara Common Stock received. No gain will be recognized,
however, if the holder of the restricted shares made a valid election pursuant
to Section 83(b) of the Code at the time the shares were awarded.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of O'Gara Common Stock received by Kroll shareholders in the
Merger will be freely transferable, except that shares of O'Gara Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Act) of Kroll prior to the Merger or O'Gara after the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Act (or Rule 144 in the case of persons who become
affiliates of O'Gara) or as otherwise permitted under the Act. Persons who may
be deemed to be affiliates of O'Gara or Kroll generally include individuals or
entities that control, are controlled by, or are under common control with, such
party and may include certain officers and directors of such party as well as
principal shareholders of such party.
O'Gara has agreed under certain circumstances to register for sale under
the Act shares of O'Gara Common Stock held by Jules B. Kroll, Thomas M. O'Gara
and AIG. See "THE MERGER AGREEMENT -- Registration Rights Agreements."
DISSENTERS' RIGHTS
O'Gara Shareholders. The following is a summary of the principal steps
which an O'Gara shareholder must take to perfect dissenters' rights under
Section 1701.85 of the OGCL. The summary is qualified in its entirety by
Sections 1701.84 and 1701.85 of the OGCL, copies of which are attached hereto as
Appendix D and incorporated herein by reference. Failure to take any one of the
required steps may result in termination of the rights of the shareholder under
the OGCL. If an O'Gara shareholder has a beneficial interest in O'Gara Common
Stock that is held of record in the name of another person, and such shareholder
desires to perfect whatever appraisal rights such beneficial shareholder may
have, such beneficial shareholder must act promptly to cause the shareholder of
record timely and properly to follow the steps summarized below. Any holder of
shares of O'Gara Common Stock who is considering dissenting should consult his
or her legal advisor.
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Exercise of dissenters' rights under the OGCL may result in a judicial
determination that the "fair cash value" of the dissenting shareholder's shares
is higher, the same, or lower than the market value of the shares of O'Gara
Common Stock on the date of the Merger.
A holder of shares of O'Gara Common Stock which are not voted for adoption
of the Merger Agreement may be entitled, if the Merger is consummated, to be
paid the "fair cash value" of such shares held of record on the record date. Any
O'Gara shareholder who is eligible to, and does, exercise his or her dissenters'
rights with respect to the Merger is referred to herein as an "O'Gara Dissenting
Shareholder," and the shares of O'Gara Common Stock with respect to which such
rights are exercised are referred to herein as "O'Gara Dissenting Shares." An
O'Gara Dissenting Shareholder must serve a written demand for the "fair cash
value" of the shares of O'Gara Common Stock held by such O'Gara Dissenting
Shareholder upon O'Gara on or before the tenth day after the shareholder vote
adopting the Merger Agreement and must otherwise comply with Section 1701.85 of
the OGCL. O'Gara will not inform shareholders of the expiration of the ten-day
period and therefore dissenting shareholders are advised to retain this Proxy
Statement/Prospectus. A vote for adoption of the O'Gara Proposal and the Merger
Agreement constitutes a waiver of dissenters' rights. Submission of a properly
executed Proxy Card without a designation of "against" or "abstain" will
constitute a vote for the O'Gara Proposal including the Merger. Failure to vote
does not constitute a waiver of dissenters' rights. The required written demand
must specify the shareholder's name and address, the number of O'Gara Dissenting
Shares held of record on the record date and the amount claimed as the "fair
cash value" of the shares. Voting against adoption of the O'Gara Proposal will
not of itself constitute a written demand as required by Section 1701.85 of the
OGCL.
If O'Gara requests, O'Gara Dissenting Shareholders must submit their O'Gara
Dissenting Share certificates to O'Gara within 15 days after the making of such
request for endorsement thereon by O'Gara of a legend that demand for appraisal
has been made. Such certificates will be returned promptly to the O'Gara
Dissenting Shareholders by O'Gara. O'Gara intends to make such a request to
O'Gara Dissenting Shareholders.
If O'Gara and any O'Gara Dissenting Shareholder cannot agree on the "fair
cash value" of the O'Gara Dissenting Shares held by such O'Gara Shareholder,
either may, within three months after service of the demand by the shareholder,
file a complaint in the Court of Common Pleas of Butler County, Ohio (the
"Court"), for a determination of the "fair cash value" of such O'Gara Dissenting
Shareholder's O'Gara Dissenting Shares. The Court, if it determines that such
O'Gara Dissenting Shareholder is entitled to be paid the "fair cash value" of
the O'Gara Dissenting Shares, may appoint one or more appraisers to determine
its value. If the Court approves the appraisers' report, judgment will be
entered therefor, and the costs of the proceeding, including reasonable
compensation to the appraisers, shall be assessed or apportioned as the Court
considers equitable. "Fair cash value" is the amount which a willing seller,
under no compulsion to sell, would be willing to accept, and which a willing
buyer, under no compulsion to purchase, would be willing to pay, but in no event
in excess of the amount specified in the O'Gara Dissenting Shareholder's demand.
"Fair cash value" is determined as of the day prior to that on which the
shareholder vote is taken at the Special Meeting and would exclude any
appreciation or depreciation in market value of O'Gara Dissenting Shares
resulting from the Merger. O'Gara does not intend to file such a complaint.
Therefore, an O'Gara Dissenting Shareholder must timely file such a complaint to
protect his rights to a judicial determination under the OGCL.
The right of any O'Gara Dissenting Shareholder to be paid the "fair cash
value" of the O'Gara Dissenting Shares will terminate if: (i) for any reason the
Merger, although adopted by shareholder vote, does not become effective; (ii)
the O'Gara Dissenting Shareholder fails to serve an appropriate timely written
demand upon O'Gara; (iii) the O'Gara Dissenting Shareholder does not, upon
request of O'Gara, timely surrender certificates for an endorsement thereon of a
legend to the effect that demand for the "fair cash value" of such O'Gara
Dissenting Shares has been made; (iv) the demand is withdrawn by the O'Gara
Dissenting Shareholder, with the consent of the O'Gara Board; (v) O'Gara and the
O'Gara Dissenting Shareholder shall not have come to an agreement as to the
"fair cash value" of the O'Gara Dissenting Shares and neither shall have filed a
complaint in the Court as described above; or (vi) the O'Gara Dissenting
Shareholder has otherwise not complied with the requirements of Section 1701.85
of the OGCL.
From the time an O'Gara Dissenting Shareholder's demand is made until the
termination of the right arising from that demand, all rights accruing from such
O'Gara Dissenting Shares, including dividend and voting rights,
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shall be suspended. If, during such suspension, any cash dividend is paid with
respect to O'Gara Common Stock, an amount equal to such dividend is to be paid
to the holder of record of the O'Gara Dissenting Shares as a credit upon the
fair cash value thereof. If the right to receive "fair cash value" is terminated
other than by purchase by O'Gara of the O'Gara Dissenting Shareholder's O'Gara
Dissenting Shares, all such O'Gara Dissenting Shareholder's rights with respect
to O'Gara Dissenting Shares shall be restored to the O'Gara Dissenting
Shareholder.
Kroll Shareholders. The following summary of the provisions of Section 262
of the DGCL ("Section 262") is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to the full text of
Section 262, a copy of which is attached hereto as Appendix E and incorporated
herein by reference.
If the Merger is approved by the required vote of Kroll and O'Gara
shareholders and the Merger becomes effective, and a holder of Kroll Stock
exercises appraisal rights in connection with the Merger under Section 262, any
shares of Kroll Stock with respect to which such appraisal rights have been
exercised and perfected will not be converted into O'Gara Common Stock but,
instead, will be converted into the right to receive such consideration as may
be determined by the Delaware Court of Chancery (the "Delaware Court") to be due
with respect to such shares pursuant to the DGCL. This discussion and Section
262 of the DGCL should be reviewed carefully by any shareholder who wishes to
exercise statutory appraisal rights or wishes to preserve the right to do so
since failure to comply with the required procedures will result in the loss of
such rights. A Kroll shareholder who votes for the adoption and approval of the
Merger will be deemed to have waived such shareholder's right to exercise
appraisal rights with respect to all shares of Kroll Stock held by such
shareholder. Any holder of shares of Kroll Stock who is considering dissenting
should consult his or her legal advisor. If a Kroll shareholder has a beneficial
interest in shares of Kroll Stock that are held of record in the name of another
person, and such shareholder desires to perfect whatever appraisal rights such
beneficial shareholder may have, such beneficial shareholder must act promptly
to cause the shareholder of record timely and properly to follow the steps
summarized below.
The shareholders of record of shares of Kroll Stock which are eligible to,
and do, exercise their appraisal rights with respect to the Merger are referred
to herein as "Kroll Dissenting Shareholders," and the shares of Kroll Stock with
respect to which they exercise appraisal rights are referred to herein as "Kroll
Dissenting Shares." If the Merger is consummated, the Kroll Dissenting
Shareholders will be entitled, if they strictly comply with the provisions of
the DGCL, to have the "fair value" of their shares of Kroll Stock judicially
determined and paid to them. To exercise appraisal rights, a shareholder must
(i) file with Kroll, before the taking of the shareholders' vote on the approval
and adoption of the Merger Agreement and the Merger at the Kroll Meeting, a
written objection to the Merger Agreement and the Merger stating the intention
of such shareholder to demand payment for Kroll Stock owned by such shareholder
if the Merger Agreement and the Merger are adopted and approved and the Merger
becomes effective, and (ii) the shareholder must not vote in favor of the Merger
Agreement and the Merger. A vote in favor of the Merger Agreement and the Merger
will waive such shareholder's appraisal rights. However, a shareholder's failure
to vote on the Merger Agreement and the Merger will not in itself be a waiver of
such holder's appraisal rights. A designation of proxy or vote against the
Merger Agreement and the Merger does not, alone, constitute a demand. A
shareholder who dissents and demands appraisal rights must do so as to all
shares of Kroll Stock owned by such shareholder.
Within 120 days after the Effective Time, Kroll or any shareholder who gave
notice, before the taking of the shareholders' vote on the Merger Agreement and
the Merger at the Kroll Meeting, of such shareholder's objection to the Merger
Agreement and the Merger and who did not vote in favor of the Merger Agreement
and the Merger and who otherwise complied with the DGCL, may (i) file a petition
in the Delaware Court demanding a determination of the value of the Kroll
Dissenting Shares of all such shareholders and (ii) upon written request,
receive from the surviving corporation a statement setting forth the aggregate
number of shares of Kroll Stock not voted in favor of the Merger and the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Kroll does not intend to file
such a petition. Upon the filing of any such petition by a shareholder, a copy
must be served on Kroll.
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If a petition for an appraisal is timely filed, at a hearing on such
petition, the Delaware Court is required to determine the holders of Kroll
Dissenting Shares entitled to appraisal rights and to determine the "fair value"
of the Kroll Dissenting Shares, taking into account all relevant factors,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any.
Any holder of Kroll Dissenting Shares who has demanded an appraisal under
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or to receive payment of dividends or
other distributions on such Kroll Dissenting Shares (except dividends or other
distributions, if any, payable to shareholders of record as of a date prior to
the Effective Time).
The shares of any Kroll shareholder who demands appraisal under Section 262
and subsequently withdraws or loses his, her or its right to appraisal will be
converted into a right to receive that number of shares of O'Gara Common Stock
as is determined in accordance with the Merger Agreement. A shareholder will
effectively lose a right to appraisal if he, she or it fails to file a written
objection prior to the vote or votes, or executes and delivers a proxy, in favor
of the approval of the Merger Agreement, if no petition for appraisal is filed
within 120 days after the Effective Time, or if the holder withdraws such
holder's demand for appraisal within 60 days after the Effective Time. A holder
of stock represented by certificates may also lose his, her or its right to
appraisal if such holder fails to comply with the Delaware Court's direction to
submit such certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings. All court costs, including
appraisers' fees, shall be allocated by the Delaware Court in a manner it
determines to be fair and equitable.
REGULATORY REQUIREMENTS
Other than the effectiveness of the Registration Statement, no material
federal or state regulatory requirements must be complied with or regulatory
approval obtained in connection with the Merger.
MERGER EXPENSES AND FEES AND OTHER COSTS
O'Gara and Kroll estimate that they will incur direct transaction costs of
approximately $3.5 million associated with the Merger. All of such costs will be
charged against operations in the accounting period in which the Effective Date
occurs. O'Gara anticipates incurring additional costs and expenses relating to
integrating the companies. Except to the extent these costs are capitalized,
they will also be charged against operations as they are incurred. Such costs
cannot be reasonably determined at this time.
Whether or not the Merger is consummated, each of O'Gara and Kroll will
bear its own costs and expenses in connection with the Merger. O'Gara has paid
to Dillon Read for its services in rendering the Dillon Read Opinion a fee of
$450,000. Kroll has paid to DLJ for its services a fee of $100,000 and has
agreed to pay DLJ an additional fee of $1.2 million ($200,000 of which will be
paid by Jules B. Kroll) upon the Closing. DLJ has also rendered services to
O'Gara in connection with the Merger, for which O'Gara has agreed to pay DLJ
$200,000 upon the closing of the Merger. O'Gara has also agreed to pay Brausch,
upon the Closing, a fee of $500,000 for its services. Each of O'Gara and Kroll
has also agreed to reimburse the reasonable expenses of the advisors mentioned
in this paragraph, and to indemnify them against certain liabilities, in
connection with their respective engagements.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full and complete text of the
Merger Agreement. Capitalized terms used herein without definition have the
respective meanings assigned to them in the Merger Agreement.
The Merger. Pursuant to the Merger Agreement and subject to its terms and
conditions, Newco will be merged with and into Kroll. As a result of the Merger,
Kroll will become a wholly owned subsidiary of O'Gara and all of the Kroll Stock
(with certain exceptions described below) will be converted into O'Gara Common
Stock.
Subject to the terms and conditions of the Merger Agreement, the Closing
will be held as soon as practicable after the shareholders of O'Gara, Newco and
Kroll approve the Merger, but in no event more than 10 business days after such
approval. The Effective Time will occur, and the Merger will become effective,
as of the close of business on the date that a certificate of merger is filed
with the office of the Secretary of State of the State of Delaware.
Conversion of Kroll Stock. Pursuant to the Merger Agreement, upon the
consummation of the Merger, each share of Kroll Stock issued and outstanding
immediately prior to the Effective Time (other than shares held in the treasury
of Kroll or owned by O'Gara or Newco and other than Dissenting Shares) will be
converted into that number of fully paid and nonassessable shares of O'Gara
Common Stock equal to one times the Share Conversion Multiplier. The Share
Conversion Multiplier is a fraction, the numerator of which is 6,650,000, and
the denominator of which is equal to the sum of (1) the total number of shares
of Kroll Stock issued and outstanding immediately prior to the Effective Time,
and (2) the total number of shares of Kroll Stock issuable pursuant to all
warrants, options and other stock issuance agreements (including conversion
rights under any instruments convertible into shares of Kroll Stock
(collectively the "Kroll Issuance Agreements")) existing immediately prior to
the Effective Time, assuming all of such Kroll Issuance Agreements are fully
exercisable and the rights of the holders thereof are fully vested therein and
in the stock issuable pursuant thereto. On the date of this Proxy
Statement/Prospectus, 106,367 shares of Kroll Stock were outstanding or subject
to Kroll Issuance Agreements. If the Merger had been consummated as of the date
of this Proxy Statement/Prospectus, each outstanding share of Kroll Stock would
have been converted into 62.52 shares of O'Gara Common Stock and each
outstanding right to purchase one share of Kroll Stock would have been converted
into a right to purchase 62.52 shares of O'Gara Common Stock at the same
aggregate purchase price.
Pursuant to the Merger Agreement, all Kroll Issuance Agreements will, to
the extent the shares of Kroll Stock issuable pursuant thereto have been
included in the denominator in determining the Share Conversion Multiplier, be
converted into the right to receive, upon exercise, subject to and in accordance
with the terms of such Kroll Issuance Agreements and further subject to payment
in full of the exercise price under such Kroll Issuance Agreements, that number
of shares of O'Gara Common Stock which is equal to the product of (i) the number
of shares of Kroll Stock issuable upon exercise of such Kroll Issuance
Agreements and (ii) the Share Conversion Multiplier. To the extent any Kroll
Stock issuable pursuant to a Kroll Issuance Agreement was not included in the
denominator of the Share Conversion Multiplier, such Kroll Issuance Agreement
will automatically be cancelled at the Effective Time and neither Kroll Stock
nor O'Gara Common Stock will thereafter be issued or issuable with respect to
such Kroll Issuance Agreement.
Exchange Procedure. Promptly after the Effective Time, O'Gara will mail to
each registered holder of a certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Kroll Stock (the "Kroll
Certificates") a letter of transmittal providing for the surrender of such Kroll
Certificates to O'Gara's transfer agent, The Fifth Third Bank, for exchange.
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY KROLL CERTIFICATES TO KROLL OR
O'GARA AT THIS TIME. KROLL SHAREHOLDERS SHOULD SEND KROLL CERTIFICATES TO
O'GARA'S TRANSFER AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE
INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
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Dividends. No dividends or other distributions with respect to O'Gara
Common Stock with a record date after the Effective Time will be paid to the
holder of an unsurrendered Kroll Certificate with respect to the shares of
O'Gara Common Stock represented thereby, and no cash payment in lieu of
fractional shares will be made to any such holder, in each case unless and until
the holder of record of such Kroll Certificate surrenders such Kroll
Certificate.
Fractional Shares. No fractional shares of O'Gara Common Stock will be
issued pursuant to the Merger. In lieu of any such fractional shares, cash equal
to the product of such fractional amount and the average of the last reported
prices per share of O'Gara Common Stock for the 10 consecutive trading days
ending with the last trading day prior to the Effective Time will be paid with
respect thereto.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by Kroll and Jules B. Kroll as to, among other
things, Kroll's: (i) organization, good standing and capitalization, (ii)
corporate authorization to conduct business and enter into the Merger Agreement,
(iii) Subsidiaries, (iv) stock options and similar arrangements, (v) financial
statements, (vi) liabilities, (vii) litigations and similar proceedings, (viii)
assets, (ix) operations since December 31, 1996, including the absence of any
material change therein, (x) tax status, (xi) insurance coverage, (xii)
contracts, (xiii) employee benefit plans, (xiv) defaults under contracts, (xv)
information about Kroll to be included in this Proxy Statement/Prospectus, (xvi)
compliance with law, (xvii) need to obtain approvals from governmental agencies
and others to consummate the Merger, (xviii) patents, trademarks and copyrights,
(xix) environmental law compliance, (xx) actions relating to the accounting
treatment of the Merger, (xxi) licenses and permits, (xxii) orders and
judgments, (xxiii) labor relations and (xxiv) use of a broker.
The Merger Agreement also contains customary representations and warranties
by O'Gara and Newco as to, among other things, their (i) organization, good
standing and capitalization, (ii) corporate authorization to conduct business
and enter into the Merger Agreement, (iii) Subsidiaries, (iv) stock options and
similar arrangements, (v) financial statements and filings made with the
Commission, (vi) liabilities, (vii) litigations and similar proceedings, (viii)
assets, (ix) operations since December 31, 1996, including the absence of any
material change therein, (x) tax status, (xi) insurance coverage, (xii)
contracts, (xiii) employee benefit plans, (xiv) defaults under contracts, (xv)
information to be included in this Proxy Statement/Prospectus, (xvi) compliance
with laws, (xvii) need to obtain approvals from governmental agencies and others
to consummate the Merger, (xviii) patents, trademarks and copyrights, (xix)
environmental law compliance, (xx) licenses and permits, (xxi) orders and
judgments, (xxii) labor relations, (xxiii) use of a broker and (xxiv) actions
relating to the accounting treatment of the Merger.
Covenants. Pursuant to the Merger Agreement, each of O'Gara and Kroll has
made various customary covenants relating to the Merger, including those
described below.
Registration of O'Gara Common Stock. Pursuant to the Merger Agreement,
O'Gara agreed to file with the Commission a registration statement on Form S-4
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Act relating to the O'Gara Common Stock to be issued in
the Merger and to use its commercially reasonable best efforts to cause it to be
declared effective as soon as practicable and to distribute this Proxy
Statement/Prospectus to the shareholders of O'Gara and Kroll as soon as
practicable thereafter. In furtherance thereof, Kroll and O'Gara agreed to
cooperate with each other and to furnish the information required to be included
in the Registration Statement.
Conduct of Business Pending the Merger. Each of Kroll and O'Gara has
agreed that, prior to the Effective Time, it and its Subsidiaries will operate
in all material respects in the ordinary course of business and each agreed to
use commercially reasonable best efforts to maintain its properties and
facilities, to retain its key employees and to maintain its material assets and
relationships with customers. Specifically, Kroll has agreed, among other
things, not to (i) declare any dividends or purchase any shares of Kroll Stock,
(ii) create or incur any indebtedness (except indebtedness of up to $1.0 million
to Jules B. Kroll) or incur any liability except in the ordinary course of
business, (iii) make any capital expenditure except as specified therein, (iv)
increase the rate of compensation of any officer or employee other than in the
ordinary course of business, (v) make any material contract not in the ordinary
course of business, (vi) default in any material respect under any material
contract, (vii) adopt, amend or terminate any employee benefit plan, (viii)
acquire, sell or lease any material asset,
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(ix) change any accounting principle, (x) make any material tax election, (xi)
pay any material claim or write off any material asset other than in the
ordinary course of business or (xii) take or agree to take any action which
would cause any condition to the Merger not to be satisfied.
O'Gara has agreed, among other things, not to (i) declare any dividends or
purchase any shares of O'Gara Common Stock, (ii) create or incur any liability
except in the ordinary course of business or increase its indebtedness by more
than $30.0 million, (iii) increase the compensation of its officers or employees
other than in the ordinary course of business, (iv) default in any material
respect under any material contract, (v) adopt, amend or terminate any employee
benefit plan, (vi) sell or lease any material asset, (vii) change any accounting
principle, (viii) make any material tax election with a material adverse effect,
(ix) take or agree to take any action which would cause any condition to the
Merger not to be satisfied, (x) make any material contract outside the ordinary
course of business with specified exceptions, (xi) write off any material asset
outside the ordinary course of business, or (xii) issue O'Gara Common Stock
except as permitted by the Merger Agreement.
Other Proposals. Kroll and Jules B. Kroll have agreed not to provide
information or participate in discussions or negotiations with respect to any
proposal for a merger involving Kroll or any of its Subsidiaries or any proposal
to acquire an equity interest in or a substantial portion of the assets of Kroll
or any of its Subsidiaries.
Repayment of Debt. O'Gara has agreed to cause Kroll to repay promptly
after the Effective Time certain of its indebtedness to Jules B. Kroll and all
of its indebtedness to AIG in an aggregate principal amount not to exceed $7.5
million.
Shareholders' Meetings. Each of O'Gara and Kroll has agreed duly to call
and hold the O'Gara Meeting and the Kroll Meeting, respectively, and to
recommend to its shareholders the approval of the Merger Agreement.
Indemnification. No claim for breach of the representations and warranties
by Kroll, Jules B. Kroll or O'Gara in the Merger Agreement will survive the
Effective Time. However, Jules B. Kroll has agreed in the Merger Agreement,
after the Effective Time and subject to certain conditions and time limitations,
to indemnify and hold O'Gara and Kroll harmless from any loss arising if (i) the
Registration Statement contains an untrue statement of a material fact regarding
any Kroll Matters or omits to state a material fact regarding any Kroll Matters
required to be stated therein or necessary to make the statements regarding
Kroll Matters not misleading, (ii) any written or oral communication by Kroll
Representatives to any holder of Kroll Stock who owns O'Gara Common Stock after
the Merger contains any such untrue statement or omission, unless Jules B. Kroll
can prove that the Kroll Representative did not know, and in the exercise of
reasonable care could not have known, of such untruth or omission or (iii) this
Proxy Statement/Prospectus includes any such untrue statement or omission,
unless Jules B. Kroll can prove that the Kroll Representative did not know, and
in the exercise of reasonable care could not have known, of such untruth or
omission.
Other Actions. Pursuant to the Merger Agreement, O'Gara, Newco, Kroll and
Jules B. Kroll have agreed to use their commercially reasonable best efforts to
cause the conditions to the Merger to be satisfied at the earliest practicable
date. O'Gara and Kroll have also agreed to provide each other with access to
their respective properties and records and to exchange certain tax information.
Conditions to the Merger. The obligations of O'Gara, Newco and Kroll to
consummate the Merger are conditioned on the fulfillment of the following: (i)
the receipt of all necessary governmental approvals, (ii) the Registration
Statement having become effective and the absence of any stop order suspending
the effectiveness of the Registration Statement or any threat thereof, (iii) the
absence of any temporary restraining order, injunction or other order preventing
the consummation of the Merger, and (iv) if requested by AIG, the election of an
individual nominated by AIG and reasonably acceptable to O'Gara as a director of
O'Gara.
The obligations of O'Gara and Newco to consummate the Merger are also
conditioned on the fulfillment of the following: (i) the representations and
warranties of Kroll and Jules B. Kroll being true and complete when made and
true and complete in all material respects at the Effective Time as if then
made, (ii) Kroll having performed in all material respects all of its
obligations under the Merger Agreement, (iii) receipt by O'Gara of an opinion of
Kramer, Levin, Naftalis & Frankel, counsel to Kroll, (iv) receipt by O'Gara of
"comfort letters" from Kroll's independent public accountants (if requested by
O'Gara), (v) receipt by O'Gara of an opinion of its
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independent public accountants confirming that the Merger will constitute a
pooling of interests for financial accounting purposes, (vi) receipt by the
O'Gara Board of the Dillon Read Opinion and such Opinion not being withdrawn,
(vii) approval of the Merger by the O'Gara shareholders at the O'Gara Meeting,
and (viii) receipt of specified consents under contracts between Kroll and third
parties.
The obligation of Kroll to consummate the Merger is also conditioned on the
fulfillment of the following: (i) the representations and warranties of O'Gara
and Newco being true and complete when made and true and complete in all
material respects at the Effective Time as if then made, (ii) O'Gara and Newco
having performed in all material respects all of their obligations under the
Merger Agreement, (iii) receipt by Kroll of an opinion of Taft, Stettinius &
Hollister, counsel to O'Gara, (iv) receipt by Kroll of "comfort letters" from
O'Gara's independent public accountants (if requested by Kroll), (v) receipt of
specified consents under contracts between O'Gara and third parties, (vi)
election of Jules B. Kroll as a director and Chief Executive Officer of O'Gara
effective as of the Effective Time, (vii) the absence of any strike involving
more than 20% of O'Gara's United States workforce and (viii) O'Gara not having
received notice of the termination of, or intent to terminate, the HMMWV
contract.
Termination of the Merger Agreement. The Merger Agreement may be
terminated (i) by Kroll or O'Gara, if the Merger is not consummated on or prior
to January 31, 1998, (ii) by agreement of O'Gara, Newco, Kroll and Jules B.
Kroll, (iii) by the O'Gara Board if any of the conditions to O'Gara's
obligations have not been satisfied prior to the Closing, or (iv) by the Kroll
Board if any of the conditions to Kroll's obligations have not been satisfied
prior to the Closing.
Stock Agreements. Pursuant to letter agreements dated August 8, 1997 (the
"Stock Agreements"), (i) each of Jules B. Kroll and AIG agreed to vote all
shares of Kroll Stock owned or otherwise controlled by him or it in favor of the
Merger and not to sell, transfer or pledge any of such shares prior to the
sooner of the termination of the Merger Agreement and the Effective Time, unless
the transferee agrees to be bound by such agreement, and (ii) Thomas M. O'Gara
agreed to vote all shares of O'Gara Common Stock owned or otherwise controlled
by him in favor of the Merger and not to sell, transfer or pledge any of such
shares prior to the sooner of the termination of the Merger Agreement and the
Effective Time, unless the transferee agrees to be bound by such agreement.
AIG's agreement was conditioned upon the execution by O'Gara and AIG of a
registration rights agreement as described below and to the recommendation by
the O'Gara Board of an AIG nominee for election as a director of O'Gara as of
the Effective Time.
Registration Rights Agreements. Pursuant to a letter agreement dated
August 8, 1997, Jules B. Kroll, Thomas M. O'Gara and O'Gara have agreed that if
after the Effective Time O'Gara registers any shares of O'Gara Common Stock
pursuant to the Act and any shares of O'Gara Common Stock owned by either Jules
B. Kroll or Thomas M. O'Gara are included therein, then O'Gara will also afford
to Thomas M. O'Gara or Jules B. Kroll, as the case may be, the opportunity to
include therein his shares of O'Gara Common Stock pro rata and otherwise on the
same terms and conditions.
Pursuant to the Stock Agreement with AIG, O'Gara has agreed to enter into a
registration rights agreement providing for one "demand" and unlimited
"piggyback" registration rights for AIG at the cost and expense of O'Gara (other
than underwriting discounts, if any) for a period of three years after the
Effective Time, subject to customary limitations with respect to underwriter
cutbacks, pending announcements or transactions involving O'Gara and other terms
and conditions as are customary and reasonably acceptable to AIG and O'Gara.
40
<PAGE> 47
THE SPECIAL MEETINGS
This Proxy Statement/Prospectus is furnished to holders of O'Gara Common
Stock in connection with the solicitation of proxies from them by the O'Gara
Board for use at the O'Gara Meeting. This Proxy Statement/Prospectus is also
being furnished to holders of Kroll Stock. Neither the O'Gara Board nor the
Kroll Board is soliciting proxies from the holders of Kroll Stock for use at the
Kroll Meeting and holders of Kroll Stock are requested not to send proxies to
the O'Gara Board or the Kroll Board.
THE O'GARA MEETING
Time and Place; Purpose. The O'Gara Meeting will be held at The Omni
Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio on November 14,
1997, starting at 9:00 a.m. local time. At the O'Gara Meeting, the shareholders
of O'Gara will be asked to consider and vote upon the O'Gara Proposal, the
O'Gara Option Proposal, the O'Gara Capitalization Proposal and such other
matters as may properly come before the O'Gara Meeting. Copies of the Merger
Agreement and the proposed Amended and Restated Articles of Incorporation of
O'Gara are included as Appendix A and Appendix B, respectively, to this Proxy
Statement/Prospectus.
Voting Rights; Votes Required for Approval. The O'Gara Board has fixed the
close of business on October 15, 1997 as the O'Gara Record Date. Only holders of
record of shares of O'Gara Common Stock on the O'Gara Record Date are entitled
to notice of and to vote at the O'Gara Meeting. As of the O'Gara Record Date,
there were 7,279,310 shares of O'Gara Common Stock outstanding and entitled to
vote held by approximately shareholders of record.
Each holder of record, as of the O'Gara Record Date, of O'Gara Common Stock
is entitled to cast one vote per share on each matter presented to shareholders.
The presence at the O'Gara Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of O'Gara Common Stock entitled to vote is
necessary to constitute a quorum at the O'Gara Meeting.
Under the OGCL and the O'Gara Articles, the affirmative vote at the O'Gara
Meeting, in person or by proxy, of the holders of a majority of the shares of
O'Gara Common Stock outstanding on the O'Gara Record Date is required to approve
and adopt the O'Gara Proposal and the O'Gara Capitalization Proposal. Under the
O'Gara Code and the OGCL, the affirmative vote of a majority of the shares of
O'Gara Common Stock represented at the O'Gara Meeting in person or by proxy and
entitled to vote on the O'Gara Option Proposal is required to approve the O'Gara
Option Proposal if a quorum is present. The O'Gara Common Stock has no
cumulative voting rights. O'Gara has not established a procedure for
confidential voting.
The O'Gara Proposal, the O'Gara Option Proposal and the O'Gara
Capitalization Proposal are not conditioned upon one another.
As of the O'Gara Record Date, directors and executive officers of O'Gara as
a group beneficially owned 4,760,016 shares of O'Gara Common Stock, or
approximately 65.4% of those shares of O'Gara Common Stock outstanding as of
such date. As of the O'Gara Record Date, Thomas M. O'Gara beneficially owned
4,041,838 shares of O'Gara Common Stock, or approximately 55.5% of those
outstanding. He has agreed to vote such shares in favor of the O'Gara Proposal.
Accordingly, it is expected that the O'Gara Proposal will be approved regardless
of the votes cast by other holders of O'Gara Common Stock. See "THE MERGER
AGREEMENT -- Stock Agreements."
If fewer shares of O'Gara Common Stock are voted in favor of the O'Gara
Proposal than the number required for approval, it is expected that the O'Gara
Meeting will be postponed or adjourned for the purpose of allowing additional
time for soliciting and obtaining additional proxies or votes, and, at any
subsequent reconvening of the O'Gara Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the O'Gara Meeting, except for any proxies that have theretofore effectively
been revoked or withdrawn.
Proxies. All shares of O'Gara Common Stock represented by properly
executed proxies received prior to or at the O'Gara Meeting and not revoked will
be voted in accordance with the instructions indicated in such
41
<PAGE> 48
proxies. If no instructions are indicated on a properly executed returned proxy,
such proxy will be voted FOR the O'Gara Proposal, FOR the O'Gara Option Proposal
and FOR the O'Gara Capitalization Proposal. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum, will not be voted. Accordingly, because the affirmative vote of a
majority of the shares of O'Gara Common Stock outstanding on the O'Gara Record
Date is required for approval of the O'Gara Proposal and the O'Gara
Capitalization Proposal, a proxy marked "ABSTAIN" will have the effect of a vote
against the O'Gara Proposal and the O'Gara Capitalization Proposal. In
accordance with applicable rules, brokers and nominees are precluded from
exercising their voting discretion on the O'Gara Proposal, the O'Gara Option
Proposal and the O'Gara Capitalization Proposal and thus, absent specific
instructions from the beneficial owner of such shares, are not empowered to vote
such shares with respect thereto. Because the affirmative vote of a majority of
the shares of O'Gara Common Stock outstanding on the O'Gara Record Date is
required for approval of the O'Gara Proposal and the O'Gara Capitalization
Proposal, a broker non-vote (i.e., shares held by brokers or nominees which are
represented at a meeting but with respect to which the broker or nominee is not
empowered to vote on a particular proposal) with respect to the O'Gara Proposal
or the O'Gara Capitalization Proposal will have the effect of a vote against the
O'Gara Proposal or the O'Gara Capitalization Proposal, respectively, but will
not be counted with respect to the O'Gara Option Proposal. Shares represented by
broker non-votes will, however, be counted for purposes of determining whether
there is a quorum at the O'Gara Meeting.
General. A shareholder of O'Gara may revoke his or her proxy at any time
prior to its use by delivering to the Secretary of O'Gara a signed notice of
revocation or a later dated signed proxy or by attending the O'Gara Meeting and
voting in person. Attendance at the O'Gara Meeting will not in itself constitute
the revocation of a proxy. The cost of solicitation of the O'Gara proxies will
be paid by O'Gara. In addition to solicitation by mail, proxies may be solicited
in person by directors, officers and employees of O'Gara without additional
compensation, and by telephone, telegram, teletype, facsimile or similar method.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy material to beneficial owners; and O'Gara will,
upon request, reimburse them for their reasonable expenses in so doing. To the
extent necessary in order to ensure sufficient representation at the O'Gara
Meeting, O'Gara may request by telephone or telegram the return of proxies. The
extent to which this will be necessary depends entirely upon how promptly
proxies are returned.
THE KROLL MEETING
Time and Place; Purpose. The Kroll Meeting will be held at The Omni
Netherland Plaza Hotel, Fifth and Race Streets, Cincinnati, Ohio, on November
14, 1997, starting at 11:00 a.m. local time. At the Kroll Meeting, the
shareholders of Kroll will be asked to consider and vote upon the Kroll Proposal
and such other matters as may properly come before the Kroll Meeting.
Voting Rights; Votes Required for Approval. The Kroll Board has fixed the
close of business on , 1997 as the Kroll Record Date. Only holders of
record of shares of Kroll Stock on the Kroll Record Date are entitled to notice
of and to vote at the Kroll Meeting. On the Kroll Record Date, there were 23,100
shares of Kroll Class A Common Stock outstanding and entitled to vote at the
Kroll Meeting held by one shareholder of record, AIG, and 74,446 shares of Kroll
Common Stock outstanding and entitled to vote at the Kroll Meeting held by
approximately shareholders of record.
Each holder of record, as of the Kroll Record Date, of Kroll Stock is
entitled to cast one vote per share. The presence at the Kroll Meeting, in
person or by proxy, of the holders of a majority of the outstanding shares of
Kroll Stock entitled to vote is necessary to constitute a quorum at the Kroll
Meeting.
Under the DGCL, the affirmative vote, in person or by proxy, of the holders
of a majority of the shares of Kroll Stock outstanding on the Kroll Record Date
and entitled to vote on the Kroll Proposal and, in addition, the affirmative
vote of the holders of a majority of the shares of Kroll Class A Common Stock,
are required to approve and adopt the Kroll Proposal.
As of the Kroll Record Date, directors and executive officers of Kroll who
will be directors or executive officers of O'Gara after the Merger, as a group,
beneficially owned 60,920 outstanding shares of Kroll Common Stock, or
approximately 81.8% of those shares outstanding on that date, and AIG
beneficially owned all of the
42
<PAGE> 49
outstanding Kroll Class A Common Stock. As of the Kroll Record Date, Jules B.
Kroll and AIG owned an aggregate of 82,041 shares of Kroll Stock, approximately
84.1% of those outstanding. Jules B. Kroll and AIG have agreed to vote such
shares of Kroll Stock in favor of the Kroll Proposal. Accordingly, it is
expected that the Kroll Proposal will be approved regardless of the votes cast
by other holders of Kroll Stock. See "THE MERGER AGREEMENT -- Stock Agreements."
If fewer shares of Kroll Stock are voted in favor of the Kroll Proposal
than the number required for approval, it is expected that the Kroll Meeting
will be postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining proxies or additional votes.
HOLDERS OF KROLL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING KROLL
STOCK TO KROLL OR O'GARA AT THIS TIME. IF THE MERGER IS APPROVED, A LETTER OF
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING KROLL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. KROLL
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING KROLL STOCK TO THE TRANSFER
AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS
CONTAINED IN THE LETTER OF TRANSMITTAL.
43
<PAGE> 50
MARKET PRICES AND DIVIDENDS
Price Range Of O'Gara Common Stock. Following the Offering at $9.00 per
share, the O'Gara Common Stock commenced trading on the Nasdaq National Market
under the symbol OGAR. The following table sets forth, for the periods
indicated, the high and low sale prices for the O'Gara Common Stock as reported
on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
Fourth Quarter (from November 13, 1996)........... $ 9.75 $8.625
1997
First Quarter..................................... $13.25 $ 9.50
Second Quarter.................................... $12.75 $9.625
Third Quarter (through , 1997)..........
</TABLE>
On August 7, 1997, the last full trading date preceding public announcement
of the Merger, the last reported sale price of the O'Gara Common Stock on the
Nasdaq National Market was $12.75 per share. On , 1997, the most
recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the last reported sale price per share of the O'Gara
Common Stock on the Nasdaq National Market was $ . As of the O'Gara
Record Date, there were approximately record holders of the outstanding
shares of O'Gara Common Stock.
Kroll Stock. There is no established market for the Kroll Stock.
HOLDERS OF KROLL STOCK AND O'GARA COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR O'GARA COMMON STOCK PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
Dividend Policy. O'Gara anticipates that any future earnings will be
retained to finance O'Gara's operations and for the growth and development of
its business. Accordingly, O'Gara does not anticipate paying cash dividends on
O'Gara Common Stock in the foreseeable future. Additionally, the terms of
O'Gara's Senior Notes and the credit agreement with its bank require maintenance
of certain financial ratios which may limit the funds available for cash
dividends. If and when permitted, the payment of any future dividends will be
subject to the discretion of the O'Gara Board and will depend on O'Gara's
results of operations, financial position and capital requirements, general
business conditions, restrictions imposed by financing arrangements, if any,
legal restrictions on the payment of dividends and other factors the O'Gara
Board deems relevant.
44
<PAGE> 51
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to
O'Gara's consolidated statements of operations for each of the three years in
the period ended December 31, 1996, and with respect to O'Gara's consolidated
balance sheets at December 31, 1995 and 1996, are derived from the audited
consolidated financial statements of O'Gara, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
included elsewhere in this Proxy Statement/Prospectus. The selected historical
financial data set forth below with respect to O'Gara's consolidated statement
of operations for the year ended December 31, 1993 and with respect to O'Gara's
consolidated balance sheet at December 31, 1994 are derived from the audited
consolidated financial statements of O'Gara which have been audited by Arthur
Andersen LLP, independent public accountants, not included in this Proxy
Statement/Prospectus. The selected historical financial data set forth below
with respect to O'Gara's consolidated balance sheets at December 31, 1992 and
1993 and O'Gara's consolidated statement of operations for the year ended
December 31, 1992 are derived from the unaudited consolidated financial
statements. The selected historical financial data set forth below with respect
to the consolidated statement of operations of Kroll for the period ended
December 31, 1996 and with respect to Kroll's consolidated balance sheet at
December 31, 1996 are derived from the audited consolidated financial statements
of Kroll which have been audited by Deloitte & Touche LLP, independent public
accountants, as indicated in their report included elsewhere in this Proxy
Statement/Prospectus. The selected historical financial data set forth below
with respect to the consolidated statements of operations of Kroll for each of
the two years in the period ended December 31, 1995 and with respect to Kroll's
consolidated balance sheet at December 31, 1995 are derived from the audited
consolidated financial statements of Kroll which have been audited by KPMG Peat
Marwick LLP, independent public accountants, as indicated in their report
included elsewhere in this Proxy Statement/Prospectus. The selected historical
financial data set forth below with respect to the consolidated statement of
operations of Kroll for the year ended December 31, 1993 and with respect to
Kroll's consolidated balance sheets at December 31, 1993 and 1994 are derived
from audited consolidated financial statements of Kroll not included herein. The
summary historical combined financial data presented for Kroll in 1992 is that
of KAI. Kroll Holdings, Inc. commenced operations in June 1993.
The selected historical financial data for O'Gara for the six months ended
June 30, 1996 and 1997 are derived from the unaudited consolidated financial
statements of O'Gara included elsewhere in this Proxy Statement/Prospectus. The
selected historical financial data for Kroll for the six months ended June 30,
1996 and 1997 are derived from the unaudited consolidated financial statements
of Kroll included elsewhere in this Proxy Statement/Prospectus. In each case,
the unaudited consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, that each company considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
Operating results for O'Gara for the six months ended June 30, 1997 and for
Kroll for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year or future periods.
The data set forth below is qualified by reference to, and should be read
in conjunction with, the related consolidated financial statements and the notes
related thereto and "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and "KROLL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
45
<PAGE> 52
O'GARA SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997(3)
------- ------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $16,860 $21,054 $33,912 $32,817 $ 82,778 $41,521 $ 51,853
Cost of sales........................ 11,511 14,640 24,505 25,237 61,523 31,383 37,484
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 5,349 6,414 9,407 7,580 21,255 10,138 14,369
Selling and marketing expenses....... 2,432 1,933 2,736 3,628 4,810 2,159 3,794
General and administrative
expenses........................... 1,464 3,169 4,441 4,129 7,930 3,286 5,121
------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 1,453 1,312 2,230 (177) 8,515 4,693 5,454
Interest expense..................... (481) (269) (410) (842) (1,300) (613) (1,404)
Other income (expense), net.......... 92 (81) 60 (103) (38) (78) 329
------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest, provision for income
taxes and extraordinary item..... 1,064 962 1,880 (1,122) 7,177 4,002 4,379
Minority interest.................... -- -- -- -- -- -- (74)
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes and extraordinary
item............................. 1,064 962 1,880 (1,122) 7,177 4,002 4,305
Provision for income taxes(1)........ -- -- -- -- 518 -- 1,623
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item............................. 1,064 962 1,880 (1,122) 6,659 4,002 2,682
Extraordinary item, net of tax
benefit............................ -- -- -- -- -- -- 194
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 1,064 $ 962 $ 1,880 $(1,122) $ 6,659 $ 4,002 $ 2,488
======= ======= ======= ======= ======= ======= =======
Pro Forma earnings per share(1)...... $ 0.69
=======
Earnings per share................... $ 0.35
=======
Pro Forma weighted average shares
outstanding........................ 6,449,050
=======
Weighted Average shares
outstanding........................ 7,141,389
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................. $(4,468) $(2,238) $(1,999) $(4,094) $ 4,279 $ (616) $32,332
Net property, plant and equipment......... 2,236 2,622 2,945 3,171 4,925 3,669 9,083
Total assets.............................. 10,504 11,372 19,243 27,817 43,938 36,265 89,747
Total debt................................ 4,715 4,752 7,900 12,372 12,241 15,808 41,974
Shareholders' equity (deficit)............ (1,713) (1,023) 1,273 239 12,656 4,016 20,752
</TABLE>
- ---------------
(1) Prior to the Offering, O'Gara's business was conducted by the Related
Corporations, which were combined in the Reorganization on October 28, 1996.
The most significant of the Related Corporations had elected to be treated
as an S Corporation for federal and state income tax purposes, rather than
be taxed at the corporate level. Accordingly, the O'Gara Historical
Financial Data does not contain a provision for income taxes prior to 1996.
The provision for income taxes in 1996 reflects a tax provision for the
period subsequent to the Reorganization.
(2) The pro forma earnings per share present the pro forma effects on the
historical consolidated financial information reflecting certain
transactions as if they occurred on January 1, 1996. The pro forma
adjustments include amortization of intangible assets resulting from the
purchase of net assets of Palmer, the elimination of interest expense
relating to the retirement of bank debt and the application of corporate
income taxes to O'Gara's consolidated income before income taxes at an
effective rate of approximately 40%. See the Consolidated Statements of
Operations and Notes to O'Gara's Consolidated Financial Statements included
elsewhere in this Proxy Statement/Prospectus.
46
<PAGE> 53
(3) O'Gara completed certain acquisitions in the first quarter of 1997
(including the acquisition of Labbe, which was effective for accounting
purposes on January 1, 1997) and the results of the acquired entities are
included from the effective dates of their respective acquisitions in the
consolidated statement of operations as well as in the consolidated balance
sheet data as of June 30, 1997.
KROLL SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
TWELVE MONTHS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $57,144 $56,161 $52,872 $53,024 $70,883 $33,374 $36,746
Cost of sales............................. 29,181 31,024 31,684 35,206 47,900 21,772 21,073
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 27,963 25,137 21,188 17,818 22,983 11,602 15,673
Selling and marketing expenses............ 3,784 4,084 4,700 5,490 4,632 2,097 2,581
General and administrative expenses....... 17,273 16,301 18,076 16,788 18,350 8,689 9,513
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............... 6,906 4,752 (1,588) (4,460) 1 816 3,579
Interest expense.......................... (2,426) (2,423) (2,188) (1,970) (1,840) (950) (783)
Other income (expense), net............... 1,915 515 406 (282) 358 71 (135)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax provision
(benefit) and cumulative effect of
accounting
change................................ 6,395 2,844 (3,370) (6,712) (1,481) (63) 2,661
Provision (benefit) for income taxes(1)... 635 7,070 (1,751) (1,298) (679) (57) 1,326
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect of
accounting change..................... 5,760 (4,226) (1,619) (5,414) (802) (6) 1,335
Cumulative effect of accounting
change(2)............................... -- (295) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... $ 5,760 $(4,521) $(1,619) $(5,414) $ (802) $ (6) $ 1,335
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, (UNAUDITED)
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $15,630 $26,158 $16,510 $ 8,181 $ 6,321 $10,257 $ 3,838
Net property, plant and equipment......... 5,075 4,582 4,067 3,705 3,639 3,576 4,227
Total assets.............................. 39,639 48,179 44,659 38,950 37,296 38,703 37,414
Total debt................................ 21,643 20,622 19,666 18,543 15,173 18,124 14,597
Shareholders' equity...................... 5,126 11,362 9,803 4,418 4,212 4,376 3,019
</TABLE>
- ---------------
(1) Prior to 1993, Kroll had elected to be treated as an S Corporation for
federal and state income tax purposes and as such, income was allocable to
its shareholders for income tax purposes, rather than being taxed at the
corporate level. Income tax expense reflected in the consolidated statement
of operations for the year ended December 31, 1992 relates to those
jurisdictions which did not recognize Kroll's S Corporation status. During
1993, Kroll changed its tax filing status from an S to a C Corporation. The
deferred tax liability resulting from this tax status change has been
included in income tax expense for the year ended December 31, 1993.
(2) Effective January 1, 1993, Kroll adopted SFAS 109 and reported the
cumulative effect of a change in the method of accounting for income taxes
in the 1993 consolidated statement of operations.
(3) The summary historical combined financial data presented for Kroll in 1992
is that of KAI. Kroll Holdings, Inc. commenced operations in June 1993.
47
<PAGE> 54
O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
is based upon and should be read in conjunction with O'Gara's Consolidated
Financial Statements and Notes thereto, the selected consolidated financial data
and other financial data appearing elsewhere in this Proxy Statement/Prospectus.
GENERAL.
O'Gara is a leading provider of ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components.
These products are provided through O'Gara's principal subsidiary O'Gara-Hess &
Eisenhardt Armoring Company ("OHE") and certain other subsidiaries or divisions
which constitute its Security Hardware Products Group. Through O'Gara Satellite
Networks Limited ("OSN") and its other subsidiaries which constitute its
Security Systems Integration Group, O'Gara provides integrated satellite
communications systems to commercial and governmental clients and integrated
site protection security systems. In 1996, O'Gara began offering
security-related services, such as advanced driver training, background
clearances, business intelligence, country risk assessments, forensic auditing,
and force protection consulting through certain subsidiaries or divisions which
constitute its Security Services Group.
On November 15, 1996, O'Gara sold to the public 2,000,000 shares of O'Gara
Common Stock at $9.00 per share. On December 16, 1996, O'Gara sold an additional
48,000 shares under a partial exercise of the underwriters' over-allotment
option. The net proceeds from the Offering were used to finance certain
distributions to existing shareholders, to acquire O'Gara's leased Mexico City
manufacturing facility, and to pay initial installments for the acquisition of
Palmer. The balance of the proceeds was used to repay a portion of the
indebtedness of O'Gara.
On October 29, 1996, O'Gara acquired substantially all the assets of Palmer
of Mexico City, Mexico, for $1.2 million (including $0.2 million for a
non-competition agreement), most of which is payable over two years. Palmer is a
provider of security services such as advanced driver training, background
investigations, due diligence reports and forensic auditing, and reports its
revenue through O'Gara's Security Services Group. This acquisition provides an
entry into the security services industry and allows O'Gara's Mexico City based
subsidiary to offer an integrated line of security products.
On February 5, 1997, O'Gara completed the acquisition of all of the shares
of Next Destination of Salisbury, the United Kingdom, a distributor of high
technology products for the global positioning satellite and satellite
communication markets. The purchase price consisted of 170,234 shares of O'Gara
Common Stock and $1.75 million in seller-provided financing in the form of
secured three-year 6% promissory notes. Next Destination, which sells portable
satellite terminals offered by O'Gara, reports revenue through O'Gara's Security
Systems Integration Group.
On February 12, 1997, O'Gara completed the acquisition of all of the shares
of Labbe, a leading armorer of commercial and private vehicles headquartered in
Lamballe, France. The purchase price consisted of $10.7 million in cash and
376,597 shares of O'Gara Common Stock. The acquisition of Labbe has increased
substantially the level of commercial revenue generated by the Security Hardware
Products Group and enhanced O'Gara's competitive position due to an expanded
product line, which includes cash-in-transit vehicles and commercial truck
bodies, and penetration into new markets, such as Europe and Africa.
On March 24, 1997, O'Gara completed the acquisition of all of the shares of
ITI, a provider of advanced security training headquartered near Washington,
D.C. The purchase price consisted of $0.5 million in cash, 68,086 shares of
O'Gara Common Stock, and $1.2 million in seller-provided financing in the form
of unsecured two-year 10% promissory notes. ITI, which reports revenue through
O'Gara's Security Services Group, offers many new products, such as evasive and
defensive driver training, terrorist surveillance training, force protection
consulting and advanced weapons training not previously available from O'Gara.
48
<PAGE> 55
IMPACT ON OPERATIONS
O'Gara's operations have been or will be affected by several factors,
including: (i) revenue recognition and (ii) provision for income taxes in
connection with the termination of OHE's S Corporation status.
Revenue recognition. O'Gara's net sales from government contracts and most
commercial contracts are recognized using the percentage-of-completion method
calculated utilizing the cost-to-cost approach. Under this method, estimated
contract revenues are accrued based generally on the percentage that costs to
date bear to total estimated costs. Estimated contract losses are recognized in
full when determined. Accordingly, contract revenues and total cost estimates
are reviewed and revised periodically as the work progresses and as change
orders are approved, and adjustments based upon the percentage of completion are
reflected in contract revenues in the period when such estimates are revised. To
the extent that these adjustments result in an increase, a reduction or an
elimination of previously reported contract revenues, O'Gara would recognize a
credit or a charge against current earnings, which could be material. Contract
costs include all direct material and labor costs, along with certain overhead
costs allocated to contract production.
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it is concluded that such losses will occur.
Changes in estimated total contract costs will result in revisions to contract
revenue. The revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
Provision for income taxes. From 1988 until October 28, 1996, OHE was
treated as an S Corporation under Subchapter S of the Code and comparable
provisions of certain state tax laws. As a result, it paid no federal or state
income tax. O'Gara is a C Corporation and is responsible for federal and state
income taxes.
49
<PAGE> 56
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the items noted
as a percentage of net sales:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Security hardware products:
Military.................... 50.1% 45.6% 66.0% 72.4% 37.3%
Commercial.................. 48.6 48.2 22.1 18.4 45.6
Security systems
integration................. 1.3 6.2 11.8 9.2 15.1
Security services............. -- -- 0.1 -- 2.0
----- ----- ----- ----- -----
Total net sales..... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 72.3 76.9 74.3 75.6 72.3
----- ----- ----- ----- -----
Gross profit........ 27.7 23.1 25.7 24.4 27.7
Operating expenses:
Selling and marketing....... 8.1 11.0 5.8 5.2 7.3
General and
administrative........... 13.1 12.6 9.6 7.9 9.9
----- ----- ----- ----- -----
Operating income (loss)....... 6.5 (0.5) 10.3 11.3 10.5
Other income (expense):
Interest expense............ (1.2) (2.6) (1.6) (1.5) (2.6)
Other, net.................. 0.2 (0.3) -- (0.2) 0.5
----- ----- ----- ----- -----
Income (loss) before minority
interest, provision for
income taxes and
extraordinary item.......... 5.5 (3.4) 8.7 9.6 8.4
Minority interest............. -- -- -- -- 0.1
Provision for income taxes.... -- -- 0.6 -- 3.1
Extraordinary item, net of tax
benefit..................... -- -- -- -- 0.4
----- ----- ----- ----- -----
Net income (loss)............. 5.5% (3.4)% 8.0% 9.6% 4.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales. O'Gara's net sales in the first half of 1997 increased to $51.9
million, compared to $41.5 million for the first half of 1996, an increase of
25%. The increase in revenue, both in commercial armoring and overall, was due
primarily to the inclusion of operating results from acquisitions made by O'Gara
in the first quarter of 1997 (the "Acquisitions"), along with continued growth
in O'Gara's start-up operations, especially in Brazil and Mexico, partially
offset by a decrease in net sales of military products due to a return to more
normal levels of military production. The results of the entities acquired in
the Acquisitions are included from the effective dates of their respective
acquisition.
Net sales for the Security Hardware Products Group for the six months ended
June 30, 1997 were $43.0 million. This represented an increase of $5.3 million,
or 14%, over the six month period ended June 30, 1996. For the six months ended
June 30, 1997, net sales of commercial armoring products increased $16.1
million, or 210%, from $7.6 million to $23.7 million over the same period in
1996, and net sales of military products decreased $10.7 million, or 36%, from
$30.0 million to $19.3 million. The 1996 net sales of military products were
favorably affected by a request by the U.S. Government to accelerate the
armoring of HMMWVs and the manufacture of HMMWV armor kits. HMMWV armoring by
the Company returned to a non-accelerated level in 1997. In addition, the
acceleration of the HMMWV contract led to abnormally low levels of revenue in
commercial armoring in the second quarter of 1996 due to the diversion of the
workforce necessary to complete the military production schedule. Commercial
armoring at the affected subsidiaries returned to more normal levels in 1997.
For the six months ended June 30, 1997, net sales for the Security Systems
Integration Group were $7.8 million, an increase of $4.0 million or 104%, from
$3.8 million for the same period in 1996. This increase was
50
<PAGE> 57
due to the acquisition of Next Destination in the first quarter of 1997, along
with the continued development of security integration operations put in place
in 1996.
Net sales for the Security Services Group were $1.0 million for the six
months ended June 30, 1997. There were no net sales for the Security Services
Group in the first half of 1996. Revenue for 1997 is attributable to the
acquisition of Palmer in the fourth quarter of 1996 and ITI in the first quarter
of 1997.
Cost of sales. For the six months ended June 30, 1997, cost of sales
increased $6.1 million, or 19%, from $31.4 million in the six months ended June
30, 1996 to $37.5 million. The increase in cost of sales was due to increased
activity resulting from the Acquisitions.
Gross profit as a percentage of net sales was 27.7% for the six months
ended June 30, 1997, as compared to 24.4% for the same period in 1996. As
contracts are completed under percentage of completion accounting, actual cost
and gross profit may be revised from previously estimated amounts as a result of
O'Gara's performance in completing the requirements of each contract. Gross
profit was favorably affected in the six months ended June 30, 1997 by
adjustments resulting from contracts completed.
O'Gara continues to expect that future margin percentages will be higher
than experienced in 1995 and 1996 due to the effect of increased sales from
foreign subsidiaries and a more favorable mix of commercial revenue in
comparison with military revenue; however, it does not, in future periods,
expect to maintain the level of gross margin as a percentage of sales reached in
the first half of 1997.
Operating expenses. In the six months ended June 30, 1997, operating
expenses increased from $5.4 million in the six months ended June 30, 1996 to
$8.9 million, an increase of $3.5 million, or 64%. The dollar increase was
primarily attributable to an increased level of overhead expenses included in
O'Gara's operations resulting from the Acquisitions. Additionally, O'Gara
experienced an increase, from 13.1% in the first half of 1996 to 17.2% in the
first half of 1997, in the percentage of operating expenses compared to net
sales. This increase was primarily attributable to overhead put in place
throughout the organization to ensure the growth in commercial revenue seen in
1997, including investments made in its foreign subsidiaries. In addition,
corporate overhead requirements contributed to the increase. O'Gara currently
expects that total operating expenses will show an increase in 1997 in
comparison to 1996.
Interest expense. For the six months ended June 30, 1997, interest expense
increased $0.8 million, or 129%, to $1.4 million from $0.6 million for the same
period in 1996. The increase was a result of the financing to fund the
Acquisitions along with an increased amount of outstanding borrowings as result
of the sale of the Senior Notes (see "-- Liquidity and Capital Resources").
O'Gara expects interest expense will continue to be significantly higher in 1997
compared to 1996.
Other, net. Other, net income (expense) for the six months ended June 30,
1997 was $0.3 million of income, an increase of $0.4 million from the same
period in 1996. In the six months ended June 30, 1997, other, net income
(expense) includes the effect of an agreement reached by O'Gara with
International Electronics Engineering ("IEE") to sell O'Gara's exclusive rights
to distribute IEE's Passenger Presence Detection sensors in the North American
automotive market. These distribution rights, which sold for $0.4 million, gave
O'Gara the exclusive right to seek additional customers and receive commissions
based on sales of sensors designed to prevent automotive airbags from inflating
when an infant is in the front seat.
Income before provision for income taxes and extraordinary item. For the
six months ended June 30, 1997, income before provision for income taxes and
extraordinary item increased $0.3 million, or 8%, to $4.3 million from $4.0
million in the six months ended June 30, 1996. The increase in the net income is
the result of the inclusion of the operating results of the Acquisitions in
1997. The positive effect of the Acquisitions was partially offset by the
completion of the Up-Armored HMMWV acceleration contract in 1996 and subsequent
return to a more normal level of military production in 1997.
As a percent of net sales, income before provision for income taxes and an
extraordinary item decreased from 10% in the six months ended June 30, 1996 to
8% for the six months ended June 30, 1997. This decrease was a result of
operations put in place by O'Gara necessary to attain the growth in commercial
revenue which required the support of a more overhead intensive structure,
including requirements in personnel and facilities.
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<PAGE> 58
Provision for income taxes. The provision for income taxes was $1.6
million for the six months ended June 30, 1997. There was no provision for
income taxes recorded for the six month period ending June 30, 1996 due to OHE's
S Corporation status which was terminated on October 28, 1996 in conjunction
with the Reorganization.
Extraordinary item. As a result of new working capital arrangements put in
place by O'Gara (see "-- Liquidity and Capital Resources"), all prepaid fees
associated with the previous financing arrangements recorded by O'Gara were
charged against earnings as an extraordinary item in the second quarter of 1997.
The amount charged is shown net of applicable tax of $0.1 million.
1996 COMPARED TO 1995
Net sales. Net sales increased $50.0 million or 152.2% from $32.8 million
in 1995 to $82.8 million in 1996. Net sales of the Security Hardware Products
Group were $72.9 million for 1996, with military sales contributing $54.6
million and armored commercial vehicle net sales contributing $18.3 million. The
Security Systems Integration Group had net sales of $9.8 million in 1996
compared to $2.0 million in 1995. Net sales from O'Gara's satellite
communications business increased from $2.0 million in 1995 to $7.8 million in
1996, a change of 280.1%. Net sales of O'Gara's integrated site protection
services were $2.1 million in 1996. The Security Services Group, which commenced
offering services in late 1996, had net sales of $0.1 million for the year.
Although net sales in 1996 reflected the effect of the request to
accelerate Up-Armored HMMWV and HMMWV kit production, production levels and
military net sales figures returned to a non-accelerated level in 1997.
Cost of sales. Cost of sales in 1996 increased $36.3 million, or 143.8%,
from $25.2 million in 1995 to $61.5 million. The increase in cost of sales was
due to the increase in production levels. Gross profit as a percentage of net
sales was 25.7% for the year ended December 31, 1996 as compared to 23.1% for
the year ended December 31, 1995. Revenue recognized on new military contracts,
both U.S. and foreign, with a higher gross profit percentage than previously
experienced, contributed to the increase in gross profit percentage. O'Gara will
continue to pursue opportunities for sales of its military products. No
assurance can be given, however, that any new contract will contribute at the
gross profit level experienced in 1996. In general, the gross profit percentage
recognized on military contracts is lower than gross profit percentage
recognized on commercial contracts.
Gross profit percentage was favorably affected by an increase in net sales
from foreign subsidiaries, both in O'Gara's Security Hardware Products Group and
Security Systems Integration Group, where the gross profit percentages are
higher than have been experienced in other markets due to lower direct costs and
less developed competition. O'Gara expects the effect of net sales of foreign
subsidiaries to continue to have a positive effect on O'Gara's consolidated
gross margin percent until these markets become more competitive.
Operating expenses. Selling and marketing expenses for 1996 increased $1.2
million, or 32.6%, from $3.6 million in 1995 to $4.8 million. This increase was
primarily attributable to increases in personnel and advertising to implement
O'Gara's business strategy.
General and administrative expenses for 1996 increased $3.8 million, or
92.1%, from $4.1 million in 1995 to $7.9 million. This increase in
administrative expenses was due to the addition of professional employees and
associated infrastructure to support the increased level of business activity.
Both selling and general and administrative expenses will continue to
increase in total dollars as O'Gara acquires new businesses, expands into new
foreign markets and administers a more complex corporate environment.
Interest expense. Interest expense for 1996 was $1.3 million, an increase
of $0.5 million, or 54.4%, compared to $0.8 million for 1995. This was due to
increased borrowings necessary to finance increased production levels and new
operations. As a result of recent acquisitions and O'Gara's continued efforts to
expand into new foreign markets, interest expense will be significantly higher
than it has been in previous years.
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<PAGE> 59
Provision for income taxes. The provision for income taxes was $0.5
million in 1996. There was no provision for income taxes recorded in 1995 due to
OHE's S Corporation status.
1995 COMPARED TO 1994
Net sales. Net sales were $32.8 million for 1995, a decrease of $1.1
million, or 3.2%, compared to $33.9 million for 1994. The decrease in net sales
was primarily due to the late delivery of HMMWV chassis by a supplier which
resulted in a six-month delay in the armoring of HMMWVs for the U.S. Army Tank
and Automotive Armaments Command ("TACOM"). Such delay was principally
responsible for a decrease in net sales of military armoring products from $17.0
million in 1994 to $15.0 million for 1995, a decrease of $2.0 million or 12.0%.
Net sales of commercial armoring products decreased $0.7 million or 4.0% from
$16.5 million in 1994 to $15.8 million for 1995. Net sales of satellite
communications equipment and services increased $1.6 million or 358.3% from $0.4
million in 1994 to $2.0 million in 1995.
Cost of sales. Cost of sales was $25.2 million for 1995, an increase of
$0.7 million, or 3.0%, compared to $24.5 million for 1994. The increase in cost
of sales was primarily due to the absorption of manufacturing and material
overhead associated with the six-month delay in the armoring of the HMMWVs for
TACOM. Since production was expected to return to anticipated levels once the
delay period ended, O'Gara retained its trained manufacturing personnel and did
not temporarily reduce its head count. As a result of this delay and the
increased percentage of sales associated with military sales, which have a lower
gross profit margin than commercial sales, cost of sales as a percentage of net
sales increased to 76.9% for 1995 from 72.3% for 1994. In addition, engineering
expenses for OHE increased approximately $0.5 million to $1.1 million as a
result of the additional engineering requirements for the Up-Armored HMMWV
contract.
Selling and marketing. Selling and marketing expenses were $3.6 million
for 1995, an increase of $0.9 million, or 32.6%, compared to $2.7 million for
1994. This increase was primarily attributable to increased sales personnel and
travel expenses that were incurred to support OSN's growth.
General and administrative. General and administrative expenses were $4.1
million for 1995, a decrease of $0.3 million, or 7.0%, compared to $4.4 million
for 1994. Increases in personnel costs were offset by lower travel and insurance
costs.
Interest expense. Interest expense was $0.8 million for 1995, an increase
of $0.4 million, or 105.4%, compared to $0.4 million for 1994. This increase in
interest expense was due to additional borrowings to finance working capital
growth and the Up-Armored HMMWV contract.
LIQUIDITY AND CAPITAL RESOURCES
General. O'Gara historically has met its operating cash needs by utilizing
borrowings under its credit arrangements to supplement cash provided by net
income and depreciation and amortization.
Senior Notes. The Senior Notes, which were issued June 3, 1997 and mature
May 30, 2004, bear interest at a rate of 9.56%, subject to a step down of the
associated interest rate to a minimum of 8.56% if O'Gara meets certain defined
requirements. The Senior Notes also impose covenant restrictions on O'Gara's
operations, including limitations on dividends and priority debt, and
constraints on specific investments, as well as requirements relating to
O'Gara's reported net worth, fixed charges coverage and limitations on
outstanding debt. Of the $35.0 million in gross proceeds from the sale of the
Senior Notes, $26.2 million was used to pay off the term loan and revolver from
O'Gara's previous credit agreement. The payoff also resulted in the recognition
of an extraordinary charge against earnings for the bank fees associated with
the previous agreement.
Credit Facility. On May 30, 1997, O'Gara entered into a new credit
agreement with KeyBank. The new agreement provides for a revolving line of
credit of $4.5 million and a letter of credit facility of approximately $5.7
million. The revolving credit facility bears interest at the prime rate less
0.5%, or, at O'Gara's option, the LIBOR rate plus 2.0%. The credit agreement
also imposes requirements on O'Gara's reported fixed charge coverage ratio, net
worth and debt capitalization, along with certain restrictions on investments,
acquisitions and capital expenditures. To finance a portion of the costs of the
Merger, O'Gara expects to borrow an additional
53
<PAGE> 60
$14.0 million principal amount from KeyBank pursuant to a one-year term loan
bearing interest at % per annum.
The new credit agreement replaced a previous arrangement O'Gara entered
into on February 11, 1997, with The Fifth Third Bank and LaSalle National Bank.
The previous arrangement provided for (i) a one-year revolving line of credit of
up to $12.0 million, (ii) a five-year term loan in the amount of $16.0 million,
and (iii) a $5.5 million letter of credit facility.
On September 8, 1997, there were no borrowings outstanding under the new
revolving credit agreement. O'Gara believes that proceeds from the sale of the
Senior Notes and borrowings under the new credit facility and the term loan
facility, along with cash provided by net income and depreciation and
amortization, will be sufficient to fund O'Gara's operating cash requirements
for the next 12 months. O'Gara continues to review strategic opportunities and
other sources of working capital.
Cash flows from operating activities. Net cash used in operating
activities was $6.3 million and $1.2 million for the six months ended June 30,
1997 and 1996, respectively. This change was primarily due to increases in
accounts receivable as a result of the growth in business activity and a
reduction in accrued liabilities resulting from the close-out of certain
contracts with the U.S. Government.
Capital expenditures. Historically, O'Gara has limited its capital
expenditure requirements by leasing certain facilities and equipment. Capital
expenditures totaled $1.1 million for the six months ended June 30, 1997, and
$0.8 million for the same period in 1996. The new credit agreement limits annual
capital expenditures.
In addition to capital expenditures, O'Gara also used $7.6 million in net
cash in connection with the acquisition of Labbe and ITI in the first quarter of
1997.
Cash flows from financing activities. Net cash provided by financing
activities was $24.4 million and $3.1 million for the six months ended June 30,
1997 and 1996, respectively. The increase in 1997 was due primarily to issuance
of the Senior Notes executed in the second quarter of 1997.
Foreign operations. O'Gara attempts to mitigate the risks of doing
business in foreign developing countries by separately incorporating its
operations in such countries; entering into contracts providing for payment in
U.S. dollars instead of the local currency in certain instances; maintaining
reserves for credit losses; and maintaining insurance on equipment to protect
against losses related to political risks and terrorism. In addition, O'Gara
will, from time to time, attempt to mitigate the risk of doing business in a
foreign currency by utilizing futures contracts and other derivative financial
instruments.
Quarterly fluctuations. O'Gara's operations are not seasonal, but may
fluctuate on a quarterly basis as a result of the timing of contract costs. The
incurrence of contract costs and related production scheduling must be
responsive to specific customer delivery requirements, which may involve the
acceleration of deliveries under a contract at a customer's request, such as
occurred with the HMMWV contract in 1996. O'Gara's liquidity may be affected by
the payment terms of its contracts, including those with TACOM and certain
foreign governments.
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<PAGE> 61
KROLL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Kroll is based upon and should be read in conjunction with Kroll's
Consolidated Financial Statements and Notes thereto, the selected consolidated
financial data and other financial data appearing elsewhere in this Proxy
Statement/Prospectus.
GENERAL
Kroll believes that it is the largest company in the world providing a
broad array of corporate investigation, risk and crisis management and business
intelligence services on an international basis. See "BUSINESS OF KROLL."
Kroll's results of operations are based primarily on net sales generated
from fees it charges for corporate investigation services, risk and crisis
management services and business intelligence services. Kroll generally does not
have long term contracts with its clients and its ability to generate net sales
is dependent upon obtaining many new projects each year, most of which are of
relatively short duration. As a result, Kroll's net sales and net income from
year to year are not necessarily predictable and historically there has not been
a consistent year-to-year pattern of growth. See "RISK FACTORS -- Risk Factors
Relating to the Business of Kroll -- Fluctuations in Operating Results."
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED)
--------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................................... $33,374 $36,746
Cost of sales........................................... 21,772 21,073
Selling expenses........................................ 2,097 2,581
General and administrative expenses..................... 8,689 9,513
Interest expense........................................ 950 783
Other income (expense), net............................. 71 (135)
Income (loss) before provision (benefit) for taxes...... (63) 2,661
Provision (benefit) for taxes........................... (57) 1,326
Net income (loss)....................................... $ (6) $ 1,335
</TABLE>
Net sales. Net sales increased approximately $3.4 million, or 10%, from
$33.4 million for the six months ended June 30, 1996 to $36.7 million for the
six months ended June 30, 1997. This increase was primarily caused by increases
in net sales of Kroll's corporate investigation and business intelligence
services. Net sales increases for Kroll's services in Asia, Europe and Latin
America were partially offset by a decline in net sales of services in North
America.
Cost of sales. Cost of sales decreased approximately $0.7 million, or
3.2%, from $21.8 million for the six months ended June 30, 1996 to $21.1 million
for the six months ended June 30, 1997. This decrease was principally caused by
a write-off of approximately $2.5 million in uncollectible receivables in 1996
relating to services performed in earlier periods. Adjusted for this write-off,
cost of sales would have been 57.8% of net sales for the six months ended June
30, 1996 compared with 57.4% for the same period of 1997, resulting in a
comparable gross profit percentage of approximately 42.5% for both periods.
Kroll also added 34 professional staff members. In the short term, this increase
in staffing has resulted in certain training and orientation costs which have
caused a nominal increase in the cost of sales during the first six months of
1997.
Selling expenses. Selling expenses increased approximately $0.5 million,
or 23%, from $2.1 million for the six months ended June 30, 1996 to $2.6 million
for the six months ended June 30, 1997. This increase was
55
<PAGE> 62
primarily caused by an increase in personnel, principally temporary employees
utilized for special selling activities, and advertising expenses during the
first six months of 1997.
General and administrative expenses. General and administrative expenses
increased approximately $0.8 million, or 9.5%, from $8.7 million for the six
months ended June 30, 1996 to $9.5 million for the six months ended June 30,
1997. This increase was caused by personnel additions and an increase in other
expenses and equipment necessary to support increased business levels. Examples
of such additional expenses include an increase in rental expenses resulting
from the opening of offices in Singapore, Chicago, Illinois and Frankfurt,
Germany.
Interest expense. Interest expense decreased approximately $0.2 million or
17.6% from $1.0 million for the six months ended June 30, 1996 to $0.8 million
for the six months ended June 30, 1997. This was caused by a decrease in overall
debt to $14.6 million resulting from payment of the scheduled annual principal
debt service.
Other income (expense), net. Other income (expense), net, decreased $0.2
million from $0.1 million of income for the six months ended June 30, 1996 to
$0.1 million of expense for the six months ended June 30, 1997. This decrease
was caused by realized foreign currency transaction losses.
Income (loss) before provision (benefit) for taxes. Income (loss) before
provision (benefit) for taxes changed $2.8 million from a $0.1 million loss for
the six months ended June 30, 1996 to income of $2.7 million for the six months
ended June 30, 1997. This increase was primarily caused by increased net sales
and the approximate $2.5 million write-off of accounts receivable in the 1996
period which did not recur in the first six months of 1997.
Provision (benefit) for taxes. Provision (benefit) for taxes increased
approximately $1.4 million from a benefit of $0.1 million for the six months
ended June 30, 1996 to a provision of $1.3 million for the six months ended June
30, 1997. This increase was attributable to increased operating profits.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales.............................................. $53,024 $70,883
Cost of sales.......................................... 35,206 47,900
Selling expenses....................................... 5,490 4,632
General and administrative expenses.................... 16,788 18,350
Interest expense....................................... 1,970 1,840
Other income (expense), net............................ (282) 358
(Loss) before provision (benefit) for taxes............ (6,712) (1,481)
Provision (benefit) for taxes.......................... (1,298) (679)
Net (loss)............................................. $(5,414) $ (802)
</TABLE>
Net sales. Net sales increased approximately $17.9 million, or 33.7%, from
$53.0 million for the year ended December 31, 1995 to $70.9 million for the year
ended December 31, 1996. This increase was primarily due to an increase in net
sales of all of Kroll's services, particularly sales of services in North
America and principally the corporate investigations and business intelligence
services, which increased $12.3 million and $4.0 million, respectively. Kroll's
recently introduced Vendor Integrity Program (VIP) accounted for approximately
$1.0 million of the increase in net sales in 1996.
Cost of sales. Cost of sales increased approximately $12.7 million, or
36.1%, from $35.2 million for the year ended December 31, 1995 to $47.9 million
for the year ended December 31, 1996. Contributing to this increase was a
write-off of approximately $5.0 million in uncollectible receivables in 1996
relating to services provided in earlier periods. During 1996, Kroll added 66
professional and administrative staff members. This increase in staff members
was necessary to handle: (i) increased business activity; (ii) Kroll's new VIP
program; and (iii) the opening of offices in Beijing, China, New Delhi, India
and Sao Paulo, Brazil.
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<PAGE> 63
Selling expenses. Selling expenses decreased approximately $0.9 million,
or 15.6%, from $5.5 million for the year ended December 31, 1995 to $4.6 million
for the year ended December 31, 1996. This decrease was primarily attributable
to the use of lower cost information services for pre-marketing purposes during
1996, as well as reduced costs of temporary personnel who provided services to
Kroll during extensive marketing campaigns in 1995.
General and administrative expenses. General and administrative expenses
increased approximately $1.6 million, or 9.3%, from $16.8 million for the year
ended December 31, 1995 to $18.4 million for the year ended December 31, 1996.
This increase was caused by $0.5 million of additional rental expenses resulting
from the opening of three offices in Asia and Latin America, increases of
approximately $0.2 million in the costs of certain consulting services used by
Kroll and $0.9 million of increases related to higher personnel cost and fees
paid to retain consultants under agreements related to security and crisis
management services.
Interest expense. Interest expense decreased approximately $0.2 million,
or 6.6%, from $2.0 million for the year ended December 31, 1995 to $1.8 million
for the year ended December 31, 1996. This was caused by a decrease in overall
debt to $15.2 million resulting from principal payments.
Other income (expense), net. Other income (expense), net, increased
approximately $0.7 million from $0.3 million of expense for the year ended
December 31, 1995 to $0.4 million of income for the year ended December 31,
1996. This increase was primarily caused by a gain on sale of marketable
securities of $0.1 million and realized foreign currency transaction gains of
$0.3 million and a $0.2 million loss associated with certain joint venture
arrangements.
Loss before provision (benefit) for taxes. Loss before provision (benefit)
for taxes increased $5.2 million from a $6.7 million loss for the year ended
December 31, 1995 to a $1.5 million loss for the year ended December 31, 1996.
This increase was primarily caused by the increase in net sales and an improved
gross profit margin in 1996, after adjustment for the write-off of approximately
$5.0 million in accounts receivable in 1996 relating to services performed in
earlier periods.
Provision (benefit) for taxes. Provision (benefit) for taxes decreased
approximately $0.6 million, or 47.7%, from a $1.3 million benefit for the year
ended December 31, 1995 to a $0.7 million benefit for the year ended December
31, 1996. This decrease was attributable to increased operating profits.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................ $52,872 $53,024
Cost of sales............................................ 31,684 35,206
Selling expenses......................................... 4,700 5,490
General and administrative expenses...................... 18,076 16,788
Interest expense......................................... 2,188 1,970
Other income (expense), net.............................. 406 (282)
(Loss) before provision (benefit) for taxes.............. (3,370) (6,712)
Provision (benefit) for taxes............................ (1,751) (1,298)
Net (loss)............................................... $(1,619) $(5,414)
</TABLE>
Net sales. Net sales increased approximately $0.1 million, or 0.3%, from
$52.9 million for the year ended December 31, 1994 to $53.0 million for the year
ended December 31, 1995. This increase was primarily due to an increase in
Kroll's risk and crisis management services of $2.0 million offset by a decrease
in corporate investigations and business intelligence services of $1.9 million.
Cost of sales. Cost of sales increased approximately $3.5 million, or
11.1% from $31.7 million for the year ended December 31, 1994 to $35.2 million
for the year ended December 31, 1995. This increase was primarily caused by the
increase in the number of professional staff, causing an approximate $2.2
million increase in labor cost. In addition, a special allowance for doubtful
accounts was established for certain old international receivables.
Selling expenses. Selling expenses increased approximately $0.8 million or
16.8% from $4.7 million for the year ended December 31, 1994 to $5.5 million for
the year ended December 31, 1995. This increase was
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primarily attributable to increased personnel costs. In addition, approximately
$0.3 million of such increase resulted from the expanded use of pre-marketing
information gathering in an effort to expand Kroll's corporate client database.
General and administrative expenses. General and administrative expenses
decreased approximately $1.3 million, or 7.1%, from $18.1 million for the year
ended December 31, 1994 to $16.8 million for the year ended December 31, 1995.
This decrease resulted principally from a cost reduction program which
contributed approximately $0.8 million of the decrease. Additionally, a
reduction in certain foreign office rents contributed $0.2 million of the total.
Interest expense. Interest expense decreased approximately $0.2 million,
or 10.0%, from $2.2 million for the year ended December 31, 1994 to $2.0 million
for the year ended December 31, 1995. This decrease resulted from payments of
debt carrying a higher interest rate with the proceeds of loans carrying a lower
interest rate. In addition, overall debt was reduced by $1.1 million.
Other income (expense), net. Other income (expense), net, decreased
approximately $0.7 million from income of $0.4 million for the year ended
December 31, 1994 to $0.3 million of expense for the year ended December 31,
1995. This decrease in other income was primarily caused by a loss from a joint
venture arrangement and the sale of certain accounts receivable at a discount.
Loss before provision (benefit) for taxes. Loss before provision (benefit)
for taxes for the year ended December 31, 1995 was a loss of $6.7 million or a
decrease of $3.3 million over the loss before provision (benefit) for taxes for
the year ended December 31, 1994. This increased loss resulted from the
increased operating and administrative cost incurred in 1995 while net sales
remained flat compared with the prior year.
Provision (benefit) for taxes. Provision (benefit) for taxes benefit
decreased approximately $0.5 million, or 25.9%, from a $1.8 million benefit for
the year ended December 31, 1994 to a $1.3 million benefit for the year ended
December 31, 1995. This decrease was attributable to the provision of certain
tax reserves to cover open tax years and the mix of domestic and foreign source
income.
LIQUIDITY AND CAPITAL RESOURCES
General. Kroll historically has met its operating cash needs by cash
provided from operations, loans from its shareholders and other borrowings.
Shareholder debt at June 30, 1997 consists of $2.0 million principal amount
of indebtedness to AIG which is due on demand and bears interest at an annual
rate 2% in excess of the base rate of Citibank N.A. and $4.4 million due to
Jules B. Kroll. Of the amounts due to Jules B. Kroll, $3.0 million bears
interest at an annual rate 1% in excess of the prime rate and the balance bears
interest at the broker loan rate, currently 7.625% per annum. In addition to its
borrowing from its principal shareholders, Kroll's borrowing consists of a term
debt facility entered into in 1989 in the aggregate principal amount of $20.0
million. See "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL."
The outstanding balance on this term debt facility at June 30, 1997 was $8.1
million. The term debt facility bears interest at a fixed rate of 10.95% per
annum and provides for quarterly payments of interest and principal. The term
debt facility allows certain prepayments. The term debt facility contains
customary restrictive covenants which limit, among other items, Kroll's ability
to pay cash dividends, make cash distributions and incur additional
indebtedness. The term debt facility also requires that Kroll maintain certain
financial ratios. Compliance with certain of these covenants has been waived
through December 1, 1997. It is anticipated that this term debt facility will be
repaid upon the consummation of the Merger and that O'Gara will be required to
obtain sufficient alternative financing for Kroll.
Cash flows from operating activities. Kroll expects that it will be able
to meet its routine cash requirements from cash generated from operations. Net
cash provided by operating activities was $1.7 million, $8.1 million and $5.3
million for the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997, respectively.
Capital expenditures. Kroll has limited its capital expenditure
requirements by leasing its office facilities and computer equipment. Kroll
anticipates that it will be able to provide for any capital expenditures from
funds
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generated from operations. Capital expenditures totaled $0.5 million for the
year ended December 31, 1995, and $0.7 million for the year ended December 31,
1996.
Foreign operations. Kroll attempts to mitigate against the risks of doing
business in foreign countries by separately incorporating its operations in such
countries, transacting business in the local currency and maintaining, on a
global basis, insurance to cover professional liability and general liability,
in addition to local insurance coverage. See "RISK FACTORS -- Risk Factors
Relating to the Business of Kroll -- Political and Economic Risks of Doing
Business Outside of the United States."
Quarterly fluctuations. Kroll's operations are not seasonal, but may
fluctuate on a quarterly basis as a result of the transactional nature of a
significant portion of its business. See "RISK FACTORS -- Risk Factors Relating
to the Business of Kroll -- Fluctuations in Operating Results."
Inflation. Inflation has not been a significant factor to the results of
operations of Kroll. Kroll generally has been able to pass on the cost of
inflation to its clients.
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BUSINESS OF O'GARA
GENERAL
O'Gara is a worldwide integrated security company with three business
lines: security hardware products, security services and security systems
integration services. The Security Hardware Products Group markets all of
O'Gara's armoring products, including ballistic and blast protected armoring
systems for commercial and military vehicles, aircraft and missile components
through O'Gara's various O'Gara Hess & Eisenhardt Armoring subsidiaries and
Labbe. The Security Services Group offers security-related products and services
such as, advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting
through its Palmer division and its subsidiaries, ITI and O'Gara Security
Associates, Inc. ("OSA"). The Security Systems Integration Group offers
planning, design and hardware and software integration services which are
customized to meet specific portable satellite communications or navigation
needs of customers, as well as customized turn-key site security systems to
international customers, through its O'Gara Security International, Inc.
("OSI"), OSN and Next Destination subsidiaries.
Originally founded in 1876 as Sayers & Scovil, a manufacturer of
horse-drawn carriages, O'Gara evolved into a producer of specialized motor
vehicles. By the early 1900s, O'Gara changed its ownership and name to Hess &
Eisenhardt and focused on the development and construction of a broad range of
specialized consumer and commercial vehicles such as ambulances and hearses. In
the 1940s, O'Gara was commissioned by the U.S. Secret Service to design and
assemble the first armored presidential limousine which was used by President
Harry S Truman. O'Gara's Labbe subsidiary has protected every French president
since 1981. Labbe is the first and only armoring company to serve the French
presidency.
O'Gara now provides armored commercial vehicles for heads of state,
business executives and VIPs worldwide. Since 1993, O'Gara also has been the
primary provider of armoring systems for HMMWVs used by the U.S. Military and
other armed forces. O'Gara began offering satellite communication products in
1994 and site protection products and services in 1996 and, also in 1996, began
its expansion into other security-related services.
O'Gara's business today is increasingly being driven by the needs of (i)
multinational corporations to protect executives, corporate assets and
information in high risk countries; (ii) wealthy individuals to secure
themselves and their families from the growing threat of kidnappings worldwide;
(iii) worldwide military organizations to field a more versatile armored
vehicle, such as the HMMWV; (iv) governments to protect heads of state and
diplomats from terrorist attacks; (v) individuals to insulate themselves and
their property from planned criminal activity and random acts of violence; and
(vi) individuals, corporations and governments to obtain secure, remote or
independent telecommunications services.
BUSINESS STRATEGY
The principal elements of O'Gara's operating and growth strategy are as
follows:
Expand armored commercial vehicle sales in foreign markets. O'Gara intends
to expand its foreign market position as a leading provider of armored
commercial vehicles by leveraging its well recognized name, high quality
reputation and global network of customer relationships. To support this effort,
O'Gara acquired Labbe and established manufacturing operations in Brazil,
Mexico, the Philippines and Russia, has increased its sales and marketing
professionals from four at October 1985 to 39 at present and increased its
annual marketing budget from $0.7 million in 1995 to $1.6 million in 1997.
O'Gara believes that these efforts, coupled with the strong global demand for
armored commercial vehicles, will enable it to penetrate effectively these and
other markets. In the future, O'Gara intends to establish manufacturing
operations in additional countries as it deems appropriate.
Grow non-armoring security-related businesses. O'Gara's Security Services
Group offers security-related products and services such as site protection
surveys, business intelligence and investigation services, country risk
assessments and briefings, and forensic auditing. In addition, O'Gara offers a
wide range of sophisticated state-of-the-art training services including
advanced driver and protective operations training, force protection training
and consulting, crisis management training and advanced counterintelligence and
information security training.
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O'Gara, in 1997, acquired all of the shares of ITI, a leading domestic provider
of advanced driver training and other security services, and substantially all
of the assets of Palmer, a provider of driving training, business intelligence
and forensic auditing in Mexico.
O'Gara's Security Systems Integration Group is building on its rapidly
growing satellite communication and navigation business by offering a broader
array of products and services to existing hardware customers and to buyers in
new geographic markets. In order to expand the distribution channels for
O'Gara's telecommunication products, O'Gara acquired all of the shares of Next
Destination, a U.K. company headquartered in Salisbury, the United Kingdom,
which is one of the largest distributors of INMARSAT related portable satellite
telephone and communication hardware systems as well as global positioning
satellite systems in Europe. Additionally, the Security Systems Integration
Group offers a wide range of site protection products.
Expand foreign military sales. As the nature of armed conflicts changes
and worldwide military budgets are cut, O'Gara believes that expensive heavily
armored tracked vehicles will continue to be replaced by more versatile and less
expensive tactical wheeled vehicles ("TWVs"), such as the HMMWV. O'Gara markets
both Up-Armored HMMWVs and armor kits which may be added in the field to certain
existing HMMWVs. There currently exists an installed base of 130,000 HMMWVs,
including 18,400 owned by 31 foreign countries. O'Gara estimates that
approximately 12,000 of the HMMWVs in use worldwide are suitable for its armor
kits and believes a significant opportunity exists to market aggressively these
kits, internationally as well as domestically. O'Gara also believes that those
countries currently utilizing HMMWVs are candidates for future sales of the Up-
Armored HMMWV. For example, in 1996 O'Gara entered into contracts to provide
Up-Armored HMMWVs to two foreign countries, Luxembourg and Qatar.
Standardize production to improve efficiencies and reduce throughput
time. Since 1994, O'Gara has committed in excess of $4.0 million to
engineering, tooling, and training to standardize its product design, armoring
components, and assembly line operations. O'Gara has developed a standard
armored Chevrolet or GMC Suburban (the "Standard Suburban"), which has been
available since 1995, as well as a standard armored Mercedes Benz E-420, which
has been available since July 1997. O'Gara's efforts in this area have reduced
the number of employee work hours needed to produce the Up-Armored HMMWV from
465 to 265, and the number of components involved from 800 to 550, and have
reduced the number of employee work hours required to armor the Standard
Suburban from 1,200 to 500, and the number of components involved from 350 to
200. As a result of these efficiencies, O'Gara is able to provide rapid, and
sometimes immediate, delivery of these armored commercial vehicles, which O'Gara
believes increases substantially their attractiveness and marketability.
Pursue strategic acquisition opportunities. The fragmented nature of the
global security industry provides ample opportunities for strategic
acquisitions. O'Gara believes it is positioned to consolidate companies in the
armoring, security systems integration, security services, engineering and
secured satellite communications business. Since October 1996, O'Gara has made
four strategic acquisitions: one in vehicle armoring, one in satellite
communications and two in security services. O'Gara believes the Merger will
further this strategy. O'Gara continues to review additional acquisition
opportunities in each of these businesses.
PRODUCTS AND SERVICES
The following table presents the net sales of O'Gara's principal products
and services for the periods indicated:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Security hardware products
group.......................... $33,466 $30,773 $72,900 $37,682 $42,979
Security systems integration
group.......................... 466 2,044 9,823 3,839 7,830
Security services group.......... -- -- 55 -- 1,044
------- ------- -------- -------- -------
Total.................. $33,912 $32,817 $82,778 $41,521 $51,853
======= ======= ======== ======== =======
</TABLE>
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O'Gara's products and services are focused on three primary areas of global
security. The Security Hardware Products Group markets all of O'Gara's armoring
services, including ballistic and blast protected armoring systems for
commercial and military vehicles, aircraft and missile components. The Security
Services Group offers security-related products and services such as site
protection services, advanced driver training, background clearances, business
intelligence, country risk assessments, forensic auditing, force protection
consulting and private security guards. The Security Systems Integration Group
offers planning, design and hardware and software integration services which are
customized to meet specific satellite communications or navigation needs of
customers. The Security Systems Integration Group also distributes global
positioning satellite equipment.
SECURITY HARDWARE PRODUCTS GROUP
The following table provides net sales information about the products and
services of O'Gara's Security Hardware Products Group:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL PRODUCTS:
Fully armored vehicles......... $11,265 $11,024 $13,424 $ 4,842 $15,568
Light armored vehicles......... 2,953 2,213 3,889 2,253 2,143
Commercial truck bodies........ -- -- -- -- 5,184
------- ------- ------- ------- -------
Other.......................... 2,254 2,581 991 539 760
------- ------- ------- ------- -------
16,472 15,818 18,304 7,634 23,655
------- ------- ------- ------- -------
MILITARY PRODUCTS:
Up-Armored HMMWVs.............. 15,222 13,275 43,780 23,544 17,246
HMMWV armored kits............. -- -- 6,938 5,599 325
Other armor systems............ 1,772 1,680 3,878 905 1,753
------- ------- ------- ------- -------
16,994 14,955 54,596 30,048 19,324
------- ------- ------- ------- -------
Total.................. $33,466 $30,773 $72,900 $37,682 $42,979
======= ======= ======= ======= =======
</TABLE>
COMMERCIAL PRODUCTS
Fully armored vehicles (FAVs). The base vehicle that is converted into a
FAV may be a limousine, a large size sedan (such as a Cadillac, Mercedes Benz
S600 or Volvo S90) or a sport utility vehicle (such as the GMC/Chevrolet
Suburban) which is purchased new from a dealership or directly from the factory.
The armoring process begins with disassembly of the new vehicle at O'Gara's
production facilities. This disassembly typically involves the removal of the
interior trim, the seats, the doors and all windows. The passenger compartment
then is armored with both opaque armor (metallic, fibrous and ceramic materials)
and transparent armor (glass/plastic laminate) and other features, such as run
flat tires, are added. Finally, the vehicle is reassembled as close to its
original appearance as possible. The designation of FAV normally connotes the
ability of the completed vehicle to protect against attacks from military
assault rifles such as AK-47s and M16s and from certain underbody explosives.
Certain FAVs also are blast protected. A blast protected vehicle normally
incorporates the ballistic and underbody protection of an FAV but with
proprietary materials and installation methods that enable the vehicle occupants
to survive a defined blast threat. Typical types of protection defend against
pipe bombs attached to the exterior of the vehicle and non-directional charges
of 20 kg of TNT detonated approximately five meters from the vehicle. FAV
armoring normally sells for $50,000 to $200,000 exclusive of the cost of the
base vehicle.
The FAV class of vehicle includes the Parade Car, a formal limousine used
predominantly for high level, official functions by a president or other head of
state. This vehicle is usually of customized design based upon a commercially
available chassis which O'Gara essentially rebuilds from the ground up. Since
the threat of organized assassination attempts is greater for heads of state,
these vehicles normally incorporate more advanced
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armor and sophisticated protection systems. In addition to the more protective
opaque and transparent armor systems, special features may include supplemental
oxygen systems, air purification systems to protect against chemical or
biological contamination, underbody fire suppressant systems, tear gas
launchers, anti-explosive self-sealing fuel tanks, electric deadbolt door locks,
gun ports and remote-starters with bomb scanning capability. Parade Cars
normally sell for $300,000 to in excess of $1.0 million which includes the cost
of the base vehicle.
Light armored vehicles (LAVs). The armoring process for an LAV is similar
in all respects to that for an FAV except that substantially less total weight
of armoring is added. Typical base vehicles include the Volkswagon Jetta, the
General Motors Omega, the Mercedes Benz S600 and the Jeep Cherokee. The
designation of LAV connotes the ability of the completed vehicle to protect
against attacks from handguns, such as a 9 mm or .357 Magnum. The price of LAV
armoring ranges from $5,000 to $60,000 exclusive of the cost of the base
vehicle.
Commercial truck bodies. O'Gara's Labbe subsidiary builds commercial truck
bodies in its facilities in Lamballe, France. The bodies are primarily
manufactured for 3.5 ton trucks and are installed on chassis produced by a
variety of manufacturers. The bodies are manufactured under contracts with the
chassis manufacturers. The prices of the commercial truck bodies generally range
from approximately $2,000 to $25,000.
Specialty vehicles. Other commercial products include specialty vehicles
which are custom built for a specific mission. Vehicle types that fall into this
category are Escort Cars (usually a convertible) and Chase Cars (usually a
closed-top vehicle) in which security personnel ride while in a head of state
motorcade. Also included in this business line are armor kits, normally designed
for a specific vehicle to be installed at a location outside of O'Gara's main
production facilities in Fairfield, Ohio or Torino, Italy. These armor kits
usually provide LAV levels of protection. O'Gara also provides technical
support, training and spare parts for all of its manufactured products. O'Gara
can service a customer's vehicle in any of O'Gara's facilities. In certain
instances, O'Gara will fly its technicians to the customer's location.
Armored money transport vehicles. Cash-in-Transit ("CIT") money transport
vehicles are built in O'Gara's facilities in Lamballe, France. CIT vehicles
normally are used by banks or other businesses that transport large amounts of
hard currency. After starting with a van or small truck, the base vehicle is
modified to provide protection for the cargo and individuals attending the
vehicle from ballistic and blast threats. O'Gara believes that conditions in
many emerging growth countries, including Russia and China, will promote high
demand for these vehicles.
MILITARY PRODUCTS
Up-Armored HMMWVs. O'Gara is the prime contractor to the U.S. Military for
the supply of Up-Armored HMMWVs. The basic four door HMMWV chassis are produced
by AM General and shipped directly to O'Gara's facility where perimeter armor
and blast protection components are added. These Up-Armored HMMWVs provide
perimeter protection against 7.62 mm armor-piercing ammunition (such as that
fired by the AK-47 military assault rifle), overhead airburst protection against
a 155 mm shell, front underbody blast protection against a 12 lb. anti-tank mine
and rear underbody blast protection against a 4 lb. anti-personnel mine. In
addition, O'Gara installs other features designed to enhance crew safety,
comfort and performance, such as air conditioning, weapon turrets and mounts,
door locks and shock-absorbing seats. The customers for this product are TACOM,
as well as defense and peacekeeping forces around the world. O'Gara charges its
customers $70,000 to $100,000 for these ballistic and blast protective systems,
which is in addition to the cost of the vehicle. In addition to the products
described above, O'Gara supplies engineering design and prototype services to
TACOM primarily in support of the Up-Armored HMMWV Program. O'Gara also supplies
spare parts and logistics support for all of its military programs.
HMMWV armor kits. O'Gara supplies field-installable armoring kits to
TACOM. These kits are installable on HMMWVs which are currently in TACOM's
inventory as well as new HMMWV chassis that are delivered to O'Gara's
manufacturing facilities. Two kits are available. The two door armor kit
provides perimeter protection against 7.62 mm ball ammunition and underbody
blast protection against a 12 lb. anti-tank mine. The four door armor kit
provides the same perimeter and front underbody protection but adds rear
underbody blast protection against a 4 lb. antipersonnel mine. Customers for
this product are current owners of non-armored HMMWVs, which include TACOM, as
well as defense and peacekeeping forces around the world. At present, over
130,000
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HMMWVs have been sold worldwide, and O'Gara estimates that approximately 12,000
of these HMMWVs may be suitable for kit installation. These kits sell for
$18,000 to $30,000, without installation.
Other armor systems. O'Gara markets armor sub-systems for other TWVs such
as 2.5 ton and 5.0 ton trucks, for which the defined threat is from small arms
rounds, typically defined as 12.7 mm and less. O'Gara also produces various
armor systems as a subcontractor to larger defense contractors, such as Lockheed
Martin Corporation ("Lockheed Martin") and The Boeing Company. These products
include armor for containers for fuels and missile launchers, and for pilot
protection, and typically involve the use of materials or methods which are
unique to O'Gara.
SECURITY SERVICES GROUP
O'Gara is leveraging its reputation in the armored vehicle industry and its
customer base to market an expanded range of security products and services such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing and force protection consulting. The
acquisitions of Palmer and ITI have increased the revenues generated from
O'Gara's Security Services Group from $0.1 million in 1996 to $1.0 million in
the first six months of 1997.
Driver training. O'Gara now offers comprehensive driver training programs
through its ITI subsidiary at its various facilities around the world.
Additionally, in June 1997, ITI acquired property near San Antonio, Texas to
open a new Force Protection Institute. In addition to a full range of driver and
protection operations training, this new facility specializes in force
protection training and related issues. O'Gara believes that its driver training
courses offer excellent cross selling opportunities for its other products and
services such as armored vehicles and its communication/navigation products and
are an essential element of a comprehensive security plan.
Firearms training. O'Gara maintains a progressive and realistic 360
degree, .223 caliber ballistic shooting house, encompassing 6,800 square feet of
training space. O'Gara teaches a wide spectrum of combat marksmanship skills.
O'Gara's training program focuses on realistic situations, which involves
exposing students to stress while under difficult firing situations.
Counterintelligence training. O'Gara offers security and
counterintelligence training courses for both United States Government agencies
as well as for clients in the private sector. These courses provide a history of
United States' counterintelligence efforts and current issues in the field, such
as force protection, protection of intellectual property rights and information
security. The training offers instruction on methods to recognize and deter
political and business intelligence risks.
Surveillance detection training. O'Gara provides training in the detection
of, and responses to, surveillance. Instruction is provided both in classrooms
as well as in live exercises. Students learn methodologies utilized by
terrorists, what information is needed by terrorists in order to plan an attack
and how to block or manipulate this flow of intelligence. Students also are
taught to identify and exploit weaknesses in terrorist attack plans.
SECURITY SYSTEMS INTEGRATION GROUP
Site protection systems integration. O'Gara is now offering comprehensive
planning, design and hardware and software integration services customized to
meet the requirements of customers for physical site protection. Primarily
intended for perimeter security around business facilities and plant operations,
O'Gara also offers its services to embassies, VIPs' homes and public facilities.
Generally, such a systems integration project begins with a site survey, which
identifies areas of vulnerability and recommends methods for securing the entire
area surveyed. Specific pieces of hardware are ordered and installed, processes
and procedures are outlined, engineering documentation is provided and control
centers are established. Although each job is unique, the methodology used to
develop the system is similar in most cases.
Satellite communication integration. O'Gara offers comprehensive design
and hardware and software integration services customized to meet specific
satellite communication requirements of its customers. This involves the
integration of portable satellite terminals, mobile antennas and software-based
air time. Usually these systems are designed for remote or security intensive
operations. The portable satellite terminals, which are
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manufactured by third party suppliers to O'Gara's specifications, allow the user
to make voice and data transmissions via satellite link anywhere in the world.
Navigation systems. O'Gara sells Magellan Global Positioning Satellite
Systems ("GPS") through distributors in the United Kingdom and Europe. The GPS
products are sold predominantly for the marine and aircraft markets and enable
the users to identify their exact location throughout the world.
CUSTOMERS
SECURITY HARDWARE PRODUCTS GROUP
Commercial. O'Gara's armored commercial vehicle customers include
governmental and private buyers. U.S. and foreign governmental buyers purchase
both FAVs and LAVs. Governmental buyers also comprise the market for Parade
Cars. Typically, governmental buyers consist of ministries of foreign affairs,
defense and internal affairs and offices of presidential security. Such
customers are not constrained in their purchasing decisions by considerations
such as import duties and taxes. They are, therefore, free to search globally
for the best product. The procurement cycles of governmental buyers can range
from relatively rapid, when the vehicles are for the use of the head of state or
in a crisis mode, to prolonged bureaucratic bids and evaluations where the
procurement is for normally budgeted items. O'Gara's private customers for
armored commercial vehicles include corporations and individuals. Private buyers
are much more sensitive to cost (of which import duties and taxes may be a
substantial part) and, therefore, often will buy a locally produced product if
one exists. Local servicing of the vehicle is also a critical concern to private
buyers. The 1996 sales of O'Gara's commercial armored vehicles (including Labbe)
as a percentage of the total annual sales are distributed as follows:
1996 COMMERCIAL SALES
BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
PERCENTAGE OF
AREA COMMERCIAL SALES
------------------------------------------------------------- ----------------
<S> <C>
Europe....................................................... 41.5%
Africa....................................................... 13.9%
Middle East.................................................. 12.5%
North America................................................ 12.4%
Central and South America.................................... 11.0%
Russian Republics............................................ 5.0%
Far East..................................................... 3.7%
</TABLE>
Military. O'Gara's market for military hardware products is worldwide in
scope, including the U.S. Military and foreign defense forces. O'Gara's major
contracts for delivery of Up-Armored HMMWVs and armoring kits are with TACOM.
Additionally, O'Gara provides protected container systems, typically used to
protect missile systems from small arms fire, to the U.S. Missile Command
("MICOM") under a subcontract with Lockheed Martin. The ability to obtain future
U.S. military business will be affected by future levels of defense spending and
TACOM's budget. O'Gara has sold Up-Armored HMMWVs to Qatar and Luxembourg,
either directly or through the Foreign Military Sales ("FMS") Program. O'Gara is
attempting to leverage the reputation earned by its Up-Armored HMMWVs in Bosnia,
Somalia and Haiti to expand its sales to foreign defense forces. See "-- U.S.
Government Contracts."
SECURITY SERVICES GROUP
O'Gara provides training in security awareness and executive protection.
Additionally, O'Gara provides business intelligence and investigation services.
O'Gara markets these services to both businesses and governments. Corporate or
governmental buyers of security services usually contract for such services
through their security officers. Corporate security officers, who are normally
former members of a government agency themselves, tend to purchase services
based upon industry reputation for quality and expertise, trust in the firm or
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individual they are buying the services from, price and availability. Security
services are charged out by the hour, day or week or are based upon a retainer
schedule. In some cases, a project may be bid in its entirety.
Driver training. O'Gara began offering driver training courses after its
acquisition of ITI. ITI has an established customer base of U.S. and foreign
governmental agencies and corporate customers. Many private sector clients are
drawn to O'Gara's driver training courses due to its reputation of providing
such services to various governmental agencies. O'Gara has been able to augment
ITI's existing customers through selling driver training courses along with
armored vehicles.
SECURITY SYSTEMS INTEGRATION GROUP
Site protection systems integration. Since the inception of the Security
Systems Integration Group in early 1996, O'Gara has obtained numerous contracts
with both Russian and multinational companies to provide integrated site
protection systems. Currently, O'Gara is marketing these products primarily in
Russia. Corporate and governmental buyers of integrated security systems
normally purchase through their corporate security officer, a governmental
department responsible for the particular facility's security, a facility
manager or a construction project manager. Purchases generally are made on
project-specific proposals and include the cost of the hardware, transportation
costs to the site, engineering integration and documentation.
Satellite communication integration. Principal customers for satellite
communications services include private corporations and individuals,
governmental agencies, peacekeeping forces and disaster relief organizations
which operate in lesser-developed countries that lack a telecommunications
infrastructure, in rural areas of developed countries or in disaster scenarios
in which the traditional forms of telecommunications are rendered inoperable. To
date, most of O'Gara's systems integration services customers have not been
purchasers of O'Gara's security hardware products. However, O'Gara is actively
marketing these services to security hardware purchasers and security services
customers. Increasingly, customers are demanding that the satellite
communication channels provided be secure. Depending on the level of security
desired, satellite communication systems can be implemented using a variety of
encryption methods up to and including fully secure U.S. Government STU-III
telephones. Most of O'Gara's satellite communication customers are located
outside of the United States because the U.S. Federal Communications Commission
does not permit private corporations or individuals to use terminals in the
United States which do not utilize the American Mobile Satellite Corp. ("AMSC")
satellite network. The terminals marketed by O'Gara access the INMARSAT network
rather than the AMSC network.
Navigation systems. O'Gara sells GPS equipment through approximately 1,270
distributors in the United Kingdom and France. Marine GPS units are sold through
approximately 700 retailers, some of which specialize in marine electronics and
others that sell general boat equipment. Outdoor (general recreational) GPS
units are sold through approximately 500 sporting goods retailers, camping and
outdoor stores and general electronics stores. Aviation GPS equipment is sold
through approximately 70 aviation equipment retailers.
MARKETING AND SALES
Commercial marketing. O'Gara believes that, as a result of its long
history of successfully armoring vehicles, it enjoys excellent name recognition
and a strong reputation in its sector of the security industry. The central
element of O'Gara's commercial marketing strategy is to leverage its name
recognition and reputation by positioning O'Gara as a global provider of
one-stop security services and products. O'Gara believes that by positioning
itself in this manner it can capitalize on its existing customer base, maximize
the benefits of its long history of supplying security-related products around
the world and leverage its leadership niche in the armored commercial vehicle
market. When entering a foreign market, O'Gara normally seeks to penetrate the
market with its strongest product offering, which in most cases is armored
vehicles. O'Gara tailors its marketing strategy to each geographic area of the
world and will often tailor its product offering by country. There is strong
cross-marketing of military and commercial products which O'Gara believes
strengthens the image of each product group. This goal is accomplished through
consistency of product literature, image and style; the featuring of both
product groups in advertising and exhibitions; and full briefings to customers
and potential customers that encompass O'Gara's entire product line.
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Commercial sales. On a worldwide basis, O'Gara employs 39 sales
professionals who operate out of Los Angeles, California; Washington, D.C.; Deer
Park, New York; Fairfield, Ohio; Sao Paulo, Brazil; Lamballe, France; Paris,
France; Nairobi, Kenya; Mexico City, Mexico; Subic Bay, the Philippines; Moscow,
Russia; Geneva, Switzerland and Salisbury, the United Kingdom. All sales
personnel have a geographic and/or product-specific responsibility. In most
cases, sales personnel also maintain and recruit sales agents or distributors
for O'Gara's principal product groups. The agents or distributors have
geographic and product-specific agreements, and compensation in most cases is
based upon a commission arrangement. In some instances, particularly when
commercial products are sold to governments, O'Gara's salespersons will handle
sales directly with the ultimate customer without any involvement from an agent
or distributor. Sales personnel use a consultative approach when offering
solutions to the customer's security problems. Sales cycles for commercial
products can range from several months to a matter of days, depending upon the
product and the urgency associated with the security problem being addressed.
Security products which are readily available, such as the fully armored
Standard Suburban, allow O'Gara to assist customers who have, or believe they
have, developed an immediate threat.
Military marketing. O'Gara continues to position itself in the marketplace
as a commercial company with a military production capability and to emphasize
its ability to develop new products, or product adaptations, quickly and more
cost-effectively than traditional defense contractors. In marketing its products
to the military, O'Gara also places strong emphasis on its superior anti-tank
and anti-personnel mine protection for the occupants of TWVs. O'Gara markets its
military products through a combination of trade show exhibitions, print
advertising in military-related periodicals and direct customer visits. O'Gara
emphasizes the cross-marketing of military and commercial products, which it
believes strengthens the image of each product group. O'Gara also has entered
into exclusive teaming and joint marketing agreements with AM General, the
manufacturer of the basic HMMWV, for sales in the military and commercial
arenas. These agreements provide that O'Gara is the exclusive armorer to AM
General for HMMWVs and allow O'Gara to benefit from the AM General distribution
network and save on certain costs, such as exhibitions where AM General and
O'Gara otherwise would both show products.
Military sales. O'Gara's military sales activities are directed toward
identifying contract bid opportunities with various U.S. Government agencies,
private enterprises acting as prime contractors on government contracts, sales
through the FMS Program, and military sales directly to foreign military
organizations. O'Gara has two full-time business development managers who are
responsible for this activity and also has contractual arrangements with several
outside consultants who assist the business development managers in their
activities. Proposal preparation and presentation for government projects is
done by a proposal team which normally consists of program managers who have
specific project responsibilities, a contracting officer, a cost accountant and
various manufacturing and engineering personnel.
Foreign operations. See Note 14 to O'Gara's Consolidated Financial
Statements included elsewhere in this Proxy Statement/Prospectus for information
concerning foreign and domestic operations and export sales.
ENGINEERING AND DEVELOPMENT
O'Gara emphasizes engineering excellence and has an extensive engineering
staff. Design engineers use state-of-the-art two-dimensional and
three-dimensional computer aided design and engineering (CAD/CAE) systems in
conjunction with coordinate measuring machines to develop electronic models
which are generally converted to solid models or prototypes. Manufacturing
engineers concentrate on the ability of O'Gara to manufacture a product design,
on improvements in the production process and overall cost reductions from
better methods, fewer components and less expensive materials with equal or
superior quality and on materials handling issues. Applying these techniques, in
the last several years O'Gara has been able to produce savings in both the time
and cost necessary to produce its armored vehicles.
Quality engineering is responsible for assuring that manufacturing and
design plans are consistent with a reliable, quality product that meets the
specifications of the customer. Quality engineers are also responsible for
identifying in-process quality inspection points in the work orders. O'Gara's
ballistic engineer, in conjunction with its design and manufacturing engineers,
develops new ballistic and blast protection systems that meet ever-changing
threats. Ballistic engineers are also responsible for the ballistic testing
required by customers, the
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assignment of ballistic specifications to final products and the issuance of
ballistic specifications for internal quality control. Advanced engineering is
responsible for new product development in conjunction with design engineering,
manufacturing engineering and ballistic engineering.
In January 1997, O'Gara signed a Systems Technical Support Contract ("STS
Contract") with TACOM to support continued research and development on the
Up-Armored HMMWV program. See "-- U.S. Government Contracts." O'Gara believes
that the knowledge gained from this contract can be applied to O'Gara's
commercial manufacturing programs. O'Gara estimates that it expended
approximately $2.8, $2.0 and $0.7 million in 1996, 1995 and 1994, respectively,
on engineering and development efforts related to its armored vehicles and
satellite communications products.
U.S. GOVERNMENT CONTRACTS
O'Gara serves as the U.S. Military's primary contractor for armoring for
its HMMWV fleet. Under the initial contract in August 1993, TACOM engaged O'Gara
to armor fully 59 HMMWVs. A contract to armor an additional 100 vehicles was
executed in May 1994. All of these 159 Up-Armored HMMWVs were shipped prior to
April 1995.
In 1995, the HMMWV was redesigned to include a more powerful engine and
greater cargo space. In March 1995, TACOM engaged O'Gara to armor 309 of the
redesigned HMMWVs. This agreement included options for the armoring of up to an
additional 155 vehicles. In February 1996, TACOM requested an acceleration of
the production of Up-Armored HMMWVs previously ordered and subsequently
exercised options for the armoring by O'Gara of all 155 vehicles under option.
Of these vehicles, 16 were sold to Luxembourg under the FMS Program. The FMS
Program is part of the U.S. Government's security assistance program which
provides equipment and services to more than 100 nations and international
organizations. The U.S. Government markets, procures and delivers military
equipment and services to such foreign entities. Funding is provided either
directly by the purchaser or with U.S.-granted foreign aid credits or loans. As
of March 15, 1997, O'Gara had shipped all 464 of these Up-Armored HMMWVs.
Under a July 1996 contract, TACOM engaged O'Gara to armor 72 additional
HMMWVs. As of December 31, 1996, all of these vehicles had been shipped. On
September 27, 1996, O'Gara was awarded a contract by TACOM for an additional 133
Up-Armored HMMWVs. The contract includes options for the armoring of up to 67
additional vehicles. All of these vehicles have been shipped.
On March 31, 1997, O'Gara was awarded a contract by TACOM for 360
Up-Armored HMMWVs. The contract includes options for the armoring of up to 360
additional vehicles.
Through September 30, 1997, O'Gara had shipped Up-Armored HMMWVs
under various TACOM contracts as follows:
<TABLE>
<CAPTION>
NUMBER OF
HMMWVs
YEAR SHIPPED
---------------------------------------- ----------
<S> <C>
1993.................................... 0
1994.................................... 139
1995.................................... 26
1996.................................... 507
1997....................................
</TABLE>
O'Gara also manufactures armoring kits that can be shipped to customers and
installed in HMMWVs on location. O'Gara installed 166 of such kits for TACOM in
its Fairfield, Ohio facility during the first seven months of 1996 and has
shipped 14 kits to the U.S. Army in Germany for purposes of providing
instruction to U.S. Army personnel concerning the installation process.
In January 1997, O'Gara signed an STS Contract with TACOM to support
continued research and development on the Up-Armored HMMWV program. The four
year contract, three of which are option years, is budgeted for $2.5 million in
1997, with $2.5 million options in each of 1998 and 1999 and a $2.0 million
option
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in 2000. The STS Contract, in part, will allow O'Gara to make new design
improvements, to conduct additional testing of materials, components and
vehicles and to explore alternate and more advanced armor configurations. The
contract requires O'Gara to provide 25,000 hours per year of engineering and
development time to TACOM. O'Gara believes that the knowledge gained from STS
Contract work can be applied to O'Gara's commercial manufacturing programs.
As a subcontractor to Lockheed Martin, O'Gara has provided armoring for
certain missile weapons systems. O'Gara was first engaged in September 1993 by
Lockheed Martin to armor fuel systems of missiles. O'Gara was most recently
engaged by Lockheed Martin in March 1997 to provide such armoring and believes
that it is well positioned for future engagements.
COMPETITION
The markets for O'Gara's present and contemplated products and services are
highly competitive. However, in the vehicle armoring business, O'Gara believes
that its design, engineering and production expertise in providing fully
integrated ballistic and blast protected vehicles gives it a competitive
advantage over those competitors who provide protection against only selected
ballistic threats. In the market for military armoring systems there are a large
number of companies, such as Simula, Inc., that provide specific armoring
packages for TWVs, helicopters and selected other military applications. O'Gara
believes that, as the size of the Up-Armored HMMWV requirement continues to
grow, competition from major defense contractors may increase.
The principal competitive factors are price, quality of engineering and
design, production capability and capacity, ability to meet delivery schedules
and reputation in the industry.
The largest competitor on a worldwide basis in the production of armored
commercial vehicles is Mercedes-Benz Aktiengesellschaft ("MBZ") of Germany. MBZ
produces its own armored passenger vehicles based upon the S600 chassis, the new
Pullman Limousine and the S300 chassis. MBZ sells its product through its
worldwide dealer distribution system. In addition to MBZ, there are a number of
other vehicle armorers focused on their local markets in Europe, the Middle East
and Latin America, armoring primarily locally manufactured automobiles. U.S.
based protected passenger automobile armorers include the Pittston Company
(owner of Brinks armored vehicles), Moloney Coachbuilders, Inc., Safe Car, Inc.,
Rausch Enterprises, Inc. and Armet Armored Vehicles, Inc. These and other
companies compete for U.S. Department of State and Treasury Department Secret
Service contracts. Currently, the U.S. Department of State FAV and LAV contracts
are split among three companies, of which O'Gara is one. The principal
competitive factors are price, quality of engineering and design, production
capability and capacity, ability to deliver and reputation in the industry.
In the security services businesses, O'Gara competes primarily with
numerous local integrators and small consultant-type businesses and also large
suppliers of security-related equipment such as Westinghouse Electric
Corporation, Pinkerton's, Inc., The Wackenhut Corporation, Borg-Warner Security
Corporation, Pittway Corporation, Kroll, Armor Holdings, Inc., ICTS
International, N.V. and ADT Inc. The principal competitive factors are the best
approach to solving the security problem, expertise, price, trust, availability
and the company or individual reputation.
In the area of communication/navigation systems integration services,
O'Gara competes with many companies, including STN, Atlas Elektronik, GmbH, and
Nera AS, in the sale of both the portable terminals and air time. O'Gara
believes that the competitive factors in this portion of its business include
product reliability, the incorporation of advanced technological features,
price, ease of installation, availability and service. With respect to secure
custom communications systems integration services, O'Gara competes with small
and large communications systems integrators.
SEASONALITY, BACKLOG AND RELATED MATTERS
O'Gara's backlog at June 30, 1996 and 1997 was approximately $39.0 million
and $35.1 million, respectively. Backlog consists of net sales value for firm
orders not previously included in net sales on the basis of percentage of
completion accounting. Because many factors affect the conclusion of definitive
agreements for contracts awarded and the production and delivery of O'Gara's
products, no assurance can be given as to when or
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whether net sales will be recognized from O'Gara's backlog. Year-to-year
comparisons of backlog are not necessarily indicative of future operating
results.
Approximately 66.0% of O'Gara's net sales during 1996 were derived from
military contracts and an additional 11.6% were derived from commercial
contracts with U.S. governmental agencies or foreign governments. For the first
six months of 1997, these percentages were 37.3% and 5.0%, respectively,
reflecting the shift toward more commercial sales. Military and governmental
contracts generally are awarded on a periodic or sporadic basis. O'Gara
frequently receives substantial orders, and begins to incur related expenses, in
one quarter, the revenues from which will not be received until one or more
subsequent quarters. As a result, O'Gara generally has significant fluctuations
from time to time in its business. Historically, these fluctuations have not
been seasonal. Period-to-period comparisons within a given year or between years
may not be meaningful or indicative of operating results over a full fiscal
year. See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
O'Gara's net sales from government contracts and most commercial contracts
are recognized using the percentage-of-completion method. Under this method,
estimated contract revenues are accrued based generally on the percentage that
costs to date bear to total estimated costs. Estimated contract losses are
recognized in full when determined. Accordingly, contract revenues and total
cost estimates are reviewed and revised periodically as the work progresses and
as change orders are approved, and adjustments based upon the percentage of
completion are reflected in contract revenues in the period when such estimates
are revised. See "O'GARA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
PROPERTIES AND FACILITIES
O'Gara's principal properties and facilities as of September 1, 1997 are as
follows:
<TABLE>
<CAPTION>
BUILDING
INDUSTRY SQUARE
LOCATION SEGMENT FOOTAGE STATUS
-------------------------- --------------------- ------- -------------
<S> <C> <C> <C>
Fairfield, Ohio Hardware 130,000 owned
Lamballe, France Hardware 125,000 leased
St. Brieue, France Hardware 19,000 owned
Auxerre, France Hardware 21,500 leased
Caen, France Hardware 15,000 leased
Deer Park, New York Integration 4,000 leased
Washington, D.C. area Services N/A leased
Salisbury, UK Integration 3,750 leased
Mexico City, Mexico Hardware, Integration 20,000 owned
and Services
Sao Paulo, Brazil Hardware 50,000 leased
San Antonio, Texas Services N/A owned
Moscow, Russia Hardware and 2,700 leased
Integration
Subic Bay, the Philippines Hardware 85,000 subcontractor
Torino, Italy Hardware 15,000 subcontractor
</TABLE>
The following is a description of O'Gara's major production facilities:
Fairfield, Ohio. This facility houses O'Gara's executive offices and
contains full production and assembly facilities for O'Gara's armored commercial
vehicles and the manufacturing and distribution of Up-Armored HMMWVs and HMMWV
armoring kits. The facility is financed through tax-exempt debt and is pledged
to secure the repayment of such debt. The facility includes a complete
fabrication and machine shop equipped with a computer controlled plasma cutter,
a computer controlled press break, mills, automated grinders, a robotic
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welder and two coordinate measuring machines, paint booths and ancillary
equipment for both military and commercial painting.
Lamballe, France. This facility houses the management, sales and
accounting functions of Labbe. The site contains facilities for production of
armored commercial and cash-in-transit vehicles, plus design studios for
development of prototypes and integrated computer systems, plus parts,
fabrication, painting and quality control. This facility also contains a
ballistics range. Labbe has occupied the site since 1948. It is leased for a
term expiring in September 2000. For accounting purposes, this is treated as an
operating lease.
Mexico City, Mexico. This facility is used for manufacturing and sales of
armored commercial vehicles. The facilities in Mexico City, Mexico and Sao
Paulo, Brazil are currently installing armoring kits which have been engineered
in the Fairfield, Ohio facility. O'Gara expects these facilities to have the
capability to build a complete product line once they have fully trained their
production work forces.
San Antonio, Texas. This facility, which was acquired in 1997, consists of
165 acres of land used for driver training and force protection training.
Sao Paulo, Brazil. This facility, which was expanded to include a second
facility on an adjacent location in December 1996, is used for manufacturing and
sales of armored commercial vehicles and is currently leased for a term expiring
in March 2000. For accounting purposes, this lease is treated as an operating
lease.
Subic Bay, the Philippines. This facility is owned by a subcontractor, but
is supervised by O'Gara's personnel and performs installation of armoring kits
engineered in the Fairfield, Ohio facility.
Torino, Italy. This facility is owned by a subcontractor, but is
supervised by O'Gara's personnel and performs all aspects of manufacturing
specialty armored and unarmored commercial vehicles, from component fabrication
through final assembly. On occasion, the Torino subcontractor will act as a
vendor to O'Gara.
O'Gara's manufacturing capabilities include fully integrated manufacturing
programs which link production control, materials control, quality control and
accounting, thus allowing O'Gara to issue work orders, update and track
inventories, implement quality assurance procedures, schedule and track
production and report, on a daily basis, costs accumulated to a job. O'Gara
believes that its facilities are adequate for its present needs and that its
properties, including machinery and equipment, are generally in good condition,
well maintained and suitable for their intended current and foreseeable uses.
EMPLOYEES
As of June 30, 1997, O'Gara had 619 employees (including 32 temporary
employees), comprised of 59 (including 5 temporary employees) in marketing and
sales, 413 (including 22 temporary employees) in manufacturing, 23 (including 2
temporary employees) in professional services, 48 in engineering and 76
(including 3 temporary employees) in general and administrative. O'Gara's U.S.
employees are not represented by any union and are not covered by any collective
bargaining agreements. Approximately 25 employees of Labbe are employed under
agreements with the Confederation Francarse Democatique du Travail (FTDT). Wage
increase parameters are set twice a year by O'Gara's local management in
consultation with the union. O'Gara has not experienced any work stoppages or
employee related slowdowns and believes that its relationship with its employees
is good.
GOVERNMENT REGULATION
As a contractor with agencies of the U.S. Government, O'Gara is obligated
to comply with a variety of regulations governing certain aspects of its
operations and the workplace. Additionally, O'Gara's contracts give the
contracting agency the right to conduct audits of O'Gara's facilities and
operations, and such audits occur routinely. An audit involves a governmental
agency's review of O'Gara's compliance with the prescribed procedures
established in connection with the government contract. O'Gara also may be
subject to investigations as a result of an audit or other causes. Adverse
findings in an audit or other investigation, including a violation of
environmental or labor laws, could result in fines or other penalties, up to and
including disqualification as a government contractor. In addition, government
contracts generally contain cost or performance incentives based on stated
targets or other criteria. Failure to meet these stated targets or criteria
could result in penalties or lost profits to O'Gara.
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O'Gara is subject to federal licensing requirements with respect to the
sale in foreign countries of certain of its hardware products. Regulations
promulgated by the U.S. Commerce Department require O'Gara to obtain a general
destination license in connection with the sale of certain commercial products
in foreign countries, and certain U.S. State Department regulations require
O'Gara to file an export license in connection with sales of military equipment
in foreign countries. Furthermore, the U.S. State Department prohibits all sales
of military equipment to certain countries, including China, Cuba, Iran, Iraq
and Libya. There can be no assurance that such regulations will not become more
restrictive in the future, which could limit O'Gara's ability to market its
products internationally. See "RISK FACTORS -- Risk Factors Relating to the
Business of O'Gara -- Political and Economic Risks of Doing Business Outside the
United States."
O'Gara's foreign operations are subject to the laws and regulations of the
various countries in which they are conducted, including licensing, labor,
environmental and currency control restrictions.
ENVIRONMENTAL MATTERS
O'Gara and its operations are subject to a number of environmental laws,
regulations and ordinances, both in the U.S. and various foreign countries, that
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling, storage and disposal
practices regarding solid and hazardous materials, and impose liability for the
cost of remediating, and certain damages resulting from, sites of past releases
of hazardous materials. Environmental laws continue to change rapidly, and it is
likely that O'Gara will be subject to increasingly stringent environmental
standards in the future. O'Gara believes that it currently conducts its
activities and operations in substantial compliance with applicable
environmental laws. O'Gara is implementing recommendations of an environmental
consulting company designed to address certain air pollution, hazardous waste,
underground storage tank and hazard communication matters at its Fairfield, Ohio
facility. No notices of violation have been issued to O'Gara by any regulatory
agency with respect to environmental matters which remain uncorrected. O'Gara
believes that its potential liability under the environmental laws, if any,
would not have a material adverse effect, individually or in the aggregate, on
its results of operations, financial condition or cash flows. There can be no
assurance in this regard, however, nor can there be any assurance that
environmental laws will not become more stringent in the future or that O'Gara
will not incur significant costs in the future to comply with such environmental
laws.
LEGAL PROCEEDINGS
On August 1, 1997, the lawsuit by O'Gara Protective Services, Inc. ("OPS")
against O'Gara, OHE and Thomas M. O'Gara was settled. Pursuant to the
settlement, O'Gara paid $75,000 to OPS and agreed not to compete against OPS
with respect to certain specified persons.
O'Gara is not involved in any litigation or legal proceedings on the date
of this Proxy Statement/Prospectus and is not aware of any material litigation
or proceeding threatened against it.
PATENTS, TRADEMARKS AND COPYRIGHTS
O'Gara currently has four issued U.S. patents relating to its armoring
business. O'Gara currently has no federally registered trademarks or copyrights.
Although O'Gara does not believe that its ability to compete in any of its
product markets is dependent on its patents, O'Gara does believe that the
protection afforded by its "Armoring Assembly" and "Vehicle Mine Protection
Structure" patents, both of which relate to vehicle underbody blast protection,
provides O'Gara with important technological advantages over its competitors.
Although O'Gara has protected its technologies to the extent that it believes
appropriate, there can be no assurance that O'Gara's measures to protect its
proprietary rights will deter or prevent unauthorized use of O'Gara's
technologies. In other countries, O'Gara's proprietary rights may not be
protected to the same extent as in the United States.
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BUSINESS OF KROLL
BACKGROUND
Kroll provides a broad array of corporate investigation, risk and crisis
management and business intelligence services on a global basis to multinational
and other large companies, including law firms, investment banks and other
financial institutions, government agencies and other clients. Kroll believes
that it is the largest company in the world providing this broad array of
services and that it enjoys strong name recognition within its customer base.
Founded in 1972, Kroll originally provided services exclusively in
connection with the detection of internal fraud. Since the late 1970's Kroll has
expanded the scope of its services, first to include business intelligence
services, such as due diligence in connection with potential borrowings and
investments and intelligence gathering in connection with hostile takeovers, and
more recently to include a variety of risk and crisis management services. Kroll
has sought to broaden its client base, which initially focused on intermediaries
such as law and accounting firms and investment banks, to deal directly with the
companies and others that utilize information provided by Kroll. Kroll has also
attempted to shift its focus from a relatively few large transaction-oriented
matters to a broader array of smaller but more frequent matters and from
providing information in response to crisis situations to providing a steady
flow of information to help clients avert crises.
In the 1990's, Kroll has also expanded significantly the geographic scope
of its activities. It has opened offices in a number of locations in Europe,
Asia and Latin America and has expanded its international client base to include
foreign enterprises as well as foreign offices and subsidiaries of U.S.
entities.
SERVICES
Kroll offers a broad array of corporate investigation, risk and crisis
management and business intelligence services in the United States, Europe, Asia
and Latin America.
Corporate Investigation Services. Kroll's corporate investigation services
include a variety of services in connection with (i) investigating financial
fraud, theft of trade secrets, infringement of trademarks and other intellectual
property rights and sexual harassment and other employee misconduct; (ii)
preparing for litigation or arbitration proceedings; (iii) tracing and locating
assets and developing financial profiles in connection with such matters as
bankruptcy cases and loan defaults; (iv) performing monitoring and special
inquiry assignments to discover and assess the extent of legal and ethical
misconduct by corporate employees and developing and installing appropriate
systems to assist in ensuring future compliance with relevant legal and ethical
standards; and (v) strategic consulting with businesses facing potential
environmental liabilities and investigating and conducting due diligence reviews
with respect to environmental issues.
Kroll's financial fraud investigation services involve Kroll investigators,
including forensic accountants and computer specialists, who work with Kroll's
clients to detect and curtail such fraudulent and illegal activities as theft of
corporate assets, manipulation of financial records and statements and business,
insolvency and bankruptcy fraud. Kroll's litigation support services involve
employee professionals providing assistance to counsel in connection with
preparing for litigation or arbitration proceedings, designing settlement
strategies or resisting unwanted takeover attempts. These services include
developing evidence to support a claim or a defense, identifying and locating
material witnesses, investigating adverse witnesses, locating and evaluating
recoverable or relevant assets of adverse parties and helping to assess whether
an adequate recovery can be obtained if a lawsuit is successful. Kroll's other
asset tracing services consist of tracing and locating assets anywhere in the
world and developing financial profiles and life style assessments in connection
with bankruptcy cases, loan defaults, internal investigations and other due
diligence requests by clients.
Kroll's monitoring and special inquiry services consist of investigations
by a team of Kroll's lawyers, forensic accountants, investigators, analysts and
industry experts to identify violations of federal or state regulatory
requirements or corporate policies and consultations with clients with respect
to establishing systems to audit and ensure compliance with such regulatory
requirements or policies. Kroll's environmental investigation
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services involve conducting due diligence investigations, establishing audit and
compliance verification programs, providing litigation support and reporting to
insurance companies in connection with underwriting analysis.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's corporate investigation services accounted for
approximately 56%, 60% and 50% of Kroll's net sales, respectively.
Kroll has also recently developed a vendor integrity program that provides
clients a profile of a client's vendors using information provided by the
vendors and obtained from independent sources. Clients utilize this profile to
insure that vendors adhere to the client's standards for ethical business
practices. The fees for this service are paid either through nominal fees
charged to each participating vendor or are directly charged to the client.
Risk and Crisis Management Services. Kroll's risk and crisis management
services consist of a variety of consulting services to assist businesses in
managing diverse risks to their personnel and assets and in meeting and managing
unexpected crises. Risk management services are used in connection with
corporate security programs and systems, programs to protect the safety of key
executives, systems to preserve assets and protect the integrity of computer and
telecommunications systems, and data and planning for disaster recovery. Kroll's
crisis management services are provided in a variety of contexts, including the
kidnapping of a company's executive, the safety of consumers, contamination of a
consumer product or the environment or the potential damage to the reputation of
a corporate client as a result of disclosure of adverse events. Kroll maintains
a crisis management center in Vienna, Virginia where personnel are on duty 24
hours a day, 365 days a year, to handle requests for information and provide
initial advice and immediate contact with members of Kroll's professional staff
specializing in the particular crisis presented.
As part of its risk and crisis management services, Kroll provides periodic
information services that include reports providing city-specific advisories to
business travellers on conditions and other relevant information with respect to
almost 300 cities around the world; a comprehensive country security risk
assessment service that includes daily intelligence briefings containing early
warnings of events and up-to-date information about political unrest, terrorist
activities, product contaminations, health emergencies and other similar events;
a monthly bulletin that reviews and analyzes safety and security issues relating
to air travel around the world; a monthly intelligence review that provides a
global survey of political risk developments in countries around the world; and
special reports on relevant topics, such as kidnappings or specific regions or
countries that are relevant to business travelers.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's risk and crisis management services accounted for
approximately 27%, 22% and 24% of Kroll's net sales, respectively.
Business Intelligence Services. Kroll's business intelligence services
include the provision of due diligence and background information and analysis
that is intended to be useful for clients considering significant operating or
strategic decisions, such as proposed acquisitions or unsolicited offers to
acquire corporate control, possible business arrangements with particular
partners, and proposed entries into new markets. Such services provide
sophisticated business intelligence with respect to the financial and managerial
background and reputation of companies and their management, as well as their
market position, technical capabilities and strategic direction. These services
are utilized by lenders, underwriters, potential acquirers and businesses
concerned with assessing and attempting to minimize the risks related to major
financial and other business decisions.
In the years ended December 31, 1995 and 1996 and in the six months ended
June 30, 1997, Kroll's business intelligence services accounted for
approximately 17%, 18% and 26% of Kroll's net sales, respectively.
Prices for Services. Generally, Kroll charges for its services on an
hourly basis at varying rates, depending upon the type of service being provided
and the competition that exists in providing the service. Kroll also provides
services, particularly outside the United States, on a negotiated project, or
fixed fee, basis. While providing services on a fixed fee basis enhances the
potential for higher profit margins, such arrangements can also result in
unexpected losses on a particular project. However, Kroll believes that the
large number of its fixed fee arrangements limits the risk to Kroll of incurring
a cost overrun on any one or a significant number of projects, which overrun
could have a material adverse effect on Kroll's results of operation.
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Potential Expansion. Kroll does not presently contemplate expanding the
variety of services it offers; however, it does intend to seek opportunities to
expand in locations in which it does not presently provide services. Any such
expansion requires Kroll to hire competent professional and administrative
staff, rent office space, provide furniture, fixtures and other necessary
equipment and incur start-up marketing costs. These costs are necessarily
incurred prior to the time Kroll is able to generate net sales and, thus, will
have a short-term adverse effect on Kroll's results of operations. There can be
no assurance that Kroll will successfully identify any locations for expansion
or that any such expansion, if undertaken, will increase Kroll's net sales or
net income.
Geographic Distribution of Net Sales. Kroll classifies its sales by where
the services are delivered; international sales are services delivered outside
the United States. In the years ended December 31, 1995 and 1996, and the six
months ended June 30, 1996 and 1997, 71%, 73%, 77%, and 68%, respectively, of
Kroll's net sales were attributable to services delivered in the United States.
The balance of Kroll's net sales in each period were attributable to services
delivered outside the United States.
Kroll believes that at present the services it delivers in the United
States provide significantly higher profit margins than the services it delivers
outside the United States. However, Kroll believes that its margins will change
due to trends in the marketplace. Overseas, demand for higher margin services,
such as corporate investigation services and business intelligence services,
including due diligence, is increasing. In addition, Kroll expects to be able to
leverage the fixed costs of its overseas operations more efficiently. Kroll
believes that profit margins with respect to services delivered by Kroll in the
United States will generally decrease over time due to increasing competition,
offsetting the increase in profit margins resulting from increased overseas
demand for higher margin services (see "-- Competition").
CLIENTS
From 1994 through 1996, Kroll provided services to approximately 2,250
clients located in the United States and approximately 850 clients located in
other parts of the world. Kroll's clients consist of multinational corporations,
leading law firms, financial institutions, government agencies and individuals
in a wide range of business sectors. The financial institutions to which Kroll
provides services include many of the largest international investment banks,
numerous commercial banks, insurance companies and other significant credit
institutions. Kroll's governmental clients include agencies of the United States
Government, state and local governments in the United States and a number of
foreign governments and ministries.
In the year ended December 31, 1995, AIG accounted for approximately 7.3%
of Kroll's net sales. No other client accounted for more than 3.4% of Kroll's
net sales in that year, although Kroll's 30 largest clients in that year,
including AIG, accounted for approximately 37.6% of Kroll's 1995 net sales. In
the year ended December 31, 1996, AIG accounted for approximately 7.5% of
Kroll's net sales. No other client accounted for more than 3.6% of Kroll's net
sales in that year, although Kroll's 30 largest clients, including AIG,
accounted for approximately 41.2% of Kroll's 1996 net sales. In the six months
ended June 30, 1997, AIG accounted for approximately 9.3% of Kroll's net sales
and Kroll's 30 largest clients, including AIG, accounted for approximately 41.4%
of its net sales. While many of Kroll's clients utilize Kroll's services on a
periodic basis, relatively few of Kroll's clients utilize Kroll's services each
year and the clients that account for a material percentage of Kroll's net sales
in any year may vary widely. Kroll does not believe that the loss of any one
client (other than AIG) would have a material adverse effect upon its business
or financial condition.
Kroll generally does not have long-term contracts with its clients and its
ability to generate net sales is dependent upon obtaining many new projects each
year, most of which are of relatively short duration. As a result, Kroll's net
sales and net income from year to year are not necessarily predictable and
historically there has not been a consistent year-to-year pattern of growth.
The demand for Kroll's services is affected by general economic conditions
and the level of corporate acquisitions and other financial transactions, and
clients may reduce their reliance on Kroll's services during periods when there
is a decline in such activities.
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MARKETING AND SALES
Kroll's professionals are principally responsible for the marketing of
services and for establishing relationships with clients. Kroll obtains
engagements from a client's board of directors, chief executive and chief
financial officers, general counsel and a variety of other corporate officials,
including business development officers, security managers, risk managers and
human resource personnel. Kroll's senior professionals act as relationship
managers for Kroll's major clients, and a significant amount of Kroll's
marketing consists of maintaining and developing these personal relationships.
In addition, Kroll has a professional marketing and sales staff in New York
City and in each of its regional headquarters that includes marketing, sales and
public relations professionals who support and coordinate Kroll's marketing
efforts on a worldwide basis. These marketing efforts include seminars,
briefings, receptions, breakfast and lunch meetings, direct mail and selected
advertising in trade and other journals. Kroll's services and marketing events
are promoted through its internet website and a publication mailed periodically
to approximately 20,000 clients and prospective clients.
Kroll's marketing efforts attempt to increase business with existing
clients by expanding clients' awareness of the range of services offered by
Kroll and by broadening the decision makers within a client's organization that
are aware of the range of services offered by Kroll.
Kroll's business development staff periodically conducts surveys of Kroll's
clients to assess their perception of the range and quality of Kroll's services
and, after the completion of an assignment, clients are often asked to complete
a quality control questionnaire.
COMPETITION
Kroll believes that it is the largest company in the world providing a
broad array of corporate investigation, risk and crisis management and business
intelligence services on a global basis and enjoys strong name recognition in
its industry. Nevertheless, Kroll faces significant, and increasing, competition
in the United States and elsewhere in the world from a variety of companies that
provide some of the services offered by Kroll. These competitors consist of
local, regional, national and international firms, including investigative and
security firms, guard companies and specialized consultants in specific areas
such as kidnapping. In most service areas in which Kroll operates, there is at
least one competitor that is significantly larger or more established than
Kroll. Many of the national and international accounting firms provide
consulting services similar to some of the services provided by Kroll. Some of
these firms have indicated an interest in providing corporate investigation and
business intelligence services on a broader scale. These accounting firms have
significantly larger financial and other resources than Kroll and have
long-established relationships with their clients, which are also likely to be
clients or prospective clients of Kroll. In addition, large multinational
security product and service providers have indicated an interest in expanding
their services to include value-added services such as certain of the
investigation and consulting services provided by Kroll. The accounting firms
and other service providers could prove to be formidable competitors if they
elect to devote the necessary resources. In that event, there can be no
assurance that Kroll will be able to continue to provide its services on
existing financial terms and conditions, which would have material and adverse
effects on Kroll's business and financial condition. See "RISK FACTORS -- Risk
Factors Relating to Business of Kroll -- Competition."
EMPLOYEES
As of August 1, 1997, Kroll employed approximately 340 persons in its 23
offices around the world, of whom approximately 250 worked in the United States.
Approximately 60% of Kroll's employees are professionals whose time Kroll bills
to clients and who have backgrounds in, among other things, law, forensic
accounting and financial analysis, federal, state and local law enforcement,
domestic and foreign intelligence, business management and consulting, corporate
security, computer and information technology and security and environmental
sciences. Kroll bills its clients for the time spent by these professionals in
providing services. Kroll's remaining employees perform administrative,
marketing and clerical functions.
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In addition to its own full-time personnel, Kroll utilizes a network of
hundreds of field associates around the world, thus providing Kroll with
additional industry expertise and technical and specialized skills when needed.
Kroll believes that its professional employees are highly trained and
skilled and that its ability to continue to provide services to its existing
clients and to expand its business is highly dependent upon retaining its
existing professionals and attracting additional professionals with the
requisite credentials. The competition for these types of employees is intense
and the loss of any significant number of its professional staff, or the loss of
Jules B. Kroll, could have a material adverse effect on the business and
financial condition of Kroll (see "RISK FACTORS -- Risks Relating to the
Business of Kroll -- Dependence on Key Employees").
GOVERNMENT REGULATION
Kroll's services are subject to various federal, state, local and foreign
laws, including laws designed to protect the privacy of persons. A wholly owned
subsidiary of Kroll holds private investigative licenses from, and its
investigative activities are subject to regulation by, the following state and
local authorities: California (Department of Consumer Affairs, Division of
Licensing, Bureau of Security and Investigative Services); Connecticut
(Department of Public Safety, Division of State Police); Florida (Department of
State, Secretary of State, Division of Licensing); Illinois (Department of
Professional Regulations); Maryland (Department of State Police); Michigan
(Department of State Police); New Jersey (Department of Law and Public Safety,
Division of State Police); New York (Department of State, Division of Licensing
Services); Pennsylvania (County of Allegheny); and District of Columbia
(Metropolitan Police, Investigative Services Division, Security Officers
Management Branch). In addition, applications to obtain private detective
licenses on behalf of such subsidiary are pending with the Georgia Board of
Private Detective and Security Agencies and with the Massachusetts Department of
State Police, Special Licensing Unit. Kroll does not believe that the Merger
will have an adverse effect upon its licenses in the foregoing states. Kroll
utilizes certain data from outside sources, including data from third party
vendors and various government and public record services, in performing its
services. To the present time, laws and regulations of the foregoing
jurisdictions have not interfered materially with the conduct of the business or
operations of Kroll, including Kroll's access to data used in its business.
However, there can be no assurance that new regulations, such as changes in
governmental regulations relating to the protection of privacy, will not be
enacted that could materially interfere with the manner in which Kroll obtains
information, conducts its operations and provides its services, with a resulting
material adverse effect on Kroll's financial condition, results of operations
and cash flows. See "RISK FACTORS -- Risk Factors Relating to the Business of
Kroll -- Government Regulation."
PROPERTIES
Kroll leases all of the real properties it uses in connection with its
business. Kroll's principal executive offices are located in New York, New York,
where it leases approximately 36,900 square feet of office space under a lease
expiring in December 2007. This lease currently requires annual base rent of
approximately $1.3 million, plus its proportionate share of real estate taxes,
common area charges and other expenses, which base rate escalates to
approximately $1.6 million by December 2007.
Kroll also maintains domestic offices in each of Los Angeles, San Francisco
and Santa Clara, California; Washington, D.C.; Miami, Florida; Atlanta, Georgia;
Chicago, Illinois; Parsippany, New Jersey; Pittsburgh, Pennsylvania; and Vienna,
Virginia. These offices range from approximately 600 square feet to
approximately 8,800 square feet and are under leases expiring between December
1997 and October 2001 that provide for annual base rents ranging from
approximately $9,000 to approximately $242,000 plus, in each case, its
proportionate share of real estate taxes, common area charges and certain other
expenses.
Kroll also maintains foreign offices in Sydney, Australia; Sao Paulo,
Brazil; Hong Kong and Beijing, China; Paris, France; Frankfurt Am Main, Germany;
New Delhi, India; Tokyo, Japan; Manilla, the Philippines; Moscow, Russia;
Singapore; and London, the United Kingdom. These foreign offices range from
approximately 320 square feet to approximately 7,200 square feet and are under
leases expiring between January 1998 and May 2002 that provide for annual base
rents ranging from approximately $15,000 to approximately $400,000 plus, in each
case, its proportionate share of real estate taxes and certain other charges.
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Kroll management believes that all its leased properties are adequate for
its current and reasonably foreseeable future requirements, and that additional
or replacement space should be available as required.
LITIGATION
Kroll is involved in litigation from time to time in the ordinary course of
its business; however, Kroll does not believe that there is any pending
litigation, individually or in the aggregate, that is reasonably likely to have
a material adverse effect on its business or financial condition. Kroll is a
defendant in an action titled De Fillipis v. American Ref-Fuel et al pending in
the Supreme Court of the State of New York, Queens County. In this litigation,
which was commenced in May 1997 by Daniel De Fillipis and his wife against
American Ref-Fuel, American Ref-Fuel Co. of Hempstead, Kroll and Chad Barker,
plaintiffs allege various tortious conduct on the part of Kroll and its former
employee (Mr. Barker) in connection with an investigation of Mr. De Fillipis and
seek compensatory and punitive damages of $5.0 million. Based on preliminary
information presently available to Kroll, Kroll believes that the plaintiffs'
claims are without merit and, in any event, that it is unlikely that the
plaintiffs suffered damages in the amount of the claims. Kroll intends
vigorously to defend these claims, but there can be no assurance that a
favorable outcome will be obtained. Mr. De Fillipis also has filed a complaint
related to this matter with the New York Department of State, Division of
Licensing Services.
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MANAGEMENT OF O'GARA
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of October 15, 1997
concerning each of O'Gara's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- --------------------------------------------------
<S> <C> <C>
Thomas M. O'Gara........... 47 Chairman of the Board
Wilfred T. O'Gara.......... 40 President, Chief Executive Officer and Director
Gary W. Allen.............. 43 Vice President -- Operations, O'Gara-Hess &
Eisenhardt Armoring Company
Nicholas P. Carpinello..... 47 Executive Vice President, Chief Financial Officer
and Treasurer
Richard L. Curotto......... 59 Vice President -- Worldwide Product Development,
O'Gara-Hess & Eisenhardt Armoring Company
Daniel Gautier............. 54 Director
Abram S. Gordon............ 34 Vice President, General Counsel and Secretary
Michael J. Lennon.......... 41 President and Chief Operating Officer, O'Gara-Hess
& Eisenhardt Armoring Company
Raymond E. Mabus........... 49 Director
Hugh E. Price.............. 60 President, O'Gara Security Associates, and
Director
Jerry E. Ritter............ 62 Director
William S. Sessions........ 67 Director
</TABLE>
Thomas M. O'Gara is Chairman of the Board of O'Gara. Mr. O'Gara has been
Chairman of the Board of OHE since 1990 and was OHE's Chief Executive Officer
from 1990 until 1995. He has been a director of O'Gara since August 1996 and a
director of OHE since 1988. Mr. O'Gara has been an executive of O'Gara and its
predecessors since 1975. From 1984 until 1986, Mr. O'Gara also was Honorary
Consul General for the Sultanate of Oman. Thomas M. O'Gara and Wilfred T. O'Gara
are brothers.
Wilfred T. O'Gara is President and Chief Executive Officer of O'Gara. He
has been associated with O'Gara and its predecessors since 1983. He has been
Chief Executive Officer of OHE since January 1996, was President and Chief
Operating Officer of OHE from 1991 through 1995 and was Vice President -- Sales
and Marketing from 1988 until 1991. He also has been Vice Chairman of O'Gara
Satellite Networks, Inc. ("OSN, Inc."), a Delaware corporation which is now a
wholly owned subsidiary of O'Gara, since October 1995, having served as
President of OSN, Inc. from January 1995 through September 1995. Mr. O'Gara has
been a director of O'Gara since August 1996, a director of OHE since 1991 and a
director of OSN, Inc. since 1995.
Gary W. Allen is Vice President -- Operations of OHE, a position in which
he has served since 1994. From 1989 until 1994, Mr. Allen was Manager of Shop
Operations for the G.E. Aircraft Engines business of General Electric Company.
Nicholas P. Carpinello is Executive Vice President, Chief Financial Officer
and Treasurer of O'Gara. He has held these same positions with OHE since 1993
and also has been Treasurer of OSN, Inc. since 1995. Mr. Carpinello has been
associated with O'Gara and its predecessors since 1984. From 1975 until 1984, he
was employed by Arthur Andersen LLP where he served as a manager in the audit
and small business consulting divisions.
Richard L. Curotto is Vice President -- Worldwide Product Development of
OHE, a position which he has held since 1992. Mr. Curotto joined OHE in
September 1990 as Vice President -- Engineering. Prior to joining OHE, Mr.
Curotto was an engineer, manager and executive with Stutz Motor Cars of America,
Inc., a company he co-founded in 1968.
Daniel Gautier is Chairman of the Board of Labbe, an armorer of commercial
and private vehicles based in Lamballe, France, which was acquired by O'Gara in
February 1997. He had been Labbe's principal shareholder since 1988 and became
its Chairman in 1992. Previously, Mr. Gautier had served for sixteen years as
President
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and Senior Partner of Gautier et Associe's, a large, regional accounting firm,
and as a consultant to various businesses. Mr. Gautier has been a director of
O'Gara since May 1997.
Abram S. Gordon is Vice President, General Counsel and Secretary of O'Gara.
Prior to joining O'Gara in January 1997, he was with the law firm of Taft,
Stettinius & Hollister, Cincinnati, Ohio, from October 1987 until December 1996.
Michael J. Lennon is President and Chief Operating Officer of OHE,
positions he has held since January 1996. Mr. Lennon joined OHE in February 1994
as Manager of Commercial and Military Programs; he became Vice President for
Sales, Marketing and Program Management in October 1994 and served OHE in that
capacity through 1995. Prior to joining OHE, Mr. Lennon had 15 years' experience
in manufacturing, quality control and marketing with General Electric Company,
which he joined in 1979. From 1990 to 1994, he was Manager of Advanced
Technology Marketing for their G.E. Aircraft Engines business.
Raymond E. Mabus is currently of counsel to the law firm of Baker,
Donaldson, Bearman and Caldwell and also manages a family timber business. He
served as the United States Ambassador to the Kingdom of Saudi Arabia from 1994
until 1996, as a consultant to Mobil Telecommunications Technology from 1992
until 1994 and as Governor of the State of Mississippi from 1988 until 1992. Mr.
Mabus has been a director of O'Gara since November 1996.
Hugh E. Price is President of OSA. During 1995 and 1996, prior to joining
O'Gara, he was a consultant to various businesses and organizations. Until his
retirement in 1995, Mr. Price had been employed by the Central Intelligence
Agency since 1964. His positions with the Agency included Deputy and Associate
Deputy Director for Operations (1991-1995), Chief and Deputy Chief for
Counterintelligence (1988-1990) and Director of Personnel (1986-1988). Mr. Price
became a director of O'Gara in October 1996.
Jerry E. Ritter is currently a consultant to Anheuser-Busch Companies,
Inc., a company engaged in the brewing and family entertainment businesses. He
also is Chairman of the Board of Clark Enterprises, Inc., the general partner of
the Kiel Center and the St. Louis Blues Hockey Club. From 1990 until 1996, Mr.
Ritter served as Executive Vice President and Chief Financial and Administrative
Officer for Anheuser-Busch Companies, Inc. Prior to that time, he served
Anheuser-Busch in various other managerial and executive capacities. Mr. Ritter
also is a director of The Earthgrains Company, Brown Group, Inc. and OmniQuip
International, Inc. He became a director of O'Gara in January 1997.
William S. Sessions is a partner in the law firm of Sessions & Sessions,
L.C. and is a consultant to various public and private businesses. From 1987
until 1993, Mr. Sessions was Director of the Federal Bureau of Investigation. He
served as a United States District Judge for the Western District of Texas from
1974 until 1987. Mr. Sessions is a director of Zenith National Insurance
Company. He has been a director of O'Gara since November 1996.
Directors of O'Gara are elected annually. Officers of O'Gara are elected
annually and serve at the discretion of the Board of Directors.
See "THE MERGER -- Management of O'Gara after the Merger" for information
relating to the effects of the Merger on the directors and executive officers of
O'Gara.
MEETINGS; COMMITTEES OF THE O'GARA BOARD
The O'Gara Board held two meetings in 1996. The O'Gara Board has an Audit
Committee and a Compensation Committee, both of which are composed of Messrs.
Ritter (Chairman), Mabus and Sessions. The Audit Committee recommends the
appointment of independent accountants and reviews and discusses with the
independent accountants the scope of their examination, their proposed fee and
the overall approach to the audit. The Audit Committee also reviews with the
independent accountants and O'Gara's financial management the annual financial
statements and discusses the effectiveness of internal accounting controls. The
Audit Committee did not meet in 1996. The Compensation Committee has
responsibility for establishing executive officers' compensation and other
benefits. The Compensation Committee did not meet in 1996 but met in March 1997
to determine bonus payments for 1996 and to establish compensation criteria for
1997. See "-- Report of the
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Compensation Committee on Executive Compensation." The O'Gara Board does not
have a Nominating Committee. During 1996, each incumbent director except Mr.
Mabus attended more than 75% of the aggregate of all meetings of the O'Gara
Board and all committees on which he served which he was eligible to attend.
DIRECTORS' COMPENSATION
Directors who are not employees of O'Gara receive annually a $10,000 fee,
plus options to purchase 1,000 shares of O'Gara Common Stock, for serving as
directors and members of committees. These directors also are paid $500 for each
O'Gara Board meeting attended, including O'Gara Board meetings held by
telephone. Committee members receive $500 per committee meeting attended, unless
the committee meeting occurs on the same day as an O'Gara Board meeting, in
which case no separate fee is paid. Employee directors are not separately
compensated for their services as directors.
From time to time, Mr. Sessions has provided consulting services to O'Gara
or OHE. During 1996 and the first six months of 1997, he received fees of $5,000
and $7,500, respectively, plus reimbursement of expenses, for sales development
assistance relating to OHE's commercial armored products.
EXECUTIVE COMPENSATION
Summary Information. The following table sets forth, for the fiscal years
indicated, amounts of cash and certain other compensation paid by O'Gara and its
subsidiaries, for services in all capacities, to (i) Wilfred T. O'Gara and (ii)
each of O'Gara's four other most highly compensated executive officers during
1996. Mr. O'Gara and these other executive officers are sometimes referred to as
the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING
COMPEN- STOCK OPTION ALL OTHER
NAME AND PRINCIPAL SALARY BONUS SATION GRANTS COMPENSATION
POSITION YEAR ($)(1) ($) ($) (#) ($)(2)
- -------------------------- ----- --------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. O'Gara.......... 1996 $379,081 $7,000 -- -- $1,218
Chairman of the Board 1995 410,631 -- -- -- 1,218
Wilfred T. O'Gara......... 1996 $200,231 $45,000 -- 17,000 $ 462
President and Chief 1995 140,550 -- -- -- 462
Executive Officer
Gary W. Allen............. 1996 $100,666 $47,784 -- 15,000 $ 512
Vice President, OHE 1995 88,239 -- -- -- 414
Richard L. Curotto........ 1996 $100,833 $47,392 -- 15,000 $2,248
Vice President, OHE 1995 98,433 17,000 -- -- 2,223
Michael J. Lennon......... 1996 $128,334 $60,317 -- 17,000 $ 667
President, OHE 1995 89,977 20,000 -- -- 277
</TABLE>
- ---------------
(1) Effective November 1, 1996, Messrs. Thomas M. O'Gara, Wilfred T. O'Gara,
Allen, Curotto and Lennon receive base annual salaries of $250,000,
$230,000, $115,000, $110,000 and $145,000, respectively (see "-- Employment
Agreements").
(2) Represents profit-sharing contributions to O'Gara's 401(k) Plan.
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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The policy of the Compensation Committee of the O'Gara Board is to provide
compensation that attracts, motivates and retains a highly qualified management
team meeting the special management requirements of O'Gara. The compensation
program is central to the successful operation and growth of O'Gara and is
intended to align closely the interests of management with those of O'Gara's
shareholders.
Statement of Purpose. The Committee believes that a compensation program
must enable O'Gara to attract a limited number of executives with critical
experience for key positions and to retain and motivate strong, capable
management. At the same time, the cost of management compensation must bear a
reasonable relationship to the performance of O'Gara and the total return to
shareholders on their investment in O'Gara. The purposes of the program approved
and actions taken by the Compensation Committee are as follows:
- Encourage and reward an entrepreneurial spirit and business success each
year in the operating divisions of O'Gara and, at the same time, build
the structure and teamwork necessary for profitable long-term growth in
O'Gara's business.
- Provide executives who succeed within O'Gara the opportunity to build
capital value through stock options and stock, as long as shareholders
build corresponding value.
Cash Compensation. To achieve these purposes, the Committee has set total
cash compensation at levels that it believes are reasonable in light of O'Gara's
size and financial results. Salaries are reviewed annually and are determined
based on specific executive responsibilities, the changing nature of these
responsibilities and performance. Total cash compensation each year can be
increased or decreased substantially from the prior year depending on the size
of the annual incentive payment awarded.
The base annual salary of each named executive officer, including the Chief
Executive Officer, is set in his employment agreement with O'Gara (see
"Employment Agreements") and is subject to increase from time to time. Because
the employment agreements did not take effect until November 1, 1996, the full
year salary shown on the Summary Compensation Table for each executive officer
does not necessarily reflect that established in his employment agreement. Also,
because the base salaries were so recently set, the Committee determined that
they should not be increased for 1997. All salaries will be reviewed at the end
of 1997 and, depending on O'Gara's financial results and the executive officers'
performances, may be increased.
The annual incentive payment portion of total cash compensation each year
is tied directly to the level of achievement of O'Gara relative to the financial
objectives established at the beginning of the year. Currently, these objectives
relate to O'Gara's overall operating revenue or the operating revenue of the
particular Company subsidiary or division for which the executive officer has
responsibility. For 1996, three executive officers of O'Gara, the Chairman of
the Board, the Chief Executive Officer and the Chief Financial Officer, did not
receive the total incentive compensation to which they were entitled because
such individuals had received certain distributions in connection with the
initial public offering of O'Gara Common Stock in November 1996. All other
eligible executive officers received the full awards for which they were
eligible. Annual incentive awards to senior executives generally are paid, net
of applicable withholdings, one-half in cash and one-half in restricted shares
of O'Gara Common Stock. For 1996, however, those executive officers receiving
smaller awards, the Chairman of the Board, the Chief Executive Officer and the
Chief Financial Officer, received their full awards in cash.
Long-Term Stock Incentives. The Committee also is responsible for grants
to O'Gara's executive officers under O'Gara's 1996 Stock Option Plan. The
purpose of the Plan is to provide long-term compensation which, because it is
based upon stock price appreciation, directly aligns the interest of management
with that of shareholders. During 1996, options for 17,000 shares were granted
to the Chief Executive Officer and options for an aggregate of 47,000 shares
were granted to O'Gara's other named executive officers. All of these grants
were approved by the Board of Directors prior to O'Gara's initial public
offering and became effective at the time of the Offering.
Section 162(m) of the Internal Revenue Code and its related regulations
(together "Section 162(m)") limit the deductibility of non- "performance based"
compensation received by each of O'Gara's named executive officers to $1.0
million per year. Compensation meeting certain criteria specified in Section
162(m) is considered
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"performance based" and is excluded from the limitation on deductibility.
O'Gara's 1996 Stock Option Plan and all options granted to O'Gara's named
executive officers under the Plan are designed to meet the Section 162(m)
criteria for performance based compensation. In 1996, no named executive officer
received non-performance based compensation in excess of $400,000, and the
Committee currently does not expect the Section 162(m) limitation to be an issue
in its compensation decisions during 1997. As previously noted, the policy of
the Committee is to maintain a compensation program that maximizes the creation
of long-term shareholder value. As appropriate in the future, the Committee will
consider qualifying the deductibility of compensation to the extent consistent
with the objectives of O'Gara's executive compensation program and with
maintaining competitive compensation.
Jerry E. Ritter, Chairman
Raymond E. Mabus
William S. Sessions
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<PAGE> 90
PERFORMANCE GRAPH
The following graph compares the performance of O'Gara Common Stock with
the performance of companies included in the Russell 2000 Index of Small
Capitalization Companies and in a self-constructed peer group index. The graph
assumes that $100 was invested on November 13, 1996, the first day of trading of
O'Gara Common Stock, and that any dividends were reinvested.
Because O'Gara operates in three business segments, no published peer group
accurately mirrors O'Gara's business. Accordingly, O'Gara has created a special
peer group composed of Armor Holdings, Inc., Pinkerton's, Inc., Simula, Inc. and
Spartan Motors, Inc. The returns of each company are weighted according to its
respective stock market capitalization. The peer group was selected based upon
criteria including business activities, industries served, size of company and
market capitalization.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE O'GARA
(FISCAL YEAR COVERED) COMPANY RUSSELL 2000 PEER GROUP
<S> <C> <C> <C>
11/13/96 100 100 100
12/31/96 108 107 98
</TABLE>
Employment Agreements. O'Gara (or OHE) entered into employment agreements,
which commenced on November 1, 1996 and expire on August 31, 1998, with Messrs.
Thomas M. O'Gara, Wilfred T. O'Gara, Allen, Curotto and Lennon, providing for
annual base salaries of $250,000, $230,000, $115,000, $110,000 and $145,000,
respectively. Each named executive officer also is entitled to participate in an
annual bonus plan established by the Compensation Committee and to receive up to
50% of such bonus in shares of O'Gara Common Stock. Employment may be terminated
by O'Gara at any time with or without cause, except that, in a case of
termination without cause, the employee is entitled to receive compensation for
the balance of the term of the agreement. Each employment agreement restricts
the executive officer from competing with O'Gara during the term of the
agreement and for two years thereafter if termination of employment is for cause
or at the volition of the employee. For information relating to changes in these
agreements in connection with the Merger, see "THE MERGER -- Management of
O'Gara after the Merger."
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THE O'GARA OPTION PROPOSAL
Introduction. The Plan, which was adopted prior to the Offering, currently
provides for the issuance of up to 400,000 shares of O'Gara Common Stock
pursuant to options granted under the Plan. Options to acquire 274,050 shares of
O'Gara Common Stock are currently outstanding.
The Plan was adopted to further the growth and success of O'Gara by
providing an incentive to employees which increases their direct involvement in
the future success of O'Gara.
The O'Gara Board is proposing that the Plan be amended to provide for an
increase in the maximum number of shares of O'Gara Common Stock which may be
issued under the Plan from 400,000 to 836,000 and to make other changes as
described below. In proposing this amendment, the O'Gara Board took into
consideration the number of shares of O'Gara Common Stock subject to outstanding
options, the expansion of the O'Gara employee base since the Offering as a
result of the Acquisitions and the substantially larger employee base that would
result from the consummation of the Merger.
Approval of the O'Gara Option Proposal is not contingent upon approval or
effectiveness of the Merger.
THE O'GARA BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE O'GARA OPTION
PROPOSAL.
The Plan. Any employee on the regular payroll of O'Gara may be selected to
participate in the Plan. Additionally, options are granted under the Plan to
O'Gara's non-employee directors in accordance with O'Gara's policy for the
compensation of directors. See "MANAGEMENT OF O'GARA -- Directors'
Compensation." Up to 400,000 (to be increased to 836,000 if the O'Gara Option
Proposal is adopted) shares of O'Gara Common Stock may be issued pursuant to the
Plan. The Plan currently provides that options for no more than 50,000 shares
may be granted to any eligible employee during any period of 12 consecutive
months; the O'Gara Option Proposal would increase this maximum number to
125,000. Appropriate adjustments in the number of shares issuable and in the
number and prices of shares covered by outstanding options will be made to give
effect to any changes in O'Gara's capitalization (stock splits, stock dividends,
etc.).
Currently, the Plan is administered by the O'Gara Board. In addition to
administering and interpreting the Plan, the O'Gara Board has authority to
select optionees, determine the number of shares for which an option is granted,
set the option's price and term, select the type of option and establish all
other terms and conditions of the option.
The O'Gara Board may waive or amend the terms and conditions of, or
accelerate the vesting of, an option. The O'Gara Board may appoint a committee
to carry out all of its functions with respect to the Plan, except for
amendments to or termination of the Plan. For the purpose of option grants to
and approval of other transactions with persons who are subject to Section 16 of
the Securities Exchange Act of 1934 (the "Exchange Act") with respect to O'Gara,
each committee member must be a "Non-Employee Director" as defined in Rule 16b-3
under the Exchange Act. The Board has delegated to the Compensation Committee
the responsibility for option grants to O'Gara's executive officers.
Both incentive stock options and nonqualified options may be granted to
employee-participants in the Plan. Non-employee directors may only receive
nonqualified option grants. The per share exercise price of a nonqualified
option must be at least 85% of the fair market value of a share of the O'Gara
Common Stock on the date the option is granted. The per share exercise price of
an incentive stock option may not be less than 100% of the O'Gara Common Stock's
fair market value on the date of grant, and no incentive stock option may be
exercised after ten years from the date of grant. Incentive stock options
granted to an optionee holding more than 10% of outstanding O'Gara Common Stock
must have a price of at least 110% of fair market value on the date of grant and
may be for a term no longer than five years.
An option's exercise price may be paid in cash or by the tender of shares
of O'Gara Common Stock or by a combination of these methods. Shares of O'Gara
Common Stock which are tendered or withheld are valued at their fair market
value on the date of tender and may be counted as available for issuance under
the Plan. For purposes of the Plan, fair market value means the last sale price
for the O'Gara Common Stock reported on the Nasdaq National Market on a given
date.
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Generally, an unexercisable option terminates when an optionee terminates
employment with or service as a director of O'Gara. An exercisable option
terminates on the earlier of (i) its full exercise, (ii) its expiration date or
(iii) the end of the three-month period following the date of termination of
employment or service as a director. If, however, an optionee becomes disabled
or dies while employed by or serving as a director of O'Gara or within three
months thereafter, a then-exercisable option may be exercised for one year after
the date of death or commencement of disability. The Plan allows the O'Gara
Board to extend these option exercise periods.
A nonqualified option may be transferred pursuant to a domestic relations
order or under other circumstances, terms and conditions established by the
O'Gara Board. Otherwise, an option is not transferrable except by the optionee's
will or the laws of descent and distribution and, during an optionee's lifetime,
may only be exercised by the optionee or the optionee's legal representative or
guardian.
The O'Gara Board may amend or terminate the Plan at any time; however,
shareholder approval is required for an amendment if such approval is necessary
under the Code or the Exchange Act. No Plan amendment may alter or impair an
outstanding option without the optionee's consent. No option may be granted
under the Plan subsequent to October 22, 2006.
If O'Gara enters into an agreement of reorganization, merger or
consolidation in which O'Gara is not to be the surviving corporation or enters
into an agreement for the sale or transfer of all or substantially all of its
assets, all outstanding options will become immediately exercisable. If the
successor or transferee corporation does not agree to continue the Plan, both
the Plan and all outstanding options will terminate as of the effective date of
any such transaction. An optionee who is subject to Section 16 of the Exchange
Act may, immediately prior to the consummation of the transaction and in lieu of
the consideration receivable by other optionees in the transaction, tender any
unexercised options to O'Gara and receive a cash payment equal to the difference
between the aggregate "fair value" of the shares of O'Gara Common Stock subject
to the holder's unexercised options and the aggregate option price of those
shares.
Accounting Effects. The proceeds of the sale of O'Gara Common Stock under
the Plan constitute general funds of O'Gara and may be used by it for any
purpose. Under present accounting practices followed by O'Gara, neither the
grant at fair market value nor the exercise of an option generally results in
any charge against O'Gara's earnings. The grant of options at a price less than
100% of fair market value results in compensation expense to O'Gara. To date,
O'Gara has granted all options under the Plan at an exercise price equal to at
least 100% of the fair market value of O'Gara Common Stock for accounting
purposes.
Certain Federal Income Tax Considerations. The Plan provides that, if
payments to an optionee by O'Gara would constitute "excess parachute payments"
under the Code, amounts payable in accordance with the Plan's change of control
provisions will be reduced so that the employee is not subject to the 20% excise
tax on the payment and O'Gara is able to deduct the entire payment.
Generally, an optionee recognizes no income upon the grant or exercise of
an incentive stock option and, if the stock purchased on option exercise is not
disposed of within two years from the date of grant nor within one year after
exercise, the amount realized on sale or taxable exchange in excess of the
option price is treated as a long term capital gain and O'Gara is not entitled
to a federal income tax deduction. If stock acquired on exercise of an incentive
stock option is disposed of before the expiration of either of the prescribed
holding periods, the lesser of (i) the difference between the option price and
the fair market value at the time of exercise, or (ii) the difference between
the option price and the amount realized upon disposition is treated as ordinary
income to the optionee at the time of disposition and is allowed as a deduction
to O'Gara; any excess of the amount realized upon sale over the fair market
value at the time of exercise generally is treated as capital gain to the
optionee. In general, an optionee who exercises a nonqualified option recognizes
taxable ordinary income, and O'Gara is entitled to a deduction, at the time of
exercise of the option in an amount equal to the excess of the fair market value
of the shares purchased over the option price.
Grants. Currently, options have been granted to approximately 200
individuals under the Plan. The Plan contains no limitation as to the maximum
number of participants. As of October 15, 1997, options granted under the Plan
were outstanding in the following amounts: Thomas M. O'Gara, 23,150 shares;
Wilfred T. O'Gara, 40,150 shares; Gary W. Allen, 19,000 shares; Richard L.
Curotto, 18,000 shares; Michael J. Lennon, 22,000 shares;
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<PAGE> 93
Hugh E. Price, 22,500 shares; all current executive officers as a group, 168,800
shares; Raymond E. Mabus, 2,000 shares; Jerry E. Ritter, 1,000 shares; William
S. Sessions, 2,000 shares; and all employees as a group, 274,050 shares. For
information relating to options to be granted at the Effective Time, see "THE
MERGER -- Management of O'Gara after the Merger."
The following table presents information on option grants to the named
executive officers during 1996 pursuant to the Plan. The Plan does not provide
for the grant of stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
--------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------- ---------- ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. O'Gara.......... -- -- -- -- -- --
Wilfred T. O'Gara......... 17,000 9.6% $ 9.00 11/11/06 $96,050 $244,120
Gary W. Allen............. 15,000 8.5% $ 9.00 11/11/06 $84,750 $215,400
Richard L. Curotto........ 15,000 8.5% $ 9.00 11/11/06 $84,750 $215,400
Michael J. Lennon......... 17,000 9.6% $ 9.00 11/11/06 $96,050 $244,120
</TABLE>
- ---------------
(1) All options vest on November 12, 1997. The exercise price of all options may
be paid in cash or by the transfer of shares of O'Gara Common Stock valued
at their fair market value on the date of exercise. Each option becomes
exercisable in full in the event of the execution of an agreement of merger,
consolidation or reorganization pursuant to which O'Gara is not to be the
surviving corporation or the execution of an agreement of sale or transfer
of all or substantially all of the assets of O'Gara.
With respect to each named executive officer, the following table sets
forth information concerning unexercised stock options held at December 31,
1996. No options were exercised during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
VALUE REALIZED ($) UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
(MARKET PRICE ON FY-END (#) AT FY-END ($)
SHARES ACQUIRED ON EXERCISE LESS EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) EXERCISE PRICE) UNEXERCISABLE UNEXERCISABLE
- --------------------- ------------------ ------------------ ---------------------- ----------------------------
<S> <C> <C> <C> <C>
Thomas M. O'Gara..... -- -- -- --
Wilfred T. O'Gara.... -- -- --/17,000 --/$12,750
Gary W. Allen........ -- -- --/15,000 --/$11,250
Richard L. Curotto... -- -- --/15,000 --/$11,250
Michael J. Lennon.... -- -- --/17,000 --/$12,750
</TABLE>
Kroll Options. Pursuant to the Merger Agreement, any option to acquire
Kroll Stock which is not exercised prior to the Effective Time will be converted
into an option to purchase the number of shares of O'Gara Common Stock which
would have been received had such option been exercised immediately prior to the
Effective Time. See "THE MERGER AGREEMENT -- Conversion of Kroll Stock." Such
options will continue to be governed by the terms of the Kroll Management Stock
Option Plan or the Stock Option and Stockholder Agreements and will not be
subject to the terms of the Plan or reduce the number of shares of O'Gara Common
Stock with respect to which options may be issued under the Plan. See
"MANAGEMENT OF KROLL" and "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS -- KROLL" for information relating to the Kroll Management Stock
Option Plan and the Stock Option and Stockholder Agreements and the options
outstanding thereunder.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- O'GARA
In connection with the Offering, the O'Gara Board adopted a policy
requiring that any future transactions, including loans, between O'Gara and its
officers, directors, principal shareholders and their affiliates be on terms no
less favorable to O'Gara than could be obtained from unrelated third parties and
that any such transactions be approved by a majority of the disinterested
members of the O'Gara Board.
Described below are certain transactions and relationships between O'Gara
and certain of its officers, directors and shareholders which have occurred
during the last three fiscal years. Except with respect to interest rates
charged on certain of the intercompany notes and accounts payable/receivable,
O'Gara believes that the material terms of the various transactions were as
favorable as could have been obtained from unrelated third parties.
LONGLINE LEASING/EXCEL ARMOR
General. Longline Leasing, Inc. ("Longline") and Excel Armor Products,
Inc. ("Excel Armor" and, together with Longline, "Longline/Excel") are Delaware
corporations, which merged as of December 31, 1996; Messrs. Thomas M. O'Gara,
Wilfred T. O'Gara and Carpinello owned approximately 92%, 1% and 1%,
respectively, of the outstanding capital stock of each.
Lease agreements. OHE has a Master Equipment Lease with Longline, entered
into in July 1995, pursuant to which OHE leases various items of equipment from
Longline. As of June 30, 1997, OHE had approximately $1,250,000 of equipment
under lease for 12 and 36-month terms, beginning on various dates between July
1995 and April 1996. Rental expenses were $17,000, $381,446 and $222,598 for the
years ended December 31, 1995 and 1996 and for the six months ended June 30,
1997, respectively.
Supplier arrangements. During 1995 and 1996, OHE purchased the dual-hard
steel required for certain aspects of its vehicle armoring from Excel Armor,
which distributed the steel for an unrelated third party. Purchases by OHE from
Excel Armor were $520,700 and $960,231 during 1995 and 1996, respectively, and
accounted for 90% and 99% of Excel Armor's sales revenues for the same periods.
In connection with these purchases, OHE advanced $160,390 to Excel Armor during
1995 to fund Excel Armor's initial purchase commitments and guaranteed a
$150,000 letter of credit furnished by Excel Armor to the third party. OHE now
purchases its dual-hard steel directly from the third party. At December 31,
1996 and June 30, 1997, OHE had receivables of $210,659 and $282,346,
respectively, from Excel Armor in connection with the prior arrangement. All
other aspects of the arrangement have been terminated. Also, in August 1995,
Excel Armor and OHE entered into an agreement under which OHE manufactured
certain parts needed by Excel Armor in connection with a contract with a third
party. Total revenue recognized in association with this contract was $124,000.
Corporate aircraft. Effective January 1, 1994, OHE entered into a five
year lease for a Hawker jet owned by Longline. Financing for the jet had been
provided to Longline by means of a $1,100,000 loan from Cessna Finance
Corporation to Thomas M. O'Gara. OHE's agreement with Longline provided for
deposit and rental payments aggregating $1,634,000 over the term of the lease.
This lease was cancelled effective January 30, 1995.
In February 1995, OHE entered into a lease for a Gulfstream G-II aircraft
owned by Longline and Excel Armor as tenants in common. The Gulfstream aircraft
was purchased by Longline/Excel for a price of $4,060,000 (represented by an
exchange of the Hawker jet and new financing). In connection with the
cancellation of the Hawker lease, $400,493, representing the unamortized portion
of OHE's $504,000 deposit on that lease, was transferred as the deposit on the
Gulfstream lease. The Gulfstream lease had a non-cancelable ten year term and
initially provided for rental payments of $53,000 per month. Nonetheless O'Gara
paid rentals based on actual usage. In August 1996, the Gulfstream lease was
amended to provide for minimum lease payments of $35,200 per month.
In February 1995, OHE also entered into a supplemental agreement with
Longline/Excel pursuant to which Longline/Excel agreed to provide all aircraft
management (including insurance) for the Gulfstream aircraft and to charter it
to others when not in use by OHE. Pursuant to this arrangement, and in lieu of
the $53,000 per month rental payments then required by the lease, OHE paid
Longline/Excel $30,000 per month, plus $1,800 per hour of monthly use in excess
of 16.7 hours, and Longline/Excel was entitled to retain all revenues from the
charter
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<PAGE> 95
operations. In connection with the August 1996 amendment to the Gulfstream
lease, this agreement was amended to allow OHE 23 hours of usage per month and
to provide for charges of $1,500 per hour thereafter. Longline/Excel continues
to retain all revenues from charter operations. Rental expense related to the
Gulfstream lease (including amortization of the deposit) was $414,160, $422,349
and $249,833 for 1995, 1996 and the first six months of 1997, respectively.
Additionally, O'Gara paid Longline/Excel $327,000 relating to usage of the
aircraft during O'Gara's initial public offering in 1996. O'Gara believes that
the rate paid was equivalent to that charged by Longline/Excel to other
unrelated companies for similar services during 1996 and compared favorably to
rates charged by another unrelated charter service for similar aircraft.
OHE and Longline/Excel have begun negotiations regarding changes to these
lease arrangements. Because of unanticipatedly high usage of the Gulfstream
aircraft by OHE during the past year due to travel undertaken during the
Offering and the transaction with Kroll, Longline/Excel has been limited in its
ability to charter the aircraft. Longline/Excel has requested that OHE amend the
lease arrangements in order that OHE commence paying market rates for its use of
the aircraft.
INTERCOMPANY NOTES AND ACCOUNTS PAYABLE/RECEIVABLE
OHE held promissory notes, for money borrowed, in the principal amounts of
$100,000 and $130,000 from Thomas M. O'Gara. Each note bore interest at the rate
of 8.75% per annum and was due on December 31, 1996. In December 1996, Thomas M.
O'Gara repaid in full the $251,834 of principal and accrued interest outstanding
under these notes. Thomas M. O'Gara also was indebted, for money borrowed, to
OHE in amounts up to $288,725, not represented by a promissory note; this
indebtedness has been fully repaid.
OSN held a promissory note, for money borrowed, from Excel Metal Products,
Inc. ("Excel Metal"), a corporation wholly owned by Thomas M. O'Gara, in the
principal amount of $310,000, which bore interest at the rate of 8.5% and was
due on February 11, 1997. All principal and accrued interest outstanding
pursuant to this note, totalling $331,224, was repaid in December 1996.
During 1994, 1995 and 1996, OHE paid Silver Springs Land and Cattle
Company, a Nevada corporation of which Thomas M. O'Gara is the President and
sole shareholder, $55,203, $11,082 and $3,177, respectively, for the use of its
facilities for corporate meetings. The use of these facilities by O'Gara has
been discontinued.
Until the Reorganization, OHE held a 49% beneficial interest in O'Gara
Overseas Services, S.A., a Swiss corporation ("OOS"), with the remaining 51%
held by Limited. As part of the Reorganization, OHE's interest in OOS was
exchanged for certain assets and liabilities of Limited, with the result being
that OOS is no longer affiliated with O'Gara. In addition, OHE fulfilled a
demand note, bearing interest at 3.0% per annum, that had been outstanding with
OOS in the amount of $90,930, which represented $88,685 in principle and $2,245
in interest. Also, subsequent to the Reorganization, Thomas M. O'Gara made full
payment on a 3.0% promissory note, which totalled $302,803 including interest,
held by OOS. OOS also had provided sales and marketing services for OHE and OSN.
During 1994, 1995 and 1996, $362,761, $377,144 and $363,583, respectively, were
paid to OOS for these services. All arrangements with OOS were terminated in
connection with the Reorganization.
Prior to August 1994, OHE was indebted to Letter International Limited
Irrevocable Trust in the amount of $1,260,000. Letter International Limited
Irrevocable Trust was a trust of which OHE was the sole beneficiary. At the same
time, the Trust was indebted in an equal amount to Thomas M. O'Gara. Thomas M.
O'Gara received from the Trust an assignment of the OHE's obligation in
satisfaction of the Trust's indebtedness to him. Thomas M. O'Gara then agreed to
the cancellation of this indebtedness of OHE in exchange for shares of common
stock of OHE equal to 21.5% of the shares of OHE outstanding, giving effect to
such transaction.
Since its incorporation in 1988, OPS was provided certain medical and
general liability insurance coverage under OHE's insurance policies. These
insurance programs were paid for by OPS through monthly and annual premiums
established by OHE's insurance provider. These arrangements were terminated upon
the consummation of the Offering.
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<PAGE> 96
BUILDING LEASE
OLG, Limited, an Ohio limited liability company of which Messrs. Thomas M.
O'Gara, Wilfred T. O'Gara, Allen, Carpinello, Curotto and Lennon own
approximately 91%, 5%, 1%, 1%, 1% and 1% of the outstanding capital stock,
respectively, was formed in March 1996 for the purpose of acquiring and leasing
to OHE O'Gara's facility located at 4175 Mulhauser Road, Fairfield, Ohio. The
building was purchased for approximately $1.8 million and was leased to OHE for
one year, ending March 31, 1997, for $468,000 (plus taxes, insurance and
maintenance costs). OHE exercised an option to renew the lease, at a base rent
of $21,000 per month, through July 1997. Since August 1997, OHE has continued to
utilize the facility on a month to month basis. Previously used for
manufacturing, the facility is currently used for storage. OHE also has an
option to purchase the building for its fair market value.
CONSULTING AGREEMENTS
Excel Metal. OSN, Inc. had a consulting agreement with Excel Metal
pursuant to which Excel Metal provided management consulting services to OSN,
Inc. during calendar year 1996 for a fee of $6,000 per month plus reimbursement
of expenses. The arrangement terminated upon consummation of the Offering.
William S. Sessions. From time to time, Mr. Sessions has provided
consulting services to O'Gara or OHE. During 1994, 1995, 1996 and for the first
six months of 1997, he received $55,000, $25,000, $5,000, and $7,500,
respectively, for sales development assistance related to OHE's commercial
armored products.
Neil P. Saldin. Prior to becoming an officer of O'Gara, Mr. Saldin was a
consultant to OSN from October 1994 through September 1995. The consulting
services, which were managerial and related to the start up of OSN's operations,
were provided through a company controlled by Mr. Saldin, which was paid
$180,000.
Edward F. O'Gara. In 1994, 1995 and 1996, OHE guaranteed certain
consulting agreements between Longline or Excel Armor and Cirrus Systems, Inc.,
a Delaware corporation owned by Edward F. O'Gara, the brother of Thomas M.
O'Gara and Wilfred T. O'Gara. Such agreements were for one year terms for a
total of $120,000 per year and expired December 31, 1996. Thomas M. O'Gara has
agreed to indemnify OHE for any claims made under such guarantees.
EXERCISE OF STOCK OPTIONS AND SALE OF SHARES
On August 23, 1996, Messrs. Thomas M. O'Gara, Wilfred T. O'Gara, Carpinello
and Curotto exercised options previously granted on December 31, 1993 to
purchase 138, 131, 91 and 85 shares of the Common Stock of OHE, respectively, at
a price of $1.00 per share. Giving effect to the Reorganization, the
corresponding numbers of shares of O'Gara Common Stock were 37,667, 35,756,
24,838 and 23,201, respectively, at a price of $0.0037 per share.
On August 23, 1996, Thomas M. O'Gara sold 10 shares of the Common Stock of
OHE to Mr. Carpinello for a price of $468.00 per share (equivalent to 2,730
shares of O'Gara Common Stock for a price of $1.71 per share). O'Gara incurred a
nonrecurring, non-cash expense of approximately $19,890 in the fourth quarter of
1996 in connection with this sale. This expense resulted in a corresponding
increase in additional paid-in capital, and no change in total shareholders'
equity. This expense was not tax deductible and represented the difference
between the net offering price and the net sales price of these shares as if
issued directly by O'Gara.
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<PAGE> 97
PRINCIPAL SHAREHOLDERS OF O'GARA
The following table sets forth certain information regarding the beneficial
ownership of O'Gara Common Stock on October 15, 1997 (on an actual basis and as
adjusted to reflect the consummation of the Merger) by (i) each beneficial owner
of more than 5% of the O'Gara Common Stock immediately prior to or after the
Merger, (ii) each director, nominee for director and named executive officer
individually, (iii) all directors, nominees for director and executive officers
of O'Gara as a group, (iv) all shareholders of O'Gara prior to the Merger and
(v) all shareholders of Kroll prior to the Merger. Unless otherwise indicated,
all shares are owned directly and the indicated owner has sole voting and
dispositive power with respect thereto.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY
TO MERGER(1)(4) OWNED AFTER MERGER(1)(4)
--------------------- -------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------- --------- ------- --------- --
<S> <C> <C> <C> <C>
Thomas M. O'Gara(2)(3)....................... 4,041,838 55.5 4,041,838 29.0
Wilfred T. O'Gara............................ 277,266 3.8 277,266 2.0
Gary W. Allen................................ 16,397 * 16,397 *
Richard L. Curotto........................... 40,087 * 40,087 *
Daniel Gautier(2)............................ 376,597 5.2 376,597 2.7
Michael J. Lennon............................ 18,864 * 18,864 *
Raymond E. Mabus............................. 1,000 * 1,000 *
Hugh E. Price................................ 15,000 * 15,000 *
Jerry E. Ritter.............................. 1,000 * 1,000 *
William S. Sessions.......................... 1,000 * 1,000 *
Jules B. Kroll(2)............................ -- * 3,684,991(5) 26.5
Michael G. Cherkasky......................... -- -- 200,939(6) 1.4
American International Group, Inc.(2)........ -- -- 1,444,197 10.4
Howard I. Smith.............................. -- -- --(7) *
Marshall S. Cogan............................ -- -- -- *
All directors, nominees for director and
executive officers as a group (13 persons
prior to the Merger, 15 persons
thereafter)................................ 4,861,016 65.6 8,850,972(5)(6)(7)(8) 62.3
All shareholders of O'Gara prior to the
Merger..................................... 7,279,310 100.0 7,279,310 52.3
All shareholders of Kroll prior to the
Merger..................................... -- -- 6,650,000 47.7
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Pursuant to the regulations of the Commission, shares are deemed to be
"beneficially owned" by a person if such person directly or indirectly has
or shares the power to vote or dispose of such shares, whether or not such
person has any pecuniary interest in such shares, or has or shares the right
to acquire the power to vote or dispose of such shares within 60 days,
including through the exercise of any option, warrant or right.
(2) Mr. O'Gara's address is 9113 LeSaint Drive, Fairfield, Ohio 45014. Mr.
Gautier's address is Z.I., rue d'Armor B.P. 414, 22404 Lambelle Cedex,
France. Mr. Kroll's address is 900 Third Avenue, New York, New York 10022.
AIG's address is 70 Pine Street, New York, New York 10005.
(3) Includes 793,095 shares held by MeesPierson Management (Guernsey) Ltd. and
373,524 shares held by Union Federal Corporation over which Thomas M. O'Gara
has indirect voting control and 2,864,219 shares held by a family trust.
(4) Includes 101,000 shares of O'Gara Common Stock which all directors, nominees
for directors and executive officers as a group have the right to acquire
upon the exercise of stock options which are exercisable prior to December
15, 1997, including 17,000 shares subject to options held by Wilfred T.
O'Gara, 15,000 shares subject to options held by Gary W. Allen, 15,000
shares subject to options held by Richard L. Currotto, 17,000 shares subject
to options held by Michael J. Lennon, 1,000 shares subject to options held
by Raymond E. Mabus, 15,000 shares subject to options held by Hugh E. Price,
and 1,000 shares subject to options held by William S. Sessions.
(5) Does not include an aggregate of 192,561 shares of O'Gara Common Stock to be
held by trusts for the benefit of Mr. Kroll's adult children, in which
shares Mr. Kroll disclaims any beneficial interest.
(6) Includes 90,529 shares of O'Gara Common Stock which Mr. Cherkasky will have
the right to acquire upon the exercise of stock options originally issued by
Kroll.
(7) Does not include any shares of O'Gara Common Stock to be held by AIG, in
which shares Mr. Smith disclaims any beneficial interest.
(8) Includes 181,058 shares of O'Gara Common Stock which former directors and
executive officers of Kroll will have the right to acquire upon the exercise
of stock options originally issued by Kroll.
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<PAGE> 98
MANAGEMENT OF KROLL
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information, as of September 1,
1997, with respect to the executive officers and directors of Kroll who will
become executive officers and directors of O'Gara at the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH KROLL SINCE
- -------------------------- ----- -------------------------------------------------------- -----
<S> <C> <C> <C>
Jules B. Kroll............ 56 Chairman, Director 1972
Michael G. Cherkasky...... 47 President, Director 1997
Nazzareno E. Paciotti..... 51 Chief Financial Officer, Vice President, Treasurer 1992
Howard I. Smith........... 52 Director 1993
</TABLE>
Jules B. Kroll founded Kroll in 1972 and has been the Chairman of the Board
and Chief Executive Officer of Kroll since then. Mr. Kroll is also a director of
United Auto Group, Inc.
Michael G. Cherkasky has been an Executive Managing Director of Kroll since
April, 1997 and Chief Operating Officer of Kroll since January 1997. From
November 1995 to January 1997, he was the head of Kroll's North American Region
and from February 1994 to November 1995 he was the head of Kroll's Monitoring
Group. From June 1993 to November 1993, Mr. Cherkasky was a candidate for public
office. From 1978 to June, 1993, Mr. Cherkasky was with the District Attorney's
office for New York County, his last position being Chief of the Investigations
Division.
Nazzareno E. Paciotti has been the Chief Financial Officer of Kroll since
June 1992. From January 1990 to June 1992, he was a Managing Director and the
Controller of the Henley Group, and from August 1988 to January 1990, he was a
Vice President and the Controller of PneumoAbex Inc.
Howard I. Smith has been Executive Vice President, Chief Financial Officer
and Comptroller of AIG since 1986. From 1965 until 1984 Mr. Smith was an
accountant with the independent public accounting firm of Coopers & Lybrand. Mr.
Smith is also a director of 20th Century Industries, Inc. and International
Lease Finance Corp.
EXECUTIVE COMPENSATION
The following table shows the compensation awarded or paid by Kroll for
services rendered for the years ended December 31, 1994, 1995 and 1996 to Jules
B. Kroll, Chairman of the Board and Chief Executive Officer of Kroll, and
Messrs. Cherkasky and Paciotti, the executive officers of Kroll who will become
executive officers of O'Gara at the Effective Time:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND -------------------------- ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION
AT 1996 FISCAL YEAR-END YEAR ($) $ $ $ (#) $(1)(2)
- -------------------------------- ---- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jules B. Kroll.................. 1996 $500,000 $75,000 -- $ -- -- $ 31,715
Chairman and Chief 1995 500,000 -- -- -- -- 30,395
Executive Officer 1994 500,000 -- -- -- -- 29,076
Michael G. Cherkasky............ 1996 300,000 75,000 898 -- 1,098 26,767
Head of North 1995 260,000 -- 898 -- 350 25,971
American Region 1994 170,513 16,201 -- 20,700 -- --
Nazzareno E. Paciotti........... 1996 225,520 50,000 -- -- 1,098 24,984
Chief Financial Officer 1995 225,520 -- -- -- 350 22,797
1994 205,520 20,000 -- -- -- 22,111
</TABLE>
- ---------------
(1) Represents contributions to the Kroll Associates, Inc. Money Purchase
Pension Plan and 401(k) Savings Plan.
(2) Includes annual cost of a supplemental disability benefit.
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<PAGE> 99
RESTRICTED STOCK
Restricted Stock Plan. Kroll adopted the Kroll Restricted Stock Plan on
June 15, 1993, and subsequently amended the Kroll Restricted Stock Plan on
November 10, 1993. The Kroll Restricted Stock Plan is administrated by a
committee elected by the Kroll Board of Directors (the "Kroll Restricted Stock
Committee"). The Kroll Restricted Stock Committee has broad discretion in
determining which employees of Kroll (excluding Jules B. Kroll who is not
eligible to participate in the Kroll Restricted Stock Plan) are eligible to
receive awards of restricted Kroll Common Stock. The Kroll Restricted Stock Plan
Committee also has the power to set the vesting schedule of any shares of
restricted stock granted pursuant to the Kroll Restricted Stock Plan. The Kroll
Restricted Stock Plan contains, among other transfer restrictions, certain put
rights, certain rights of first refusal in favor of Kroll, certain tag-along
rights and certain call rights in favor of Kroll with respect to any sale or
transfer of any Kroll Common Stock which was granted pursuant to the Kroll
Restricted Stock Plan. All of these restrictions will terminate at the Effective
Time. Subject to applicable law and the discretion of the Kroll Restricted Stock
Committee, awards of Kroll Common Stock made pursuant to the Kroll Restricted
Stock Plan are typically granted at no purchase price to the recipient. Subject
to the provisions of the Kroll Restricted Stock Plan, shares of Kroll Common
Stock issued pursuant to a restricted stock award may not be sold or transferred
until the ownership in the restricted shares vests. Upon the consummation of the
Merger, all shares of Kroll Common Stock issued pursuant to the Kroll Restricted
Stock Plan will immediately vest and will be converted into shares of O'Gara
Common Stock.
A maximum of 9,240 shares of Kroll Common Stock were available for awards
under the Kroll Restricted Stock Plan. All of such shares have been awarded. As
of the date hereof, 8,443 shares of Kroll Common Stock remain outstanding under
the Kroll Restricted Stock Plan, including 150 shares held by Michael G.
Cherkasky and 213 shares held by Nazzareno E. Paciotti.
Other Restricted Stock Grants. In January, 1997, Kroll awarded 1,616
shares of restricted Kroll Common Stock to Mr. Cherkasky, in connection with his
appointment as President of Kroll, on terms substantially similar to the terms
set forth in the Kroll Restricted Stock Plan.
Outstanding Restricted Stock Grants. As of the date hereof, Messrs.
Cherkasky and Paciotti own 1,766 and 213 shares, respectively, of restricted
Kroll Common Stock. Assuming the conversion of each share of restricted Kroll
Common Stock into 62.52 shares of O'Gara Common Stock and assuming an $ per
share value of O'Gara Common Stock, based on the price of O'Gara Common Stock on
, the value of the restricted Kroll Stock to each of Messrs. Cherkasky
and Paciotti would be $ and $ , respectively.
STOCK OPTIONS
Management Stock Option Plan. The Kroll Management Stock Option Plan is
managed by a committee appointed by the Kroll Board of Directors (the "Kroll
Management Stock Option Plan Committee"). The Kroll Management Stock Option Plan
Committee has the power to grant options, determine eligible employees,
determine the number of shares of Kroll Common Stock subject to options,
prescribe the form of the option grant, and determine the vesting of the
options. Any option issued pursuant to the Kroll Management Stock Option Plan
shall expire on the tenth anniversary of the grant date. An option enables the
option holder to purchase shares of Kroll Common Stock at the option exercise
price. The per share exercise price of any option granted under the Kroll
Management Stock Option Plan is determined by a formula set forth in the Kroll
Management Stock Option Plan based on an appraisal of Kroll. The Kroll
Management Stock Option Plan provides that Kroll has the option to pay the
option holder either in cash or Kroll Common Stock upon the exercise of an
option granted thereunder. The Kroll Management Stock Option Plan contains
certain restrictions on the transfer of Kroll Common Stock issued pursuant to
such plan, including certain put rights, certain rights of first refusal in
favor of Kroll, certain tag-along rights and certain call rights in favor of
Kroll. All of these restrictions will terminate upon the consummation of the
Merger. Upon the consummation of the Merger, all options under the Kroll
Management Stock Option Plan will vest and be converted into options to purchase
shares of O'Gara Common Stock.
As of the date hereof, there were options relating to 6,625 shares of Kroll
Common Stock outstanding pursuant to the Kroll Management Stock Option Plan,
including options to purchase 350 shares of Kroll Common
93
<PAGE> 100
Stock at a price of $400 per share granted to each of Messrs. Cherkasky and
Paciotti. Assuming such options are exercised and all such shares of Kroll
Common Stock are converted to O'Gara Common Stock at the exchange ratio of 62.52
shares of O'Gara Common Stock for each share of Kroll Common Stock, the value of
these options to each of Messrs. Cherkasky and Paciotti will be $ and
$ , respectively (based on the price of O'Gara Common Stock on
, 1997).
Stock Option and Stockholder Agreements. On January 29, 1996, Mr.
Cherkasky and Mr. Paciotti each entered into a Stock Option and Stockholder
Agreement with Jules B. Kroll and Kroll. Pursuant to each such agreement,
Messrs. Cherkasky and Paciotti were each granted on the date of the agreement
the option to purchase 1,098 shares of Kroll Common Stock at an exercise price
of $150 per share. As of the date hereof, all of such options have vested. If
the Merger is consummated, all such options granted pursuant to the Stock Option
and Stockholder Agreements expire on the tenth anniversary of the date of the
grant of the options. The Kroll Common Stock issued pursuant to the Stock Option
and Stockholder Agreements is subject to certain transfer restrictions,
including, but not limited to, certain put rights, certain rights of first
refusal in favor of Kroll, certain tag-along rights and certain call rights in
favor of Kroll. All of these restrictions will terminate upon the consummation
of the Merger. Assuming such options are exercised and all such shares of Kroll
Common Stock are converted to O'Gara Common Stock at the exchange ratio of 62.52
shares of O'Gara Common Stock for each share of Kroll Common Stock, the value of
these options to each of Messrs. Cherkasky and Paciotti will be $ and
$ , respectively (based on the price of O'Gara Common Stock on
, 1997).
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS -- KROLL
CERTAIN LOAN AND OTHER TRANSACTIONS
Jules B. Kroll has borrowed an aggregate of $1,345,499 from Kroll. Of this
amount, $748,000 is represented by a promissory note that bears interest at an
annual rate equal to the Prime Rate plus 1% and $597,499 is represented by a
promissory note that bears interest at an annual rate of 7% (equal to the Prime
Rate at the date of the loan plus 1%). As of June 30, 1997, principal and
accrued interest in the aggregate amount of $1,373,720 was outstanding under
these notes. These loans will be repaid in full prior to the consummation of the
Merger and are expected to be repaid in connection with the payment by Kroll to
Jules B. Kroll of the amounts it owes to him as described in the next paragraph.
Since 1989 Jules B. Kroll has loaned an aggregate of $1,806,999 to Kroll,
of which $152,000 has been repaid and an aggregate of $1,654,999 was outstanding
as of June 30, 1997. Of the outstanding amount, $1,057,500 is represented by
promissory notes that bear interest at an annual rate equal to the Prime Rate
from time to time in effect plus 1% and $597,499 is represented by promissory
notes that bear interest at an annual rate of 7% (equal to the Prime Rate at the
date of the loan plus 1%). As of June 30, 1997, principal and accrued interest
in the aggregate amount of $1,690,571 was outstanding under these notes. Prior
to the Merger, these loans will be repaid to the extent of the amounts owed to
Kroll by Jules B. Kroll under the loans described in the preceding paragraph.
The remaining amount will be reflected by a new promissory note issued by O'Gara
in the principal amount of $309,500, which will bear interest at an annual rate
1/2% below the Prime Rate from time to time in effect. The accrued interest
described in the preceding paragraph and the accrued interest described in this
paragraph will be repaid in full prior to consummation of the Merger.
In addition, since 1989, Jules B. Kroll has made open account advances to
Kroll from time to time in the aggregate principal amount of $9,695,136, of
which $5,532,678 has been repaid and $4,162,458 was outstanding as of June 30,
1997. These advances were utilized by Kroll for working capital purposes. Of the
outstanding amount, $3,033,349 bears interest at an annual rate equal to the
Prime Rate, from time to time, plus 1% and $1,129,109 bears interest at an
annual rate equal to the brokers' loan rate (7.625% at June 30, 1997) from time
to time in effect. As of June 30, 1997, principal and accrued interest in the
aggregate amount of $4,244,649 was owed by Kroll to Jules B. Kroll under these
advances, all of which amounts will be repaid upon the consummation of the
Merger (see "THE MERGER -- Financing the Merger"). The Merger Agreement also
contemplates that Jules B. Kroll may make further advances to Kroll of up to
$1,000,000 prior to the Effective
94
<PAGE> 101
Time. Any such additional advances, together with accrued interest thereon at an
annual rate equal to the Prime Rate plus 1%, will be repaid in full upon the
consummation of the Merger.
On each of July 28, 1995 and July 29, 1995 AIG loaned to Kroll $1,000,000.
Such loans are evidenced by demand promissory notes in the aggregate principal
amount of $2,000,000 and bear interest at an annual rate equal to the Citibank
N.A. base rate from time to time in effect plus 2%. As of June 30, 1997,
principal and accrued interest in the aggregate amount of $2,053,083 was
outstanding under these notes. These notes will be repaid in full upon the
consummation of the Merger (see "THE MERGER -- Financing the Merger").
During 1994, 1995 and 1996, Kroll rendered services to AIG. Such services
consisted of risk management services, including marketing support, and claims
investigations. Kroll billed AIG for such services $3,158,113, $3,868,967 and
$5,325,559 in 1994, 1995 and 1996, respectively. Since 1995, Kroll has purchased
certain of its liability insurance, including Professional Errors and Omissions
and Directors and Officers liability insurance, from AIG. AIG billed Kroll
$485,807 and $824,348 for this insurance during 1995 and 1996, respectively.
Kroll obtained the coverage through an independent insurance broker that had
obtained competitive proposals from unrelated third parties. Effective April 1,
1996, Kroll and American Insurance Underwriters ("AIU"), an affiliate of AIG,
entered into an agreement pursuant to which Kroll agreed to provide AIU with
certain crisis management and marketing services through November 30, 1998. The
agreement provides for an annual retainer ($2,288,640 for 1997), subject to
certain adjustments, and is payable quarterly in advance.
95
<PAGE> 102
PRINCIPAL SHAREHOLDERS OF KROLL
The following table sets forth certain information as of June 30, 1997 with
respect to the beneficial ownership of shares of Kroll Stock by (i) each person
that beneficially owns more than 5% of the outstanding shares of Kroll Stock,
(ii) each director of Kroll who will become a director of O'Gara upon the
Effective Time, (iii) each executive officer of Kroll who will become an
executive officer of O'Gara upon the Effective Time, and (iv) all such executive
officers and directors as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF KROLL STOCK PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS BENEFICIALLY OWNED(1) KROLL STOCK(1)
- ------------------------------------------ ------------------------------- -------------------------
<S> <C> <C>
Jules B. Kroll
900 Third Avenue
New York, New York 10022.................. 58,941(2)(3) 60.4
American International Group, Inc.
70 Pine Street
New York, New York 10005.................. 23,100(4) 23.7
Michael G. Cherkasky
900 Third Avenue
New York, New York 10022.................. 3,214(3)(5)(6) 3.2
Nazzareno E. Paciotti
900 Third Avenue
New York, New York 10022.................. 1,661(3)(6)(7) 1.7
Howard I. Smith
70 Pine Street
New York, New York 10005.................. --(8) --
All executive officers and directors, as a
group (4 people)........................ 63,816(2)(3)(5)(7)(8)(9) 63.5
</TABLE>
- ---------------
(1) Unless otherwise indicated each person listed above has sole voting and
investment power with respect to all shares of Kroll Stock owned by such
person. The percentage of outstanding Kroll Stock owned by each such person
is determined by assuming that all options held by such person have been
exercised and that the restrictions with respect to all shares of restricted
stock held by such person have lapsed. See "MANAGEMENT OF KROLL -- Stock
Options" and "MANAGEMENT OF KROLL -- Restricted Stock."
(2) Does not include an aggregate of 3,080 shares of Kroll Common Stock held by
trusts for the benefit of Mr. Kroll's adult children, in which shares Mr.
Kroll disclaims any beneficial interest.
(3) Consists of Kroll Common Stock.
(4) Consists of Kroll Class A Common Stock.
(5) Includes 1,766 shares of Kroll Common Stock issued under the Kroll
Restricted Stock Plan and under a restricted stock agreement. See
"MANAGEMENT OF KROLL -- Restricted Stock."
(6) Includes, for each of Mr. Cherkasky and Mr. Paciotti, (a) 1,098 shares of
Kroll Common Stock issuable upon the exercise of options expiring in 2006,
granted under a stock option and stockholder agreement, at $150 per share,
and (b) 350 shares of Kroll Common Stock issuable upon the exercise of
options, expiring in 2005, granted under the Kroll Management Stock Option
Plan at $400 per share. See "MANAGEMENT OF KROLL -- Stock Options."
(7) Includes 213 shares of shares of Kroll Common Stock issued under the Kroll
Restricted Stock Plan. See "MANAGEMENT OF KROLL -- Restricted Stock."
(8) Does not include shares of Kroll Class A Stock owned by AIG, in which shares
Mr. Smith disclaims any beneficial interest.
(9) Includes an aggregate of 2,896 shares of Kroll Stock issuable upon the
exercise of the options described in note 6 above. See "MANAGEMENT OF
KROLL -- Stock Options."
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<PAGE> 103
THE O'GARA CAPITALIZATION PROPOSAL
The O'Gara Board is proposing an amendment to the O'Gara Articles to
increase the number of authorized shares of O'Gara Preferred Stock and O'Gara
Common Stock to 1,000,000 and 50,000,000, respectively.
The proposed increase in the number of authorized shares has been deemed
advisable by the O'Gara Board in order to provide additional authorized but
unissued shares for issuance from time to time for such proper corporate
purposes as may be determined by the O'Gara Board, without further action or
authorization by the shareholders. Such corporate purposes might include the
raising of additional capital through the issuance of stock, the acquisition of
other companies, or the declaration of stock splits and/or stock dividends.
Although O'Gara from time to time considers possible acquisitions involving the
issuance of stock other than the Merger, it is not presently engaged in
negotiations concerning any transaction involving the issuance of additional
shares.
On October 15, 1997, there were issued and outstanding 7,279,310 shares of
O'Gara Common Stock, of which 614,917 were issued in 1997 in connection with the
Acquisitions. In addition, a total of 274,050 shares were reserved for issuance
pursuant to the Plan and an additional 6,650,000 shares will be issued or
reserved for issuance if the Merger is consummated.
The proposed increase in the number of authorized shares of O'Gara
Preferred Stock or O'Gara Common Stock will not change the rights of holders of
currently outstanding shares of O'Gara Common Stock. The newly authorized shares
will have the same rights as currently outstanding shares. Current shareholders
of O'Gara would not have any preemptive rights to purchase a portion of the
newly authorized shares.
The increase in authorized but unissued shares may have an incidental
anti-takeover effect in that additional shares could be used to dilute the stock
ownership of persons seeking to obtain control of O'Gara. The resulting effect
may be to render more difficult or to discourage the possibility of certain
mergers, tender offers or proxy contests. For a description of other existing
possible anti-takeover provisions, see "RISK FACTORS -- Risk Factors Associated
with the Merger -- Potential Anti-Takeover Effect and Potential Adverse Impact
on Market Price of Certain Charter and Code of Regulations Provisions and the
OGCL," "DESCRIPTION OF O'GARA CAPITAL STOCK" and "COMPARISON OF SHAREHOLDERS'
RIGHTS."
If the proposed amendment is approved, all or any part of the authorized
but unissued shares may thereafter be issued without further approval from the
shareholders, except as required by the OGCL or the policies of the Nasdaq
National Market, for such purposes and on such terms as the O'Gara Board may
determine. O'Gara is not presently subject to any law or stock exchange policy
which would require further shareholder approval prior to the issuance of O'Gara
Common Stock, except in limited situations involving the issuance of a
substantial block of stock.
THE O'GARA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE O'GARA
CAPITALIZATION PROPOSAL.
97
<PAGE> 104
DESCRIPTION OF O'GARA CAPITAL STOCK
O'Gara's authorized capital stock consists of 25,000,000 (to be increased
to 50,000,000 if the O'Gara Capitalization Proposal is approved) shares of
Common Stock, $0.01 par value per share, of which 7,279,310 shares are
outstanding as of the date of this Proxy Statement/Prospectus, and 100,000 (to
be increased to 1,000,000 if the O'Gara Capitalization Proposal is approved)
shares of undesignated preferred stock, $0.01 par value per share, none of which
is issued or outstanding. See "THE O'GARA CAPITALIZATION PROPOSAL." The
following description of the material terms of the capital stock of O'Gara is
qualified in its entirety by the provisions of the O'Gara Articles and the
O'Gara Code and by the provisions of the OGCL.
COMMON STOCK
Holders of O'Gara Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Shareholders do
not have the right to cumulate their votes in the election of directors.
Subject to preferences which may be granted to holders of O'Gara Preferred
Stock, holders of O'Gara Common Stock are entitled to share in such dividends as
the Board of Directors, in its discretion, may validly declare from funds
legally available. In the event of liquidation, each outstanding share of O'Gara
Common Stock entitles its holder to participate ratably in the assets remaining
after payment of liabilities and any preferred stock liquidation preferences.
Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of
O'Gara. There are no redemption or sinking fund provisions with regard to the
O'Gara Common Stock. All outstanding shares of O'Gara Common Stock are fully
paid, validly issued and nonassessable.
The vote of holders of a majority of all outstanding shares of O'Gara
Common Stock is required to amend the O'Gara Articles and to approve mergers,
reorganizations, and similar transactions.
PREFERRED STOCK
Up to 100,000 (to be increased to 1,000,000 if the O'Gara Capitalization
Proposal is approved) authorized shares of O'Gara Preferred Stock may be issued
from time to time in series having such designations, preferences and rights,
qualifications and limitations as the O'Gara Board may determine without any
approval of shareholders. O'Gara Preferred Stock could be given rights which
would adversely affect holders of O'Gara Common Stock and could have preference
to O'Gara Common Stock with respect to dividend and liquidation rights. Issuance
of O'Gara Preferred Stock could have the effect of acting as an anti-takeover
device to prevent a change of control of O'Gara.
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CHANGES IN CONTROL
Ohio law, which governs the rights of shareholders of O'Gara, contains
several provisions which may be viewed as having an anti-takeover effect. See
"COMPARISON OF SHAREHOLDERS' RIGHTS -- Anti-takeover Statutes." While O'Gara
believes that these provisions are in its best interests, potential shareholders
should be aware that such provisions could be disadvantageous to them because
the overall effect of these statutes may be to render more difficult or
discourage the removal of incumbent management or the assumption of effective
control by other persons.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the O'Gara Common Stock is The Fifth
Third Bank, Cincinnati, Ohio.
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SHARES OF O'GARA COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger, there will be outstanding 13,929,310 shares
of O'Gara Common Stock (assuming the exercise of all Kroll stock options and no
exercise of outstanding O'Gara stock options). The 6,650,000 shares of O'Gara
Common Stock to be issued in the Merger will be freely tradeable by persons
other than "affiliates" of O'Gara and Kroll, as that term is defined in Rule 144
under the Act, without restriction or registration under the Act. See "THE
MERGER -- Federal Securities Law Consequences." In addition, all of the shares
of O'Gara Common Stock sold in the Offering are freely tradeable. The remaining
approximately 4.8 million shares (the "Restricted Shares") have been
beneficially owned primarily by certain of O'Gara's executive officers or
directors since prior to the Offering or were issued in the Acquisitions or as
stock bonuses to certain executive officers of O'Gara paid in the first quarter
of 1997. The Restricted Shares may not be sold unless they are registered under
the Act or sold pursuant to an applicable exemption from registration, including
an exemption pursuant to Rule 144.
Rule 144 governs the public sale in ordinary trading transactions of
"restricted securities" and of securities owned by "affiliates." Restricted
securities are securities acquired directly or indirectly from an issuer in a
transaction not involving a public offering. In general, under Rule 144, if a
holding period of at least one year has elapsed since the date the restricted
securities were acquired from O'Gara, then the holder of such restricted
securities (including an affiliate of O'Gara) is entitled, subject to certain
conditions, to sell within any three-month period a number of shares which does
not exceed the greater of (i) 1% of O'Gara's then outstanding shares of Common
Stock or (ii) the shares' average weekly trading volume during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions and requirements as to notice and the availability of
current public information about O'Gara. Of the Restricted Shares, approximately
4.2 million currently are eligible for sale pursuant to Rule 144; and the
remainder will become eligible for sale under Rule 144 in the first quarter of
1998 upon the first anniversary of the Acquisitions.
Pursuant to Rule 145 under the Act, resale of the shares of O'Gara Common
Stock acquired in the Merger by affiliates of Kroll prior to the Merger, or
O'Gara thereafter, will be subject to the provisions of Rule 144 (other than the
holding period requirement).
O'Gara has agreed to register certain of the Restricted Shares for sale
under the Act under certain circumstances. See "THE MERGER
AGREEMENT -- Registration Rights Agreements."
O'Gara has reserved up to 400,000 shares of O'Gara Common Stock for
issuance under the Plan. If the O'Gara Option Proposal is approved, the number
of shares subject to the Plan will be increased to 836,000. As of October 15,
1997, options for 274,050 shares of O'Gara Common Stock were outstanding under
the Plan. O'Gara has registered the shares of O'Gara Common Stock reserved for
issuance under the Plan. Subject to compliance with Rule 144 by affiliates of
O'Gara and to Section 16 of the Exchange Act by directors, officers and 10%
beneficial owners, any shares of O'Gara Common Stock issued upon exercise of
options granted under the Plan will be freely tradeable. O'Gara will reserve up
to an additional 551,489 shares of O'Gara Common Stock with respect to shares of
Kroll Stock subject to Kroll Issuance Agreements. See "THE MERGER AGREEMENT --
Conversion of Kroll Stock." O'Gara expects to register, effective at or about
the Effective Time, the shares of O'Gara Common Stock reserved for issuance
after the Effective Time with respect to Kroll Issuance Agreements.
Sales of substantial amounts of O'Gara Common Stock in the public market
could adversely affect prevailing market prices and O'Gara's ability to raise
capital at favorable prices.
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COMPARISON OF SHAREHOLDERS' RIGHTS
O'Gara is organized under the laws of the State of Ohio and Kroll is
organized under the laws of the State of Delaware. The following discussion
summarizes certain differences between the O'Gara Articles and the O'Gara Code
and the Certificate of Incorporation (the "Kroll Certificate") and Bylaws (the
"Kroll Bylaws") of Kroll and between certain provisions of the DGCL and the OGCL
affecting shareholders' rights.
Authorized Capital. The total number of authorized shares of capital stock
of Kroll is 200,000, consisting of 153,800 shares of Kroll Common Stock and
46,200 shares of Kroll Class A Common Stock. The authorized capital of O'Gara is
set forth under "DESCRIPTION OF O'GARA CAPITAL STOCK."
Directors. The O'Gara Code provides for no fewer directors than the lesser
of three or the number of shareholders of record, which number may be fixed or
changed upon approval of a majority of the shareholders or by action of the
O'Gara Board. Kroll's Bylaws provide for no fewer than three nor more than 10
directors, which number may be increased by the affirmative approval of a
majority of the Kroll directors at an annual or special meeting or the
affirmative approval of a majority in interest of the Kroll shareholders.
Amendment of Code of Regulations and Bylaws. The O'Gara Code may be
amended, pursuant to its terms, by the affirmative approval of the O'Gara
shareholders entitled to exercise a majority of the voting power of O'Gara. The
Kroll Certificate provides that the Kroll Board has the power by vote of the
majority of the Kroll directors and without the assent of the shareholders to
make, alter, amend, change, add to or repeal the Kroll Bylaws. Pursuant to its
terms, the Kroll Bylaws may be altered or repealed by the affirmative vote of
the holders of a majority of the outstanding capital stock entitled to vote
thereon.
Amendment of Charter Documents. Under the OGCL (as implemented by the
O'Gara Articles) and the DGCL, the affirmative vote of a majority of the
outstanding shares entitled to vote is required to amend a certificate of
incorporation or articles of incorporation, as the case may be. In addition,
amendments which make changes relating to the capital stock by increasing or
decreasing the par value or the aggregate number of authorized shares of a
class, or otherwise adversely affecting the rights of such class, must be
approved by the majority vote of each class or series of stock affected, even if
such stock would not otherwise have such voting rights.
Cumulative Voting. Cumulative voting permits a shareholder to cast as many
votes in the election of directors for each share of stock held as there are
directors to be elected and each shareholder may cast all his votes for a single
candidate or distribute such votes among two or more candidates. Under the OGCL,
cumulative voting is permitted unless the articles of incorporation otherwise
provide. Under the DGCL, cumulative voting is permitted only if it is provided
for in the certificate of incorporation. The Kroll Certificate does not provide
for, and the O'Gara Articles expressly prohibit, cumulative voting for
directors.
Filling Vacancies on the Board of Directors. Pursuant to the O'Gara Code,
any vacancy on the O'Gara Board may be filled for the unexpired portion of the
term by the vote of a majority of the remaining O'Gara directors then in office.
Under the Kroll Bylaws, any vacancy in the Kroll Board may be filled for the
unexpired portion of the term by the vote of a majority of the remaining Kroll
directors then in office.
Shareholder Meetings and Provisions for Notices. The O'Gara Code provides
that special meetings of shareholders may be called by the Chairman of the
Board, the President, a majority of directors, or person or persons holding 50%
of all voting power who would be entitled to vote at such meeting. Special
meetings of the shareholders may not be called by any other person or persons.
The Kroll Bylaws provide that a special meeting of shareholders may be called by
the President or Secretary or by resolution of the Kroll Board.
Pursuant to the O'Gara Code, written notice of any meeting of shareholders
stating the time and place of the meeting shall be given to each shareholder
entitled to vote at such meeting between seven and 60 days before the date of
such meeting. Written notice of a special meeting must also include the purpose
or purposes for which the meeting is called, and only such business as is stated
in such notice shall be acted upon thereat. Under the Kroll Bylaws, notice of
the time and place of annual or special meetings of shareholders shall be given
at least 10 days before the date of such annual or special meeting to each
shareholder entitled to vote thereat.
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Under the OGCL, a proxy is valid for 11 months from its date, unless the
proxy provides otherwise. Under the DGCL, a proxy is valid for three years from
its date, unless the proxy provides for a longer period.
Notice of Director Nominations and New Business. The O'Gara Code provides
that, with respect to an annual meeting of shareholders, nominations of persons
for election to the O'Gara Board and the proposal of business to be considered
at the annual meeting must be (i) specified in the notice of annual meeting
given by or at the direction of the O'Gara Board, (ii) brought before the annual
meeting by or at the direction of the O'Gara Board, or (iii) brought before the
annual meeting by a shareholder who has complied with the advance notice
procedures set forth in the O'Gara Code. There is no similar provision in the
Kroll Certificate or the Kroll By-laws.
Quorum. Under the O'Gara Code, a quorum for the transaction of business at
any regular or special meeting of the O'Gara Board consists of not less than
one-half of the whole authorized number of directors. Under the Kroll Bylaws, a
quorum for the transaction of business at any regular or special meeting of the
Kroll Board consists of a majority of the directors of the Kroll Board.
Under the O'Gara Code, a quorum for the transaction of business at any
shareholder meeting consists of a number of shareholders representing the
majority of the voting power of O'Gara, present in person or represented by
proxy. Under the Kroll Bylaws, a quorum for the transaction of business at any
shareholder meeting consists of shareholders holding a majority of the stock of
Kroll entitled to vote, present in person or by proxy.
Preemptive Rights. Under the OGCL, shareholders have preemptive rights,
subject to certain limitations expressed in the OGCL, unless the articles of
incorporation provide otherwise. The O'Gara Articles prohibit O'Gara
shareholders from exercising preemptive rights. Under the DGCL, shareholders
have no preemptive rights unless such rights are provided for in the certificate
of incorporation. The Kroll Certificate does not provide for preemptive rights.
Voting by Shareholders. Under the O'Gara Code, except as otherwise
required by law, the O'Gara Articles or the O'Gara Code, action by O'Gara
shareholders is taken by the vote of the holders of a majority of the stock
represented and entitled to vote at a meeting of shareholders at which a quorum
is present. Under the Kroll Bylaws, except as otherwise required by law, the
Kroll Certificate or the Kroll Bylaws, action by Kroll shareholders is taken by
the vote of the holders of a majority of the stock entitled to vote.
Anti-takeover Statutes. Section 203 of the DGCL (the "Delaware Statute")
applies to a broad range of "business combinations" between a Delaware
corporation and an "interested shareholder." The Delaware Statute definition of
"business combination" includes mergers, sales of assets, issuance of voting
stock and almost any related party transaction.
The Delaware Statute prohibits a corporation from engaging in a business
combination with an interested shareholder for a period of three years following
the date on which the shareholder became an "interested shareholder" unless (i)
the board of directors approved the business combination before the shareholder
became an "interested shareholder," (ii) upon consummation of the transaction
which resulted in the shareholder becoming an "interested shareholder," such
shareholder owned at least 85% of the voting stock outstanding when the
transaction began, or (iii) the board of directors approved the business
combination after the shareholder became an "interested shareholder" and the
business combination was approved by at least two-thirds of the outstanding
voting stock not owned by such shareholder. An "interested shareholder" is
defined as any person who owns, directly or indirectly, 15% or more of the
outstanding voting stock of a corporation. A person "owns" voting stock if such
person individually or with or through any of its affiliates or associates (i)
beneficially owns such stock, directly or indirectly, (ii) has the right to
acquire or vote such stock pursuant to any agreement (except that a person who
has the right to vote such stock pursuant to an agreement which arises solely
from a revocable proxy given in response to a proxy solicitation made to ten or
more persons is not deemed to be an owner for purposes of the Delaware Statute),
or (iii) has any agreement for the purposes of acquiring, holding, voting or
disposing of such stock with any other person who beneficially owns such stock,
directly or indirectly.
Chapter 1704 of the Ohio Revised Code (the "Merger Moratorium Provisions")
prohibits certain business combinations and transactions between an "issuing
public corporation" and a beneficial owner of 10% or more of the shares of the
corporation (an "interested shareholder") for at least three years after the
interested
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shareholder attains 10% ownership, unless the board of directors of the issuing
public corporation approves the transaction before the interested shareholders
attains 10% ownership. Accordingly, the Merger Moratorium Provision may be
viewed as having an anti-takeover effect. An "issuing public corporation" is
defined as an Ohio corporation with 50 or more shareholders that has its
principal place of business, principal executive offices, or substantial assets
within the State of Ohio, and as to which no close corporation agreement exists.
O'Gara is an "issuing public corporation." Examples of transactions regulated by
the Merger Moratorium Provisions include the disposition of assets, mergers,
consolidations, voluntary dissolutions and the transfer of shares ("Moratorium
Transactions"). Subsequent to the three-year period, a Moratorium Transaction
may take place provided that certain conditions are satisfied, including that
(a) the board of directors approves the transaction, (b) the transaction is
approved by the holders of shares with at least two-thirds of the voting power
of the corporation (or a different proportion set forth in the articles of
incorporation), including at least a majority of the outstanding shares after
excluding shares controlled by the interested shareholder, or (c) the business
combination results in shareholders, other than the interested shareholder,
receiving a fair price plus interest for their shares. One significant effect of
the Merger Moratorium Provisions is to encourage a person to negotiate with the
board of directors of a corporation prior to becoming an interested shareholder.
Although the Merger Moratorium Provisions may apply, a corporation may elect not
to be covered by the Merger Moratorium Provisions, or subsequently elect to be
covered, with an appropriate amendment to its articles of incorporation. O'Gara
has not taken action to opt out of the Merger Moratorium Provisions.
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
Although the Merger Moratorium Provisions are similar to the Delaware
Statute in some respects, there are significant differences. The Merger
Moratorium Provisions are triggered by the acquisition of 10% of the voting
power of a subject Ohio corporation rather than 15%. The prohibition imposed by
the Merger Moratorium Provisions continues indefinitely after the initial
three-year period unless the subject transaction is approved by the requisite
vote of the shareholders or satisfies statutory conditions relating to the
fairness of consideration received by shareholders who are not interested in the
subject transaction. During the initial three-year period the prohibition is
absolute absent prior approval by the board of directors of the acquisition of
voting power by which a person became an "interested shareholder" or of the
subject transaction. The Merger Moratorium Provisions do not provide any
exemption for an interested shareholder who acquires a significant percentage of
stock in the transaction which resulted in the shareholder becoming an
"interested shareholder" as does the Delaware Statute. The Merger Moratorium
Provisions' definition of "beneficial owner" of shares is essentially similar to
that of the Delaware Statute except that the Merger Moratorium Provisions do not
expressly exclude from the definition of beneficial owner a person who has the
right to vote stock pursuant to an agreement which arises solely from a
revocable proxy.
Section 1701.831 of the OGCL (the "Control Share Acquisition Act") provides
that certain notice and informational filings and special shareholder meetings
and voting procedures must occur prior to consummation of a proposed "Control
Share Acquisition," which is defined as any acquisition of an issuer's shares
that would entitle the acquirer to exercise or direct the voting power of the
issuer in the election of directors within any of the following ranges: (a)
one-fifth or more but less than one-third of such voting power; (b) one-third or
more but less than a majority of such voting power; or (c) a majority or more of
such voting power. Assuming compliance with the notice and information filing
requirements prescribed by the statute, the proposed Control Share Acquisition
may take place only if, at a duly convened special meeting of shareholders, the
acquisition is approved by both a majority of the voting power of the issuer
represented at the meeting and a majority of the voting power remaining after
excluding the combined voting power of the intended acquirer and the directors
and officers of the issuer. The Control Share Acquisition Act does not apply to
a corporation whose articles of incorporation or regulations so provide. O'Gara
has not opted out of the application of the Control Share Acquisition Act.
Delaware law contains no provisions comparable to Ohio's Control Share
Acquisition Act. The Control Share Acquisition Act does not apply to the
acquisition by Kroll shareholders of shares of O'Gara Common Stock in the
Merger.
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The expressed purpose of the Control Share Acquisition Act is to give
shareholders of Ohio corporations a reasonable opportunity to express their
views on a proposed shift in control, thereby reducing the coercion inherent in
an unfriendly takeover. The provisions of the Control Share Acquisition Act
grant to the shareholders of O'Gara the assurance that they will have adequate
time to evaluate the proposal of the acquiring person, that they will be
permitted to vote on the issue of authorizing the acquiring person's purchase
program to go forward in the same manner and with the same proxy information
that would be available to them if a proposed merger of O'Gara were before them
and, most importantly, that the interests of all shareholders will be taken into
account in connection with such vote and the probability will be increased that
they will be treated equally regarding the price to be offered for their common
shares if the implementation of the proposal is approved.
The Control Share Acquisition Act applies not only to traditional offers
but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Act could render
approval of any control share acquisition difficult in that the transaction must
be authorized at a special meeting of shareholders, at which a quorum is
present, by the affirmative vote of the majority of the voting power represented
and by a majority of the portion of such voting power excluding "interested
shares." It is recognized that any corporate defense against persons seeking to
acquire control may have the effect of discouraging or preventing offers which
some shareholders might find financially attractive. On the other hand, the need
on the part of the acquiring person to convince the shareholders of O'Gara of
the value and validity of his offer may cause such offer to be more financially
attractive in order to gain shareholder approval.
Section 1701.59 of the OGCL provides that in determining what such director
reasonably believes to be in the best interests of the corporation the director
may consider, in addition to the interests of the corporation's shareholders,
any of the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the State of Ohio and the U.S., community and societal
considerations and the long-term as well as the short-term interests of the
corporation and its shareholders, including the possibility that these interests
may be best served by the continued independence of the corporation.
Mergers and Consolidations. Under the OGCL, an agreement of merger or
consolidation must be approved by the directors of each constitue corporation
and adopted by shareholders of each constituent Ohio corporation (other than the
surviving corporation) holding at least two-thirds of the corporation's voting
power, or a different proportion, but not less than a majority of the voting
power, as provided in the articles of incorporation. In the case of a merger,
the agreement must, in certain situations, also be adopted by the shareholders
of the surviving corporation by a similar vote. The O'Gara Articles provide that
any such agreement must be adopted by shareholders holding at least a majority
of the voting power.
Under the DGCL, an agreement of merger or consolidation must be approved by
the directors of each constituent corporation and adopted by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
thereon, or by a greater vote as provided in the certificate of incorporation.
Under the DGCL the separate vote of any class of shares is not required.
Additionally, the DGCL provides that, unless the corporation's certificate of
incorporation provides otherwise, no vote of the shareholders of the surviving
corporation is required to approve the merger if (i) the agreement of merger
does not amend in any respect the corporation's certificate of incorporation,
(ii) each share outstanding immediately prior to the effective date is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date, and (iii) the number of shares of the surviving corporation's
common stock to be issued in the merger plus the number of shares of common
stock into which any other securities to be issued in the merger are initially
convertible does not exceed 20% of its common stock outstanding immediately
prior to the effective date of the merger. The Kroll Certificate does not
require any such vote.
Other Corporate Transactions. Under the OGCL, as implemented by the O'Gara
Articles, subject to certain exceptions, the approval of a majority of the
voting power of the corporation, or a different proportion (not less than a
majority of the corporation's voting power) as provided in the articles of
incorporation, is required for (i) the consummation of combinations and majority
share acquisitions involving the transfer or issuance of such number of shares
as would entitle the holders thereof to exercise at least one-sixth of the
voting power of such
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corporation in the election of directors immediately after the consummation of
such transaction, (ii) the disposition of all or substantially all of the
corporation's assets other than in the regular course of business and (iii)
voluntary dissolutions.
The DGCL does not require shareholder approval in the case of combinations
and majority share acquisitions, but does require a majority vote on disposition
of all or substantially all of a corporation's assets and on dissolutions,
unless a greater vote is provided for in the certificate of incorporation. The
Kroll Certificate does not require a greater vote.
Class Voting. Under the OGCL, holders of a particular class of shares are
entitled to vote as a separate class if the rights of such class are affected in
certain respects by mergers, consolidations or amendments to the articles of
incorporation.
The DGCL requires voting by separate classes only with respect to
amendments to the certificate of incorporation which adversely affect the
holders of such classes or which increase or decrease the aggregate number of
authorized shares or the par value of the shares of any such classes.
Appraisal Rights. Under the OGCL, dissenting shareholders are entitled to
appraisal rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with certain amendments to its articles of incorporation. In
addition, shareholders of an Ohio corporation being merged into a new
corporation are also entitled to appraisal rights. Shareholders of an acquiring
corporation are entitled to appraisal rights in a merger, combination or
majority share acquisition in which such shareholders are entitled to voting
rights.
Under the DGCL, appraisal rights are available only in connection with
statutory mergers or consolidations. Even in such cases, unless the certificate
of incorporation otherwise provides, the DGCL does not recognize dissenters'
rights for any class or series of stock which is either listed on a national
securities exchange or held of record by more than 2,000 shareholders except
that appraisal rights are available for holders of stock who, by the terms of
the merger or consolidation, are required to accept anything except (i) stock of
the corporation surviving or resulting from the merger or consolidation, (ii)
shares which at the effective time of the merger or consolidation are either
listed on a national securities exchange or held of record by more than 2,000
shareholders, (iii) cash in lieu of fractional shares of stock described in the
foregoing clauses (i) and (ii), or (iv) any combination of stock and cash in
lieu of fractional shares described in the foregoing clauses (i), (ii) or (iii).
The Kroll Certificate does not grant dissenters' rights in such transactions
Dividends. An Ohio corporation may pay dividends out of surplus, however
created, but must notify its shareholders if a dividend is paid out of surplus
other than earned surplus. A Delaware corporation may pay dividends out of any
surplus and, if it has no surplus, out of any net profits for the fiscal year,
in which the dividend was declared or for the preceding fiscal year provided
that such payment will not reduce capital below the amount of capital
represented by all classes of shares having a preference upon the distribution
of assets.
Repurchases. Under the OGCL, a corporation may purchase or redeem its own
shares if authorized to do so by its articles of incorporation or under certain
other circumstances but may not do so if immediately thereafter its assets would
be less than its liabilities plus its stated capital, if any, or if the
corporation is insolvent or would be rendered insolvent by such a purchase or
redemption.
Under the DGCL, a corporation may repurchase or redeem its shares only out
of surplus and only if such purchase does not impair capital. However, a
corporation may redeem preferred stock out of capital if such shares will be
retired upon redemption and the stated capital of the corporation is thereupon
reduced pursuant to a resolution of its board of directors by the amount of
capital represented by such shares.
Indemnification and Limitation of Liability. Ohio and Delaware have
similar laws regarding indemnification by a corporation of its officers,
directors, employees and other agents. Under the OGCL and the DGCL, corporations
are authorized to indemnify any person who is, 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,
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officer, employee or agent of another entity, against judgments, fines, amounts
paid in settlement and expenses (including attorneys' fees), actually and
reasonably incurred by such person in connection with any 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, if he had no reasonable cause to believe
his conduct was unlawful.
With respect to actions by or in the right of the corporation, the OGCL and
the DGCL authorize indemnification of any director, officer, employee or agent
of the corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit. To be entitled to indemnification, a person must have 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 court approval is required as
a prerequisite to indemnification of expenses in respect of any claim as to
which a person has been adjudged liable to the corporation.
The OGCL and the DGCL require indemnification against expenses actually and
reasonably incurred by any director, officer, employee or agent in connection
with a proceeding or action against such person in such capacity to the extent
that the person has been successful on the merits or otherwise successful in the
defense of such proceeding or action. The OGCL and the DGCL permit the
advancement of expenses (i.e., payment prior to a determination on the merits)
provided that the director or officer undertakes to repay such expenses if it is
ultimately determined that he is not entitled to indemnification. The
disinterested members of the board of directors (or independent legal counsel or
the stockholders) must determine, in each instance where indemnification is
expressly not required by law, that such director, officer, employee or agent is
entitled to indemnification.
The O'Gara Code provides that O'Gara shall indemnify to the fullest extent
permitted by law any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of O'Gara, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another entity, against all expense, liability, and loss
(including, without limitation, attorneys' fees, costs of investigation,
judgments, fines, excise taxes or penalties arising under the Employee
Retirement Income Security Act of 1974 ("ERISA") or other federal or state acts)
actually incurred or suffered by such indemnitee in connection therewith.
Pursuant to Section 1701.59 of the OGCL a director is liable for damages
for any action he takes or fails to take as a director only if it is proved by
clear and convincing evidence that his action or failure to act involved an act
or omission undertaken with deliberate intent to cause injury to the corporation
or undertaken with reckless disregard for the best interests of the corporation.
The Kroll Certificate provides that Kroll shall indemnify directors to the
fullest extent permitted by law, as such law currently exists or as such law may
be amended in the future. The Kroll Bylaws also provide that Kroll shall
indemnify to the fullest extent authorized or permitted by law any person made,
or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he is or was a director or officer of Kroll or by reason of the fact that such
director or officer, at the request of Kroll, is or was serving such other
organization in any capacity.
The Kroll Certificate provides that no director shall be liable for money
damages for breach of fiduciary duties, except for liability for (i) breaches of
the director's duty of loyalty to the corporation or its stockholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director received
an improper personal benefit.
105
<PAGE> 112
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires O'Gara's executive officers and
directors, and persons who beneficially own more than ten percent of O'Gara's
equity securities, to file reports of security ownership and changes in such
ownership with the Commission. These persons also are required by the Commission
regulations to furnish O'Gara with copies of all Section 16(a) forms they file.
Based upon a review of copies of such forms and written representations from its
executive officers and directors, O'Gara believes that all Section 16(a) forms
were filed on a timely basis during and for 1996. In April 1997, however, O'Gara
ascertained that shares purchased by Mr. Lennon and Mr. Curotto in the Offering
had inadvertently been omitted from their Form 3 filings; amendments to these
Form 3s were filed promptly.
LEGAL MATTERS
The validity of the O'Gara Common Stock to be issued in connection with the
Merger will be passed upon by Taft, Stettinius & Hollister.
Taft, Stettinius & Hollister and Kramer, Levin, Naftalis & Frankel have
each delivered an opinion to the effect that the description of the Federal
income tax consequences of the Merger under the heading "THE MERGER -- Certain
Federal Income Tax Consequences" correctly sets forth the material Federal
income tax consequences of the Merger to O'Gara, Kroll and their respective
shareholders.
EXPERTS
The audited consolidated financial statements and schedule of O'Gara as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, included in this Proxy Statement/Prospectus and elsewhere in
the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Kroll at December 31, 1996 and for
the year then ended, included in this Proxy Statement/Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and schedules of Kroll as of December
31, 1995 and for each of the years in the two-year period ended December 31,
1995, have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
It is expected that representatives of Arthur Andersen LLP, O'Gara's
independent public accountants, will be present at the O'Gara Meeting and
representatives of Deloitte & Touche LLP, Kroll's independent public
accountants, will be present at the Kroll Meeting, where they will have an
opportunity to respond to appropriate questions of shareholders and to make a
statement if they so desire.
PROXY STATEMENT PROPOSALS
Shareholder proposals will be considered for inclusion in the Proxy
Statement for O'Gara's 1998 Annual Meeting if they are received by O'Gara before
the close of business on December 19, 1997.
OTHER BUSINESS
O'Gara is not aware of any matters which properly may be presented at the
O'Gara Meeting other than those discussed above. However, if other matters do
come before the O'Gara Meeting, proxies will be voted on those matters in
accordance with the recommendation of the O'Gara Board.
106
<PAGE> 113
AVAILABLE INFORMATION
O'Gara is subject to the reporting requirements of the Exchange Act, and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Commission also maintains a Web
site that contains reports, proxy information and statements, and other
information regarding registrants that file electronically with the Commission.
The Web site address is http://www.sec.gov. O'Gara files electronically.
O'Gara has filed the Registration Statement with the Commission. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement filed by O'Gara with the Commission, certain portions of
which are omitted in accordance with the rules and regulations of the
Commission. Such additional information is available for inspection and copying
at the offices of the Commission. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated into this Proxy
Statement/Prospectus by reference as to the contents of any contract or other
documents referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
All information contained in this Proxy Statement/Prospectus relating to
O'Gara has been supplied by O'Gara and all such information relating to Kroll
has been supplied by Kroll.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE
SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF O'GARA OR KROLL
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
107
<PAGE> 114
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
FINANCIAL STATEMENTS OF THE O'GARA COMPANY
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheets as of June 30, 1997 (unaudited).............. F-25
Consolidated Statements of Operations for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-26
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-27
Notes to Consolidated Unaudited Financial Statements..................... F-28
FINANCIAL STATEMENTS OF KROLL HOLDINGS, INC.
Independent Auditors' Report............................................. F-33
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-35
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996................................................... F-36
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996................................ F-37
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995, and 1996.................................................. F-38
Notes to Consolidated Financial Statements............................... F-40
Condensed Consolidated Balance Sheets as of December 31, 1996 and June
30, 1997 (unaudited).................................................. F-52
Consolidated Statements of Operations for the Six Months Ended June 30,
1996 and 1997 (unaudited)............................................. F-53
Statement of Cash Flows for the Six Months Ended June 30, 1996 and 1997
(unaudited)........................................................... F-54
Notes to Unaudited Financial Statements.................................. F-55
FINANCIAL STATEMENTS OF LABBE, S.A.
Report of Independent Public Accountants................................. F-56
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-57
Consolidated Statements of Operations for the Years Ended December 31,
1995 and 1996......................................................... F-58
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995 and 1996............................................ F-59
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995 and 1996......................................................... F-60
Notes to Consolidated Financial Statements............................... F-61
PRO FORMA FINANCIAL STATEMENTS
O'Gara Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1996..................................................... F-67
O'Gara-Kroll Pro Forma Combining Balance Sheets as of June 30, 1997...... F-69
O'Gara-Kroll Pro Forma Combining Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996 and the Six Months Ended June
30, 1996 and 1997..................................................... F-70 to F-74
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The O'Gara Company:
We have audited the accompanying consolidated balance sheets of THE O'GARA
COMPANY (Note 1) and subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The O'Gara
Company and subsidiaries as of December 31, 1995 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio
March 19, 1997,
except for Note 19 as to
which the date is August 8, 1997
F-2
<PAGE> 116
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS (NOTE 7)
CURRENT ASSETS:
Cash...................................................................... $ 323,851 $ 1,454,475
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $211,000 and $109,000 in 1996 and 1995, respectively (Note
2)...................................................................... 7,094,894 7,736,286
Other receivables (Note 6)
Advances to shareholders................................................ 204,698 248,829
Affiliates.............................................................. 128,222 249,981
Advances to vendors (Notes 2 and 12)...................................... 2,496,689 664,539
Notes receivable -- shareholder (Note 6).................................. 233,253 --
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2)...................................................... 7,700,075 15,326,548
Inventories (Note 2)...................................................... 4,927,499 8,733,640
Prepaid expenses.......................................................... 149,250 677,603
----------- -----------
Total current assets............................................... 23,258,431 35,091,901
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 2 and 8):
Land...................................................................... 372,039 901,079
Buildings and improvements................................................ 2,762,905 3,772,295
Furniture and fixtures.................................................... 1,286,421 1,743,876
Machinery and equipment................................................... 2,260,005 2,797,433
----------- -----------
6,681,370 9,214,683
Less -- accumulated depreciation.......................................... (3,510,702) (4,289,861)
----------- -----------
3,170,668 4,924,822
----------- -----------
OTHER ASSETS (Note 2)....................................................... 1,387,887 3,921,664
----------- -----------
$27,816,986 $43,938,387
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit (Note 7)........................................ $10,188,765 $ 9,935,947
Current portion of long-term debt (Note 8)................................ 1,649,018 1,836,420
Notes payable -- shareholders (Note 6).................................... 308,630 --
Accounts payable
Trade................................................................... 10,075,075 11,087,422
Affiliates (Note 6)..................................................... 499,730 532,998
Billings in excess of costs and estimated earnings on uncompleted
contracts (Note 2)...................................................... 1,706,042 1,330,402
Accrued liabilities....................................................... 1,677,307 3,971,887
Customer deposits......................................................... 1,248,197 2,118,609
----------- -----------
Total current liabilities.......................................... 27,352,764 30,813,685
----------- -----------
LONG-TERM DEBT, net of current portion (Note 8)............................. 225,429 469,092
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' EQUITY (Note 1):
Preferred stock, $0.01 par value, 100,000 shares authorized; none
issued.................................................................. -- --
Common stock, $0.01 par value, 25,000,000 shares authorized, 6,659,846 and
4,490,383 shares issued and outstanding in 1996 and 1995,
respectively............................................................ 15,235 66,598
Additional paid-in-capital................................................ 2,730,977 17,591,656
Retained deficit.......................................................... (2,508,834) (4,957,872)
Cumulative foreign currency translation adjustment (Note 2)............... 1,415 (44,772)
----------- -----------
Total shareholders' equity......................................... 238,793 12,655,610
----------- -----------
$27,816,986 $43,938,387
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE> 117
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES........................................... $33,912,279 $32,816,996 $82,777,691
COST OF SALES....................................... 24,505,236 25,237,159 61,522,946
----------- ----------- -----------
Gross profit................................... 9,407,043 7,579,837 21,254,745
OPERATING EXPENSES:
Selling and marketing............................. 2,735,940 3,628,312 4,810,232
General and administrative........................ 4,440,552 4,129,017 7,930,293
----------- ----------- -----------
Operating income (loss)........................ 2,230,551 (177,492) 8,514,220
OTHER INCOME (EXPENSES):
Interest expense.................................. (410,325) (841,972) (1,299,930)
Other, net........................................ 60,250 (102,588) (37,687)
----------- ----------- -----------
Income (loss) before provision for income
taxes........................................ 1,880,476 (1,122,052) 7,176,603
Provision for income taxes (Note 4)............... -- -- 517,641
----------- ----------- -----------
Net income (loss)......................... $ 1,880,476 $(1,122,052) $ 6,658,962
=========== =========== ===========
UNAUDITED PRO FORMA INFORMATION (Note 18):
Gross profit...................................... $21,254,745
Selling and marketing............................. 4,810,232
General and administrative........................ 8,030,918
-----------
Operating income.................................. 8,413,595
Interest expense.................................. (960,866)
Other, net........................................ (37,687)
-----------
Income before provision for income taxes.......... 7,415,042
Provision for income taxes........................ 2,966,049
-----------
Net income........................................ $ 4,448,993
===========
Earnings per share................................ $ 0.69
===========
Weighted average shares outstanding............... 6,449,050
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE> 118
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
ADDITIONAL TRANSLATION
COMMON PAID-IN RETAINED ADJUSTMENT
SHARES STOCK CAPITAL DEFICIT (NOTE 2) TOTAL
--------- ------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993...................... 2,681,012 $ 9,826 $ 1,121,996 $(2,155,308) $ -- $(1,023,486)
Net income................ -- -- -- 1,880,476 -- 1,880,476
Aggregate translation
adjustment............. -- -- -- -- 493 493
Issuance of OHE stock
(Note 15).............. 885,996 3,246 1,356,144 -- -- 1,359,390
Incorporation of
Limited................ 1,000 1,000 4,000 -- -- 5,000
Distributions to
shareholders........... -- -- -- (949,150) -- (949,150)
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1994...................... 3,568,008 14,072 2,482,140 (1,223,982) 493 1,272,723
Net loss.................. -- -- -- (1,122,052) -- (1,122,052)
Aggregate translation
adjustment............. -- -- -- -- 922 922
Incorporation of OSN...... 922,375 1,163 248,837 -- -- 250,000
Distributions to
shareholders........... -- -- -- (162,800) -- (162,800)
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1995...................... 4,490,383 15,235 2,730,977 (2,508,834) 1,415 238,793
Net income................ -- -- -- 6,658,962 -- 6,658,962
Aggregate translation
adjustment............. -- -- -- -- (46,187) (46,187)
Distributions to
shareholders, prior to
the offering........... -- -- -- (230,000) -- (230,000)
Sale of common stock
between shareholders
prior to the
offering............... -- -- 39,780 -- -- 39,780
Exercise of stock options,
prior to the offering
(Notes 11 and 17)...... 121,463 4 441 -- -- 445
Initial public offering of
common stock, net of
issuance costs of
approximately
$3,550,000 (Note 17)... 2,048,000 51,359 14,820,458 -- -- 14,871,817
Distribution of previously
taxed S Corp earnings
to S Corp shareholders
(Note 17).............. -- -- -- (9,000,000) -- (9,000,000)
Forgiveness of affiliate
obligation (Note 6).... -- -- -- 122,000 -- 122,000
--------- ------- ----------- ----------- -------- -----------
BALANCE, December 31,
1996...................... 6,659,846 $66,598 $17,591,656 $(4,957,872) $(44,772) $12,655,610
========= ======= =========== =========== ======== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 119
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 1,880,476 $(1,122,052) $ 6,658,962
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization....................... 469,889 476,868 851,332
Shareholder stock compensation...................... -- -- 39,780
Decrease (increase) in receivables.................. (4,887,854) 502,872 (807,282)
Decrease (increase) in advances to vendors.......... -- (3,360,136) 870,390
Increase in costs and estimated earnings in excess
of billings on uncompleted contracts.............. (1,608,458) (3,957,287) (7,626,473)
Increase in inventories............................. (444,879) (1,590,370) (3,806,141)
Decrease (increase) in prepaid expenses............. 47,839 (50,320) (528,353)
Increase in other assets............................ (146,882) (33,950) (322,342)
Increase in accounts payable........................ 106,655 6,070,946 1,167,615
Increase (decrease) in billings in excess of costs
and estimated earnings on uncompleted contracts... 427,650 (43,150) (375,640)
Increase (decrease) in accrued liabilities.......... 1,021,620 (502,422) 2,294,580
Increase (decrease) in customer deposits............ 871,021 (389,425) 870,412
----------- ----------- -----------
Net cash used in operating activities.......... (2,262,923) (3,998,426) (713,160)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net........ (683,319) (638,009) (2,534,617)
Decrease (increase) in notes
receivable -- shareholder........................... -- (233,253) 233,253
Acquisition costs (Note 3)............................. -- -- (305,128)
Purchase of Palmer net assets (Note 3)................. -- -- (509,582)
----------- ----------- -----------
Net cash used in investing activities.......... (683,319) (871,262) (3,116,074)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of
credit.............................................. 4,676,630 4,551,025 (252,818)
Proceeds from long-term debt........................... 30,958 41,608 50,899
Payments of long-term debt............................. (109,351) (120,869) (125,668)
Repayment of notes payable -- shareholder.............. (190,000) -- (308,630)
Net proceeds from issuance of common stock (Note 17)... 104,390 250,000 14,871,817
Foreign currency translation........................... 493 922 (46,187)
Distributions to shareholders.......................... (949,150) (162,800) (9,230,000)
Proceeds from exercise of stock options................ -- -- 445
----------- ----------- -----------
Net cash provided by financing activities...... 3,563,970 4,559,886 4,959,858
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.......................... 617,728 (309,802) 1,130,624
CASH, beginning of year.................................. 15,925 633,653 323,851
----------- ----------- -----------
CASH, end of year........................................ $ 633,653 $ 323,851 $ 1,454,475
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 361,000 $ 796,000 $ 1,321,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Conversion of note payable to the majority shareholder
to common stock (Note 15)........................... $ 1,260,000 $ -- $ --
=========== =========== ===========
Note payable issued for purchase of Palmer net assets
(Note 3)............................................ $ -- $ -- $ 505,834
=========== =========== ===========
Affiliate obligation forgiven in connection with the
reorganization...................................... $ -- $ -- $ 122,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 120
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) BASIS OF PRESENTATION
The O'Gara Company, an Ohio corporation, together with its subsidiaries
(collectively the "Company"), provides fully integrated ballistic and blast
protected vehicle armoring systems; planning, design and hardware and software
integration services which are customized to meet specific satellite
communications or site protection needs of customers; and customized turn-key
site security systems to international customers.
The Company was formed in 1996 for the purposes of becoming a holding
company, effecting a reorganization and a combination of certain affiliated
entities and carrying out an initial public offering of common stock which was
completed on November 15, 1996. Pursuant to the terms of the offering, the
Company issued 2,048,000 shares of common stock at $9.00 per share (Note 17).
The accompanying consolidated financial statements of the Company consist
of the following subsidiaries:
O'Gara-Hess & Eisenhardt Armoring Company (OHE) -- OHE is a Delaware
corporation whose principal business is the armoring of commercial and
military vehicles for the U.S. Government, foreign governments, large
foreign and domestic corporations and individuals.
O'Gara Satellite Networks, Limited (Satellite Ltd.), and its sister
corporation, O'Gara Satellite Networks, Inc. (Satellite Inc.) (collectively
"OSN") -- OSN is engaged in the business of providing satellite
communication equipment and services primarily to European and Middle
Eastern customers.
O'Gara-Hess & Eisenhardt Armoring Company Limited (Limited) -- Limited
is an Irish corporation that historically was engaged in the armoring of
commercial vehicles primarily for Middle Eastern governments, large foreign
corporations and individuals. Pursuant to the corporate reorganization on
October 28, 1996, OHE succeeded to substantially all of the businesses
formerly carried out by Limited either directly or through subsidiary
corporations.
O'Gara-Hess & Eisenhardt de Mexico S.A. de C.V. (OHEM) -- OHEM, a 100%
owned Mexican subsidiary of OHE, was formed in 1995 for the purpose of
producing light armored commercial vehicles primarily for customers in
Mexico.
O'Gara-Hess & Eisenhardt do Brasil (OHEB) -- OHEB, a 75% owned
Brazilian subsidiary of OHE, was formed in 1996 for the purpose of
producing armored commercial vehicles primarily for customers in South
America (Note 17).
O'Gara Security International, Inc. (OSI) -- OSI, a Delaware
corporation and a 100% owned subsidiary of OHE, was formed in 1996 for the
purpose of providing security products and services in the former Soviet
Union.
O'Gara-Hess & Eisenhardt, S.r.1. (Italy) -- Italy, a 90% owned Italian
subsidiary of OHE was formed in 1992 for the purpose of facilitating
contract manufacturing of armored commercial vehicles by an unrelated
manufacturer.
In connection with the Company's public equity offering, the above entities
and respective shareholders entered into a reorganization plan on October 28,
1996 which resulted in the following:
(1) The shareholders of OHE transferred their ownership interests in
OHE to the Company in exchange for 3,689,476 shares of common stock of the
Company. The ratio of exchange was 272.95 shares of Company common stock
for each share of OHE stock.
(2) The Company acquired all of the equity ownership of Satellite Ltd.
from the shareholders of Satellite Ltd. in exchange for 922,370 shares of
common stock of the Company. The ratio of exchange was 793.1 shares of
Company common stock for each share of OSN stock.
F-7
<PAGE> 121
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(3) OHE acquired substantially all of the operations and certain
selected assets and assumed certain selected liabilities of Limited for
consideration (including OHE's interest in O'Gara Overseas Services, S.A.),
which the Board of Directors of the Company believed represented the fair
value of such assets and liabilities.
Prior to the initial public offering, all entities that now comprise the
Company were owned or controlled by substantially the same shareholders, with
one such shareholder owning or controlling approximately 86% to 88% of each
entity. Accordingly, the accompanying consolidated financial statements present,
as a combination of entities under common control as if using the pooling method
of accounting, the financial position and related results of operations of the
Company on a consolidated basis for all periods presented. All significant
balances and transactions between the consolidated entities have been eliminated
in these consolidated statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition -- Revenue related to government contracts and most
commercial contracts results principally from long-term fixed price contracts
and is recognized on the percentage-of-completion method calculated utilizing
the cost-to-cost approach. The percent deemed to be complete is calculated by
comparing the costs incurred to date to estimated total costs for each contract.
This method is used because management considers costs incurred to be the best
available measure of progress on these contracts. However, adjustments to this
measurement are made when management believes that costs incurred materially
exceed effort expended. Contract costs include all direct material and labor
costs, along with certain direct overhead costs related to contract production.
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it becomes known that such losses will
occur. Changes in estimated total contract costs will result in revisions to
contract revenue. These revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
(b) Trade Accounts Receivable and Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts -- The following summarizes the components of
trade accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
United States Military:
Billed receivables............................... $2,322,553 $ 1,461,491
Costs and estimated earnings in excess of
billings on uncompleted contracts............. 6,201,466 10,189,891
---------- -----------
Total United States Military............. $8,524,019 $11,651,382
========== ===========
Other contracts:
Billed receivables............................... $4,772,341 $ 6,274,795
Costs and estimated earnings in excess of
billings on uncompleted contracts............. 1,498,609 5,136,657
---------- -----------
Total other contracts.................... $6,270,950 $11,411,452
========== ===========
Total trade accounts receivable.................... $7,094,894 $ 7,736,286
========== ===========
Total costs and estimated earnings in excess of
billings on uncompleted contracts................ $7,700,075 $15,326,548
========== ===========
</TABLE>
F-8
<PAGE> 122
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Costs and estimated earnings in excess of billings on uncompleted contracts
are net of $20,385,270 and $66,180,434 of progress billings to the United States
Military at December 31, 1995 and 1996, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized on long-term contracts in excess of billings
because amounts were not billable at the balance sheet date. It is anticipated
such unbilled amounts attributable to the United States Military will generally
be billed over the next 180 days as the contract is substantially completed.
Amounts receivable on other contracts are generally billed as shipments are
made. It is estimated that substantially all of such amounts will be billed
within one year, although contract extensions may delay certain collections
beyond one year.
(c) Advances to Vendors -- OHE and OSN periodically make advances to
vendors. Such advances are non-interest bearing and are generally applied to
vendor billings for shipments of inventory.
(d) Inventories -- Inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Raw materials....................................... $2,306,176 $4,782,321
Vehicle costs and work-in-process................... 2,621,323 3,951,319
---------- -----------
$4,927,499 $8,733,640
========== ===========
</TABLE>
(e) Property, Plant and Equipment -- Property, plant and equipment are
stated at cost. Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 5-40 years
Furniture and fixtures........................................... 5-7 years
Machinery and equipment.......................................... 5-7 years
</TABLE>
(f) Other Assets -- Other assets are stated at cost less accumulated
amortization and are being amortized on a straight-line basis over their
estimated useful lives, as applicable. Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE -------------------------
DESCRIPTION (YEARS) 1995 1996
------------------------------------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Advance to vendor (Notes 2(c) and 12(b))........ -- $ 863,447 $1,825,207
Goodwill, intangibles and acquisition costs
(Note 3)...................................... 1-25 50,000 1,420,543
Non-refundable deposit on an equipment lease
with a related party (Notes 6(f) and 9)....... 10 503,858 503,858
Non-compete agreement with a former OHEM
shareholder................................... 5 -- 115,000
Loan origination costs.......................... 30 152,940 152,940
Advance to minority shareholder of OHEB......... -- -- 60,000
Investment in OGM Communications, Ltd. (OGM)
(Note 2(k))................................... -- 25,215 69,266
Deferred bid costs and other.................... -- 23,461 76,753
---------- ----------
1,618,921 4,223,567
Less -- accumulated amortization................ (231,034) (301,903)
---------- ----------
$1,387,887 $3,921,664
========== ==========
</TABLE>
Costs applicable to bids in process are deferred when management believes
it is probable that future contracts will be obtained. These costs are
transferred to contract costs when contracts are awarded or are expensed when
the contract award is no longer considered probable.
F-9
<PAGE> 123
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(g) Foreign Currency Translation -- Assets and liabilities of foreign
operations are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year, with
gains or losses resulting from translation included in a separate component of
shareholders' equity. Gains and losses resulting from transactions in foreign
currencies were immaterial.
(h) Use of 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.
(i) Research and Development -- Research and development costs are expensed
as incurred. The Company incurred approximately $69,000, $91,000 and $130,000
for the years ended December 31, 1994, 1995 and 1996, respectively, for research
and development. These costs are included in general and administrative expenses
in the accompanying consolidated statements of operations.
(j) Advertising -- The Company expenses the cost of advertising as
incurred. Advertising expenses for the years ended December 31, 1994, 1995 and
1996 were $185,000, $280,000 and $638,000, respectively.
(k) Investments -- In May 1995, OSN entered into a joint venture, OGM, with
Morsviazsputnik (MVS), the Russian signatory to Inmarsat and a marketer of
Inmarsat mobile services. OSN owns a 49% interest in OGM. The investment in OGM
was recorded at the cost of the initial capital contribution of $50,000 in May
1995 and is accounted for on the equity method. The Company's proportionate
share of OGM's loss was $24,785 and $2,052 for the years ended December 31, 1995
and 1996, respectively.
(l) SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" -- In March 1996, the Financial Accounting
Standards Board issued Statement No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. This statement also addresses the accounting for long-lived
assets that are expected to be disposed of in the future. The Company adopted
SFAS No. 121 in the first quarter of fiscal 1996 with no material impact.
(m) SFAS 123 "Accounting for Stock-Based Compensation" -- The Company has
elected to account for the cost of its stock options utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25)
as allowed by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" (SFAS 123). Accordingly, no compensation cost has
been recognized for stock options as all stock options were granted at fair
market value, as defined by the plan, at the measurement date. The pro forma
disclosures required by SFAS 123 are presented in Note 16.
(n) Reclassifications -- Certain reclassifications have been reflected in
1994 and 1995 to conform with the current period presentation.
(o) Preferred Stock -- In August 1996, the Company authorized the issuance
of up to 100,000 preferred shares, $0.01 par value.
(3) ACQUISITIONS
(a) Palmer Acquisition -- In October 1996, the Company completed the
purchase of substantially all of the assets and certain liabilities of Palmer
Associates, S.C., (Palmer) a security services provider, for approximately
$1,000,000, which resulted in goodwill and intangible assets equal to the
purchase price. The purchase was payable $500,000 at the closing of the
Company's completion of the common stock offering (Note 17) and
F-10
<PAGE> 124
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
$250,000 each in November 1997 and 1998. The former owner will also be subject
to a four-year non-competition agreement, payable in annual installments of
$50,000, and a two-year employment agreement.
(b) Next Destination Limited Acquisition -- On February 5, 1997, the
Company completed its acquisition of all of the shares of Next Destination
Limited (Next). Next, headquartered in Salisbury, United Kingdom (UK), is a
distributor of high technology communication equipment for the consumer
electronic, marine, aviation, professional and leisure markets in both the UK
and Europe. Pursuant to the agreement, the Company acquired Next for $3.5
million, consisting of $1.75 million in shares of the Company's common stock
(170,234 shares) and $1.75 million in seller-provided financing in the form of
three-year 6% notes. The former managing director and founder of Next will
continue to manage the business and is subject to a three-year non-competition
agreement.
(c) Labbe, S.A. Acquisition -- On February 12, 1997, the Company completed
its acquisition of Labbe, S.A. (Labbe) for $14,230,000. Labbe, headquartered in
Lamballe, France, provides vehicle armoring systems for commercial customers
located mainly in Western Europe. Pursuant to an agreement signed January 21,
1997, the Company acquired all of the shares of Labbe for $10.7 million in cash,
financed through funds advanced under the term loan portion of the new credit
agreement (Note 7) and 376,597 shares of the Company's common stock. The former
shareholders of Labbe, who were employed by Labbe prior to the acquisition, will
continue in their formerly-held capacities. The former shareholders will also be
subject to certain non-competition agreements upon their leaving the employment
of the Company. The Company has capitalized certain transaction costs related to
this acquisition as of December 31, 1996 which amounted to approximately
$305,000 (Note 2(f)).
(4) INCOME TAXES
Prior to October 28, 1996, OHE was an S Corporation. Accordingly, OHE
generally was not responsible for payment of income taxes. Rather, the
respective shareholders were taxed on OHE's taxable income at the respective
individual federal and state income tax rates. Therefore, no income taxes have
been provided in the accompanying consolidated financial statements for the
period prior to October 28, 1996.
Effective with the reorganization on October 28, 1996, the Company is
subject to federal and state income taxes as well as certain foreign income
taxes. The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the liability method, deferred tax liabilities and assets are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities using enacted tax rates.
The Company's provision for income taxes for the period October 28, 1996
through December 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Currently payable:
Federal................................................. $371,641
State................................................... 63,000
Foreign................................................. 83,000
--------
517,641
--------
Deferred.................................................. --
--------
$517,641
========
</TABLE>
F-11
<PAGE> 125
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A reconciliation between the statutory federal income tax rate and the
effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
1996
---------------------
AMOUNT RATE
----------- -----
<S> <C> <C>
Provision for income taxes at the federal statutory rate........ $ 2,440,046 34.0%
State and local income taxes, net of federal benefit............ 41,303 0.6
Impact of S Corp income, prior to reorganization................ (2,087,529) (29.1)
Impact of foreign income, prior to reorganization............... (199,095) (2.8)
Change in valuation allowance................................... 176,080 2.5
Foreign losses providing no current benefit..................... 151,604 2.1
Other........................................................... (4,768) (0.1)
----------- -----
Provision for income taxes................................. $ 517,641 7.2%
=========== =====
</TABLE>
The components of the Company's consolidated deferred income tax asset as
of December 31, 1996 is summarized below:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Deferred tax assets:
Inventory reserve............................................. $ 148,000
Vacation and other benefits................................... 220,000
Warranty reserve.............................................. 130,000
Allowance for doubtful accounts............................... 60,000
Other accruals................................................ 206,000
Foreign loss carryforwards.................................... 152,000
Other......................................................... 116,000
Valuation allowance........................................... (1,032,000)
-----------
$ --
===========
</TABLE>
The valuation allowance is required due to the recently completed
reorganization and the uncertainty of realizing the net future tax benefit
through future operations. A valuation allowance has been recorded in an amount
equal to the deferred tax asset associated with the differences between the
Company's basis for financial reporting and tax purposes. Adjustments to the
valuation allowance, if any, will be recorded in the periods in which it is
determined the asset is realizable.
(5) AFFILIATED ENTITIES
Affiliated entities are not included in the accompanying consolidated
financial statements, and include the following:
O'Gara Overseas Services, SA (OOS) -- OOS is a Swiss corporation that,
subsequent to the reorganization, is indirectly owned by the former
shareholders of OHE, through Overseas International (Overseas) and O'Gara
Overseas Services Trust (OOS Trust). OOS previously performed sales
functions, primarily in the Middle East, Africa and Europe.
Excel Armor Products, Inc. (Excel) -- Excel is a Delaware S
Corporation, owned substantially by the former shareholders of OHE, that
purchases and distributes dual-hard opaque armor material and armoring
products. Excel had an exclusive purchasing arrangement with a dual-hard
steel producer through December 31, 1996.
F-12
<PAGE> 126
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Longline Leasing, Inc. (Longline) -- Longline is a Delaware S
Corporation, owned substantially by the former shareholders of OHE. OHE
leases certain manufacturing and production equipment from Longline.
Longline and Excel have a 50/50 joint venture in a corporate aircraft. OHE
has a minimum monthly usage agreement with the joint venture.
O'Gara Protective Services, Inc. (OPS) -- OPS is a Delaware
corporation that provides protective training and services, primarily to
foreign governments. The former shareholders of OHE own approximately 47%
of OPS (see Note 12).
Overseas International (Overseas) -- In connection with the
reorganization discussed in Note 1, whereby OHE acquired substantially all
of the assets and assumed certain selected liabilities of Limited, Limited
changed its name to Overseas.
OLG, Limited (OLG) -- OLG is an Ohio limited liability company, owned
substantially by the former shareholders of OHE, which was organized in
March 1996. In 1996, OLG acquired a building for approximately $1.8 million
and leased the building to OHE for a one year period for $468,000.
Excel Metal Products, Inc. (Excel Metal) -- Excel Metal is a wholly
owned corporation of the former majority shareholder of OHE. Excel Metal
provides management consulting services to Satellite Inc.
Silver Springs Land and Cattle Company (Silver) -- Silver is a wholly
owned corporation of the former majority shareholder of OHE that provided
facilities for certain corporate meetings.
(6) RELATED PARTY TRANSACTIONS
(a) Notes Receivable -- Shareholder -- Notes receivable-shareholder
consisted of two unsecured promissory notes in the principal amounts of $100,000
and $130,000, respectively. These notes bore interest at the rate of 8.75% per
annum and were repaid upon the completion of the Company's common stock offering
(Note 17). Accrued interest amounted to $3,253 at December 31, 1995.
(b) Advances to Shareholders -- The Company periodically makes advances to
certain employee-shareholders. Such advances are due on demand and are
non-interest bearing. Advances to the Company's majority shareholder were
$189,698 and $120,191 at December 31, 1995 and 1996, respectively. At December
31, 1996 the Company also had an advance to the minority shareholder of OHEB in
the amount of $128,638.
(c) Notes Payable -- Shareholders -- OHE had the following notes payable to
shareholders, which were repaid upon the completion of the Company's common
stock offering (Note 17):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable to former minority shareholder of OHE, interest at
10%, payable on demand, unsecured............................ $243,630 $ --
Notes payable to former minority shareholders of OHE, interest
at 7.5% through December 31, 1995, 10% thereafter, payable on
demand, unsecured............................................ 65,000 --
-------- --------
$308,630 $ --
======== ========
</TABLE>
Interest cost associated with the above obligations expensed by OHE
approximated $38,000, $33,000 and $27,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
(d) Sales -- Affiliated Entities -- In 1995, OHE entered into a contract
with Excel to provide certain manufacturing services. Total revenue recognized
under this contract approximated $27,000 and $97,000 for the years ended
December 31, 1995 and 1996, respectively.
F-13
<PAGE> 127
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Beginning in 1995, OSN entered into certain sales contracts with MVS for
the sale of portable satellite terminals. Total revenue recognized approximated
$66,000 and $139,000 for the years ended December 31, 1995 and 1996,
respectively.
(e) Purchases -- Affiliated Entities -- Prior to December 31, 1996, OHE
purchased dual-hard steel used in the vehicle armoring process from Excel.
Purchases were approximately $521,000 and $960,000 for the years ended December
31, 1995 and 1996, respectively.
OSN offers satellite air time to customers through an agreement with MVS.
Total purchases under this agreement were approximately $36,000 and $216,000 for
the years ended December 31, 1995 and 1996, respectively.
(f) Building and Equipment Leases -- OHE currently leases a corporate
aircraft from Longline/Excel under a ten year lease agreement which began in
February 1995. The lease stipulates minimum monthly payments of $35,200, with
additional charges accruing for usage in excess of established base limits. In
1994, OHE leased a corporate aircraft from Longline under a five year agreement.
This original lease was canceled upon the execution of the lease with
Longline/Excel. The terms of the original lease and the newly executed lease
required a non-refundable deposit. The original deposit of approximately
$504,000 is being amortized as rental expense over the existing lease period.
Rental expense, including amortization recognized, approximated $365,000,
$414,000 and $422,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Additionally, the Company paid Longline/Excel $327,000 related to
usage of the corporate aircraft during the roadshow for the initial public stock
offering and included such amount in issuance costs (Note 17). Management is of
the opinion that the hourly rate paid by the Company was equivalent to the rate
charged by Longline/Excel to other unrelated companies for IPO roadshows during
1996 and it was favorably comparable to rates charged by another unrelated
charter service for similar aircraft.
OHE is also currently leasing equipment from Longline under various three
year lease agreements which began in July 1995. Rental expense approximated
$17,000 and $381,000 for the years ended December 31, 1995 and 1996,
respectively.
OHE leases a manufacturing facility from OLG under a non-cancelable one
year lease agreement which began in March 1996. The lease stipulates monthly
payments of $39,000. Rental expense recognized approximated $376,000 for the
year ended December 31, 1996.
(g) Consulting Services -- OOS and a minority shareholder of the Company
provided certain sales and marketing services for OHE and OSN. OHE recognized
expense of approximately $490,000, $506,000 and $363,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. Effective with the
reorganization (Note 1), these services were terminated.
In May 1993, OHE renewed an existing consulting agreement with a former
shareholder whereby Excel assumed a $10,000 monthly payment which was formerly
paid by OHE. In conjunction with this renewal, OHE provided a payment guarantee
to the former shareholder. For the year ended December 31, 1995, OHE incurred
$20,000 in expense relating to payments made under this guarantee. There were no
such payments during 1996. OHE's payment guarantee expired on December 31, 1996.
In 1996, OSN entered into a management consulting agreement with Excel
Metal which stipulates monthly payments of $6,000. OSN recognized approximately
$60,000 in expense in 1996 under this agreement. This agreement was terminated
upon the completion of the common stock offering (Note 17).
In 1994 and 1995, prior to joining the Company, a minority shareholder of
OSN was paid $45,000 and $135,000, respectively, in conjunction with a
consulting agreement. These payments were recognized in selling and marketing
expenses in the accompanying consolidated statements of operations.
F-14
<PAGE> 128
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(h) Commissions -- In accordance with the OGM joint venture agreement with
MVS (Note 2), OSN was required to pay a stipulated amount per minute for prepaid
time sold to customers in the form of phone cards through June 1996. Beginning
July 1, 1996, this requirement was terminated by agreement of OSN and MVS. For
the year ended December 31, 1996, OSN recognized commission expense of
approximately $43,000.
(i) Other -- During 1994, 1995 and 1996, OHE recognized approximately
$55,000, $11,000 and $3,000, respectively, in expense relating to payments made
to Silver for use of its facilities for corporate meetings.
(j) Summary of Related Party Transactions -- The following summarizes
transactions with related parties:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Sales
to Excel......................................... $ -- $ 27,000 $ 97,000
to MVS........................................... -- 66,000 139,000
Purchases
from Excel....................................... -- 521,000 960,000
from MVS......................................... -- 36,000 216,000
Lease expense
to Longline...................................... 365,000 17,000 381,000
to Longline/Excel................................ -- 414,000 422,000
to OLG........................................... -- -- 376,000
Consulting service expense
provided by OOS.................................. 361,000 377,000 245,000
provided by minority shareholder................. 129,000 129,000 118,000
provided by minority shareholder of OSN.......... 45,000 135,000 --
provided by Excel Metal.......................... -- -- 60,000
provided by former shareholder................... -- 20,000 --
Facility service fees paid to Silver............... 55,000 11,000 3,000
Commission expense to OGM.......................... -- -- 43,000
Charter fee included in costs of the offering (Note
17).............................................. -- -- 327,000
</TABLE>
(k) Other Receivables -- Affiliates -- Other receivables -- affiliates
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
Excel.............................................. $ 53,057 $210,659
OPS................................................ 9,657 39,322
OGM................................................ 38,669 --
Longline........................................... 26,839 --
-------- --------
$128,222 $249,981
======== ========
</TABLE>
F-15
<PAGE> 129
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(l) Accounts Payable -- Affiliates -- Accounts payable -- affiliates
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
-------- --------
<S> <C> <C>
OOS................................................ $348,535 $ 32,921
MVS................................................ 29,195 177,191
OOS Trust.......................................... 122,000 --
Longline........................................... -- 151,080
OGM................................................ -- 22,028
Overseas........................................... -- 149,778
-------- --------
$499,730 $532,998
======== ========
</TABLE>
In conjunction with the reorganization discussed in Note 1, the
shareholders of OOS Trust forgave the amount owed by OHE for no consideration.
OOS Trust is controlled by a shareholder of the Company and accordingly this
transaction has been reflected as a contribution of capital in the accompanying
consolidated statement of shareholders' equity.
(7) REVOLVING LINES OF CREDIT
OHE had a $12,000,000 revolving line of credit with a bank at December 31,
1996, which was renegotiated subsequent to year-end. Interest on the first
$8,500,000 was at the bank's prime rate, which approximated 8.25% at December
31, 1996, while interest on the remaining $3,500,000 was at the bank's prime
rate plus 1%. This line of credit was secured by substantially all of the assets
of OHE and, on the $3,500,000 portion of the revolver, included the personal
guarantees of certain former shareholders of OHE. Borrowings under this line of
credit were $7,601,686 and $9,935,947 at December 31, 1995 and 1996,
respectively.
On February 11, 1997, the Company entered into a new credit agreement which
provides a revolving line of credit of up to $12,000,000 through January 1998,
subject to a borrowing base calculation, a term loan of $16,000,000, through
January 2002, and a letter of credit facility of up to $5,500,000. Amounts
outstanding under the credit agreement bear interest at the prime rate plus a
percentage of up to 1.25% over the prime rate, or, at the Company's option,
LIBOR plus a percentage ranging from 2.25% to 3.5%, dependent upon the
calculation of certain financial ratios. Amounts outstanding under the credit
agreement are secured by substantially all of the Company's assets. The credit
agreement includes certain financial covenants which, among other restrictions,
prohibits dividends, requires the maintenance of certain financial ratios,
including tangible net worth and cash flow coverage, and imposes limitations on
foreign investment and capital expenditures. Additionally, the agreement also
requires the Company to obtain, by July 1, 1997, an interest rate protection
agreement.
OSN had a bank credit facility consisting of (i) a $1,000,000 six-month
revolving loan, of which $1,000,000 was outstanding at December 31, 1995, and
(ii) an available $3,000,000 six-month letter of credit of which $1,587,079 was
outstanding at December 31, 1995. These balances were repaid in November, 1996
with proceeds from the offering (Note 17) and the credit facility was
terminated.
In June 1996, OHEB obtained a $500,000 line of credit with interest at
prevailing Brazilian market rates. This line of credit matures on May 31, 1997
and is supported by a standby letter of credit issued by the Company's primary
lender with a similar maturity. As of December 31, 1996, there were no
borrowings under this line of credit.
F-16
<PAGE> 130
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) LONG-TERM DEBT
The components of long-term debt are as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Development Bonds, variable interest rate approximating
85% of the bond equivalent yield of 13 week U.S.
Treasury bills (not to exceed 12%), which approximated
3.6% at December 31, 1996, payable in scheduled
installments through September 2016, subject to optional
tender by the bondholders, secured by the property,
plant and equipment of OHE, the guaranty of OHE's former
majority shareholder and a bank letter of credit (Note
12)..................................................... $ 1,606,250 $ 1,525,000
Note payable to former shareholder of Palmer, interest at
7%, payable in scheduled installments through November
1998.................................................... -- 505,834
Mortgage note to bank, interest at 8.68%, payable in
monthly installments of $2,349, including interest,
through April 2003, secured by real estate and the
guaranty of OHE's former majority shareholder........... 208,274 195,723
Note payable to former shareholder of OHEM, interest
imputed at 9%, due October 1, 1997...................... -- 45,000
Other notes payable, interest at 6.84% to 15.7%, payable
in scheduled installments through July 2000, secured by
equipment............................................... 59,923 33,955
----------- -----------
1,874,447 2,305,512
Less -- current portion................................... (1,649,018) (1,836,420)
----------- -----------
$ 225,429 $ 469,092
=========== ===========
</TABLE>
Scheduled maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997, including $1,525,000 of Development Bonds subject to optional
tender by the bondholders.............................................. $1,836,420
1998..................................................................... 283,220
1999..................................................................... 23,829
2000..................................................................... 18,621
2001..................................................................... 16,210
Thereafter............................................................... 127,212
----------
$2,305,512
==========
</TABLE>
F-17
<PAGE> 131
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) OPERATING LEASES
The Company leases certain equipment under agreements with terms from one
to ten years. The following is a schedule, by year, of approximate future
minimum rental or usage payments required under operating leases that have
initial or non-cancelable lease terms in excess of one year as of December 31,
1996:
<TABLE>
<CAPTION>
AFFILIATED
COMPANIES OTHER TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1997............................................ $ 883,573 $293,373 $1,176,946
1998............................................ 703,265 207,409 910,674
1999............................................ 439,600 166,941 606,541
2000............................................ 246,400 37,143 283,543
2001............................................ 422,400 -- 422,400
Thereafter...................................... 1,513,600 -- 1,513,600
---------- -------- ----------
$4,208,838 $704,866 $4,913,704
========== ======== ==========
</TABLE>
Rental expense charged against current operations amounted to approximately
$500,000, $670,000 and $1,521,000, for the years ended December 31, 1994, 1995
and 1996, respectively.
(10) RETIREMENT PLANS
During 1991, OHE established a non-contributory profit sharing/401(k) plan
covering substantially all employees. Contributions are discretionary and are
determined annually by OHE's Board of Directors. Plan contribution expense
charged against current operations amounted to approximately $75,000, $25,000
and $125,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company does not maintain any other postretirement or postemployment
benefit plans.
(11) EXECUTIVE BONUS PLAN
During 1993, OHE adopted an executive bonus plan, which covered four
individuals. The plan awarded a bonus based on the attainment of goals
stipulated in the five year business plan, ranging from 50% to 120% of the
executives' base compensation. The bonus amounts were distributed 50% in cash
and 50% in non-qualified stock options to purchase stock of OHE. Subject to the
executives' ability to elect a decrease in the percentage of cash payments and
to increase the percentage of stock options, 50% of the bonus amount was payable
in cash, and the remainder in stock options. OHE issued 445 options in 1994
based on 1993's operating results and recorded compensation expense of
approximately $207,000 in fiscal 1994. No options were issued in 1995 or 1996.
In August 1996 the 445 options were exercised for 445 shares of OHE common stock
at their $1 per share stated value (121,463 shares of the Company, giving effect
to the reorganization) and the executive bonus plan was terminated.
(12) COMMITMENTS AND CONTINGENCIES
(a) Letters of Credit -- Under the terms of the Economic Development
Revenue Bonds Agreement, OHE is required to maintain a letter of credit
supporting the debt. OHE's lender is committed to providing this letter of
credit through September 2, 1997. As of December 31, 1996, OHE had an
outstanding letter of credit in the amount of $1,681,750.
At December 31, 1996, OHE had standby and purchase letters of credit,
issued by its primary lender, in the aggregate amount of $3,296,028.
(b) Supply and Purchase Agreements -- In June 1995, OSN entered into an
irrevocable supply agreement with Magellan Systems Corporation ("Magellan")
whereby Magellan will purchase 4,000 Compact-M portable
F-18
<PAGE> 132
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
satellite telecommunication units for delivery within two years of the first
shipment, which has already occurred, at a predetermined price for a total
contract value of approximately $16,000,000. In the agreement, OSN granted
worldwide distribution to Magellan except for certain limited markets retained
by OSN.
In June 1995, in connection with the above-mentioned supply agreement, OSN
entered into a firm purchase agreement with Glocom, Inc. ("Glocom"). The
agreement provides for an irrevocable purchase order for the purchase of 4,000
units of the Compact-M for approximately $12,000,000. In accordance with the
agreement, OSN advanced a total of $3,000,000 to Glocom for the funding of the
related production costs. As of December 31, 1995 and 1996, OSN had advances to
the above vendor of $1,607,597 and $2,320,307, respectively.
As a result of certain market conditions related to the sale of the Compact
M, the Company is in discussions with both Glocom and Magellan regarding
reducing the number of units required under the respective purchase and supply
agreements. These negotiations have not been concluded. Although the amount the
Company will ultimately realize may differ materially from carrying amounts,
management believes there will be no material impact on the results of future
operations, or the carrying value of inventory or the advances.
In 1996, OHEB committed to purchase 100 glass kits, valued at approximately
$675,000, for delivery at various dates prior to June 1997.
(c) Employment Agreements -- In 1996, the Company entered into employment
agreements with key officers and employees with two year terms.
(d) Option to Purchase OHEB Minority Interest -- In August 1996, the
Company entered into an option agreement to acquire the minority interest in
OHEB on or prior to December 31, 1999. Under terms of the agreement, if the
Company exercises its option, it will be obligated to transfer to the former
shareholder, over a period of three years, common shares of the Company valued
at $1,200,000. The number of shares transferred is dependent on the market value
of the stock at the time of transfer. The exercise price for the purchase option
increases by $100,000 for each year after 1997 through 1999.
In conjunction with this agreement, the Company also entered into a two
year employment agreement with the former shareholder.
(e) Legal Matters -- The Company is party to various legal proceedings
arising from its consolidated operations. On October 9, 1996, the Company was
named in a lawsuit which alleges, among other allegations, that the Company's
expansion into the security services market constitutes a breach of a
non-competition agreement existing with OPS and the controlling shareholder of
OPS, Edward F. O'Gara, the brother of Thomas M. O'Gara, the Company's Chairman
of the Board, and Wilfred T. O'Gara, the Company's Chief Executive Officer. The
Company denies the assertions made by OPS in this matter. Management of the
Company believes that the outcome of this, as well as other proceedings,
individually and in the aggregate, will have no material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of significant current assets, current liabilities and
long-term debt approximate their respective historical carrying amounts.
(14) CUSTOMER AND SEGMENT DATA
(a)Segment Data -- The Company operates in three business segments, the
security hardware products group (Products Group), the security systems
integration group (Integration Group) and the security services group
(Services Group). The Products Group markets all of the Company's fully
integrated ballistic and blast protected vehicle armoring systems for
military, commercial and governmental clients worldwide. The Integration
Group provides vital communication systems for its clients by
integrating
F-19
<PAGE> 133
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
proprietary hardware and smart card billing software that operate on the
International Maritime Satellite ("Inmarsat") network. The Services
Group provides security-related services including, among others,
business intelligence, advanced driver training and security background
clearances to international customers. The following summarizes
information about the Company's business segments (in 000's):
<TABLE>
<CAPTION>
PRODUCTS INTEGRATION SERVICES
GROUP GROUP GROUP CONSOLIDATED
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
1994
Net sales to unaffiliated customers............ $ 33,466 $ 446 $ -- $ 33,912
======= ====== === =======
Operating income (loss)........................ $ 2,275 $ (44) $ -- $ 2,231
======= ====== === =======
Identifiable assets at year-end................ $ 19,108 $ 135 $ -- $ 19,243
======= ====== === =======
1995
Net sales to unaffiliated customers............ $ 30,773 $ 2,044 $ -- $ 32,817
======= ====== === =======
Operating income (loss)........................ $ 411 $ (588) $ -- $ (177)
======= ====== === =======
Identifiable assets at year-end................ $ 24,493 $ 3,324 $ -- $ 27,817
======= ====== === =======
1996
Net sales to unaffiliated customers............ $ 72,900 $ 9,823 $ 55 $ 82,778
======= ====== === =======
Operating income............................... $ 8,004 $ 505 $ 5 $ 8,514
======= ====== === =======
Identifiable assets at year-end................ $ 36,149 $ 6,816 $ 55 $ 43,020
======= ====== ===
Corporate assets............................... 918
-------
Total assets at year-end....................... $ 43,938
=======
</TABLE>
Total net sales by segment includes sales to unaffiliated customers.
Intersegment sales are nominal. Operating income (loss) is total net sales less
operating expenses. Operating income (loss) does not include the following
items: interest expense, other expenses and income taxes. Depreciation expense
for the Products Group for the years ended December 31, 1994, 1995 and 1996 was
$360,713, $411,970 and $780,463, respectively. Capital expenditures for the
Products Group for the years ended December 31, 1994, 1995 and 1996 was
$683,319, $638,009 and $2,543,168, respectively. There were no capital
expenditures or depreciation expense for the Integration Group or the Services
Group during 1994, 1995 and 1996. Identifiable assets by segment are those
assets that are used in the Company's operations in each segment. Corporate
assets are principally cash, certain intangible assets and certain prepaid
expenses.
F-20
<PAGE> 134
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following summarizes information about the Company's different
geographic areas (in 000's):
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Net sales to unaffiliated customers................... $33,278 $ 634 $ -- $ 33,912
======= ====== ===== =======
Operating income...................................... $ 2,014 $ 217 $ -- $ 2,231
======= ====== ===== =======
Identifiable assets at year-end....................... $17,908 $ 1,335 $ -- $ 19,243
======= ====== ===== =======
1995
Net sales to unaffiliated customers................... $30,080 $ 2,737 $ -- $ 32,817
======= ====== ===== =======
Operating income (loss)............................... $ (336) $ 159 $ -- $ (177)
======= ====== ===== =======
Identifiable assets at year-end....................... $26,182 $ 1,635 $ -- $ 27,817
======= ====== ===== =======
1996
Net sales to unaffiliated customers................... $75,743 $ 7,035 $ -- $ 82,778
Intercompany.......................................... 2,226 -- (2,226) --
------- ------ ----- -------
Total net sales............................. $77,969 $ 7,035 $ (2,226) $ 82,778
======= ====== ===== =======
Operating income...................................... $ 8,141 $ 373 $ -- $ 8,514
======= ====== ===== =======
Identifiable assets................................... $37,384 $ 6,291 $ (655) 43,020
======= ====== =====
Corporate assets...................................... 918
-------
Total assets at year-end.............................. $ 43,938
=======
</TABLE>
The Company accounts for transfers between geographic areas at cost plus a
proportionate share of operating profit.
The following summarizes the Company's sales in the United States and
foreign locations (in 000's):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Sales to unaffiliated customers:
U.S. Government................................... $15,332 $11,514 $51,505
Other United States............................... 2,711 7,356 8,994
Middle East....................................... 7,795 8,582 7,598
Central & South America........................... 4,093 1,050 5,807
Other Foreign..................................... 3,981 4,315 8,874
------- ------- -------
$33,912 $32,817 $82,778
======= ======= =======
</TABLE>
Export sales by the Company's domestic operations were approximately 46%,
37% and 21% of net sales for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company is subject to audit and investigation by various agencies which
oversee contract performance in connection with the Company's contracts with the
U.S. Government. Management believes that potential claims from such audits and
investigations will not have a material adverse effect on the consolidated
financial statements. In addition, contracts with the U.S. Government may
contain cost or performance incentives or both based on stated targets or other
criteria. Cost or performance incentives are recorded at the time there is
sufficient information to relate actual performance to targets or other
criteria.
F-21
<PAGE> 135
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company has foreign operations and assets in Brazil, Mexico, Russia and
Italy. In addition, the Company sells its products and services in other foreign
countries and continues to increase its level of international activity.
Accordingly, the Company is subject to various risks including, among others,
foreign currency restrictions, exchange rate fluctuations, government
instability and complexities of local laws and regulations.
(b) Major Customers -- During the years ended December 31, 1994, 1995 and
1996 sales to three customers and their affiliated entities approximated 64%,
52% and 68%, respectively, of the Company's net sales. These customers are
individually presented as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Government......................................... 45% 35% 62%
Middle East Foreign Government A........................ 9% 14% 6%
Middle East Foreign Government B........................ 10% 3% --
-- -- --
64% 52% 68%
== == ==
</TABLE>
The year-end accounts receivable balances of these customers approximated
61%, 62% and 22% of the Company's total trade receivable balance at December 31,
1994, 1995 and 1996, respectively. In addition, two other customers not included
above had year-end accounts receivable balances which approximated 16% and 10%
of total trade accounts receivable as of December 31, 1994 and 1996,
respectively.
(15) ISSUANCE OF OHE STOCK
Prior to August 1994, OHE was indebted to Letter International Limited
Irrevocable Trust (Trust), a trust for which OHE was the sole beneficiary, in
the amount of $1,260,000. At the same time, the Trust was indebted in an equal
amount to OHE's majority shareholder. In August 1994, the majority shareholder
received from the Trust an assignment of OHE's obligation. The majority
shareholder then agreed to the cancellation of this indebtedness of OHE in
exchange for 2,692 shares of common stock of OHE (734,781 shares of the Company,
giving effect to the reorganization).
(16) STOCK OPTION PLANS
In 1996, the Company adopted a stock option plan (the 1996 Plan) for
employees and non-employee directors. Had compensation cost for this plan been
determined consistent with SFAS 123, the Company's net income and earnings per
share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net income
As reported................................................. $6,658,962
Pro forma................................................... $6,636,312
Earnings per share
Pro forma before SFAS No. 123 impact........................ $ 0.69
Pro forma after SFAS No. 123 impact......................... $ 0.69
</TABLE>
The Company may grant options for up to 400,000 shares under the 1996 Plan.
The Company granted options for 180,000 shares during fiscal 1996 at the initial
public offering price. Options granted under the plan are generally granted at
fair market value at the date of grant and are exercisable over periods not
exceeding ten years.
F-22
<PAGE> 136
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of the status of the Company's stock option plan at December 31,
1996, and the change during the year then ended is presented in the table and
narrative below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
SHARES PRICE
------- -----
<S> <C> <C>
Outstanding, beginning of year............................. -- $ --
Granted.................................................... 180,000 9.00
Exercised.................................................. -- --
Forfeited/Expired.......................................... -- --
------- ------
Outstanding, end of year................................... 180,000 $9.00
======= ======
Exercisable, end of year................................... -- $ --
======= ======
</TABLE>
At December 31, 1996, all 180,000 of the options have an exercise price of
$9.00, a fair value of $4.98, and remaining contractual life of 10 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Dividend yield........................................ 0%
Expected volatility................................... 39.3%
Risk-free interest rate............................... 6.5%
Expected lives........................................ 7.5 years
</TABLE>
(17) INITIAL PUBLIC OFFERING
On November 15, 1996, the Company completed its initial public offering of
common stock. The proceeds from the sale of 2,048,000 shares of common stock,
including 48,000 shares issued through the underwriters' partial exercise of
their over-allotment option, were used by the Company for retirement of bank
debt, payment of the AAA notes described below, purchase of a manufacturing
facility in Mexico, acquisition of Palmer net assets (Note 3) and transaction
costs associated with the offering.
On October 28, 1996 OHE distributed to its shareholders a dividend of
$9,000,000 in the form of long-term notes (the "AAA Notes") which represented
the undistributed previously taxed income of OHE as an S Corporation through the
effective date of the reorganization. During 1996 the Company recognized
approximately $27,000 in interest expense related to the AAA notes.
(18) PRO FORMA INFORMATION (UNAUDITED)
(a) Pro Forma Consolidated Statements of Operations Adjustments -- The pro
forma consolidated statements of operations information presents the pro forma
effects on the historical consolidated financial
F-23
<PAGE> 137
THE O'GARA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
information reflecting certain transactions as if they occurred on January 1,
1996. The following adjustments have been reflected in the pro forma
consolidated statements of operations information:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Amortization on intangible assets resulting from the purchase of
Palmer net assets................................................... $ (101,000)
The elimination of interest expense relating to the retirement of bank
debt................................................................ 339,000
The provision for income taxes at an effective rate of 40% as if the
Company had filed a consolidated U.S. Federal tax return............ (2,448,000)
------------
Total....................................................... $ (2,210,000)
============
</TABLE>
(b) Pro Forma Net Income Per Share -- Pro forma net income per common share
is based on the weighted average number of shares of common stock of the Company
outstanding during the period (assuming the reorganization had occurred as of
the beginning of the year and using the treasury stock method), plus the number
of shares required to fund the distribution to shareholders and the number of
shares required to repay existing debt.
Supplemental pro forma income per share considering only the repayment of
existing debt would have been $0.83 for the year ended December 31, 1996, based
on the weighted average number of shares of common stock outstanding during the
period, plus the estimated number of shares to be issued to repay existing debt.
(19) SUBSEQUENT EVENT (UNAUDITED)
On August 8, 1997, the Company entered into a merger agreement with Kroll
Holdings, Inc. (Kroll). In the proposed merger, Kroll would become a wholly
owned subsidiary of the Company and holders of Kroll stock and stock options
would receive an aggregate of 6,650,000 shares of O'Gara common stock. The
merger is intended to be a tax-free reorganization and will be accounted for as
a pooling of interests.
F-24
<PAGE> 138
THE O'GARA COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents....................................................................... $ 7,874
Marketable securities...................................................................... 3,011
Trade accounts receivable, net of allowance for doubtful accounts of $467.................. 20,064
Other receivables
Advances to shareholders................................................................. 69
Affiliates............................................................................... 398
Advances to vendors........................................................................ 505
Costs and estimated earnings in excess of billings on uncompleted contracts................ 12,616
Inventories................................................................................ 15,211
Prepaid expenses........................................................................... 1,590
--------
Total current assets................................................................ 61,338
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land....................................................................................... 1,255
Buildings and improvements................................................................. 5,525
Furniture and fixtures..................................................................... 2,080
Machinery and equipment.................................................................... 5,074
--------
13,934
Less: accumulated depreciation............................................................. (4,851)
--------
9,083
--------
COSTS IN EXCESS OF ASSETS ACQUIRED, net of accumulated amortization of $215.................. 12,949
OTHER ASSETS................................................................................. 6,377
--------
19,326
--------
$ 89,747
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit.................................................................. $ --
Current portion of long-term debt.......................................................... 2,030
Accounts payable-
Trade.................................................................................... 16,703
Affiliates............................................................................... 1,014
Billings in excess of costs and estimated earnings on uncompleted contracts................ 732
Accrued liabilities........................................................................ 6,917
Customer deposits.......................................................................... 1,610
--------
Total current liabilities........................................................... 29,006
LONG-TERM DEBT, net of current portion....................................................... 39,944
MINORITY INTEREST............................................................................ 45
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 100,000 shares authorized, none issued................... --
Common stock, $0.01 par value, 25,000,000 shares authorized, 7,279,310 shares issued and
outstanding in 1997...................................................................... 73
Additional paid-in-capital................................................................. 23,726
Retained deficit........................................................................... (2,470)
Cumulative foreign currency translation adjustment......................................... (577)
--------
Total shareholders' equity.......................................................... 20,752
--------
$ 89,747
========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-25
<PAGE> 139
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
NET SALES....................................................................... $ 41,521 $ 51,853
COST OF SALES................................................................... 31,383 37,484
--------- ---------
Gross profit.................................................................. 10,138 14,369
OPERATING EXPENSES:
Selling and marketing......................................................... 2,159 3,794
General and administrative.................................................... 3,286 5,121
--------- ---------
Operating income.......................................................... 4,693 5,454
OTHER INCOME (EXPENSE):
Interest expense.............................................................. (613) (1,404)
Other, net.................................................................... (78) 329
--------- ---------
Income before minority interest, provision for income taxes and
extraordinary item......................................................... 4,002 4,379
Minority interest............................................................... -- (74)
--------- ---------
Income before provision for income taxes and extraordinary item............. 4,002 4,305
Provision for income taxes...................................................... -- 1,623
--------- ---------
Income before extraordinary item............................................ 4,002 2,682
Extraordinary item, cost of early extinguishment of debt, net of $129 tax
benefit....................................................................... -- 194
--------- ---------
Net income............................................................. $ 4,002 $ 2,488
========= =========
Earnings per share.............................................................. $ 0.35
=========
Weighted average shares outstanding............................................. 7,141,389
=========
UNAUDITED PRO FORMA INFORMATION:
Gross profit.................................................................. $ 10,138
Selling and marketing expenses................................................ 2,159
General and administrative expenses........................................... 3,356
---------
Operating income.............................................................. 4,623
Interest expense.............................................................. (457)
Other, net.................................................................... (78)
---------
Income before provision for income taxes...................................... 4,088
Provision for income taxes.................................................... 1,635
---------
Net income................................................................ $ 2,453
=========
Earnings per share............................................................ $ 0.40
=========
Weighted average shares outstanding........................................... 6,173,728
=========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-26
<PAGE> 140
THE O'GARA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------
1996 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $ 4,002 $ 2,488
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization................................... 317 908
Minority interest............................................... -- 13
Decrease (increase) in receivables.............................. 602 (5,546)
Decrease in advances to vendors................................. 157 159
Increase (decrease) in costs and estimated earnings in excess of
billings on uncompleted contracts.............................. (4,452) 3,443
Increase in inventories......................................... (2,345) (2,290)
Increase in prepaid expenses.................................... (137) (844)
Increase in other assets........................................ (622) (1,076)
Increase (decrease) in accounts payable......................... 229 (575)
Decrease in billings in excess of costs and estimated earnings
on uncompleted contracts....................................... (1,236) (598)
Increase (decrease) in accrued liabilities...................... 385 (1,879)
Increase (decrease) in customer deposits........................ 1,856 (509)
-------- ---------
Net cash used in operating activities...................... (1,244) (6,306)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net.................... (787) (1,064)
Purchase of Labbe, net of cash acquired............................ -- (7,229)
Purchase of ITI, net of cash acquired.............................. -- (377)
Purchase of marketable securities.................................. (3,011)
Investment in shareholder and affiliate notes...................... (317) --
-------- ---------
Net cash used in investing activities...................... $ (1,104) $ (11,681)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit........ 3,457 (9,936)
Proceeds from long-term debt....................................... -- 34,875
Payments of long-term debt......................................... (80) --
Repayment of shareholder notes..................................... (40) --
Distribution to shareholders....................................... (230) --
Foreign currency translation....................................... 5 (532)
-------- ---------
Net cash provided by financing activities.................. 3,112 24,407
-------- ---------
NET INCREASE IN CASH AND EQUIVALENTS................................. 764 6,420
-------- ---------
CASH AND EQUIVALENTS, beginning of period............................ 324 1,454
-------- ---------
CASH AND EQUIVALENTS, end of period.................................. $ 1,088 $ 7,874
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................. $ 565 $ 924
======== =========
Cash paid for taxes................................................ $ -- $ 1,510
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 141
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The O'Gara Company (the "Company") is an integrated security company with
three business lines: security hardware products, security systems integration
and security services. The Security Hardware Products Group markets all of the
Company's armoring products, including ballistic and blast protected armoring
systems for military and commercial vehicles, aircraft and missile components,
through the Company's various O'Gara-Hess & Eisenhardt Armoring Company
subsidiaries and Labbe, S.A ("Labbe"). The Security Systems Integration Group
offers planning, design and hardware and software integration services which are
customized to meet specific satellite communications or site protection needs of
customers through its O'Gara Satellite Networks ("OSN"), Next Destination
Limited ("Next Destination") and O'Gara Security International, Inc.
subsidiaries. The Security Services Group offers security-related services such
as advanced driver training, background clearances, business intelligence,
country risk assessments, forensic auditing, force protection consulting and
private security agent training through its Palmer Associates division and its
O'Gara Security Associates, Inc. and International Training, Inc. ("ITI")
subsidiaries.
On November 15, 1996, the Company completed an initial public offering of
2,048,000 shares of common stock at $9.00 per share, including 48,000 shares
issued through the underwriters' partial exercise of their over-allotment
option. The net proceeds from the offering were used by the Company for
retirement of bank debt, payment of the AAA Notes described below (Note 4),
purchase of a manufacturing facility in Mexico, initial payments in connection
with the acquisition of the net assets of Palmer Associates and transaction
costs associated with the offering.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. The accompanying financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
The accompanying consolidated financial statements consist of several
entities, all of which, until October 28, 1996, were owned or controlled by
substantially the same shareholders. In contemplation of the Company's initial
public offering, these entities and their respective shareholders entered into a
reorganization plan that was executed on October 28, 1996 (the
"Reorganization"). Accordingly, the accompanying consolidated financial
statements present, as a combination of entities under common control as if
using the pooling method of accounting, the financial position and related
results of operations of the Company on a consolidated basis for all periods
presented. All significant balances and transactions between the consolidated
entities have been eliminated in these consolidated statements.
(2) REVENUE RECOGNITION
Revenue related to government contracts and most commercial contracts
results principally from long-term fixed price contracts and is recognized on
the percentage of completion method calculated utilizing the cost-to-cost
approach. The percent deemed to be complete is calculated by comparing the costs
incurred to date to estimated total costs for each contract. This method is used
because management considers costs incurred to be the best available measure of
progress on these contracts. However, adjustments to this measurement are made
when management believes that costs incurred materially exceed effort expended.
Contract costs include all direct material and labor costs, along with certain
direct overhead costs related to contract production.
F-28
<PAGE> 142
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
Provisions for any estimated total contract losses on uncompleted contracts
are recorded in the period in which it becomes known that such losses will
occur. Changes in estimated total contract costs will result in revisions to
contract revenue. These revisions are recognized when determined.
Revenue related to telecommunications equipment and services is recognized
as equipment is shipped or as services are provided. Revenue and related direct
costs of brokered satellite time are recorded when payments are received from
customers.
(3) ACQUISITIONS
The Company completed the following acquisitions during the first quarter
of 1997. All three of these acquisitions were accounted for as purchases and the
results of the acquired entities are included in the consolidated results of the
Company from their respective dates of acquisition. The Company is still
awaiting results of certain appraisals and other analysis; therefore the
allocation of purchase price is still preliminary in each case.
(a) Next Destination Acquisition -- On February 5, 1997, the Company
acquired all of the shares of Next Destination for $3.5 million,
consisting of $1.75 million in shares of the Company's common stock
(170,234 shares) and $1.75 million in seller-provided financing in
the form of three-year 6% notes. The former managing director and
founder of Next Destination continues to manage the business and is
subject to a three year non-competition agreement. Costs in excess of
assets acquired is expected to be $3.2 million and will be amortized
over 15 years.
(b) Labbe Acquisition -- On February 12, 1997, the Company acquired all
of the shares of Labbe for $14,230,000 consisting of $10.7 million in
cash, financed through funds advanced under the Company's credit
facility, and 376,597 shares of the Company's common stock. The
former shareholders of Labbe, who were employed by Labbe prior to the
acquisition, continue in their formerly-held capacities. The former
shareholders also are subject to certain non-competition agreements
upon their leaving the employment of the Company. Costs in excess of
assets acquired is expected to be $7.0 million and will be amortized
over 30 years.
(c) ITI Acquisition -- On March 24, 1997, the Company acquired all of the
shares of ITI for $2,540,000, consisting of $0.5 million in cash,
financed through the Company's credit facility, 68,086 shares of the
Company's common stock, and $1.2 million in seller provided financing
in the form of 2-year, 10%, subordinated notes. The former
shareholders of ITI, who were employed by ITI prior to the
acquisition, continue in their formerly-held capacities. The former
shareholders are also subject to certain non-competition agreements
upon their leaving the employment of the Company. Costs in excess of
assets acquired is expected to be $2.0 million and will be amortized
over 15 years.
F-29
<PAGE> 143
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
In connection with the acquisitions of Labbe, Next Destination and ITI,
assets were acquired and liabilities were assumed as follows (in thousands):
<TABLE>
<CAPTION>
NEXT
DESTINATION ITI LABBE
----------- ------- --------
<S> <C> <C> <C>
FAIR VALUE OF ASSETS ACQUIRED INCLUDING:
Cash................................................ -- $ 23 $ 3,501
Accounts receivable................................. $ 1,830 310 4,690
Inventories......................................... 1,276 -- 2,911
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... -- -- 732
Prepaid expenses.................................... -- 4 64
Property, plant & equipment......................... 80 213 3,360
Intangible assets................................... -- -- 802
Other non-current assets............................ -- 12 2,357
Goodwill............................................ 3,207 2,015 6,961
----------- ------- --------
6,393 $ 2,577 $ 25,378
Less: Cash paid for net assets...................... -- (500) (10,730)
Fair value of debt issued..................... (1,575) (1,231) --
Fair value of stock issued.................... (1,851) (810) (3,435)
----------- ------- --------
$ 2,967 $ 36 $ 11,213
======== ======= ========
LIABILITIES ASSUMED INCLUDING:
Liabilities assumed and acquisition costs........... $ 2,967 $ 19 $ 9,710
Debt................................................ -- 17 1,503
----------- ------- --------
$ 2,967 $ 36 $ 11,213
======== ======= ========
</TABLE>
(4) S CORPORATION DISTRIBUTION
From 1988, when O'Gara-Hess & Eisenhardt Armoring Company ("OHE") elected S
Corporation status until October 28, 1996, when that status terminated, OHE had
made distributions from time to time to its shareholders for the purpose of
funding their income tax payments on the income generated by OHE, which income
was taxable to the shareholders whether or not distributed. In connection with
the Reorganization, OHE distributed to its shareholders a dividend of $9.0
million in the form of long-term notes (the "AAA Notes"), which represented the
undistributed previously taxed income of OHE as an S Corporation through the
effective date of the Reorganization.
(5) PROVISION FOR INCOME TAXES
During the time OHE was treated as an S Corporation under Subchapter S of
the Code and comparable provisions of certain state tax laws, it paid no federal
income tax. On October 28, 1996, OHE terminated its S Corporation status and,
from that date forward, is responsible for federal and state income tax.
F-30
<PAGE> 144
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
(6) INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and includes the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Raw materials................................................ $ 7,671
Vehicle costs and work-in-process............................ 7,540
------
$ 15,211
======
</TABLE>
(7) PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS (UNAUDITED)
The pro forma consolidated statements of operations information presents
the pro forma effects on the historical consolidated financial information
reflecting certain transactions as if they occurred on January 1, 1996. The
following adjustments have been reflected in the pro forma consolidated
statements of operations information (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
Amortization of intangible assets resulting from the purchase of Palmer
Associates, S.C...................................................... $ (70)
Elimination of interest expense relating to the retirement of bank
debt................................................................. 156
Provision for income taxes at an effective rate of 40% as if OHE had
been a C Corporation and as if the Company had filed a consolidated
U.S. Federal tax return.............................................. (1,635)
---------
Total.................................................................. $ (1,549)
=========
</TABLE>
(8) NEW PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128),
effective for fiscal years ending after December 15, 1997. The new standard
replaces primary earnings per share ("EPS") with basic EPS, simplifies EPS
calculations and requires restatement of all prior period EPS data. The Company
intends to adopt the provisions of SFAS 128 during the fourth quarter of 1997
with no material impact anticipated.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130), which requires comprehensive
income and the associated income tax expense or benefit be reported in a
financial statement with the same prominence as other financial statements with
an aggregate amount of comprehensive income reported in that same financial
statement. SFAS No. 130 permits the statement of changes in shareholders equity
to be used to meet this requirement. "Other Comprehensive Income" refers to
revenues, expenses, gains and losses that under GAAP are included in
comprehensive income but bypass net income. The Company intends to adopt SFAS
No. 130 in the first quarter of fiscal 1998. The Company anticipates that
adoption of SFAS No. 130 will not be material.
F-31
<PAGE> 145
THE O'GARA COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- CONTINUED
1997, the FASB issued Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS No.
131), which requires disclosure for each segment in which the chief operating
decision maker organizes these segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure and any manner in
which management disaggregates a company. The Company intends to adopt SFAS No.
131 in the first quarter of fiscal 1998. The Company anticipates that adoption
of SFAS No. 131 will not be material.
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash and equivalents consist of all operating cash accounts and investments
with an original maturity of three months or less. Marketable securities consist
of available-for-sale commercial paper obligations which mature or will be
available for use in operations in 1997. These securities are valued at current
market value, which approximates cost.
Non-cash activity (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Fair value of stock issued in connection with acquisition
of ITI................................................. -- $ 810
Notes issued in connection with acquisition of ITI....... -- $1,231
Fair value of stock issued in connection with acquisition
of Next Destination.................................... -- $1,851
Notes issued in connection with acquisition of Next
Destination............................................ -- $1,575
Fair value of stock issued in connection with acquisition
of Labbe............................................... -- $3,435
Note payable obligation incurred and receivable forgiven
in connection with non-compete agreement............... $115 --
</TABLE>
(10) FUTURES CONTRACT
The Company on occasion utilizes derivative financial instruments,
primarily futures contracts, to mitigate its exposure to foreign currency rate
fluctuations in transactions denominated in a foreign currency. At June 30,
1997, one such futures contract was outstanding with a bank at a contract amount
in excess of its calculated fair market value. As a result, an adjustment has
been recorded in Cumulative Foreign Currency Translation in the balance sheet.
The contract effectively hedges the Company's exposure to foreign currency
fluctuations associated with a loan to its Labbe subsidiary.
F-32
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Stockholders of
Kroll Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Kroll
Holdings, Inc. (the "Company") and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiaries as
of December 31, 1996, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ DELOITTE AND TOUCHE LLP
New York, New York
March 13, 1997
(August 8, 1997 as to Notes 7 and 17)
F-33
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Kroll Holdings, Inc.:
We have audited the consolidated balance sheet of Kroll Holdings, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kroll
Holdings, Inc. and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
March 28, 1996
F-34
<PAGE> 148
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 2,367,453 $ 3,306,989
Marketable securities................................................ -- 47,500
Accounts receivable, net............................................. 19,855,478 15,204,779
Unbilled revenues.................................................... 1,936,425 4,150,307
Amounts due from employees........................................... 196,410 490,881
Refundable income taxes.............................................. 95,619 154,333
Amounts due from affiliated companies................................ 162,680 41,970
Notes receivable..................................................... 471,289 100,000
Prepaid income taxes................................................. 69,802 382,602
Prepaid expenses..................................................... 1,615,411 917,483
----------- -----------
Total current assets............................................... 26,770,567 24,796,844
DATABASES (Net of accumulated amortization of $13,618,339 and
$16,568,473 in 1995 and 1996, respectively).......................... 7,114,223 7,415,449
PROPERTY AND EQUIPMENT--Net............................................ 3,705,133 3,638,526
INTANGIBLE AND OTHER ASSETS (Net of accumulated amortization of
$150,085 and $77,556 in 1995 and 1996, respectively)................. 1,248,111 1,333,033
OTHER ASSETS........................................................... 111,811 111,732
----------- -----------
TOTAL ASSETS........................................................... $38,949,845 $37,295,584
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade.............................................. $ 4,538,749 $ 4,910,286
Accrued compensation................................................. 397,449 2,621,343
Accrued interest payable............................................. 1,258,746 209,171
Deferred revenue..................................................... 167,582 1,064,955
Accounts payable other............................................... 2,719,852 3,341,385
Deferred income taxes................................................ 2,506,932 1,703,377
Current maturities of long-term debt................................. 5,000,000 2,625,000
Amount due to stockholder............................................ 2,000,000 2,000,000
----------- -----------
Total current liabilities.......................................... 18,589,310 18,475,517
DEFERRED RENT.......................................................... 1,559,576 1,588,718
OTHER LONG-TERM LIABILITIES............................................ 1,235,295 468,479
AMOUNT DUE TO STOCKHOLDERS............................................. 3,543,381 5,048,266
LONG-TERM DEBT--Less current maturities................................ 8,000,000 5,500,000
DEFERRED INCOME TAXES.................................................. 1,604,604 2,002,779
----------- -----------
TOTAL LIABILITIES...................................................... 34,532,166 33,083,759
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 10, 11 and 13)
STOCKHOLDERS' EQUITY:
Class A common stock ($0.01 par value; authorized 46,200 shares)..... 231 231
Common stock ($0.01 par value; authorized 153,800 shares)............ 654 718
Additional paid-in capital........................................... 19,364,159 20,255,161
Accumulated deficit.................................................. (15,143,498) (15,945,238)
Unrealized appreciation of marketable securities..................... -- 14,167
Cumulative translation adjustment.................................... 196,133 (113,214)
----------- -----------
Total stockholders' equity......................................... 4,417,679 4,211,825
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $38,949,845 $37,295,584
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 149
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES............................................ $52,871,687 $53,024,304 $70,883,058
COST OF SALES....................................... 31,683,853 35,205,810 47,899,920
----------- ----------- -----------
Gross profit (loss)............................... 21,187,834 17,818,494 22,983,138
OPERATING EXPENSES:
Selling and marketing............................. 4,700,040 5,489,615 4,632,013
General and administrative........................ 18,076,344 16,788,146 18,349,974
----------- ----------- -----------
Operating income (loss)........................ (1,588,550) (4,459,267) 1,151
OTHER INCOME (EXPENSE):
Interest expense.................................. (2,188,404) (1,970,483) (1,839,984)
Other, net........................................ 406,757 (281,774) 357,828
----------- ----------- -----------
LOSS BEFORE INCOME TAXES............................ (3,370,197) (6,711,524) (1,481,005)
INCOME TAX BENEFIT.................................. (1,751,098) (1,297,837) (679,265)
----------- ----------- -----------
NET LOSS............................................ $(1,619,099) $(5,413,687) $ (801,740)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 150
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL APPRECIATION OF CUMULATIVE
PAID-IN ACCUMULATED MARKETABLE TRANSLATION
CLASS A COMMON CAPITAL DEFICIT SECURITIES ADJUSTMENT TOTAL
------- ------ ----------- ------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1993
(88,450 shares issued and
outstanding)............... $ 231 $654 $19,364,159 $ (8,110,712) $ -- $ 108,146 $11,362,478
Cumulative translation
adjustment............... -- -- -- -- -- 59,174 59,174
Net loss................... -- -- -- (1,619,099) -- -- (1,619,099)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1994
(88,450 shares issued and
outstanding)............... 231 654 19,364,159 (9,729,811) -- 167,320 9,802,553
Cumulative translation
adjustment............... -- -- -- -- -- 28,813 28,813
Net loss................... -- -- -- (5,413,687) -- -- (5,413,687)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1995
(88,450 shares issued and
outstanding)............... 231 654 19,364,159 (15,143,498) -- 196,133 4,417,679
Cumulative translation
adjustment............... -- -- -- -- -- (309,347) (309,347)
Issuance of 6,457 shares... -- 64 891,002 -- -- -- 891,066
Unrealized appreciation of
marketable securities.... -- -- -- -- 14,167 -- 14,167
Net loss................... -- -- -- (801,740) -- -- (801,740)
---- ---- ----------- ------------ -------- --------- -----------
BALANCE at December 31, 1996
(94,907 shares issued and
outstanding)............... $ 231 $718 $20,255,161 $(15,945,238) $ 14,167 $(113,214) $ 4,211,825
==== ==== =========== ============ ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 151
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,619,099) $(5,413,687) $ (801,740)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided
by operating activities:
Depreciation and amortization -- property and
equipment.................................... 1,042,748 841,294 751,083
Amortization for goodwill...................... 19,143 26,939 26,992
Amortization for noncompete agreement.......... 33,334 16,667 --
Amortization for databases..................... 2,469,576 2,470,696 2,949,134
Bad debt expense............................... 2,032,749 3,050,310 8,108,976
Common stock issued as compensation............ -- -- 891,066
Loss on write-off of notes receivables......... -- 55,966 --
Share in net (income) loss of joint ventures... (1,749) 224,789 (19,224)
(Gain) loss on sale of property and
equipment.................................... (54,554) 6,245 1,872
Minority interest.............................. 53,785 -- --
Gain on sale of marketable securities.......... -- -- (108,646)
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable... 1,918,332 (1,952,444) (3,681,011)
(Increase) decrease in unbilled revenues..... (129,654) 1,391,221 (2,334,527)
(Increase) decrease in refundable income
taxes..................................... (340,501) 299,959 (58,714)
(Increase) decrease in prepaid income
taxes..................................... (202,834) 112,581 (312,800)
Decrease (increase) in amounts due from
affiliated companies...................... (1,080,756) (61,579) 120,710
Decrease in prepaid expenses................. 107,838 54,377 944,217
(Increase) decrease in intangibles and other
assets.................................... 29,463 (24,052) (111,914)
Increase in accounts payable and accrued
expenses.................................. 123,409 1,344,204 3,064,762
(Increase) decrease in amounts due to/from
employees................................. (23,695) 19,820 (294,471)
Decrease in deferred income taxes payable.... (409,517) (875,312) (405,380)
Decrease in income taxes payable............. (1,109,009) -- --
Increase (decrease) in long-term
liabilities............................... 289,231 349,103 (680,802)
Increase (decrease) in deferred rent......... 29,929 (199,363) 29,142
----------- ----------- -----------
Total adjustments.............................. 4,797,268 7,151,421 8,880,465
----------- ----------- -----------
Net cash provided by operating activities...... 3,178,169 1,737,734 8,078,725
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (497,795) (489,667) (686,948)
Proceeds from sale of property and equipment...... 80,765 4,235 600
Additions to databases............................ (3,065,554) (2,985,409) (3,250,360)
Purchase 50% of Kroll Asia (net of cash acquired
of $1,026)..................................... (334,538) -- --
Sale of marketable securities..................... -- -- 200,313
Other............................................. (127,289) (27,600) (66,711)
----------- ----------- -----------
Net cash used in investing activities.......... (3,944,411) (3,498,441) (3,803,106)
----------- ----------- -----------
</TABLE>
F-38
<PAGE> 152
KROLL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt........................ $(1,062,986) $(3,615,876) $(4,875,000)
Proceeds from borrowings from stockholders......... 106,500 2,600,000 2,000,000
Repayment of borrowings from stockholder........... -- (106,500) (495,115)
----------- ----------- -----------
Net cash used in financing activities........... (956,486) (1,122,376) (3,370,115)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ (1,722,728) (2,883,083) 905,504
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES ON CASH... -- -- 34,032
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR....... 6,973,264 5,250,536 2,367,453
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -- END OF YEAR............. $ 5,250,536 $ 2,367,453 $ 3,306,989
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash items:
Exchange of note receivable for trade
receivables................................... $ 409,967 $ 60,000 $ --
=========== =========== ===========
Exchange of stock in an unaffiliated company for
trade receivables............................. $ -- $ 125,000 $ --
=========== =========== ===========
Issuance of restricted stock.................... $ -- $ -- $ 891,066
=========== =========== ===========
Cash paid during the year for:
Interest........................................ $ 1,382,698 $ 1,840,061 $ 2,972,970
=========== =========== ===========
Income taxes.................................... $ 595,387 $ 123,686 $ 97,629
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE> 153
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
General -- In June 1993, Kroll Holdings, Inc., a Delaware corporation,
commenced operations. The Company was established as a holding company for
previously affiliated companies, hereinafter referred to as the Kroll Group, all
of whom were owned by common stockholders.
Description of Business -- Kroll is an international investigative and
consulting professional services organization. By combining sophisticated
investigative techniques with state of the art research methods, Kroll provides
services involving major financial transactions, corporate fraud, international
expansion, litigation, corporate takeovers, competitor actions, bankruptcies,
environmental liability, crisis management and other business concerns.
Reorganization -- During June 1993, pursuant to an unanimous consent of
stockholders, the holders of capital stock of the Kroll Group and an outside
investor entered into a Plan of Reorganization and Stockholders Agreement (the
"Plan"). Under the Plan, the outside investor contributed cash and notes to the
Company in exchange for 23,100 shares of the Company's Class A Common Stock, par
value $.01 per share. At December 31, 1993, the notes contributed by the outside
investor had been fully satisfied. The existing stockholders contributed all of
the capital stock of the Kroll Group in exchange for shares of the Company's
Common Stock, par value $.01. Due to the common ownership of the Kroll Group
Companies and Kroll Holdings, Inc., this reorganization has been accounted for
as a transaction between entities under common control. Accordingly, all assets
and liabilities of the entities have been combined at their historical net book
values and the exchange of shares by the existing stockholders has been
reflected in the accompanying consolidated financial statements as of January 1,
1993. The Reorganization qualified as a tax-free transaction as provided in
Section 351 of the Internal Revenue Code of 1986.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying consolidated financial
statements of Kroll Holdings, Inc. ("Holdings") and its wholly owned
subsidiaries include the accounts of Kroll Associates, Inc. ("KAI"), Kroll
Associates UK Limited ("Kroll UK"), Kroll Associates France SARL ("Kroll
France"), Kroll Environmental Enterprises, Inc. ("KEE"), Kroll Information
Services, Inc. ("KINS"), Kroll Associates Brazil Limited ("Kroll Brazil"), Kroll
Electronic Recovery Inc. ("KER"), Kroll Travel Security Services, Inc. ("Kroll
Travel"), Kroll Associates (Asia) Limited ("Kroll Asia"), Kroll International
Holdings, Inc. ("KIHI") and Kroll International, Inc. ("KII"). In April 1988,
Kroll Associates entered into a joint venture agreement. The investment in the
joint venture represented 50% of the common stock of Kroll Asia. In May 1994,
the remaining 50% of the common stock of Kroll Asia was purchased by Kroll
Holdings, Inc. Beginning with the year ended December 31, 1994, Kroll Asia has
been consolidated into the Kroll Holdings, Inc. financial statements. All
significant intercompany accounts and transactions among these companies have
been eliminated in consolidation. KIHI and KII are newly formed companies and
are included in the consolidated financial statements of KHI for the year ended
December 31, 1996.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation, including amortization of leasehold improvements, is computed
using the straight-line method over the estimated useful life of the asset. When
assets are retired or sold, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged to income
as incurred.
Databases -- Databases are capitalized costs incurred to obtain information
from third-party databases. Amortization is computed using the straight-line
method over the estimated useful life of five years.
Revenue Recognition -- Revenue from services is recognized as the services
are performed. The Company records either billed or unbilled accounts receivable
based on case-by-case invoicing determinations.
F-40
<PAGE> 154
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Income Taxes -- Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Foreign Currency -- The functional currency for the Company's foreign
subsidiaries is the applicable local currency. The translation from the
applicable foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange rate during
the period. The gains or losses resulting from such translation are included in
stockholders' equity.
Gains or losses resulting from foreign currency transactions are translated
to local currency at the rates of exchange prevailing at the dates of the
transactions. Amounts receivable or payable in foreign currencies, other than
the subsidiary's local currency, are translated at the rates of exchange
prevailing at the balance sheet date. The effect of transactional gains or
losses is included in other income (expense).
Statement of Cash Flows -- Cash equivalents of $600,000, $600,000 and
$890,000 at December 31, 1994, 1995 and 1996, respectively, consist of
certificates of deposit with a maturity of less than three months.
For purposes of the consolidated statements of cash flows, the Company
considers all investments with maturities of three months or less from purchase
date to be cash equivalents.
Intangibles -- The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis over a period of 40 years. The period of amortization of goodwill is
evaluated at least annually to determine whether events and circumstances
warrant revised estimates of useful lives. This evaluation considers, among
other factors, expected cash flows and profits of the businesses to which the
goodwill relates. Goodwill is written off when it becomes evident that it has
become permanently impaired.
Concentrations of Credit Risk -- Financial instruments which subject the
Company to concentrations of credit risk consist principally of trade
receivables. Concentrations of credit risk with respect to accounts receivable
are limited due to the large number of clients comprising the Company's client
base and their dispersion across many different industries and geographic
regions. Generally, the Company does not require collateral or other security to
support client receivables, except for certain significant receivables in 1995.
The Company has four significant foreign clients with receivables in the
aggregate accounting for approximately $7,456,000 or 35% and $6,531,000 or 33%
of the accounts receivable balance at December 31, 1994 and 1995, respectively.
A substantial portion of these receivables have been outstanding for more than a
year. During 1996, approximately $5,179,000 of such receivables were written
off. The Company establishes an allowance for doubtful accounts based upon facts
surrounding the credit risk of specific clients, historical trends and other
information. Management does not anticipate incurring losses on its trade
receivables in excess of established allowances.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets, primarily in the
area of accounts receivable, and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Marketable Securities -- The Company adopted the provisions of SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities, for the
year ended December 31, 1996. Under SFAS 115, the
F-41
<PAGE> 155
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company must classify its debt and marketable securities in one of three
categories: trading, available-for-sale or held-to-maturity. The Company has
classified equity securities as "Available for Sale."
Unrealized holding gains and losses, net of the related income tax effect
on the available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity until realized. The Company
recorded an unrealized gain of $14,167 during the year ended December 31, 1996.
A decline in the market of any available-for-sale security below cost that
is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Reclassifications -- Certain prior year balances have been reclassified to
conform with current year presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net, include an allowance for doubtful accounts of
$2,451,294 and $1,702,731 at December 31, 1995 and 1996, respectively. Refer to
Note 1, "Concentrations of Credit Risk."
4. SALES OF RECEIVABLES
During the year ended December 31, 1995, KAI entered into agreements to
sell, without recourse, accounts receivable in the amount of $4,507,800, to a
stockholder. A discount of $225,390, or 5%, was applied to the sales. Under the
terms of the agreements, a portion of the sales proceeds was withheld by the
purchaser subject to a final determination of the specific account receivables
to be included in the sale. At December 31, 1995, all obligations to the
purchaser, pursuant to the agreements, have been satisfied.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
1995 1996 USEFUL LIVES
----------- ----------- ---------------
<S> <C> <C> <C>
Furniture and fixtures............................ $ 1,948,611 $ 1,997,508 5 years
Office equipment.................................. 5,161,819 5,637,538 5 years
Automobiles....................................... 52,558 53,377 3 years
Leasehold improvements............................ 4,995,745 5,186,648 Term of leases
----------- -----------
12,158,733 12,875,071
----------- -----------
Less accumulated depreciation and amortization:
Furniture and fixtures.......................... 1,781,578 1,851,464
Office equipment................................ 4,339,416 4,668,046
Automobiles..................................... 26,279 44,481
Leasehold improvements.......................... 2,306,327 2,672,554
----------- -----------
8,453,600 9,236,545
----------- -----------
$ 3,705,133 $ 3,638,526
=========== ===========
</TABLE>
Depreciation and amortization charged to income amounted to $1,042,748,
$841,294 and $751,083 for 1994, 1995 and 1996, respectively.
6. INVESTMENT IN JOINT VENTURES
Investment in Electronic Recovery Group--In May 1994, KER entered into a
partnership agreement with Sabin Environmental Processing, Inc., a Connecticut
corporation, to form Electronic Recovery Group (ERG).
F-42
<PAGE> 156
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KER owns 50% of the partnership. At December 31, 1996 and 1995, KER's share of
accumulated losses is in excess of its investment in the amounts of $93,947 and
$145,883, respectively. The Company's liability for such is included in Other
Long-Term Liabilities.
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
10.95% Senior Notes due December 15, 1999......... $13,000,000 $8,125,000
Less current maturities........................... 5,000,000 2,625,000
----------- ----------
$ 8,000,000 $5,500,000
=========== ==========
</TABLE>
The aggregate annual principal payments during the succeeding years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997................................................. $2,625,000
1998................................................. 2,500,000
1999................................................. 3,000,000
----------
$8,125,000
==========
</TABLE>
Under the terms of the Note Purchase Agreement governing the Senior Notes,
certain wholly owned subsidiaries of the Company are subject to certain
restrictions relating to, among other things: liens; indebtedness;
consolidations, mergers and sale of assets; investments; certain payments in
respect of capital stock; dividends; changes in the business; maintenance of
certain financial conditions; and use of proceeds. At December 31, 1996, the
Company was in violation of one of the covenants in connection with this credit
agreement. The violation related to a financial matter regarding maintaining
certain levels of modified working capital. However, subsequent to December 31,
1996, the Company has obtained from lender a waiver with respect to such
violation.
8. EMPLOYEE BENEFIT PLANS
a. PENSION AND SAVINGS PLANS
i) Money Purchase Pension Plan -- Effective January 1, 1991, the
Company adopted the Kroll Associates Money Purchase Pension Plan and Trust
(the "Plan"). The Plan is a defined contribution plan which covers all
domestic employees.
Under the Plan, a separate account is maintained for each participant. In
general, annual contributions to each participant's account under the Plan
are based on the participant's base salary.
The total cost of the Plan for 1994, 1995 and 1996 was $768,120, $818,180
and $826,278, respectively.
ii) 401(k) Plan -- Effective January 1, 1991, the Company also adopted
the Kroll Associates 401(k) Savings Plan and Trust (the "Savings Plan").
The Savings Plan is a defined contribution plan with a cash or deferred
feature that allows participant contributions. The Savings Plan covers all
eligible domestic employees of the Company.
To encourage employees to participate, the Savings Plan offers a matching
contribution whereby the Company will contribute 25% of the amount a
participant contributes on contributions up to 5% of salary, limited to a
maximum annual matching contribution of $500.
The cost of the Company's matching contribution for 1994, 1995 and 1996 was
$66,410, $58,662 and $57,479, respectively.
F-43
<PAGE> 157
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
iii) U.K. Defined Contribution Plan -- Kroll UK operates a defined
contribution Group Personal Pension Scheme (the "Scheme") which is open to
all local employees. The assets of the Scheme are held in an independently
administered fund. The pension cost amounted to $98,629, $93,309 and
$141,161 in 1994, 1995 and 1996, respectively.
(iv) Kroll Asia Defined Contribution Plan -- Kroll Asia operates a
defined contribution Pooled Provident Fund (the "Fund") which is open to
all local employees. The assets of the Fund are held in an independently
administered fund. The pension cost amounted to $87,948 and $85,924 in 1995
and 1996, respectively.
(v) Japan Defined Contribution Plan -- Kroll Japan operates a defined
contribution Pooled Provident Fund (the "Fund") which is open to all local
employees. The assets of the Fund are held in an independently administered
fund. The pension costs amounted to $7,125 in 1996.
b. RESTRICTED STOCK PLAN
The Company adopted a long-term incentive plan designed to give managing
directors and other key employees a stake in the long-term success of the
Company through grants of phantom stock options. Each option gave the right to
receive a payment equal to the appreciation in the price of the option at the
payment determination date.
Effective June 14, 1993, the Company replaced the long-term incentive plan
with a restricted stock plan. The restricted stock plan provides for cliff
vesting after a five-year period from the date the stock is awarded.
Participants who were awarded stock under the long-term incentive plan prior to
or in January 1991, vested in three years, as they received a two-year credit
toward vesting. Participants who were awarded stock under the long-term
incentive plan after January 1, 1991 and prior to, or in January 1992, will vest
in four years, as they receive a one-year credit toward vesting. Under the
provisions of the plan, a participant has the ability to put the stock back to
the Company and receive cash for the then fair value of the stock. The fair
value of a Common Share shall be determined by an appraisal and shall be equal
to the fair value of the Company divided by the total number of shares of Common
Stock issued and outstanding at the time determined on a fully diluted basis. In
determining the fair value of the Company, the appraiser will consider such
factors as the financial condition and operating results and prospects of the
Company. No payment of awards to any participant shall be made if, at the time
payment would otherwise be made, an event of default under any note purchase
agreement has occurred and is continuing.
During 1996, 4,147 shares of restricted stock fully vested and were issued.
Based on a valuation of the Company, the total value assigned to the shares on
the vesting date equaled $572,286.
At December 31, 1994, 1995 and 1996, 7,858, 7,289 and 3,068 shares,
respectively, were outstanding relating to the restricted stock plan and an
additional 1,382, 1,951 and 2,025 shares at December 31, 1994, 1995 and 1996,
were reserved for issuance. As a result, at December 31, 1994, 1995 and 1996,
$490,831, $732,234 and $374,532, respectively, was accrued in connection with
these benefits.
c. SUPPLEMENTAL EXECUTIVE AWARD AGREEMENTS
The Company entered into agreements with certain senior executives which
provided additional benefits to the participants. During 1996, all 2,310 shares
fully vested and were issued. Based on a valuation of the Company, the total
value assigned to the shares on the vesting date equaled $318,780. At December
31, 1994 and 1995, $215,400 and $323,100, respectively, was accrued in
connection with these benefits.
F-44
<PAGE> 158
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
d. PROFIT AND REVENUE SHARING PLANS
In 1991, the Company adopted a Profit and Revenue Sharing Plan to give
employees an annual cash incentive bonus based on the Company's performance. The
new plans made a portion of most employees' compensation (except administrative
personnel, who have a guaranteed bonus) contingent. There were two plans under
the Profit and Revenue Sharing Plan umbrella -- the Profit and Revenue Sharing
Plan for Managing Directors and the Bonus Plan for Professionals and Senior
Administrative Employees.
PROFIT AND REVENUE SHARING PLAN FOR MANAGING DIRECTORS
The managing directors' bonus plan is based on a matrix of firmwide revenue
and a percentage of operating profit. The maximum bonus opportunity for managing
directors was 50%, 50% and 15% of salary in 1994, 1995 and 1996, respectively.
The administrator may amend, modify or terminate the plan at any time.
BONUS PLAN FOR PROFESSIONAL AND SENIOR ADMINISTRATIVE STAFF
Similar to the managing directors' bonus plan, the plan for the
professional staff is based on a matrix of firmwide revenue and a percentage of
operating profit. The maximum bonus opportunity for this group ranged from 18%
to 26% of salary in 1994 and 1995 and from 15% of salary in 1996 depending on
the employee's level in the Company. The administrator may amend, modify or
terminate the plan at any time.
The Company incurred approximately $99,000, $314,000 and $2,288,000
associated with the profit and revenue sharing plans in 1994, 1995 and 1996,
respectively.
e. STOCK OPTIONS
Effective January 1995, the Company established the Kroll Holdings, Inc.
Management Stock Option Plan (the "Management Stock Option Plan"). The
Management Stock Option Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors. In administering the
Management Stock Option Plan, the Committee may adopt rules and regulations for
carrying out the Management Stock Option Plan and shall determine the vesting
period and exercise price of options granted. In addition, the Committee shall
determine which employees are granted options.
The Management Stock Option Plan provides for the issuance of options to
purchase up to 7,700 shares of the Company's common stock. Options granted under
the Management Stock Option Plan shall be nonqualified stock options which are
not entitled to tax treatment as incentive stock options under Section 422 of
the Internal Revenue Code. Options may only be exercised while a participant is
employed, or in the event of disability, death, termination of employment after
the age of 65, within a 90-day period of the participant's termination of
employment. Options may be terminated at the Committee's discretion with
compensation paid to participants based on a current valuation (as defined in
the Management Stock Option Plan) of the options. Common stock granted on the
exercise of options shall generally not be transferable; however, after holding
such shares for one year, a participant has the right to sell, and the Company
has an obligation to purchase, shares put to the Company, with the share price
based on a current valuation of the Company. Options to purchase 6,090 and 535
shares of common stock were granted under the Management Stock Option Plan in
1995 and 1996, respectively. In addition, during 1996, options to purchase 2,196
shares of common stock were issued to two key employees with an exercise price
above market price.
F-45
<PAGE> 159
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of the status of the Company's stock options as of December 31,
1995 and 1996 and changes during the years then ended is presented below.
<TABLE>
<CAPTION>
1995 1996
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......... -- $ -- 6,090 $400
Granted.................................. 6,090 400 2,731 199
----- ---- ----- ----
Outstanding at end of year............... 6,090 $400 8,821 $338
===== ==== ===== ====
Options exercisable at end of year....... -- -- 3,763 $327
===== ==== ===== ====
Weighted average fair market value of
options granted during the year........ $0.00 $0.00
===== =====
</TABLE>
The fair value of each option granted during 1995 and 1996 is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<S> <C>
Dividend yield..................................................... 0%
Expected volatility................................................ 0%
Risk-free interest rate............................................ 6.00%
Expected life...................................................... 5 years
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ---------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED OUTSTANDING WEIGHTED
RANGE OF AT CONTRACTUAL AVERAGE AT AVERAGE
EXERCISE DECEMBER LIFE EXERCISE DECEMBER EXERCISE
PRICES 31, 1996 (YEARS) PRICE 31, 1996 PRICE
- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150 2,196 10 years $150 1,098 $150
400 6,625 9 years 400 2,665 400
------ ------
8,821 3,763
====== ======
</TABLE>
The Company applies APB Option No. 25 and related Interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized with respect to the plans. Had compensation cost for the Company's
stock option plans been determined consistent with Statement of Financial
Accounting Standards No. 123, Accounting for Stock -- Based Compensation ("SFAS
123"), there would have been no effect on the Company's net loss, as the options
granted during 1995 and 1996 were determined to have a fair value of $-0-.
9. RELATED PARTY TRANSACTIONS
a. Investment in One Sky Consulting -- During 1994 and 1995, the Company
rendered services to an affiliated company, One Sky Consulting ("One Sky").
Included in revenues on the accompanying consolidated statements of operations
for 1994 and 1995 is $101,276 and $115,067, respectively, billed to this
company.
F-46
<PAGE> 160
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
b. Amounts Due from Affiliated Companies -- Amounts due from affiliated
companies include the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Net receivable from One Sky............................. $153,713 $ 289
Advances due (to) from ERG.............................. (13,533) 8,906
Net receivable due to ERG............................... -- (708)
Note receivable from ERG................................ -- 13,500
Advances due from Kroll Stevens......................... 22,500 19,983
-------- -------
$162,680 $41,970
======== =======
</TABLE>
c. Transactions with Stockholder -- During 1994, 1995 and 1996, the Company
rendered services to a corporation which became an outside investor in June
1993. Included in revenue on the accompanying consolidated statements of
operations for 1994, 1995 and 1996 is $3,158,113, $3,868,967 and $5,325,559,
respectively, billed to this company. Included in costs and expenses on the
consolidated statements of operations for 1994, 1995 and 1996 is $936,870,
$485,807 and $824,348, respectively, billed by this company. Included in
accounts receivable for 1995 and 1996 is $923,400 and $857,820, respectively.
The outside investor has the right to designate one individual for membership on
the Company's Board of Directors.
10. LEASE COMMITMENTS
The Company leases office space under agreements that expire at various
dates through 2007. The aggregate minimum rental commitments under operating
leases for succeeding years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997........................................................... $ 3,002,950
1998........................................................... 2,845,399
1999........................................................... 2,258,467
2000........................................................... 2,073,328
2001........................................................... 1,768,837
Thereafter..................................................... 9,440,164
-----------
$21,389,145
===========
</TABLE>
Other lease commitments for equipment and automobiles are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------
<S> <C>
1997.............................................................. $131,177
1998.............................................................. 406,364
--------
$537,541
========
</TABLE>
For 1994, 1995 and 1996, rent expense amounted to $2,847,521, $2,646,658
and $3,074,454, respectively.
Future annual rent expense will differ from actual payments made due to
rent abatements in the initial period of various leases. This results in
deferred rent.
F-47
<PAGE> 161
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. INCOME TAXES
Income tax benefit amounted to $1,751,098, $1,297,837 and $679,265 for
1994, 1995 and 1996, respectively. The actual tax benefit differs from the
"expected" tax benefit (computed by applying the U.S. Federal statutory tax rate
of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit............... $(1,145,867) $(2,281,918) $(503,542)
Effect of foreign income/loss................. 249,043 1,443,806 (227,149)
Nondeductible expenses........................ 76,579 78,220 65,702
Foreign taxes................................. (329,371) -- --
State and local taxes (net of Federal income
tax benefit)................................ (457,418) (370,496) 41,453
Other......................................... (144,064) (167,449) (55,729)
----------- ----------- ---------
Actual tax benefit.......................... $(1,751,098) $(1,297,837) $(679,265)
=========== =========== =========
</TABLE>
The components of income tax benefit for 1994 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Current............................ $(664,798) $(347,412) $(329,371) $(1,341,581)
Deferred........................... (63,871) (345,646) -- (409,517)
--------- --------- --------- -----------
$(728,669) $(693,058) $(329,371) $(1,751,098)
========= ========= ========= ===========
</TABLE>
The components of income tax benefit for 1995 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- ------- -----------
<S> <C> <C> <C> <C>
Current............................. $(159,569) $(262,956) $ -- $ (422,525)
Deferred............................ (576,910) (298,402) -- (875,312)
--------- --------- ----- -----------
$(736,479) $(561,358) $ -- $(1,297,837)
========= ========= ===== ===========
</TABLE>
The components of income tax benefit for 1996 are as follows:
<TABLE>
<CAPTION>
STATE AND
FEDERAL LOCAL FOREIGN TOTAL
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
Current................................ $(482,629) $ 208,744 $ -- $(273,885)
Deferred............................... (259,443) (145,937) -- (405,380)
--------- --------- ----- ---------
$(742,072) $ 62,807 $ -- $(679,265)
========= ========= ===== =========
</TABLE>
F-48
<PAGE> 162
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 547,247 $ 588,773
Fixed assets, principally due to differences in
depreciation and amortization........................ 591,319 576,996
Accrual for restricted stock plan....................... 464,347 164,794
Net operating loss...................................... 1,365,895 1,271,336
Other................................................... 65,087 --
----------- -----------
Total gross deferred tax assets...................... 3,033,895 2,601,889
Less valuation allowance................................ (1,338,113) (1,271,336)
----------- -----------
1,695,782 1,330,563
----------- -----------
Deferred tax liabilities:
Nonaccrual service fee receivable....................... (219,560) (219,560)
Deferred revenue........................................ (1,678,846) (2,072,590)
Database capitalization................................. (2,644,120) (2,738,824)
S to C conversion....................................... (1,264,792) (5,745)
----------- -----------
Total gross deferred tax liabilities................. (5,807,318) (5,036,719)
----------- -----------
Net deferred tax liability........................... $(4,111,536) $(3,706,156)
=========== ===========
</TABLE>
A valuation reserve is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The change in the
valuation reserve from January 1 to December 31 was $1,338,113 and $(66,777) for
1995 and 1996, respectively.
At December 31, 1994, 1995 and 1996, the Company had approximately $237,000
of net operating loss carryforwards for Federal income tax purposes attributable
to years in which KEE was taxed at the corporate level. The net operating loss
carryforwards are limited in their use; therefore, they have been reserved for
in the valuation allowance, due to the uncertainty of their realization. The
carryforwards for Federal income tax purposes expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------- --------
<S> <C>
2001.............................................................. $ 19,000
2002.............................................................. 91,000
2003.............................................................. 127,000
--------
$237,000
========
</TABLE>
At December 31, 1995 and 1996, Kroll UK had approximately $756,000 and
$985,000, respectively, of net operating loss carryforwards. Kroll Asia had
approximately $420,000 and $206,000 of net operating loss carryforwards at
December 31, 1995 and 1996, respectively. A valuation allowance, for the full
amount of all carryforwards has been provided for both the Kroll UK & the Kroll
Asia carryforwards as it is not certain that the tax benefit will be realized in
the foreseeable future.
F-49
<PAGE> 163
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
12. AMOUNTS DUE TO/FROM STOCKHOLDERS
Amounts due to/from the majority stockholders of the Company include the
following amounts due to/from the various consolidated companies:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Amounts due from majority stockholder of the Company:
KAI............................................................. $ 1,345,499 $ 1,345,499
----------- -----------
Amounts due to stockholders of the Company:
KAI............................................................. (5,233,881) (6,738,766)
KEE............................................................. (1,057,500) (1,057,500)
KINS............................................................ (597,499) (597,499)
----------- -----------
(6,888,880) (8,393,765)
----------- -----------
Net due to stockholders...................................... $(5,543,381) $(7,048,266)
=========== ===========
</TABLE>
Balances included in Amounts Due To/From Stockholders are classified as
open advance accounts (held with the majority shareholder) or term loans (held
with the majority shareholder and a minority shareholder). The net due to
stockholders under the term loans was $2,309,500 at December 31, 1995 and 1996.
The balances due and activity in the open advance accounts for the period was as
follows:
<TABLE>
<CAPTION>
ADVANCE NO. 1 ADVANCE NO. 2 TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
Balance, January 1, 1994................ $ 2,633,881 $ -- $2,633,881
Advances................................ 600,000 -- 600,000
Repayments.............................. -- -- --
----------- ----------- ----------
Balance, December 31, 1995.............. 3,233,881 -- 3,233,881
Advances................................ -- 2,000,000 2,000,000
Repayments.............................. (43,458) (451,657) (495,115)
----------- ----------- ----------
Balance, December 31, 1996.............. $ 3,190,423 $ 1,548,343 $4,738,766
=========== =========== ==========
</TABLE>
13. CUSTOMER AND SEGMENT DATA
The Company operates in a single segment, providing consulting services.
The following summarizes the Company's foreign and domestic sales:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Domestic............................................ $36,238,926 $37,768,075 $52,086,135
Foreign countries................................... 16,632,761 15,256,229 18,796,923
----------- ----------- -----------
$52,871,687 $53,024,304 $70,883,058
=========== =========== ===========
</TABLE>
F-50
<PAGE> 164
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. OTHER COMMITMENTS AND CONTINGENCIES
a. Letters of Credit
i) During 1993, KAI's bank issued an irrevocable standby letter of
credit for $400,000 in connection with the execution and delivery of
a new lease. This irrevocable standby letter of credit expires on
December 31, 1997.
ii) During 1992, KAI's bank issued a second irrevocable letter of
credit for L100,000 ($171,250*). This letter of credit expires on
August 23, 1997.
iii) During 1994, KAI's bank issued a third irrevocable letter of credit
for HK$4,000,000 ($517,200*). This letter of credit expired on
March 21, 1996.
iv) During 1994, the Company issued an irrevocable standby letter of
credit for $250,000. This letter of credit expires on June 3, 1997.
v) During 1996, KAI's bank issued an irrevocable letter of credit for
Canadian $50,000 ($36,496*). This letter of credit expires on July
31, 2001.
No amounts were outstanding under the letter of credit arrangements at December
31, 1995 and 1996.
* Based on December 31, 1996 foreign exchange rates.
b. Litigation
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the accompanying consolidated
financial statements.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade accounts
receivables amounts, due from employees, other current assets, accounts payable,
due to stockholders, and accrued expenses approximate fair value because of the
short maturity of those instruments. Management of the Company believes that the
carrying value of long-term debt approximate fair value which is based on rates
currently available to the Kroll Group.
16. VALUATION OF LONG-LIVED ASSETS
The Company undertakes a review and evaluation of the net carrying value,
recoverability and write-off period of all categories of its long-lived assets.
The Company, in its valuation, considers current market values of its
properties, competition, and the Company's and the industry's historical and
current growth patterns.
The Company's long-lived assets are stated at the lower of cost or market
and are amortized over their respective, expected lives.
17. SUBSEQUENT EVENTS
On August 8, 1997, the Company entered into a merger agreement whereby it
will exchange all of its outstanding shares of common stock for common shares of
an unrelated third party.
******
F-51
<PAGE> 165
KROLL HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................... $ 3,307 $ 3,478
Marketable securities.............................................. 48 53
Accounts receivable................................................ 15,205 14,339
Unbilled revenue................................................... 4,150 4,108
Amounts due from employees......................................... 491 471
Amounts due from affiliated companies.............................. 42 27
Other current assets............................................... 1,554 1,649
------- -------
Total current assets....................................... 24,797 24,125
PROPERTY, PLANT AND EQUIPMENT, NET................................... 3,639 4,227
DATABASES, NET....................................................... 7,415 7,632
OTHER ASSETS......................................................... 1,445 1,430
------- -------
Total assets............................................... $ 37,296 $ 37,414
======= =======
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........................... 12,147 13,596
Current portion of long-term debt.................................. 2,625 2,625
Notes payable -- stockholder....................................... 2,000 2,000
Other current liabilities.......................................... 1,703 2,066
------- -------
Total current liabilities.................................. 18,475 20,287
LONG-TERM DEBT, NET OF CURRENT PORTION............................... 5,500 5,500
NOTES PAYABLE-STOCKHOLDERS........................................... 5,048 4,472
OTHER LIABILITIES.................................................... 4,061 4,136
STOCKHOLDERS' EQUITY:
Class A common stock ($0.01 par value; authorized 46,200 shares;
23,100 shares issued and outstanding)........................... -- --
Common stock ($0.01 par value; authorized 153,800 shares; 71,807
shares issued; 71,807 and 69,108 shares outstanding,
respectively)................................................... 1 1
Additional paid-in capital......................................... 20,255 20,255
Accumulated deficit................................................ (15,945) (14,611)
Unrealized appreciation of marketable securities................... 14 19
Cumulative translation adjustment.................................. (113) (92)
Less -- treasury stock, 2,699 shares at cost....................... -- (2,553)
------- -------
Total stockholders' equity......................................... 4,212 3,019
------- -------
Total liabilities and stockholders' equity................. $ 37,296 $ 37,414
======= =======
</TABLE>
The accompanying notes to the unaudited financial statements are an integral
part
of these consolidated financial statements.
F-52
<PAGE> 166
KROLL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
NET SALES................................................................ $33,374 $36,746
COST OF SALES............................................................ 21,772 21,073
------- -------
Gross margin........................................................ 11,602 15,673
OPERATING EXPENSES
Selling................................................................ 2,097 2,581
General and administrative............................................. 8,689 9,513
------- -------
Operating income.................................................... 816 3,579
OTHER INCOME (EXPENSE)
Interest expense....................................................... (950) (783)
Other, net............................................................. 71 (135)
------- -------
Income (loss) before provision for taxes............................ (63) 2,661
Provision (benefit) for income taxes................................ (57) 1,326
------- -------
Net income (loss).............................................. $ (6) $ 1,335
======= =======
</TABLE>
The accompanying notes to the unaudited financial statements are an integral
part of these consolidated financial statements.
F-53
<PAGE> 167
KROLL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................................. $ (6) $ 1,335
Adjustments to reconcile net loss to net cash provided by operating activities:
Cumulative translation adjustment............................................ (35) 21
Depreciation and amortization-property and equipment......................... 363 410
Amortization for goodwill.................................................... 14 13
Amortization for databases................................................... 781 788
Bad debt expense............................................................. 3,432 637
Share in net loss of joint venture........................................... 7 43
Loss on sale of property and equipment....................................... -- 6
Gain on sale of marketable securities........................................ (45) --
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable................................. (1,780) 228
Decrease (increase) in unbilled revenues................................... (1,445) 43
Decrease (increase) in refundable income taxes............................. (2) 111
Decrease in prepaid income taxes........................................... -- 383
Decrease (increase) in amounts due from affiliated companies............... (12) 15
Increase in prepaid expenses............................................... (171) (574)
Increase in intangibles and other assets................................... (80) (27)
Increase in accounts payable and accrued expenses.......................... 21 1,449
Increase in amounts due from employees..................................... 1 20
Increase in deferred income taxes payable.................................. 109 --
Increase in income taxes payable........................................... (243) 363
Increase in long-term liabilities.......................................... 190 71
Decrease in deferred rent.................................................. (103) (26)
---------- ----------
Total adjustments....................................................... 1,002 3,974
Net cash provided by operating activities............................... 996 5,309
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................................ (234) (1,004)
Payments from loan receivable.................................................. 386 --
Additions to database.......................................................... (766) (1,081)
Sale of marketable securities.................................................. (17) --
Other.......................................................................... (10) 77
---------- ----------
Net cash used in investing activities................................... (641) (2,008)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock for treasury........................................ -- (2,553)
Repayment of long-term debt.................................................... (2,375) --
Proceeds from borrowings from stockholder...................................... 2,000 --
Repayment of borrowings from stockholder....................................... (44) (577)
---------- ----------
Net cash used in financing activities................................... (419) (3,130)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (64) 171
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... 2,368 3,307
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................... $ 2,304 $ 3,478
========== ==========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS:
Cash paid for interest......................................................... $ 1,973 $ 751
========== ==========
Cash paid for income taxes..................................................... $ 98 $ 555
========== ==========
</TABLE>
The accompanying notes to the unaudited financial statements
are an integral part of these consolidated financial statements.
F-54
<PAGE> 168
KROLL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Kroll is an international investigative and consulting professional
services organization. By combining sophisticated investigative techniques with
state of the art research methods, Kroll provides services involving major
financial transactions, corporate fraud, international expansion, litigation,
competitor actions, corporate takeovers, bankruptcies, environmental liability,
crisis management and other business concerns.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying interim unaudited
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the consolidated financial
position of Kroll Holdings, Inc. ("Kroll") and subsidiaries as of June 30, 1997
and the results of its consolidated operations and cash flows for the six months
ended June 30, 1996 and 1997. It is suggested that the statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Kroll's December 31, 1996 consolidated financial statements.
(2) REVENUE RECOGNITION
Revenue from services is recognized as the services are performed. Kroll
records either billed or unbilled accounts receivable based on case-by-case
invoicing determinations.
(3) ACCOUNTS RECEIVABLE
Accounts receivable, net, include an allowance for doubtful accounts of
$1,702,731 and $1,987,484 at December 31, 1996 and June 30, 1997, respectively.
(4) SUBSEQUENT EVENTS
On August 8, 1997, Kroll entered into a merger agreement whereby it will
exchange all of its outstanding shares of common stock for common shares of an
unrelated third party.
(5) NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS No. 130), which requires comprehensive income and the associated
income tax expense or benefit be reported in a financial statement with the same
prominence as other financial statements with an aggregate amount of
comprehensive income reported in the same financial statement. SFAS No. 130
permits the statement of changes in shareholders' equity to be used to meet this
requirement. "Other Comprehensive Income" refers to revenues, expenses, gains
and losses that under Generally Accepted Accounting Principles are included in
comprehensive income but bypass net income. Kroll intends to adopt SFAS No. 130
in the first quarter of fiscal 1998. Kroll anticipates that adoption of SFAS No.
130 will not be material.
F-55
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Labbe (Note
1) (a French corporation) and subsidiaries as of December 31, 1995 and December
31 1996, and the related consolidated statements of operations and shareholders'
equity and cash flows for the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Labbe (Note 1) and
subsidiaries as of December 31, 1995 and December 31, 1996 and the results of
their operations and cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles
in the United States of America.
April 25, 1997
Paris, France
/s/ PGA
Member Firm of Andersen Worldwide
Philippe Mongin
F-56
<PAGE> 170
LABBE
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
AS OF
12.31.95 12.31.96
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (note 2)........................................................ $ 1,987 $ 3,501
Accounts receivable, net of allowance for doubtful accounts of $169
in 1995 and $272 in 1996.......................................... 7,572 4,389
Other receivables (note 2)........................................... 759 300
Inventories (note 2)................................................. 5,143 3,643
Prepaid expenses..................................................... 151 65
------ ------
Total current assets......................................... 15,612 11,898
------ ------
PROPERTY, PLANT AND EQUIPMENT (note 2)
Land and land improvements........................................... 281 263
Buildings and improvements........................................... 2,472 2,361
Furniture and fixtures............................................... 677 695
Machinery and equipment.............................................. 1,503 1,427
Other................................................................ 524 537
------ ------
Total................................................................ 5,457 5,284
Less accumulated depreciation........................................ 2,447 2,664
Net property, plant and equipment.................................... 3,010 2,620
GOODWILL AND INTANGIBLES
Goodwill............................................................. 612 530
Franchises and licenses.............................................. -- 12
------ ------
612 542
Other assets (note 2)................................................ 2,160 2,202
------ ------
Total assets................................................. $21,394 $17,262
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving lines of credit (note 3)................................... $ 18 $ --
Current portion of long term debt (note 4)........................... 630 498
Accounts payable..................................................... 6,210 3,694
Accrued liabilities (note 2)......................................... 5,145 4,819
Deferred tax liabilities (note 2).................................... 243 37
------ ------
Total current liabilities.................................... 12,246 9,048
------ ------
Long term debt (note 4).............................................. 2,039 1,472
Minority interest.................................................... 54 31
SHAREHOLDERS' EQUITY
Common stock, 150,000 shares of FF100 par value...................... 1,871 2,848
Additional paid in capital........................................... 22 22
Retained earnings.................................................... 4,655 3,792
Translation adjustment............................................... 506 49
------ ------
Total shareholders' equity................................... 7,054 6,711
------ ------
Total liabilities and shareholders' equity................... $21,394 $17,262
====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-57
<PAGE> 171
LABBE
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
12.31.95 12.31.96
----------- -----------
(12 MONTHS) (12 MONTHS)
<S> <C> <C>
Net sales............................................................. $ 25,461 $ 24,118
Cost of sales......................................................... (19,725) (19,656)
-------- --------
Gross profit.......................................................... 5,736 4,462
OPERATING EXPENSES
Selling and marketing............................................... (1,229) (1,084)
General and administrative.......................................... (1,179) (1,093)
-------- --------
Total operating expenses............................................ (2,407) (2,177)
-------- --------
Operating income.................................................... 3,329 2,285
OTHER INCOME (EXPENSE)
Interest expense.................................................... (303) (476)
Interest income..................................................... 172 380
Other............................................................... (515) (537)
-------- --------
Total other income (expense)................................ (646) (633)
-------- --------
PRE-TAX INCOME........................................................ 2,682 1,652
Provision for income taxes (note 2)................................... (985) (827)
Deferred tax (note 2)................................................. (25) 195
Minority interest..................................................... (21) (6)
-------- --------
NET INCOME.................................................. $ 1,648 $ 1,014
======== ========
Net income per share........................................ $ 16.48 $ 8.27
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-58
<PAGE> 172
LABBE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ---------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994...................... 1,871 $ 22 $ 3,408 $ -- $5,301
Net income.................................... -- -- 1,648 -- 1,648
Aggregate translation adjustment.............. -- -- -- 506 506
Distribution to shareholders.................. -- -- (401) -- (401)
----- ---- ----- ----- -----
BALANCE, December 31, 1995...................... 1,871 22 4,655 506 7,054
Net income.................................... -- -- 1,014 -- 1,014
Aggregate translation adjustment.............. -- -- -- (457) (457)
Distribution to shareholders.................. -- -- (391) -- (391)
Decrease in capital........................... (196) -- (313) -- (509)
Increase in capital........................... 1,173 -- (1,173) -- --
----- ---- ----- ----- -----
BALANCE, December 31, 1996...................... 2,848 $ 22 $ 3,792 $ 49 $6,711
===== ==== ===== ===== =====
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-59
<PAGE> 173
LABBE
CONSOLIDATED CASH FLOWS STATEMENTS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
12.31.95 12.31.96
----------- -----------
(12 MONTHS) (12 MONTHS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 1,648 $ 1,014
Adjustments to reconcile net income to net cash provided by (used for)
operating activities
Depreciation and amortization......................................... 490 437
(Gain) or loss on sales of assets..................................... -- 21
Provision for doubtful accounts....................................... 21 114
Provision for slow moving inventories................................. (91) (30)
Changes in operating assets & liabilities
(Increase) decrease in accounts receivable.......................... (1,475) 2,582
(Increase) decrease in other receivables............................ (50) 410
(Increase) decrease in inventories.................................. 257 1,199
(Increase) decrease in prepaid expenses............................. (60) 78
(Increase) decrease in deferred income taxes........................ -- (191)
Increase (decrease) in accounts payables............................ 332 (2,116)
Increase (decrease) in accrued liabilities.......................... 276 4
Increase (decrease) in deferred tax liabilities..................... 30 --
------ ------
(270) 2,508
Increase (decrease) of minority interest.............................. (12) (20)
------ ------
Net cash provided by operating activities............................. 1,366 3,502
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of HELLIO Company (net of cash acquired)..................... (1,073) --
Purchase of property and equipment.................................... (438) (254)
(Increase) decrease in other assets................................... (1,990) (181)
Proceeds from sale of equipment....................................... 22 22
(Increase) decrease in deferred credit................................ (4) --
------ ------
Net cash used for investing activities................................ (3,485) (413)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital leases............................................ (178) (156)
Proceeds from capital leases.......................................... 94 38
Proceeds from borrowings.............................................. 828 14
Payments of borrowings................................................ (577) (424)
Payments of dividend to shareholders.................................. (401) (391)
Translation adjustment................................................ 24 (2)
Decrease in capital................................................... -- (509)
------ ------
Net cash used for financing activities................................ (210) (1,430)
------ ------
NET INCREASE (DECREASE) IN CASH....................................... (2,329) 1,659
------ ------
CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR.......................... 4,082 1,968
Impact of change in exchange rates on translations.................... 215 (126)
------ ------
CASH AND CASH EQUIVALENTS: END OF YEAR................................ $ 1,968 $ 3,501
====== ======
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-60
<PAGE> 174
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(ALL AMOUNTS IN THOUSANDS OF US DOLLARS)
(1) BASIS OF PRESENTATION
(a) Consolidated entities
The accompanying consolidated financial statements consist of the following
entities.
-- Normandie Carrosserie is a company, whose principal business is
repairing industrial coachwork. Labbe owned 65% of this company until
1994, then has increased its shareholder owning up to 84%
(approximately).
-- Societe de Blindage et de Securite (S.B.S.) is engaged in the business
of providing armored products and repairing industrial coachwork. Labbe
owns approximately 100% of this entity.
-- Hellio is a company that is building and repairing industrial coachwork.
Labbe owns approximately 100% of this entity.
As Labbe has a voting interest in the above companies of more than 50%,
these companies are fully consolidated into the consolidated financial
statements.
Some companies in which Labbe holds a majority interest are not
consolidated in the consolidated financial statements because they are not
significant and will be sold in 1997.
(b) Business
The company operates in two segments, providing security products and
industrial coachwork. The Company's primary products include the armoring of
commercial and private vehicles. The following summarizes the company's foreign
and domestic sales:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
France:................................................ $ 19,839 $ 16,051
Foreign countries:..................................... 5,622 8,067
------ ------
$ 25,461 $ 24,118
====== ======
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
(a) Revenue recognition
Revenue related to most commercial contracts results principally from both
short-term and long-term fixed price contracts and is recognized on the
percentage of completion method calculated utilizing the cost-to-cost approach.
The percent deemed to be complete is calculated by comparing the cost incurred
to date to estimated total cost of each contract. This method is used because
management considers costs incurred to be the best available measure of progress
on these contracts. However, adjustments to this measurement are made when
management believes that cost incurred materially exceeds effort expended.
Contract costs includes all direct material and labor costs, along with certain
direct overhead costs related to contract production. Provisions for any
estimated total contract losses on uncompleted contracts are recorded in the
period in which it becomes known that such losses will occur. Changes in
estimated total contract costs will result in revisions to contract revenue.
These revisions are recognized when determined.
F-61
<PAGE> 175
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(b) Cash and cash equivalents
Cash and cash equivalents are composed as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Mutual funds.......................................... $ 442 $2,075
Short term deposits................................... 571 --
Cash.................................................. 974 1,426
------ ------
$1,987 $3,501
====== ======
</TABLE>
(c) Other receivables
Other receivables are composed as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Income tax............................................ $432 $ 11
VAT................................................... 96 50
Suppliers discount to obtain.......................... 72 110
Other................................................. 159 129
---- ----
$759 $300
==== ====
</TABLE>
(d) Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and include the following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Raw materials......................................... $2,101 $1,934
Merchandises.......................................... 64 79
Work-in-process and finished goods.................... 2,568 1,723
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 810 251
------ ------
Gross inventory....................................... 5,543 3,987
Less-accumulated depreciation......................... 400 344
------ ------
Net inventory......................................... $5,143 $3,643
====== ======
</TABLE>
(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the related
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 19-40 years
Furniture and fixtures...................................... 5-7 years
Machinery and equipment..................................... 5-7 years
</TABLE>
(f) Research and development costs
Research and development costs are expensed as incurred. These costs are
included in cost of sales as they are directly affected to specific orders.
F-62
<PAGE> 176
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(g) Other assets
The components of other assets are as follows:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Investments in affiliated companies.......... $ 326 $ 305
Deposits..................................... 267 147
Loans to affiliated companies................ 1,753 1,766
----- -----
Gross Value.................................. 2,346 2,219
Less accumulated depreciation................ 186 17
----- -----
Net value.................................... $2,160 $2,202
===== =====
</TABLE>
Loans to affiliated companies mainly correspond to a loan to Holding Saint
Roch (H.S.R.) amounting to $1,571 and one to Verem amounting to $169 as of
December 31, 1996.
(h) Accrued liabilities
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Income tax................................... $ 262 $ 168
Other taxes.................................. 60 49
----- -----
Tax payable.................................. 322 217
Wages...................................... 1,444 1,146
Social security charges.................... 864 748
Retirement indemnity....................... 226 320
Employee profit sharing.................... 683 981
----- -----
Accrued compensation......................... 3,217 3,195
Deferred revenue............................. 931 558
VAT sales tax payable........................ 195 184
Guarantees and warranty costs.............. 183 276
Litigation, claims, assessments............ 102 224
Other...................................... 195 165
----- -----
Other liabilities............................ 480 665
----- -----
$5,145 $4,819
===== =====
</TABLE>
Income tax assets and liabilities can not be compensated as they do not
relate to the same legal entities and as the Labbe group does not take the
advantage of tax consolidation.
Retirement indemnity has only been calculated for Labbe for the year 1995
and for each entity of the Labbe group for the year 1996.
Deferred revenue consists of goods not delivered before year end but
already invoiced.
(i) Income taxes
Labbe and consolidated subsidiaries are subjected to corporate income tax
(applicable rates were 36 2/3% in 1995 and 1996).
F-63
<PAGE> 177
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The provision for income taxes consists of:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Labbe................................................. $ (792) $ (649)
Normandie Carrosserie................................. (60) (22)
Societe de Blindage et de Securite.................... (9) --
Hellio................................................ (124) (156)
------ ----
Total current......................................... (985) (827)
Deferred.............................................. (25) 195
------ ----
Total provision for income tax........................ $ (1,010) $ (632)
====== ====
</TABLE>
In addition, the Labbe Group recognizes a deferred tax asset for cumulative
temporary differences between financial reporting and tax reporting, which
includes primarily accruals and reserves not currently deductible for tax
purposes.
The components of the deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Profit sharing scheme................................. $ 120 $ 99
Capital lease......................................... (97) (106)
Amortization and depreciation......................... (64) (83)
Retirement indemnities................................ 83 117
Inventory valuation................................... (315) (91)
Other................................................. 30 27
---- ----
Total net deferred tax liabilities.................... $ (243) $ (37)
==== ====
</TABLE>
(j) Foreign Currency Translation
Assets and liabilities of foreign operations are translated using year-end
exchange rates prevailing during the year. Gains and losses resulting from
transactions in foreign currencies are immaterial.
(k) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit investments to
short-term low risk instruments. Concentrations of credit risk with respect to
trade receivables are limited due to the nature of customers comprising the
Company's customer base (state-owned or private car manufacturers, French
Military).
(3) REVOLVING LINES OF CREDIT
Considering the level of cash of the Labbe group, bank accounts showing a
credit balance remain exceptional.
F-64
<PAGE> 178
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) LONG TERM DEBT
The components of the long term debts (including current portions) consist
of the following:
<TABLE>
<CAPTION>
12.31.95 12.31.96
-------- --------
<S> <C> <C>
Borrowings............................................ $1,408 $ 908
Capital leases........................................ 1,261 1,062
------ ------
$2,669 $1,970
====== ======
</TABLE>
a) Long term debt except capital lease
The components of long term debt are as follows:
<TABLE>
<CAPTION>
INTEREST RATE REMAINING REMAINING
--------------- DEBT DEBT
BANK INITIAL DEBT 12.31.95 12.31.96
-------------------------------------- ------------ (%) --------- ---------
<S> <C> <C> <C> <C>
BCMB.................................. 48 8.50 $ 30 $ 18
Credit Maritime....................... 96 T4M - 0.25 10 --
96 10.25 13 --
191 10.30 83 35
67 8.75 34 17
29 10.75 15 8
CIO................................... 72 Codevi + 4.75 20 2
Credit Agricole....................... 67 8.25 17 --
72 8.25 19 --
72 10.00 19 --
286 7.25 211 141
764 7.2 until April 747 561
1996 then 6.2
Advance granted by the regional
Council............................. 95 0 102 87
COFACE................................ 14
Advances from shareholders............ 50 21
Accrued interests loan................ 7 4
Other liabilities..................... 31 --
Total long-term debt.................. 1,408 908
Less current portion.................. 468 334
------- -----
Total................................. $ 940 $ 574
======= =====
</TABLE>
Scheduled maturities of long term debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.............................. $334
1998.............................. 278
1999.............................. 208
2000.............................. 88
----
$908
====
</TABLE>
F-65
<PAGE> 179
LABBE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
b) Capital leases
<TABLE>
<CAPTION>
12-31-95 12-31-96
--------- ---------
<S> <C> <C>
Current portion....................................................... $ 162 $ 164
Long term credit...................................................... 1,099 898
----- -----
$ 1,261 $ 1,062
===== =====
</TABLE>
Scheduled maturities of leasing as of December 31,1996 are as follows:
<TABLE>
<S> <C>
1997............................ $ 164
1998............................ 155
1999............................ 138
2000............................ 130
2001............................ 130
After 2001...................... 345
-----
$1,062
=====
</TABLE>
Interests on capital leases are not included in the above figures.
(5) COMMITMENTS AND CONTINGENCIES
a) Guaranties given
Guaranties given for consolidated entities and affiliated companies amount
to $663.
b) Unrecorded obligation
The consolidated company "S.B.S" is committed to buy the assets of the
former company S.I.B.S., which went bankrupt, for an amount of $306. However,
S.B.S's ownership on these assets is contested by the previous owners. S.B.S.
only paid $38 as an advance payment. Therefore, the unrecorded obligation
amounts to $268 that will be paid when the claim is solved.
F-66
<PAGE> 180
O'GARA PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1996 assumes O'Gara's acquisition of Labbe occurred on
January 1, 1996, and should be read in conjunction with, and are qualified by
reference to the audited consolidated financial statements of O'Gara and Labbe
included elsewhere in this Proxy Statement/Prospectus. For purposes of the
unaudited pro forma statements of operations, O'Gara's consolidated statement of
operations for the fiscal year ended December 31, 1996 has been combined with
the consolidated statement of operations of Labbe for the fiscal year ended
December 31, 1996.
The pro forma data is presented for illustration purposes only, and is not
necessarily indicative of the operating results that would have been achieved if
the acquisition of Labbe had been consummated as of the beginning of the period
indicated, nor is it necessarily indicative of future results of operations.
O'GARA PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL LABBE(1) ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $ 82,778 $ 24,118 $ -- $ 106,896
Cost of sales........................... 61,523 19,656 -- 81,179
--------- -------- ------- ---------
Gross profit.......................... 21,255 4,462 -- 25,717
Operating expenses:
Selling and marketing................. 4,810 1,084 -- 5,894
General and administrative............ 7,930 1,093 300(2)(4)(5)(6)(7) 9,323
--------- -------- ------- ---------
Operating income.............. 8,515 2,285 (300) 10,500
Other income (expense):
Interest expense...................... (1,300) (476) (993)(3) (2,769)
Other, net............................ (38) (163) -- (201)
--------- -------- ------- ---------
Income before provision for income
taxes................................. 7,177 1,646 (1,293) 7,530
Provision for income taxes.............. 518 632 (474)(8) 676
--------- -------- ------- ---------
Net income.................... $ 6,659 $ 1,014 $ (819) $ 6,854
========= ======== ======= =========
UNAUDITED PRO FORMA INFORMATION:
Gross profit.......................... 21,255 25,717
Selling and marketing................. 4,810 5,894
General and administrative............ 8,031 9,424
--------- ---------
Operating income...................... 8,414 10,399
Interest expense...................... (961) (2,436)
Other, net............................ (38) (201)
--------- -------- ------- ---------
Income before provision for income
taxes.............................. 7,415 1,646 (1,293) 7,768
Provision for income taxes............ 2,966 632 (474) 3,124
--------- -------- ------- ---------
Net income............................ $ 4,449 $ 1,014 $ (819) $ 4,644
========= ======== ======= =========
Pro Forma earnings per share.......... $ 0.69 $ 0.68
========= =========
Pro Forma weighted average shares
outstanding........................ 6,449,050 6,825,647
========= =========
</TABLE>
- ---------------
(1) To include historical results of operations for Labbe for the year ended
December 31, 1996.
(2) To record amortization on goodwill resulting from acquisition of Labbe
(gross cost -- $6,961 over 30 years).
F-67
<PAGE> 181
(3) To reflect interest expense on debt incurred to fund acquisition of Labbe
($10,730 at 9.25%).
(4) To amortize capitalized acquisition costs associated with Labbe ($662 over
30 years).
(5) To amortize trademarks and customer lists identified in conjunction with
the completion of the Labbe acquisition (customer lists -- $100 over 5
years; trademarks -- $40 over 15 years).
(6) To deduct $30 in amortization recorded in historical Labbe results of
operations for pre-existing intangible assets.
(7) To record additional depreciation on fixed assets revalued in conjunction
with the completion of the Labbe acquisition (increase to building -- $470
over 20 years and machinery and equipment -- $190 over 7 years).
(8) To recognize the benefit for income taxes at an effective rate of
approximately 37% on the pro forma adjustments.
F-68
<PAGE> 182
O'GARA-KROLL PRO FORMA COMBINING FINANCIAL STATEMENTS
The unaudited pro forma combining financial data gives effect to the Merger
as a pooling of interests, and should be read in conjunction with, and are
qualified by reference to the audited consolidated financial statements of
O'Gara and Kroll and the notes thereto included elsewhere in this Proxy
Statement/Prospectus. For purposes of the unaudited pro forma operating data,
O'Gara's consolidated financial statements for the three fiscal years ended
December 31, 1996 and for the six months ended June 30, 1996 and 1997 have been
combined with the consolidated financial statements of Kroll for the three
fiscal years ended December 31, 1996 and for the six months ended June 30, 1996
and 1997, respectively. For purposes of the unaudited pro forma combined balance
sheet data, O'Gara's consolidated financial data at June 30, 1997 has been
combined with Kroll's consolidated financial data at June 30, 1997.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it indicative of future financial position or results
of operations.
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEETS
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Current Assets:
Cash....................................................... $ 7,874 $ 3,478 $ 11,352
Marketable securities...................................... 3,011 53 3,064
Accounts receivable........................................ 20,064 14,339 34,403
Costs and estimated earnings in excess of billings
on uncompleted contracts................................ 12,616 -- 12,616
Unbilled revenue........................................... -- 4,108 4,108
Inventories................................................ 15,211 -- 15,211
Other current assets....................................... 2,562 2,147 4,709
------- ------- --------
Total current assets.................................... 61,338 24,125 85,463
Property, plant and equipment, net........................... 9,083 4,227 13,310
Databases.................................................... -- 7,632 7,632
Other assets................................................. 19,326 1,430 20,756
------- ------- --------
Total assets............................................ $89,747 $37,414 $127,161
======= ======= ========
Current liabilities:
Accounts payable and accrued liabilities................... 16,703 13,596 30,299
Current portion of long-term debt.......................... 2,030 2,625 4,655
Notes payable -- shareholder............................... -- 2,000 2,000
Other current liabilities.................................. 10,273 2,066 12,339
------- ------- --------
Total current liabilities............................... 29,006 20,287 49,293
Long-term debt, net of current portion....................... 39,944 5,500 45,444
Notes payable-shareholders................................... -- 4,472 4,472
Other liabilities............................................ 45 4,136 4,181
Shareholders' equity......................................... 20,752 3,019 23,771
------- ------- --------
Total liabilities and shareholders' equity.............. $89,747 $37,414 $127,161
======= ======= ========
</TABLE>
F-69
<PAGE> 183
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
---------- ---------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 51,853 $ 36,746 $ 88,599
Cost of sales........................................ 37,484 21,073 58,557
---------- ---------- -----------
Gross profit....................................... 14,369 15,673 30,042
Operating expenses
Selling............................................ 3,794 2,581 6,375
General and administrative......................... 5,121 9,513 14,634
---------- ---------- -----------
Operating income................................... 5,454 3,579 9,033
Other income (expense)
Interest expense................................... (1,404) (783) (2,187)
Other, net......................................... 329 (135) 194
---------- ---------- -----------
Income before minority interest, provision for
income taxes and extraordinary item........... 4,379 2,661 7,040
Minority interest.................................... (74) -- (74)
---------- ---------- -----------
Income before provision for taxes and
extraordinary item............................ 4,305 2,661 6,966
Provision for income taxes........................... 1,623 1,326 2,949
---------- ---------- -----------
Income before extraordinary item................ 2,682 1,335 4,017
Extraordinary item................................... 194 -- 194
---------- ---------- -----------
Net income...................................... $ 2,488 $ 1,335 $ 3,823
========== ========== ===========
Earnings per share................................... $ 0.35 $ 0.28
========== ===========
Weighted average shares outstanding.................. 7,141,389 6,650,000 13,791,389
========== ========== ===========
</TABLE>
F-70
<PAGE> 184
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Net sales................................................... $41,521 $33,374 $74,895
Cost of sales............................................... 31,383 21,772 53,155
------- ------- -------
Gross profit.............................................. 10,138 11,602 21,740
Operating expenses
Selling................................................... 2,159 2,097 4,256
General and administrative................................ 3,286 8,689 11,975
------- ------- -------
Operating income....................................... 4,693 816 5,509
Other income (expense)
Interest expense.......................................... (613) (950) (1,563)
Other, net................................................ (78) 71 (7)
------- ------- -------
Income (loss) before provision (benefit) for taxes..... 4,002 (63) 3,939
Provision (benefit) for income taxes........................ -- (57) (57)
------- ------- -------
Net income (loss)...................................... $ 4,002 $ (6) $ 3,996
======= ======= =======
</TABLE>
F-71
<PAGE> 185
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
---------- ---------- -----------
<S> <C> <C> <C>
Net sales............................................ $ 82,778 $ 70,883 $ 153,661
Cost of sales........................................ 61,523 47,900 109,423
---------- ---------- -----------
Gross profit.................................... 21,255 22,983 44,238
Operating expenses
Selling......................................... 4,810 4,632 9,442
General and administrative...................... 7,930 18,350 26,280
---------- ---------- -----------
Operating income........................... 8,515 1 8,516
Other income (expense)
Interest expense................................ (1,300) (1,840) (3,140)
Other, net...................................... (38) 358 320
---------- ---------- -----------
Income (loss) before provision (benefit)
for taxes................................ 7,177 (1,481) 5,696
Provision (benefit) for income taxes................. 518 (679) (161)
---------- ---------- -----------
Net income (loss).......................... $ 6,659 $ (802) $ 5,857
========== ========== ===========
Pro Forma net income (loss).......................... $ 4,449 $ (802) $ 3,647
========== ========== ===========
Pro Forma earnings per share......................... $ 0.69 $ 0.28
========== ===========
Weighted average shares outstanding.................. 6,449,050 6,650,000 13,099,050
========== ========== ===========
</TABLE>
F-72
<PAGE> 186
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Net sales................................................... $32,817 $53,024 $85,841
Cost of sales............................................... 25,237 35,206 60,443
------- ------- -------
Gross profit.............................................. 7,580 17,818 25,398
Operating expenses
Selling................................................... 3,628 5,490 9,118
General and administrative................................ 4,129 16,788 20,917
------- ------- -------
Operating income (loss)................................... (177) (4,460) (4,637)
Other income (expense)
Interest expense.......................................... (842) (1,970) (2,812)
Other, net................................................ (103) (282) (385)
------- ------- -------
Income (loss) before provision (benefit) for taxes........ (1,122) (6,712) (7,834)
Provision (benefit) for income taxes........................ -- (1,298) (1,298)
------- ------- -------
Net income (loss)......................................... $(1,122) $(5,414) $(6,536)
======= ======= =======
</TABLE>
F-73
<PAGE> 187
THE O'GARA COMPANY AND KROLL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
O'GARA KROLL PRO FORMA
------- ------- ---------
<S> <C> <C> <C>
Net sales................................................... $33,912 $52,872 $ 86,784
Cost of sales............................................... 24,505 31,684 56,189
------- ------- --------
Gross profit.............................................. 9,407 21,188 30,595
Operating expenses
Selling................................................... 2,736 4,700 7,436
General and administrative................................ 4,441 18,076 22,517
------- ------- --------
Operating income (loss)................................... 2,230 (1,588) 642
Other income (expense)
Interest expense.......................................... (410) (2,188) (2,598)
Other, net................................................ 60 406 466
------- ------- --------
Income (loss) before provision (benefit) for taxes........ 1,880 (3,370) (1,490)
Provision (benefit) for income taxes........................ -- (1,751) (1,751)
------- ------- --------
Net income (loss)......................................... $ 1,880 $(1,619) $ 261
======= ======= ========
</TABLE>
F-74
<PAGE> 188
APPENDIX A
PLAN AND AGREEMENT
TO MERGE
VDE, INC.
WITH AND INTO
KROLL HOLDINGS, INC.
<PAGE> 189
PLAN AND AGREEMENT TO MERGE
VDE, INC.
WITH AND INTO KROLL HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Recitals................................................................................. 1
ARTICLE I
MERGER OF NEWCO INTO KHI................................................................. 2
1.01 Merger........................................................................... 2
1.02 Effective Time of the Merger..................................................... 2
1.03 The Closing...................................................................... 2
1.04 Effect of Merger................................................................. 2
1.05 Payment to Dissenting KHI Shareholders........................................... 2
1.06 Payment to Dissenting O'Gara Shareholders........................................ 2
1.07 Certificate of Incorporation..................................................... 2
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES........................................................ 2
2.01 Conversion of Shares............................................................. 2
2.02 Exchange of Certificates; Issuance of New Certificates........................... 3
2.03 No Further Transfers............................................................. 4
2.04 Treatment of KHI Stock Options................................................... 4
2.05 Dissenters' Rights............................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KHI AND THE KHI PRINCIPAL SHAREHOLDER..................
4
3.01 Organization and Capitalization.................................................. 4
3.02 Power and Authority and Board and Shareholder Approval........................... 5
3.03 Subsidiaries..................................................................... 5
3.04 Stock Options and Other Arrangements............................................. 5
3.05 Financial Statements............................................................. 6
3.06 Liabilities...................................................................... 6
3.07 Claims........................................................................... 6
3.08 Assets........................................................................... 6
3.09 Operations Since December 31, 1996............................................... 7
3.10 Taxes............................................................................ 7
3.11 Insurance........................................................................ 7
3.12 Contracts........................................................................ 8
3.13 Employee Benefit Plans........................................................... 8
3.14 No Default....................................................................... 10
3.15 Joint Proxy Statement............................................................ 10
3.16 Compliance with Laws............................................................. 10
3.17 Consents and Approvals........................................................... 11
3.18 Patents, Trademarks and Copyrights............................................... 11
3.19 Environmental Matters............................................................ 11
3.20 Pooling-of-Interests............................................................. 12
3.21 No Material Adverse Change....................................................... 12
3.22 Licenses and Permits............................................................. 12
3.23 Orders, Actions, Etc. ........................................................... 13
3.24 Labor Matters.................................................................... 13
</TABLE>
i
<PAGE> 190
<TABLE>
<S> <C> <C>
3.25 Brokers.......................................................................... 13
3.26 Full Disclosure.................................................................. 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF O'GARA AND NEWCO....................................... 13
4.01 Organization and Capitalization.................................................. 13
4.02 Power and Authority and Board Approval........................................... 14
4.03 Subsidiaries..................................................................... 14
4.04 Stock Options and Other Arrangements............................................. 14
4.05 SEC Filings and Financial Statements............................................. 14
4.06 Liabilities...................................................................... 15
4.07 Claims........................................................................... 15
4.08 Assets........................................................................... 15
4.09 Operations Since December 31, 1996............................................... 16
4.10 Taxes............................................................................ 16
4.11 Insurance........................................................................ 16
4.12 Contracts........................................................................ 16
4.13 Employee Benefit Plans........................................................... 17
4.14 No Default....................................................................... 19
4.15 Joint Proxy Statement............................................................ 19
4.16 Compliance with Laws............................................................. 19
4.17 Consents and Approvals........................................................... 19
4.18 Patents, Trademarks and Copyrights............................................... 19
4.19 Environmental Matters............................................................ 20
4.20 No Material Adverse Change....................................................... 21
4.21 Licenses and Permits............................................................. 21
4.22 Orders, Actions, Etc. ........................................................... 21
4.23 Labor Matters.................................................................... 21
4.24 Brokers.......................................................................... 21
4.25 Pooling-of-Interests............................................................. 21
4.26 Full Disclosure.................................................................. 21
ARTICLE V
REGISTRATION OF O'GARA COMMON STOCK...................................................... 22
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF O'GARA, NEWCO, KHI AND THE KHI PRINCIPAL SHAREHOLDER........
22
6.01 Necessary Governmental Approvals................................................. 22
6.02 Effectiveness of Registration Statement.......................................... 22
6.03 No Injunction.................................................................... 23
6.04 AIG Director..................................................................... 23
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF O'GARA AND NEWCO............................................ 23
7.01 Representations and Warranties True; Covenants and Obligations Performed......... 23
7.02 Opinion of Counsel............................................................... 23
7.03 Auditor's Comfort Letter......................................................... 23
7.04 Pooling-of-Interests............................................................. 24
7.05 Opinion of Financial Advisor..................................................... 24
7.06 Shareholder Approval............................................................. 24
7.07 Required Consents................................................................ 24
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF KHI AND THE KHI PRINCIPAL SHAREHOLDER....................... 24
8.01 Representations and Warranties True; Covenants and Obligations Performed......... 24
8.02 Opinion of Counsel............................................................... 24
8.03 Auditor's Comfort Letter......................................................... 24
8.04 Required Consents................................................................ 25
8.05 Election of Principal Shareholder................................................ 25
8.06 No Labor Strikes................................................................. 25
8.07 HMMWV Contract................................................................... 25
ARTICLE IX
COVENANTS OF KHI......................................................................... 25
9.01 Access to Properties and Records................................................. 25
9.02 Operations Pending Merger........................................................ 25
9.03 Best Efforts to Expedite Closing................................................. 26
9.04 No Solicitation.................................................................. 26
9.05 Tax Information.................................................................. 27
ARTICLE X
COVENANTS OF O'GARA AND NEWCO............................................................ 27
10.01 Access to Properties and Records................................................. 27
10.02 Operations Pending Merger........................................................ 27
10.03 Best Efforts to Expedite Closing................................................. 28
10.04 Repayment of KHI Shareholder Debt................................................ 28
10.05 Tax Information.................................................................. 28
ARTICLE XI
SHAREHOLDERS' MEETINGS................................................................... 29
ARTICLE XII
TERMINATION OF MERGER AGREEMENT.......................................................... 29
ARTICLE XIII
MUTUAL COVENANTS......................................................................... 29
13.01 Satisfaction of Conditions....................................................... 29
13.02 Further Assurances............................................................... 29
ARTICLE XIV
INDEMNIFICATION.......................................................................... 29
14.01 Pre-closing Indemnification by KHI and the KHI Principal Shareholder............. 29
14.02 Pre-closing Indemnification by O'Gara............................................ 30
14.03 Post-closing Indemnification by the KHI Principal Shareholder.................... 30
14.04 Survival......................................................................... 31
14.05 Survives Termination............................................................. 31
ARTICLE XV
FEES AND EXPENSES........................................................................ 31
ARTICLE XVI
NOTICES.................................................................................. 31
ARTICLE XVII
PUBLIC ANNOUNCEMENT...................................................................... 32
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ARTICLE XVIII
GOVERNING LAW............................................................................ 33
ARTICLE XIX
CAPTIONS; COUNTERPARTS................................................................... 33
ARTICLE XX
ENTIRE AGREEMENT......................................................................... 33
ARTICLE XXI
WAIVER; MODIFICATION; ASSIGNMENT......................................................... 33
Exhibit 7.02 Form of Opinion of Counsel to KHI and the KHI Principal Shareholder........ 35
Exhibit 8.02 Form of Opinion of Counsel to O'Gara and NEWCO............................. 36
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PLAN AND AGREEMENT TO MERGE
VDE, INC.
WITH AND INTO KROLL HOLDINGS, INC.
This Plan and Agreement to Merge dated as of August 8, 1997 (the
"Agreement") is entered into by and among THE O'GARA COMPANY, an Ohio
corporation ("O'Gara"), VDE, INC., a Delaware corporation and a wholly owned
subsidiary of O'Gara ("NEWCO"), KROLL HOLDINGS, INC., a Delaware corporation
("KHI") and Jules Kroll, individually ("Kroll") (Kroll is sometimes referred to
herein as the "KHI Principal Shareholder").
RECITALS
A. O'Gara is an Ohio corporation and has its main office at 9113 LeSaint
Drive, Fairfield, Ohio 45014. O'Gara's authorized capital stock consists of
25,000,000 shares of common stock of the par value of one cent ($.01) per share
("O'Gara Common Stock"), of which 7,279,310 shares have been issued and are
outstanding as of the date hereof, and no shares of which are held by O'Gara as
treasury stock as of the date hereof, and 100,000 shares of preferred stock of
the par value of one cent ($.01) per share ("O'Gara Preferred Stock"), none of
which is outstanding as of the date hereof.
B. NEWCO is a Delaware corporation and has its main office at 9113 LeSaint
Drive, Fairfield, Ohio 45014. NEWCO's authorized capital stock consists of 100
shares of common stock without par value ("NEWCO Common Stock"), all of which
shares have been issued and are outstanding and are held by O'Gara.
C. KHI is a Delaware corporation and has its main office at 900 Third
Avenue, New York, New York 10022. KHI's authorized capital stock consists of
46,200 Class A shares of common stock of the par value of one cent ($.01) per
share (the "KHI Class A Common Stock"), 23,100 of which are outstanding, and
153,800 shares of common stock of the par value of one cent ($.01) per share
("KHI Common Stock), of which 76,624 are issued and outstanding and of which
8,821 are covered by options to purchase (the KHI Class A Common Stock and KHI
Common Stock are hereafter referred to collectively as "KHI Capital Stock").
D. The holders of the KHI Capital Stock, the holders of O'Gara Common Stock
and O'Gara as the holder of NEWCO Common Stock are entitled to vote on this
Agreement.
E. O'Gara, NEWCO and KHI desire that the merger provided for in this
Agreement shall qualify as a tax-free reorganization pursuant to Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
F. The respective Boards of Directors of KHI, O'Gara and NEWCO deem it
advisable and in the best interests of their respective corporations and their
shareholders that NEWCO merge with and into KHI on the terms and conditions
hereinafter set forth (the "Merger").
G. In order to induce O'Gara to enter into this Agreement, the KHI
Principal Shareholder and American International Group, Inc., a Delaware
corporation and a shareholder of KHI ("AIG"), have entered into agreements with
O'Gara as of the date hereof with respect to (a) the voting of their shares of
KHI Capital Stock in favor of the Merger and (b) certain other matters.
H. In order to induce KHI to enter into this Agreement, Thomas M. O'Gara, a
shareholder of O'Gara, has entered into an agreement with KHI as of the date
hereof with respect to (a) the voting of his shares of O'Gara Common Stock in
favor of the Merger and (b) certain other matters.
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NOW THEREFORE, in consideration of the premises and the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE I
MERGER OF NEWCO INTO KHI
1.01 Merger. At the Effective Time (as defined in Section 1.02), NEWCO
shall merge with and into KHI, and KHI, as the surviving corporation, shall
continue its existence under the laws of the State of Delaware under the name
"Kroll Holdings, Inc."
1.02 Effective Time of the Merger. The Merger shall become effective as of
the close of business on the date that the Certificate of Merger with respect to
this Agreement is filed with the office of the Secretary of State of the State
of Delaware (the "Effective Time").
1.03 The Closing. Subject to the provisions of Articles VI, VII, and VIII
hereof, the closing of the Merger (the "Closing") shall be held as soon as
practicable after the shareholders of O'Gara, NEWCO and KHI duly approve the
Merger, but in no event more than ten (10) business days after such approval,
and shall take place at the offices of Taft, Stettinius & Hollister, 1800 Star
Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202 on the date of the
Closing. All parties agree to use their respective commercially reasonable best
efforts to cause the conditions set forth in Articles VI, VII and VIII hereof to
be satisfied on or before the date of the shareholders' meetings held pursuant
to Article XI hereof.
1.04 Effect of Merger. At the Effective Time, the separate corporate
existence of NEWCO shall cease, and NEWCO shall be merged into and continued in
KHI, which shall be the "Surviving Corporation," pursuant to the provisions of
and with the effect provided in the General Corporation Law of the State of
Delaware (the "Delaware Law"). The Surviving Corporation shall possess all the
rights, privileges, immunities, powers and franchises and shall be subject to
all of the duties and liabilities of a corporation organized and existing under
the Delaware Law.
1.05 Payment to Dissenting KHI Shareholders. KHI will pay to the
dissenting shareholders of KHI the amount, if any, to which they shall be
entitled under the provisions of Chapter 262 of the Delaware Law.
1.06 Payment to Dissenting O'Gara Shareholders. O'Gara will pay to the
dissenting shareholders of O'Gara the amount, if any, to which they shall be
entitled under the provisions of Section 1701.85 of the Ohio General Corporation
Law.
1.07 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of KHI shall be, without any further action on the part of
O'Gara or KHI, the Certificate of Incorporation of the Surviving Corporation.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.01 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) All of the shares of NEWCO Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become
an aggregate of 100 fully paid and nonassessable shares of KHI Common
Stock;
(b) Each share of KHI Capital Stock held in the treasury of KHI or
owned by O'Gara or NEWCO immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered in exchange for such shares;
(c) Each share of KHI Class A Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares referred to in
Section 2.01(b) above and Dissenting Shares (as defined
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below)) shall be converted into that number of fully paid and nonassessable
shares of O'Gara Common Stock equal to one times the Share Conversion
Multiplier (as defined in paragraph (e) of this Section 2.01);
(d) Each share of KHI Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares referred to in Section
2.01(b) above and Dissenting Shares) shall be converted into that number of
fully paid and nonassessable shares of O'Gara Common Stock equal to one
times the Share Conversion Multiplier (as defined in paragraph (e) of this
Section 2.01.)
(e) For purposes of this Agreement, the term "Share Conversion
Multiplier" shall mean a fraction, the numerator of which is 6,650,000, and
the denominator of which is equal to the sum of (1) the total number of
shares of KHI Capital Stock issued and outstanding immediately prior to the
Effective Time, and (2) the total number of shares of KHI Capital Stock
issuable pursuant to all warrants, options and other stock issuance
agreements (including conversion rights under any instruments convertible
into shares of KHI Capital Stock) existing immediately prior to the
Effective Time, assuming all of such warrants, options or other stock
issuance agreements are fully exercisable and the rights of the holders
thereof are fully vested therein and in the stock issuable pursuant
thereto.
2.02. Exchange of Certificates; Issuance of New Certificates.
(a) Promptly after the Effective Time, O'Gara shall mail to each registered
holder of a certificate or certificates which immediately prior to the Effective
Time evidenced outstanding shares of KHI Capital Stock (the "KHI Certificates")
a letter of transmittal providing for the surrender of such KHI Certificates to
O'Gara's transfer agent, The Fifth Third Bank, for exchange. Until so
surrendered, such KHI Certificates shall represent solely the right to receive
the applicable number of whole shares, and, if applicable, cash for fractional
shares, of O'Gara Common Stock with respect to the number of shares of KHI
Capital Stock evidenced thereby. No dividends or other distributions declared or
made after the Effective Time with respect to shares of O'Gara Common Stock with
a record date after the Effective Time shall be paid to the holder of an
unsurrendered KHI Certificate with respect to the shares of O'Gara Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder, in each case unless and until the holder of record of
such KHI Certificate shall surrender such KHI Certificate. Subject to the effect
of unclaimed property, escheat and other applicable laws, upon surrender of any
such KHI Certificate, such KHI Certificate shall be cancelled and there shall be
issued or paid to the registered holder of such KHI Certificate, without
interest, (i) such number of whole shares of O'Gara Common Stock as are to be
issued in exchange for such KHI Certificate pursuant to Section 2.01 of this
Agreement, and (ii) the amount of any cash payable in lieu of a fractional share
of O'Gara Common Stock to which such holder is entitled pursuant to Section
2.02(b) hereof and the amount of dividends or other distributions payable to
holders of record as of a record date after the Effective Time theretofore paid
with respect to whole shares of O'Gara Common Stock issued pursuant to clause
(i) above. If any cash or certificate evidencing shares of O'Gara Common Stock
is to be paid to or issued in a name other than that in which the KHI
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the KHI Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to O'Gara any transfer or other taxes
required by reason of the issuance of certificates for such shares of O'Gara
Common Stock in, or the payment of cash to, a name other than that of the
registered holder of the KHI Certificate surrendered, or shall establish to the
satisfaction of O'Gara that such tax has been paid or is not applicable.
(b) Notwithstanding any other provision of this Agreement, no certificates
or scrip representing fractional shares of O'Gara Common Stock shall be issued
upon the surrender for exchange of KHI Certificates. Any holder of KHI Capital
Stock who would otherwise have been entitled to a fractional share of O'Gara
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the average of the last reported prices per share of O'Gara Common Stock on
the NASDAQ National Market on the ten consecutive trading days ending with the
last trading day prior to the Effective Time on which O'Gara Common Stock was
traded on the NASDAQ National Market, without any interest thereon. Any such
holder shall not be entitled to vote or to any other rights of a holder of
O'Gara Common Stock in respect of such fractional share.
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2.03. No Further Transfers. From and after the Effective Time, there shall
be no transfers on the stock transfer books of KHI of any shares of KHI Capital
Stock. If, after the Effective Time, certificates evidencing KHI Capital Stock
are presented to KHI for transfer, such certificates shall be canceled and
exchanged for certificates evidencing the applicable number of whole shares of
O'Gara Common Stock and, if applicable, cash in lieu of fractional shares as
provided in Section 2.02.
2.04 Treatment of KHI Stock Options. All warrants, options and other stock
issuance agreements (including conversion rights under any instruments
convertible into shares of KHI Capital Stock) (collectively, "KHI Issuance
Agreements") shall, to the extent the shares of KHI Capital Stock issuable
pursuant thereto have been included in the denominator in determining the Share
Conversion Multiplier, be converted into the right to receive, upon exercise,
subject to and in accordance with the terms of such KHI Issuance Agreements and
further subject to payment in full of the exercise price under such KHI Issuance
Agreements, that number of shares of O'Gara Common Stock equal to the product of
(i) the number of shares of KHI Capital Stock issuable upon exercise of such KHI
Issuance Agreements, and (ii) the Share Conversion Multiplier. To the extent any
KHI Capital Stock issuable pursuant to a KHI Issuance Agreement was not included
in the denominator of the Share Conversion Multiplier, such KHI Issuance
Agreement shall automatically be cancelled at the Effective Time and neither KHI
Capital Stock nor O'Gara Common Stock shall thereafter be issued or issuable
with respect to such KHI Issuance Agreement.
2.05 Dissenters' Rights. Notwithstanding any provisions of this Agreement
to the contrary, any shares of KHI Capital Stock outstanding immediately prior
to the Effective Time held by a holder who has demanded and perfected the right,
if any, for appraisal of those shares in accordance with the provisions of
Section 262 of the Delaware Law and as of the Effective Time has not withdrawn
or lost such right to such appraisal ("Dissenting Shares") shall not be
converted into or represent a right to receive O'Gara Common Stock pursuant to
Section 2.01 hereof, but the holder shall only be entitled to such rights as are
granted by the Delaware Law. If a holder of shares of KHI Capital Stock who
demands appraisal of those shares under the Delaware Law shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the Effective Time or the occurrence of such event,
whichever last occurs, those shares shall be converted into and represent only
the right to receive O'Gara Common Stock as provided in Section 2.01 hereof,
without interest, upon compliance with the provisions, and subject to the
limitations, of Section 2.02 hereof. KHI shall give O'Gara (a) prompt notice of
any written demands for appraisal of any shares of KHI Capital Stock, attempted
withdrawals of such demands, and any other instruments served pursuant to the
Delaware Law and received by KHI relating to stockholders' rights of appraisal,
and (b) the opportunity to direct all negotiations and proceedings with respect
to any demands for appraisal under the Delaware Law. KHI shall not, except with
the prior written consent of O'Gara, voluntarily make any payment with respect
to any demands for appraisal of KHI Capital Stock, offer to settle or settle any
such demands or approve any withdrawals of any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF KHI AND THE KHI PRINCIPAL SHAREHOLDER
KHI and the KHI Principal Shareholder hereby jointly and severally
represent and warrant to each of O'Gara and NEWCO, as of the date hereof and as
of the Closing, as follows:
3.01 Organization and Capitalization. KHI is duly organized, validly
existing and in good standing under the laws of the State of Delaware. KHI has
authorized capital stock consisting of (i) 46,200 shares of KHI Class A Common
Stock with par value of one cent ($.01) per share, of which 23,100 shares have
been duly authorized, validly issued, and are outstanding and are fully paid and
non-assessable and held of record as of the date hereof as set forth in Schedule
3.01(i) of that certain Disclosure Schedule to Plan and Agreement to Merge of
even date herewith delivered by KHI to O'Gara (the "KHI Disclosure Schedule"),
and none of which shares are held by KHI as treasury stock, and (ii) 153,800
shares of KHI Common Stock with par value of one cent ($.01) per share, of which
76,624 shares have been duly authorized, validly issued, and are outstanding and
are fully paid and non-assessable and held of record as of the date hereof as
set forth in Schedule 3.01(ii) of the KHI Disclosure Schedule, of which 8,821
are covered by options to purchase and of which 2,699 shares are held by
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KHI as treasury stock. True and complete copies of the Certificate of
Incorporation and Bylaws of KHI have been delivered by KHI to O'Gara.
3.02 Power and Authority and Board and Shareholder Approval. KHI has the
corporate power and authority to own its properties and to carry on its business
as heretofore conducted and, subject to the approval and adoption of this
Agreement by its shareholders as required by law, to perform all of the
obligations to be performed by it hereunder. Each of KHI's Subsidiaries (as
defined below) has the corporate power and authority to own its properties and
to carry on its business as heretofore conducted. KHI and its Subsidiaries are
duly qualified as a foreign entity and in good standing in each jurisdiction
where the nature of their respective properties or the conduct of their
respective businesses makes such qualification necessary, except when the
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" shall
mean, as to any Person, a material adverse effect on the business, operations,
properties or financial condition of such Person and its Subsidiaries taken as a
whole. This Agreement constitutes the valid and legally binding obligation of
KHI, enforceable against KHI in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and to applicable
equitable principles or public policy with respect to the indemnification
provisions hereof, and the execution and delivery hereof and consummation of the
Merger have been approved by the Board of Directors of KHI. For purposes of this
Agreement a "Subsidiary" of any Person (as defined below) means another Person,
an amount of the voting securities, other voting ownership or voting partnership
interests of which sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first Person. For purposes of this Agreement, "Person" means an individual,
corporation, partnership, joint venture, limited liability company, association,
trust, unincorporated organization or other entity of any type, including any
government, governmental agency or other governmental body.
3.03 Subsidiaries. Schedule 3.03 of the KHI Disclosure Schedule lists all
of the Subsidiaries of KHI together with an accurate description, with respect
to each such Subsidiary, of (i) the type of entity and its jurisdiction of
formation, (ii) the authorized, issued and outstanding capital or other
ownership interests, and (iii) the names and addresses of all Persons having an
interest therein and the amount and type of such interests. Each of KHI's
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of formation as set forth on Schedule 3.03 of the KHI
Disclosure Schedule. Schedule 3.03 of the KHI Disclosure Schedule also lists all
Persons in which KHI or any of its Subsidiaries has an equity or other ownership
interest which is material to the business, properties, operations or financial
condition of KHI and its Subsidiaries taken as a whole, or the right to acquire
any such interest, together with an accurate description, with respect to each
such Person, of (i) the type of entity and its jurisdiction of formation, (ii)
the authorized, issued and outstanding capital or other ownership interests, and
(iii) the names of all Persons having an interest therein and the amount and
type of such interests. All of the outstanding shares of capital stock or other
ownership interests of each of KHI's Subsidiaries which are owned by KHI or one
of its Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially and of record as set forth on
Schedule 3.03, free and clear of all liens, charges, claims or encumbrances.
True and complete copies of the charter documents of all entities listed on
Schedule 3.03 of the KHI Disclosure Schedule have been delivered by KHI to
O'Gara.
3.04 Stock Options and Other Arrangements. As of the date hereof, KHI has
outstanding options to purchase an aggregate of 8,821 shares of KHI Common
Stock. Except for such options or as set forth in Schedule 3.04 of the KHI
Disclosure Schedule (i) there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character to which KHI or any of its Subsidiaries is a party
or by which KHI or any of its Subsidiaries is bound relating to the issued or
unissued capital stock or other ownership interests of KHI or any of KHI's
Subsidiaries or relating to securities convertible into, exchangeable for or
evidencing the right to subscribe for any such capital stock or other ownership
interests, (ii) there are no shareholders' agreements, partnership agreements,
registration rights agreements, voting trusts or other agreements or
understandings to which KHI or any of its Subsidiaries is a party or by which
KHI or any of its Subsidiaries is bound with respect to the voting of the
capital stock or other ownership interests of KHI or any
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of its Subsidiaries, or with respect to the registration of KHI Capital Stock of
any shareholder of KHI under the Securities Act of 1933, as amended (the "Act"),
and (iii) there are no stock options, stock bonus agreements, restricted stock
agreements or other agreements or obligations outstanding which commit KHI or
any of its Subsidiaries to issue, deliver, sell, repurchase or redeem shares of
stock or other ownership interests upon the fulfillment of specified conditions.
True and complete copies of all documents, agreements and other instruments
listed on Schedule 3.04 of the KHI Disclosure Schedule have been delivered by
KHI to O'Gara.
3.05 Financial Statements. The audited consolidated financial statements
of KHI and its Subsidiaries for the one-year periods ended December 31, 1994 and
December 31, 1995, including consolidated balance sheets, statements of income,
changes in shareholders' equity and cash flows for the years then ended (the
"KHI Audited Statements"), the draft financial statements of KHI and its
Subsidiaries for the one-year period ended December 31, 1996, including
consolidated balance sheet, statements of income, changes in shareholders'
equity and cash flows for the year then ended (the "Draft KHI Financials") and
the unaudited consolidated statements of financial position and related
consolidated statements of income and cash flows for the six-month interim
period ended June 30, 1997 (the "KHI Interim Statements"), all as previously
delivered to O'Gara (the KHI Audited Statements, the Draft KHI Financials and
the KHI Interim Statements are referred to herein collectively as the "KHI
Financial Statements"), have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods covered and with prior periods (except as stated in the
footnotes thereto, and subject, with respect to such KHI Interim Statements, to
non-material year-end adjustments and the absence of footnotes), and fairly
present in all material respects the consolidated financial condition of KHI and
its Subsidiaries as of the dates thereof and the consolidated results of their
operations for the periods ended on such dates, except in each case, with
respect to the Draft KHI Financials, for changes described in the last sentence
of this Section 3.05. True and complete copies of the KHI Financial Statements
have been delivered by KHI to O'Gara. The audited consolidated financial
statements of KHI and its Subsidiaries for the one-year period ended December
31, 1996 (the "1996 Financials") shall be delivered by KHI to O'Gara within two
(2) weeks of the date of this Agreement and such 1996 Financials shall (i) be
the same as the Draft KHI Financials except that accounts receivable shall be
approximately $4,800,000 less than accounts receivable on the Draft KHI
Financials and there shall be such other changes as have been approved by O'Gara
in writing, (ii) have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis throughout the
periods covered and with prior periods (except as stated in the footnotes
thereto), and (iii) fairly present in all material respects the consolidated
financial condition of KHI and its Subsidiaries as of December 31, 1996 and the
consolidated results of their operations for the one-year period ended on
December 31, 1996.
3.06 Liabilities. Except to the extent reflected and reserved against in
the KHI Interim Statements or as disclosed in Schedule 3.06 of the KHI
Disclosure Schedule, and except for liabilities and obligations incurred in the
ordinary course of business consistent with prior practice since June 30, 1997,
none of which individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect, neither KHI nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether accrued, absolute, determined,
determinable, contingent or otherwise and whether due or to become due, which
individually or in the aggregate would reasonably be expected to have a Material
Adverse Effect.
3.07 Claims. There are no governmental proceedings or investigations or
any claims, suits or proceedings by any Person pending, asserted, or, to the
actual knowledge of KHI and its Subsidiaries, threatened against KHI or any of
its Subsidiaries, and to the actual knowledge of KHI and its Subsidiaries there
is no reasonable basis for any such investigations, claims, suits or proceedings
which, if determined adversely to KHI or any of its Subsidiaries, would
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect, except in each case as disclosed on Schedule 3.07 of the KHI
Disclosure Schedule.
3.08 Assets. Schedule 3.08 of the KHI Disclosure Schedule lists all real
property now owned, leased, occupied or otherwise used by KHI or any of its
Subsidiaries and indicates with respect to each such parcel of real property
whether it is owned or leased and the name of the owner or lessee. With respect
to said leased property, Schedule 3.08 sets forth the base rent payable under
each lease, the amount and type of other expenses paid by the tenant under the
lease and the commencement and expiration dates of the lease. True and complete
copies of all of such leases have been delivered by KHI to O'Gara. Each of KHI
and its Subsidiaries has good and
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marketable title in fee simple to all real estate listed on such Schedule 3.08
as owned by it and valid leasehold title to all real estate listed on such
Schedule 3.08 as leased by it, in each case free and clear of all material
liens, mortgages, pledges, encumbrances and charges of every kind, except (i) as
reflected in Schedule 3.08 of the KHI Disclosure Schedule, (ii) for statutory
liens for taxes not yet due and payable, (iii) for inchoate liens for work
performed or materials delivered, payment for which is not yet due, and (iv) for
other immaterial covenants or restrictions which do not individually or in the
aggregate materially interfere with the use or value of any such property. KHI
and each of its Subsidiaries owns and has good and marketable title to all of
its properties and assets reflected on the KHI Interim Statements, or acquired
by it after the date thereof, free and clear of all material liens, mortgages,
pledges, encumbrances and charges of every kind, except for inventory sold in
the ordinary course of business after the date of the KHI Interim Statements and
except as set forth in Schedule 3.08 of the KHI Disclosure Schedule. All real
property owned or leased by KHI or its Subsidiaries and all tangible personal
property owned or leased by KHI or any of its Subsidiaries is in sufficient
condition to enable each of KHI and its Subsidiaries to conduct its business as
now being conducted. KHI and its Subsidiaries own or have a legal and valid
right to use all real and personal property necessary for, or used in, the
conduct of their respective businesses as heretofore conducted.
3.09 Operations Since December 31, 1996. Since December 31, 1996, except
as contained on Schedule 3.09 of the KHI Disclosure Schedule (the "KHI
Operations Schedule"), neither KHI nor any of its Subsidiaries has (i) incurred
any obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business consistent with prior
practice, none of which individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect, except as permitted in Sections
9.02(b) and (c) hereof; (ii) discharged or satisfied any material lien or
encumbrance, or paid any obligation or liability (absolute or contingent), other
than current liabilities reflected in the KHI Financial Statements and current
liabilities incurred since the date of the KHI Interim Statements in the
ordinary course of business consistent with prior practice; (iii) declared or
made any payment or distribution of assets or dividends on its capital stock or
other ownership interests except those dividends normally paid by KHI's
Subsidiaries to KHI; (iv) purchased or redeemed any of its shares, or issued or
committed to issue any additional shares or any securities exercisable for or
convertible into shares except pursuant to stock options and restricted stock
plans described on Schedule 3.13 of the KHI Disclosure Schedule; (v) other than
as described in Section 9.02 or in the ordinary course of business consistent
with prior practice, made any general wage or salary increases or increased the
salary or other compensation of any officers; (vi) mortgaged, pledged or
subjected to material lien, or any other material encumbrance, any of its
material assets, tangible or intangible; (vii) sold, assigned or transferred any
of its tangible assets or canceled any debt or claim, other than the sale of
inventory for fair market value in the ordinary course of business consistent
with prior practice; (viii) sold, assigned or transferred any patent, trademark,
trade name, copyright, license or other intangible asset; (ix) suffered any net
operating loss or extraordinary loss, or waived any right of substantial value;
or (x) entered into any transaction other than in the ordinary course of
business consistent with prior practice, other than as permitted in Section 9.02
hereof.
3.10 Taxes. Except as disclosed in Schedule 3.10 of the KHI Disclosure
Schedule, reserves for taxes as shown on the KHI Interim Statements are
sufficient for the payment of all accrued but unpaid federal, state, county,
local and foreign taxes of KHI and each of its Subsidiaries, for all periods
ending on or prior to December 31, 1996, and are a reasonable estimate of all
such taxes for the period ending June 30, 1997. Except as disclosed on Schedule
3.10 of the KHI Disclosure Schedule, all tax returns required to be filed have
been filed by KHI and its Subsidiaries when due in accordance with all
applicable laws, all such returns were correct as filed in all material
respects, all taxes shown to be due on such returns have been timely paid,
withheld or remitted to the appropriate taxing authority and there is no audit,
dispute, claim, action, proceeding or investigation pending or, to the actual
knowledge of KHI and its Subsidiaries, threatened with respect to any such
returns or any taxes shown thereon. Except as disclosed on Schedule 3.10 of the
KHI Disclosure Schedule, neither KHI nor any of its Subsidiaries has received
any notice of any deficiency with respect to the payment of any federal, state,
county, local or foreign taxes.
3.11 Insurance. Schedule 3.11 of the KHI Disclosure Schedule lists all
property, liability, life and other insurance policies for the benefit of KHI
and its Subsidiaries. All such insurance is in full force and effect. Since
December 31, 1996 there has been no material loss or damage to the tangible
property of KHI or any of its
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Subsidiaries, whether or not insured, except as disclosed on Schedule 3.11 of
the KHI Disclosure Schedule, and neither KHI nor any of its Subsidiaries has
been refused any insurance coverage for which it has applied.
3.12 Contracts. Schedule 3.12 of the KHI Disclosure Schedule (the "KHI
Contract Schedule") lists all contracts, agreements, commitments and engagements
to which KHI or any of its Subsidiaries is a party, or by which their respective
assets are bound which (i) provide for the payment or receipt by KHI or any of
its Subsidiaries of $100,000 or more, other than contracts with customers
entered into in the ordinary course of business consistent with prior practices,
(ii) restrict in any manner the business activities of KHI or any of its
Subsidiaries, with the exception of non-competition covenants entered into with
customers of KHI or any of its Subsidiaries which would not be reasonably
expected to have a Material Adverse Effect on any of O'Gara, KHI or their
respective Subsidiaries, (iii) are partnership or joint venture agreements with
any other Person, or (iv) are union contracts, health and welfare plans, life or
hospitalization insurance plans, pension, profit sharing or other similar
benefit plans, deferred incentive compensation agreements or plans, lease
agreements, and material employment or consulting agreements (excluding
employment agreements with foreign employees mandated by law that do not contain
rights in excess of the minimum mandated by law). Each of such agreements is
legal, valid and binding against KHI or any of its Subsidiaries that is a party
thereto and, to the actual knowledge of KHI and its Subsidiaries, is legal,
valid and binding against any other Person who is a party thereto. Each of such
agreements is in full force and effect without any material default or breach
existing with respect thereto by KHI or any of its Subsidiaries or, to the
actual knowledge of KHI and its Subsidiaries, any other Person. True and
complete copies of all contracts, agreements, commitments and engagements listed
on the KHI Contract Schedule have been delivered by KHI to O'Gara. Except as
disclosed on the KHI Contract Schedule, the consummation of the Merger will not
result in the acceleration of, or any adverse change in the terms of, any
obligation of KHI or any of its Subsidiaries for borrowed money or any material
liability under any such contract, agreement, commitment or engagement. KHI and
its Subsidiaries may prepay without penalty or premium any indebtedness for
borrowed money incurred by them.
3.13 Employee Benefit Plans. Schedule 3.13 of the KHI Disclosure Schedule
contains listings of each Plan (as hereinafter defined). True and complete
copies of all of such Plans (and if applicable related trust agreements)
together with the most recent annual reports (Form 5500 including, if
applicable, Schedule B thereto) and the most recent actuarial valuation report
prepared in connection with any Plan, have been delivered by KHI to O'Gara. No
Plan is maintained in connection with any trust described in Section 501(c)(9)
of the Code. Each Plan complies in all material respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and all
other applicable laws and administrative or governmental rules and regulations.
No Plan is subject to Title IV of ERISA. None of KHI or any of its Subsidiaries
or ERISA Affiliates, has withdrawn from any Plan subject to Title IV of ERISA or
Multiemployer Plan (as hereinafter defined) or has taken, or is currently
considering taking, any action to do so; and no action has been taken, or is
currently being considered, by KHI or any of its Subsidiaries or ERISA
Affiliates to terminate any Plan subject to Title IV of ERISA (other than
standard terminations previously effected under which KHI or any of its
Subsidiaries or ERISA Affiliates have no existing liability). None of KHI, or
any of its Subsidiaries or ERISA Affiliates has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA. The assets of KHI and its Subsidiaries are
not now, nor will they solely because of the mere passage of time be, subject to
any lien imposed under Code Section 412(n) by reason of a failure of KHI or any
of its Subsidiaries or ERISA Affiliates to make timely installments or other
payments required under Code Section 412. No Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived. There
are no actions, suits or claims pending or, to KHI's and its Subsidiaries'
actual knowledge, threatened (other than routine claims for benefits) with
respect to any Plan which would reasonably be expected to have a Material
Adverse Effect. None of KHI or any of its Subsidiaries or ERISA Affiliates has
incurred or, to KHI's and its Subsidiaries' actual knowledge, would reasonably
be expected to incur any material liability under or pursuant to Section 4971 of
the Code. No prohibited transactions described in Section 406 of ERISA or
Section 4975 of the Code have occurred which would reasonably be expected to
result in a material liability. All Plans that are intended to be qualified
under Section 401(a) of the Code have received a favorable determination letter
as to such qualification from the Internal Revenue Service, and to KHI's and its
Subsidiaries actual knowledge, no event has occurred, either by reason of any
action or failure to act, which would cause the loss of any such
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qualification. To KHI's and its Subsidiaries' actual knowledge, there is no
reason why any Plan is not so qualified in operation. None of KHI or any of its
Subsidiaries or ERISA Affiliates is a party, contributes or within the past six
years has contributed, to a Multiemployer Plan (as defined below). None of KHI
or any of its Subsidiaries or ERISA Affiliates contributes to, or has within the
past six years contributed to a single-employer plan within the meaning of
Section 4001(a)(15) of ERISA which has two or more contributing sponsors, as
defined in Section 4001(a)(13) of ERISA, at least two of whom are not under
common control, within the meaning of ERISA. KHI and its Subsidiaries have
complied in all material respects with the health care continuation requirements
of Part 6 of Title I of ERISA to the extent applicable. Except as disclosed on
Schedule 3.13 of the KHI Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, result in an increase in the
amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefits payable by KHI or any of its
Subsidiaries or ERISA Affiliates to any Plan, Benefit Arrangement (as defined
below), International Plan (as defined below) or to any employee of KHI or any
of its Subsidiaries or ERISA Affiliates. Schedule 3.13 of the KHI Disclosure
Schedule contains listings of each Benefit Arrangement. True and complete copies
or descriptions of each Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto have been delivered by KHI to O'Gara.
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations and has been maintained in good standing with
applicable regulatory authorities. All contributions and payments accrued under
each Plan and Benefit Arrangement, determined in accordance with prior funding
and accrual practices, as adjusted to include proportional accruals for the
period ending on the Closing Date, have been discharged and paid when due. As
used in this Section 3.13: (i) "Plan" means an "employee benefit plan," as
defined in Section 3(3) of ERISA, (other than a Multiemployer Plan) which (a) is
subject to any provision of ERISA, (b) is established, administered, maintained
or contributed to by KHI or any Subsidiary or ERISA Affiliates of KHI and (c)
covers any employee or former employee of KHI or any of its Subsidiaries or
ERISA Affiliates in respect of service with KHI or any of its Subsidiaries or
ERISA Affiliates or to which KHI or any of its Subsidiaries or ERISA Affiliates
otherwise may have any liability; (ii) "Multiemployer Plan" means a
"multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3) of
ERISA) to which KHI or any of its Subsidiaries or ERISA Affiliates is or has
been obligated to contribute or otherwise may have any liability; and (iii) with
respect to any Person, "ERISA Affiliate" means any trade or business (whether or
not incorporated) which is under common control or would be considered a single
employer with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated thereunder or pursuant to Section 4001(b)
of ERISA and the regulations promulgated thereunder. "Benefit Arrangement" means
any employment, severance, change in control or similar contract or arrangement
or any plan, policy, fund, program or contract or arrangement providing for
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, workers'
compensation or severance benefits that (A) is not a Plan, (B) is entered into,
maintained, administered or contributed to, as the case may be, by KHI or any
Subsidiary or ERISA Affiliate of KHI and (C) covers in respect of service with
KHI or any of its Subsidiaries any current or former U.S. employee or U.S.
independent contractor of KHI or any of its Subsidiaries or ERISA Affiliates who
is or was employed in the United States. "International Plan" means (I) any
written employment agreement providing for annual salary in excess of U.S.
$100,000 (or its foreign equivalent) or any severance or similar contract or
arrangement providing for compensation (including retirement benefits) in excess
of U.S. $100,000 (or its foreign equivalent) that (A) is not a Plan or a Benefit
Arrangement and (B) is entered into between KHI or any of its Subsidiaries or
ERISA Affiliates and any current or former employee, agent or independent
contractor of KHI or any of its Subsidiaries or ERISA Affiliates who is or was
employed outside of the United States or (II) any written plan, policy, fund,
program, arrangement, or contract of or with KHI or any of its Subsidiaries or
ERISA Affiliates in respect of service with KHI or any of its Subsidiaries or
its ERISA Affiliates covering employees who are or were employed by KHI or any
of its Subsidiaries or its ERISA Affiliates outside of the United States;
providing for (A) retirement benefits (including pension, health, medical or
life insurance), but excluding any retirement scheme fund, plan or program (x)
sponsored by any government or (y) providing benefits statutorily mandated under
the laws of the applicable jurisdiction at the minimum level statutorily
mandated, or (B) bonus (including post-employment bonus), profit sharing, stock
option, or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, life insurance (including any self-insured
arrangements), health or medical benefits, disability benefits,
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supplemental unemployment benefits or severance benefits (cumulatively
"Benefits"), other than any plan, policy, fund, program, arrangement or contract
providing for Benefits statutorily mandated by the laws of the applicable
jurisdiction at the minimum level statutorily mandated that (I) is not a Plan or
a Benefit Arrangement and (II) is entered into, maintained, administered, or
contributed to by KHI or any of its Subsidiaries. Schedule 3.13 of the
Disclosure Schedule lists each International Plan. True and complete copies of
each International Plan and all amendments thereto have been made available by
KHI to O'Gara. Each International Plan has been maintained and operated in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations and has been
maintained in good standing with all applicable regulatory authorities. With
respect to each International Plan all necessary or appropriate approvals,
qualifications or certifications have been obtained and no event has occurred or
condition exists which would cause the loss of such approval, qualification or
certifications. All contributions and payments accrued under each International
Plan, determined in accordance with prior funding and accrual practices, have
been discharged and paid when due.
3.14 No Default. Except as disclosed on the KHI Contract Schedule, (i)
neither KHI nor any of its Subsidiaries is in material default under any
material contract, agreement, commitment or engagement of any kind; (ii) no
event of default or event that, but for the giving of notice or lapse of time,
or both, would constitute an event of default exists or, upon the Effective
Time, will exist under any loan or credit agreement, note, bond, mortgage,
indenture or guarantee of indebtedness for borrowed money or other material
instrument to which KHI or any of its Subsidiaries is a party; and (iii) the
execution and delivery of this Agreement and the consummation of the Merger will
not contravene or conflict with, or constitute a violation of, or result in a
default under, cancellation of, termination of, or acceleration of obligations
under, the Certificate or Articles of Incorporation, Articles of Association,
By-Laws or other organizational documents of KHI or any of its Subsidiaries or
any material contract, agreement, commitment, engagement, judgment, injunction,
order, decree or instrument to which KHI or any of its Subsidiaries is a party
or by which they or any of their assets are bound, which default, event of
default, contravention, conflict, violation, cancellation, termination or
acceleration would reasonably be expected to have a Material Adverse Effect, or
result in the incurrence by KHI or any of its Subsidiaries of any material
liability.
3.15 Joint Proxy Statement. When the Registration Statement on Form S-4
described in Article V hereof (the "Registration Statement") is filed with the
Securities and Exchange Commission (the "Commission") and the related
Prospectus/Proxy Statement to be distributed to KHI's and O'Gara's shareholders
(the "Joint Proxy Statement") in connection with the Merger shall first be
mailed to such shareholders, and at all times subsequent thereto up to and
including the Effective Time, the information with respect to KHI and its
Subsidiaries provided by KHI in writing for inclusion in the Registration
Statement and the Joint Proxy Statement, and any information with respect to KHI
and its Subsidiaries provided in writing by O'Gara to KHI at least two (2) days
prior to the date of mailing the Joint Proxy Statement to the shareholders with
respect to which information O'Gara has not received any written objection from
KHI (i) will comply in all material respects with the provisions of the Act and
of the Securities Exchange Act of 1934 (the "Exchange Act") and (ii) will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time, any event relating to
KHI or any of its Subsidiaries shall occur which, pursuant to the Act or the
Exchange Act or the rules and regulations thereunder, should be disclosed in the
Registration Statement or the Joint Proxy Statement and which is not so
disclosed, KHI shall promptly so inform O'Gara.
3.16 Compliance With Laws. KHI and its Subsidiaries (and each of them)
have complied and are currently in compliance in all material respects with all
applicable laws, and governmental rules (including rules related to governmental
contracts), regulations and orders (including zoning ordinances), except when
the failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect. Neither KHI nor any of its Subsidiaries is in material
default under, and no event has occurred which, with the lapse of time or action
by a third party, would be reasonably expected to result in a material default
under, the terms of any judgment, decree, order or writ, of any court, whether
federal, state or local, foreign or domestic, and whether at law or in equity.
Schedule 3.16 of the KHI Disclosure Schedule includes the policies of KHI and
its Subsidiaries regarding the Foreign Corrupt Practices Act (the "FCPA"),
including a description of the means by which information
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regarding such policies are disseminated to employees of KHI and its
Subsidiaries. Neither KHI nor any of its Subsidiaries has received written
notice of any violation of the FCPA by any employees of KHI or any of its
Subsidiaries.
3.17 Consents and Approvals. Except for the approval of KHI's
shareholders, the filing of the Certificate of Merger with respect to the Merger
with the Secretary of State of the State of Delaware, the filing of the
Registration Statement and any filings required under state "blue sky" laws, no
other corporate proceedings on the part of KHI or any of its Subsidiaries, and
no consent of or filing with any governmental agency or, except as set forth on
the KHI Contract Schedule, third party is required to be held, obtained or made
by KHI or any of its Subsidiaries in connection with the execution and delivery
of this Agreement and the consummation of the Merger. The ultimate parent entity
of KHI does not have $100,000,000 or more of assets as of its last regularly
prepared balance sheet or $100,000,000 or more of sales for its most recently
ended fiscal year for purposes of the Hart-Scott-Rodino Anti-Trust Improvements
of 1976, as amended (the "HSR Act").
3.18 Patents, Trademarks and Copyrights. Schedule 3.18 of the KHI
Disclosure Schedule contains a list of (a) all filed patents, patent and
trademark applications and registered trademarks, servicemarks and copyrights
(collectively the "KHI Registered Rights") owned by KHI or any of its
Subsidiaries, together with an indication as to the owner of such right and the
jurisdiction by or in which such right has been issued, registered or filed, (b)
all material license agreements (other than licenses for off-the-shelf software
programs) or other rights of use relating to intellectual property used by KHI
or its Subsidiaries (the "KHI Licensed Rights") and (c) all other intellectual
property (other than off-the-shelf software programs) owned or used by KHI or
its Subsidiaries (the "KHI Common Law Rights"). All of the KHI Registered Rights
are valid and in full force and effect. True and complete copies of all
agreements or licenses relating to the KHI Registered Rights, the KHI Licensed
Rights and the KHI Common Law Rights (collectively, the "KHI Rights") have been
delivered by KHI to O'Gara. Neither KHI nor any of its Subsidiaries has received
any notice with respect to any alleged infringement or unlawful use by KHI or
its Subsidiaries of any intangible property right owned or alleged to be owned
by others. Except as set forth in Schedule 3.18 of the KHI Disclosure Schedule,
the Merger will not adversely affect the use by KHI of any of the KHI Rights.
Schedule 3.18 of the KHI Disclosure Schedule contains a list of all licenses and
sublicenses granted by KHI and its Subsidiaries with respect to the KHI Rights.
Except as set forth on Schedule 3.18 of the KHI Disclosure Schedule (i) no
Person other than KHI and its Subsidiaries has any right to use the KHI
Registered Rights, and (ii) neither KHI nor any of its Subsidiaries has actual
knowledge of any infringement by any Person of any of the KHI Rights.
3.19 Environmental Matters. Except as set forth in Schedule 3.19 of the
KHI Disclosure Schedule, (i) there is no liability of KHI or any of its
Subsidiaries under any federal, state, local, or foreign laws, rules,
regulations, orders, judgments, decrees, permits or licenses relating to health,
safety or the environment (the "Environmental Requirements"), whether absolute,
determined, determinable or contingent, and (ii) the properties, assets and
operations of KHI and its Subsidiaries are in compliance with all applicable
Environmental Requirements, except for any such non-compliance that would not
reasonably be expected to have a Material Adverse Effect. No spill, release,
threatened release or discharge of Hazardous Substances (as defined below) into
the environment has occurred at any of the facilities owned, leased or operated
by KHI and its Subsidiaries (the "KHI Facilities") or, to KHI's and its
Subsidiaries' actual knowledge, on any real property adjacent thereto, and there
has been no corrective action, remediation or clean up required of KHI or any of
its Subsidiaries by applicable Environmental Requirements or by governmental
authorities as a consequence of any such spill, release, threatened release or
discharge of Hazardous Substances. All corrective action, remediation or other
clean up activities undertaken by KHI or any of its Subsidiaries has been
performed, or is being performed, in accordance in all material respects with
all applicable Environmental Requirements. KHI and its Subsidiaries have
discharged in all material respects any and all applicable record keeping and
reporting requirements pursuant to all applicable Environmental Requirements and
all such reports and records are complete and correct in all material respects
and have been retained for the length of time required by any applicable
Environmental Requirements setting forth document retention requirements. Except
as set forth in Schedule 3.19 of the KHI Disclosure Schedule, none of the KHI
Facilities or, to KHI's and its Subsidiaries' actual knowledge, any property
adjacent thereto, or, to KHI's and its Subsidiaries' actual knowledge, any sites
used for the disposal of wastes generated by KHI or its Subsidiaries have been
designated as a "Superfund Site" or are otherwise the subject of
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an order of removal or remedial action for which KHI or any of its Subsidiaries
has liability pursuant to the provisions of applicable Environmental
Requirements and there are no conditions or circumstances affecting the KHI
Facilities which, to KHI's and its Subsidiaries' actual knowledge, might
reasonably be expected to cause them to be designated as a "Superfund Site" or
render them subject to any such order of removal or remedial action for which
KHI or any of its Subsidiaries will have liability pursuant to the provisions of
applicable Environmental Requirements. Except as set forth in Schedule 3.19 of
the Disclosure Schedule, no unresolved written notice, notification, demand,
request for information, citation, summons or order has been issued, no pending
complaint has been filed, no unpaid penalty has been assessed and no action,
claim, suit or proceeding or, to the actual knowledge of KHI and its
Subsidiaries, investigation or review is pending or, to the actual knowledge of
KHI and its Subsidiaries, threatened by any governmental authority with respect
to KHI or any of its Subsidiaries and relating to or arising out of any
Environmental Requirements. To KHI's and its Subsidiaries' actual knowledge, no
Hazardous Substance is present at, on, in or under any of the KHI Facilities in
violation of applicable Environmental Requirements. All permits required by
applicable Environmental Requirements and necessary for the operation of the
businesses, or the use of the assets of KHI and its Subsidiaries have been
obtained, are identified in Schedule 3.19 of the KHI Disclosure Schedule, and
are in full force and effect. Except as set forth in Schedule 3.19 of the
Disclosure Schedule, KHI and its Subsidiaries are in material compliance with
the terms of such permits, no action or investigation has been taken, commenced
or, to KHI's actual knowledge, threatened by any governmental authority or any
other Person to revoke or modify such permits or to enforce the terms of or take
action for violation of such permits, and, to KHI's and its Subsidiaries' actual
knowledge, there is no reasonable basis for any such action or investigation.
KHI and its Subsidiaries do not own, lease or operate and have not within the
past four (4) years owned, leased or operated, any real property in New Jersey
or Connecticut that is subject to transfer act requirements of those states. For
purposes of this Agreement, the term "Hazardous Substances" shall mean any
materials defined or regulated as pollutants, contaminants, or hazardous or
toxic substances, materials or wastes in any way by any Environmental
Requirements and the term "Superfund Site" shall mean any location which is
listed or proposed for listing on the National Priorities List or on any similar
state list of sites requiring investigation or cleanup, or which is the subject
of any pending or threatened action, suit, proceeding or investigation or
cleanup related to or arising from any alleged violation of any Environmental
Requirement or the cleanup or threatened release of Hazardous Substances.
3.20 Pooling-of-Interests. Neither KHI nor any of its Subsidiaries or
shareholders has taken any action, or caused any event or condition to occur,
and there is no set of facts in existence relating to KHI or any of its
Subsidiaries or shareholders of which KHI has actual knowledge, which would be
reasonably expected to result in the failure of the Merger to constitute a
pooling-of-interests for accounting purposes, and, within ten (10) days after
the date hereof, KHI shall obtain a certificate to that effect from its
independent certified public accountants, Deloitte & Touche, and deliver a copy
of such certificate to O'Gara, which certificate shall be reasonably acceptable
in form and substance to O'Gara.
3.21 No Material Adverse Change. Since December 31, 1996, there has been
no material adverse change in the business, operations, properties or financial
condition of KHI and its Subsidiaries taken as a whole.
3.22 Licenses and Permits. KHI and its Subsidiaries have obtained all
permits, licenses, franchises and authorizations from any governmental authority
which are necessary in connection with the ownership, lease or operation of
their respective properties or the conduct of their respective businesses as
heretofore owned, leased and conducted, except for such permits or licenses, the
absence of which would not reasonably be expected to have a Material Adverse
Effect (collectively, the "KHI Licenses"). All of such KHI Licenses are in full
force and effect and are listed in Schedule 3.22 of the KHI Disclosure Schedule.
Except as disclosed on Schedule 3.22 of the KHI Disclosure Schedule, neither KHI
nor any of its Subsidiaries has received any notice that KHI or any of its
Subsidiaries is in violation of or default under any KHI License or that any KHI
License will be revoked, terminated or not renewed, except for any such
violation, default, revocation, termination or nonrenewal which would not
reasonably be expected to have a Material Adverse Effect. All private
investigators licenses of KHI and its Subsidiaries are listed in Schedule 3.22
of the KHI Disclosure Schedule and, except as disclosed in such Schedule 3.22,
neither KHI nor any of its Subsidiaries has received any notice that it is in
violation of or in default under any private investigators license, or that any
private investigators license will be revoked, terminated
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or not renewed. True and complete copies of all private investigators licenses
and all KHI Licenses have been delivered by KHI to O'Gara.
3.23 Orders, Actions, Etc. There are no outstanding orders, judgments,
injunctions, awards or decrees of any governmental authority against KHI or any
of its Subsidiaries or any of their properties, assets or businesses that would
reasonably be expected to have a Material Adverse Effect. There are no actions,
suits or claims or legal, administrative or arbitration proceedings or
investigations pending against or, to KHI's or any of its Subsidiaries' actual
knowledge, threatened against, any of KHI, its Subsidiaries, or any of their
properties, assets or businesses, that would reasonably be expected to have a
Material Adverse Effect, and neither KHI nor any of its Subsidiaries has
received any written notice of any actions, suits or claims or legal,
administrative or arbitration proceedings or investigations affecting any of
KHI, its Subsidiaries, or any of their properties, assets or businesses, that
would be reasonably expected to have a Material Adverse Effect.
3.24 Labor Matters. Except as set forth in Schedule 3.24 of the KHI
Disclosure Schedule, neither KHI nor any of its Subsidiaries has any labor
contracts, collective bargaining agreements or material employment or consulting
agreements with any persons employed by or otherwise performing services
primarily for KHI or any of its Subsidiaries (collectively, the "KHI Business
Personnel") or any representative of any KHI Business Personnel. True and
complete copies of all agreements listed on Schedule 3.24 of the KHI Disclosure
Schedule have been delivered by KHI to O'Gara. Neither KHI nor any of its
Subsidiaries has engaged in any unfair labor practice with respect to KHI
Business Personnel, and neither KHI nor any of its Subsidiaries has received
written notice that there is an unfair labor practice complaint pending against
KHI or any of its Subsidiaries with respect to KHI Business Personnel. There is
no labor strike, dispute, slowdown or stoppage pending against or, to KHI's
actual knowledge, threatened against KHI or any of its Subsidiaries that would
reasonably be expected to have a Material Adverse Effect, and neither KHI nor
any of its Subsidiaries has experienced any primary work stoppage or other
material labor difficulty involving its employees during the last three (3)
years that has had or would reasonably be expected to have a Material Adverse
Effect. KHI and its Subsidiaries are in material compliance with the
requirements of all applicable labor and employment laws, rules and regulations.
3.25 Brokers. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
execution and delivery of, or the consummation of the transactions contemplated
by, this Agreement based on agreements or arrangements made by KHI or any of its
Subsidiaries, except for Donaldson Lufkin & Jenrette, the fees and expenses of
which shall be paid by KHI.
3.26 Full Disclosure. The representations and warranties made by KHI in
this Agreement, the KHI Disclosure Schedules and certificates to be furnished by
KHI or any of its Subsidiaries at the Closing hereunder do not contain and will
not contain any untrue statement of a material fact, and do not omit and will
not omit any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF O'GARA AND NEWCO
O'Gara and NEWCO hereby jointly and severally represent and warrant to KHI
and the KHI Principal Shareholder, as of the date hereof and as of the date of
Closing, as follows:
4.01 Organization and Capitalization. O'Gara is duly organized, validly
existing and in good standing under the laws of the State of Ohio. As of the
date hereof, O'Gara has authorized capital stock consisting of (i) 25,000,000
shares of O'Gara Common Stock with par value of one cent ($.01) per share, of
which 7,279,310 shares have been duly authorized, validly issued, and are
outstanding and are fully paid and non-assessable, and no shares of which are
held by O'Gara as treasury stock, and (ii) 100,000 shares of O'Gara Preferred
Stock with par value of one cent ($.01) per share, of which no shares are
outstanding. NEWCO is duly organized, validly existing and in good standing
under the laws of the State of Delaware. NEWCO's authorized capital stock
consists of 100 shares of common stock without par value, all of which shares
have been duly authorized, validly issued and are outstanding and are fully paid
and non-assessable and held of record and beneficially by O'Gara.
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NEWCO was recently formed for the purpose of the transactions contemplated
hereby and has no material assets or liabilities. True and complete copies of
the Certificate of Incorporation and By-laws of O'Gara have been delivered by
O'Gara to KHI. The O'Gara Common Stock to be issued in the Merger will be duly
authorized, validly issued and outstanding, fully paid and non-assessable and
listed for trading on the NASDAQ National Market.
4.02 Power and Authority and Board Approval. O'Gara has the corporate
power and authority to own its properties and to carry on its business as
heretofore conducted and, subject to the approval and adoption of this Agreement
by its shareholders as required by law, to perform all of the obligations to be
performed by it hereunder. Each of O'Gara's Subsidiaries has the corporate power
and authority to own its properties and to carry on its business as heretofore
conducted. O'Gara and its Subsidiaries are duly qualified as a foreign entity
and in good standing in each jurisdiction where the nature of their respective
properties or the conduct of their respective businesses makes such
qualification necessary, except when the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect. This Agreement
constitutes the valid and legally binding obligation of O'Gara and NEWCO,
enforceable against O'Gara and NEWCO in accordance with its terms, subject to
applicable bankruptcy insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and to applicable
equitable principles or public policy with respect to the indemnification
provisions hereof, and the execution and delivery hereof and consummation of the
Merger have been approved by the Board of Directors of O'Gara and NEWCO.
4.03 Subsidiaries. Each of O'Gara's Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
formation. Except as described in the SEC Filings or on Schedule 4.03 of that
certain Disclosure Schedule to this Plan and Agreement to Merge delivered by
O'Gara to KHI (the "O'Gara Disclosure Schedule"), O'Gara or its Subsidiaries
owns all issued and outstanding equity or other ownership interests in O'Gara's
Subsidiaries. Except as set forth on Schedule 4.03 of the O'Gara Disclosure
Schedule, all of the outstanding shares of capital stock or other ownership
interests of each of O'Gara's Subsidiaries which are owned by O'Gara or one of
its Subsidiaries have been duly authorized and validly issued, fully paid and
nonassessable and are owned beneficially and of record, free and clear of all
liens, charges, claims or encumbrances. Except as described in the SEC Filings
(as defined in Section 4.05(b)) and except for O'Gara's Subsidiaries, O'Gara and
its Subsidiaries have no equity or ownership interest or the right to acquire
any such interest in any Person, which interest is material to the business,
properties, operations or financial condition of O'Gara and its Subsidiaries
taken as a whole.
4.04 Stock Options and Other Arrangements. Except as disclosed in the SEC
Filings (as defined in Section 4.05 below) or set forth in Schedule 4.04 of the
O'Gara Disclosure Schedule, (i) there are no outstanding subscriptions, option
plans, warrants, calls, rights, convertible securities, preemptive rights or
other agreements or commitments of any character to which O'Gara or any of its
Subsidiaries is a party or by which O'Gara or any of its Subsidiaries is bound
relating to the issued or unissued capital stock or other ownership interests of
O'Gara or any of O'Gara's Subsidiaries or relating to securities convertible
into, exchangeable for or evidencing the right to subscribe for any such capital
stock or other ownership interests, (ii) there are no shareholders' agreements,
partnership agreements, registration rights agreements, voting trusts or other
agreements or understandings to which O'Gara or any of its Subsidiaries is a
party or by which O'Gara or any of its Subsidiaries is bound with respect to the
voting of the capital stock or other ownership interests of O'Gara or any of its
Subsidiaries or with respect to the registration of O'Gara Common Stock of any
shareholder of O'Gara under the Act, and (iii) there are no stock options, stock
bonus agreements, restricted stock agreements or other agreements or obligations
outstanding which commit O'Gara or any of its Subsidiaries to issue, deliver,
sell, repurchase or redeem shares of stock or other ownership interests upon the
fulfillment of specified conditions. True and complete copies of all documents,
agreements and other instruments listed in Schedule 4.04 of the O'Gara
Disclosure Schedule have been delivered by O'Gara to KHI.
4.05 SEC Filings and Financial Statements.
(a) O'Gara has timely filed with the Commission all documents and reports
required to be filed by it pursuant to the Exchange Act for the year ended
December 31, 1996, and has filed or will timely file all such required documents
and reports at all times subsequent thereto up to and including the Effective
Time.
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(b) O'Gara has delivered to KHI true and complete copies of: (i) its
Registration Statement on Form S-1 in the form in which it was declared
effective under the Act, including the Prospectus and all exhibits forming a
part thereof; (ii) its annual report on Form 10-K for the fiscal year ended
December 31, 1996; (iii) its quarterly report on Form 10-Q for the fiscal
quarter ending March 31, 1997; and (iv) all of its other reports, statements,
schedules and registration statements filed with the SEC since December 31,
1996, which if not yet filed shall be delivered promptly upon the filing thereof
as provided in Section 4.05(d) below (collectively, the "SEC Filings").
(c) The SEC Filings comply as to form in all material respects with the
requirements of the Act and the Exchange Act, as applicable, in effect on the
respective dates thereof. None of the SEC Filings, when filed pursuant to the
Act or the Exchange Act, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(d) From March 31, 1997 through the date hereof, O'Gara has not filed and
is not aware of any event which would require the filing with the Commission of
any report by it on Form 8-K except for this Agreement and the Merger. Promptly
upon the filing thereof with the Commission, O'Gara will deliver to KHI any
current reports on Form 8-K and any other SEC Filings filed with the Commission
from the date hereof until the Effective Time, all of which when filed under the
Exchange Act or declared effective under the Act, as applicable, will comply as
to form in all material respects with the requirements of the Act and the
Exchange Act, as applicable, in effect at the time of filing thereof and (with
the exception of any information provided by KHI for inclusion therein and any
information with respect to KHI and its Subsidiaries provided in writing by
O'Gara to KHI for inclusion therein, with respect to which O'Gara has not
received any written objection from KHI) none of which will contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(e) The financial statements included in the SEC Filings (the "O'Gara
Financial Statements") comply as to form in all material respects with the
applicable accounting requirements of the Commission with respect thereto, were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods covered and with
prior periods (except as stated in the O'Gara Financial Statements, the
footnotes thereto or the SEC Filings, and subject, in the case of unaudited
interim financial, to year-end adjustments), and fairly present in all material
respects the consolidated financial condition of O'Gara and its Subsidiaries as
of the dates thereof and the consolidated results of their operations for the
periods ended on such dates.
4.06 Liabilities. Except to the extent reflected in the SEC Filings or
reflected and reserved against in the O'Gara Financial Statements, and except
for liabilities and obligations incurred in the ordinary course of business
consistent with prior practice since March 31, 1997, none of which individually
or in the aggregate would reasonably be expected to have a Material Adverse
Effect, neither O'Gara nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether accrued, absolute, determined, determinable,
contingent or otherwise and whether due or to become due, which individually or
in the aggregate would reasonably be expected to have a Material Adverse Effect.
4.07 Claims. There are no governmental proceedings or investigations or
any claims, suits or proceedings by any Person pending, asserted, or, to the
actual knowledge of O'Gara and its Subsidiaries, threatened against O'Gara or
any of its Subsidiaries, and to the actual knowledge of O'Gara and its
Subsidiaries there is no reasonable basis for any such investigations, claims,
suits or proceedings, which if determined adversely to O'Gara or any of its
Subsidiaries would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, except in each case as disclosed in the SEC
Filings or on Schedule 4.07 of the O'Gara Disclosure Schedule.
4.08 Assets. All material real property owned or leased by O'Gara or its
Subsidiaries, as disclosed in the SEC Filings, and all tangible personal
property owned or leased by O'Gara or any of its Subsidiaries is in sufficient
condition to enable each of O'Gara and its Subsidiaries to conduct its business
as now being conducted. O'Gara and its Subsidiaries own or have a legal and
valid right to use all real and personal property necessary for, or used in, the
conduct of their respective businesses as heretofore conducted.
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4.09 Operations Since December 31, 1996. Since December 31, 1996, except
as disclosed in the SEC Filings or contained on Schedule 4.09 of the O'Gara
Disclosure Schedule (the "O'Gara Operations Schedule"), neither O'Gara nor any
of its Subsidiaries has (i) incurred any obligation or liability (absolute or
contingent), except obligations and liabilities incurred in the ordinary course
of business consistent with prior practice, none of which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect; (ii)
discharged or satisfied any material lien or encumbrance, or paid any obligation
or liability (absolute or contingent), other than current liabilities reflected
in the O'Gara Financial Statements and current liabilities incurred since the
date of the latest O'Gara Financial Statements in the ordinary course of
business consistent with prior practice; (iii) declared or made any payment or
distribution of assets or dividends except those dividends normally paid by
O'Gara's Subsidiaries to O'Gara; (iv) purchased or redeemed any of its shares,
or issued or committed to issue any additional shares or any securities
exercisable for or convertible into shares except pursuant to stock options and
restricted stock plans described on Schedule 4.13 of the O'Gara Disclosure
Schedule and except as permitted in Section 10.02(k); (v) other than as
described in Section 10.02 or in the ordinary course of business consistent with
prior practice, made any general wage or salary increases or increased the
salary or other compensation of any officers; (vi) mortgaged, pledged or
subjected to material lien, or any other material encumbrance, any of its
material assets, tangible or intangible other than in connection with a
refinancing of an existing debt obligation and other than in connection with the
incurrence of up to $30,000,000 of additional indebtedness described in Section
10.02(b); (vii) sold, assigned or transferred any of its tangible assets or
canceled any debt or claim, other than the sale of inventory for fair market
value in the ordinary course of business consistent with prior practice; (viii)
sold, assigned or transferred any patent, trademark, trade name, copyright,
license or other intangible asset; (ix) suffered any net operating loss or
extraordinary loss, or waived any right of substantial value; or (x) entered
into any transaction other than in the ordinary course of business consistent
with prior practice and other than as permitted in Section 10.02.
4.10 Taxes. Except as described in the SEC Filings, reserves for taxes as
shown on the O'Gara Financial Statements are sufficient for the payment of all
accrued but unpaid federal, state, county, local and foreign taxes of O'Gara and
each of its Subsidiaries for all periods ending on or prior to December 31,
1996, and are a reasonable estimate of all such taxes for the period ended on
March 31, 1997. Except as disclosed in the SEC Filings or in documents delivered
pursuant to Section 10.05 below, all tax returns required to be filed have been
filed by O'Gara and its Subsidiaries when due in accordance with all applicable
laws, all such returns were correct as filed in all material respects, all taxes
shown to be due on such returns have been timely paid, withheld or remitted to
the appropriate taxing authority and there is no audit, dispute, claim, action,
proceeding or investigation pending or, to the actual knowledge of O'Gara and
its Subsidiaries, threatened with respect to any such returns or any taxes shown
thereon. Except as disclosed in the SEC Filings, neither O'Gara nor any of its
Subsidiaries has received any notice of any deficiency with respect to the
payment of any federal, state, county, local or foreign taxes.
4.11 Insurance. O'Gara and its Subsidiaries have obtained all property,
liability, life and other insurance policies for the benefit of O'Gara and its
Subsidiaries which are reasonable and necessary in connection with the
ownership, lease or operation of their respective properties or the conduct of
their respective businesses as heretofore owned, leased and operated, and all
such insurance is in full force and effect. Since December 31, 1996 there has
been no material loss or damage to the tangible property of O'Gara or any of its
Subsidiaries, whether or not insured, except as disclosed in the SEC Filings or
on Schedule 4.11 of the O'Gara Disclosure Schedule, and neither O'Gara nor any
of its Subsidiaries has been refused any insurance coverage for which it has
applied.
4.12 Contracts. All contracts, agreements, commitments and engagements
which are material to the business, properties, operations or financial
condition of O'Gara and its Subsidiaries, taken as a whole, are disclosed in the
SEC Filings, and each such agreement is a legal and binding contract against
O'Gara or any of its Subsidiaries and, to the actual knowledge of O'Gara and its
Subsidiaries, is legal, valid and binding against any other Person who is a
party thereto. Each of such agreements is in full force and effect without any
default or breach existing with respect thereto by O'Gara or any of its
Subsidiaries or to the best of O'Gara's and its Subsidiaries' actual knowledge,
any other Person. The copies of such contracts, agreements, commitments and
engagements that have been filed with the Commission are true and complete in
all material respects. Except as
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disclosed on Schedule 4.12 of the O'Gara Disclosure Schedule (the "O'Gara
Contract Schedule"), the consummation of the Merger will not result in the
acceleration of, or any adverse change in the terms of, any obligation of O'Gara
or any of its Subsidiaries for borrowed money or any material liability under
any such material contract, agreement, commitment or engagement. A true and
complete copy of the contract with the U.S. Army Tank-Automotive Command with
respect to providing armoring systems for HMMWVs (the "HMMWV Contract") has been
delivered to KHI. O'Gara is in compliance in all material respects with the
terms and provisions of that contract, and as of the date hereof O'Gara has not
received notice of the termination of, or intent to terminate such HMMWV
Contract.
4.13 Employee Benefit Plans. Schedule 4.13 of the O'Gara Disclosure
Schedule contains listings of each Plan (as hereinafter defined). True and
complete copies of all of such Plans (and if applicable related trust
agreements) together with the most recent annual reports (Form 5500 including,
if applicable, Schedule B thereto) and the most recent actuarial valuation
report prepared in connection with any Plan, have been delivered by O'Gara to
KHI. No Plan (as hereinafter defined) is maintained in connection with any trust
described in Section 501(c)(9) of the Code. Each Plan complies in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and all other applicable laws and administrative or
governmental rules and regulations. No Plan is subject to Title IV of ERISA or
Section 412 of the Code. None of O'Gara or any of its Subsidiaries or ERISA
Affiliates, has withdrawn from any Plan subject to Title IV of ERISA or
Multiemployer Plan (as hereinafter defined) or has taken, or is currently
considering taking, any action to do so; and no action has been taken, or is
currently being considered, by O'Gara or any of its Subsidiaries or ERISA
Affiliates to terminate any Plan subject to Title IV of ERISA (other than
standard terminations previously effected under which O'Gara or any of its
Subsidiaries or ERISA Affiliates have no existing liability). None of O'Gara or
any of its Subsidiaries or ERISA Affiliates has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA. There are no actions, suits or claims pending
or, to O'Gara's and its Subsidiaries' actual knowledge, threatened (other than
routine claims for benefits) with respect to any Plan which would reasonably be
expected to have a Material Adverse Effect. No prohibited transactions described
in Section 406 of ERISA or Section 4975 of the Code have occurred which would
reasonably be expected to result in a material liability. All Plans that are
intended to be qualified under Section 401(a) of the Code have received a
favorable determination letter as to such qualification from the Internal
Revenue Service, and to O'Gara's and its Subsidiaries' actual knowledge, no
event has occurred, either by reason of any action or failure to act, which
would cause the loss of any such qualification. To O'Gara's and its
Subsidiaries' actual knowledge, there is no reason why any Plan is not so
qualified in operation. None of O'Gara or any of its Subsidiaries or ERISA
Affiliates is a party, contributes or within the past six years has contributed,
to a Multiemployer Plan (as defined below). None of O'Gara or any of its
Subsidiaries or ERISA Affiliates contributes to, or has within the past six
years contributed to a single-employer plan within the meaning of Section
4001(a)(15) of ERISA which has two or more contributing sponsors, as defined in
Section 4001(a)(13) of ERISA, at least two of whom are not under common control,
within the meaning of ERISA. O'Gara and its Subsidiaries have complied in all
material respects with the health care continuation requirements of Part 6 of
Title I of ERISA to the extent applicable. Except as disclosed on Schedule 4.13
of the O'Gara Disclosure Schedule, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, result in an increase in the
amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefit payable by O'Gara or any of its
Subsidiaries or ERISA Affiliates to any Plan, Benefit Arrangement (as defined
below), International Plan (as defined below) or to any employee of O'Gara or
any of its Subsidiaries or ERISA Affiliates. Schedule 4.13 of the O'Gara
Disclosure Schedule contains listings of each Benefit Arrangement. True and
complete copies or descriptions of each Benefit Arrangement (and, if applicable,
related trust agreements) and all amendments thereto have been delivered by
O'Gara to KHI. Each Benefit Arrangement (as hereinafter defined) has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations and
has been maintained in good standing with applicable regulatory authorities. All
contributions and payments accrued under each Plan and Benefit Arrangement,
determined in accordance with prior funding and accrual practices, as adjusted
to include proportional accruals for the period ending on the Closing Date, have
been discharged and paid when due. As used in this Section 4.13: (i) "Plan"
means an "employee benefit plan," as defined in Section 3(3) of ERISA, (other
than a Multiemployer
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Plan) which (a) is subject to any provision of ERISA, (b) is established,
administered, maintained or contributed to by O'Gara or any Subsidiary or ERISA
Affiliates of O'Gara and (c) covers any employee or former employee of O'Gara or
any of its Subsidiaries or ERISA Affiliates in respect of service with O'Gara or
any of its Subsidiaries or ERISA Affiliates or to which O'Gara or any of its
Subsidiaries or ERISA Affiliates otherwise may have any liability; (ii)
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section 3(37)
or Section 4001(a)(3) of ERISA) to which O'Gara or any of its Subsidiaries or
ERISA Affiliates is or has been obligated to contribute or otherwise may have
any liability; and (iii) with respect to any Person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common control or
would be considered a single employer with such person pursuant to Section
414(b), (c), (m) or (o) of the Code and the regulations promulgated thereunder
or pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder. "Benefit Arrangement" means any employment, severance, change in
control or similar contract or arrangement or any plan, policy, fund, program or
contract or arrangement providing for bonus, profit-sharing, stock option, or
other stock related rights or other forms of incentive or deferred compensation,
vacation benefits, workers' compensation or severance benefits that (A) is not a
Plan, (B) is entered into, maintained, administered or contributed to, as the
case may be, by O'Gara or any Subsidiary or ERISA Affiliate of O'Gara and (C)
covers in respect of service with O'Gara or any of its Subsidiaries any current
or former U.S. employee or U.S. independent contractor of O'Gara or any of its
Subsidiaries or ERISA Affiliates who is or was employed in the United States.
"International Plan" means (I) any written employment agreement providing for
annual salary in excess of U.S. $100,000 (or its foreign equivalent) or any
severance or similar contract or arrangement providing for compensation
(including retirement benefits) in excess of U.S. $100,000 (or its foreign
equivalent) that (A) is not a Plan or a Benefit Arrangement and (B) is entered
into between O'Gara or any of its Subsidiaries or ERISA Affiliates and any
current or former employee, agent or independent contractor of O'Gara or any of
its Subsidiaries or ERISA Affiliates who is or was employed outside of the
United States or (II) any written plan, policy, fund, program, arrangement, or
contract of or with O'Gara or any of its Subsidiaries or ERISA Affiliates in
respect of service with O'Gara or any of its Subsidiaries or any of its ERISA
Affiliates covering employees who are or were employed by O'Gara or any of its
Subsidiaries or ERISA Affiliates outside of the United States; providing for (A)
retirement benefits (including pension, health, medical or life insurance), but
excluding any retirement scheme fund, plan or program (x) sponsored by any
government or (y) providing benefits statutorily mandated under the laws of the
applicable jurisdiction at the minimum level statutorily mandated, or (B) bonus
(including post-employment bonus), profit sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, life insurance (including any self-insured arrangements), health or
medical benefits, disability benefits, supplemental unemployment benefits or
severance benefits (cumulatively "Benefits"), other than any plan, policy, fund,
program, arrangement or contract providing for Benefits statutorily mandated by
the laws of the applicable jurisdiction at the minimum level statutorily
mandated that (I) is not a Plan or a Benefit Arrangement and (II) is entered
into, maintained, administered, or contributed to by O'Gara or any of its
Subsidiaries. Schedule 4.13 of the Disclosure Schedule lists each International
Plan. True and complete copies of each International Plan and all amendments
thereto have been made available by O'Gara to KHI. Each International Plan has
been maintained and operated in substantial compliance with its terms and with
the requirements prescribed by any and all applicable statutes, orders, rules
and regulations and has been maintained in good standing with all applicable
regulatory authorities. With respect to each International Plan all necessary or
appropriate approvals, qualifications or certifications have been obtained and
no event has occurred or condition exists which would cause the loss of such
approval, qualification or certifications. All contributions and payments
accrued under each International Plan, determined in accordance with prior
funding and accrual practices, have been discharged and paid when due. O'Gara
represents that there has been and continues to be in full force and effect
insurance, commonly known as "stop-loss insurance", during all periods that the
O'Gara Companies Employee Benefit Plan has been in existence (other than any
periods during which the plan was fully insured), sufficient to reimburse the
plan or O'Gara, as the case may be, for any claims properly covered under the
terms of the plan: (a) for a covered individual after the plan or O'Gara, as the
case may be, has paid out $35,000 under the terms of the plan with respect to
that individual for a given plan year and (b) after the plan or O'Gara, as the
case may be, has paid out $600,000 under the terms of the plan with respect to
all covered individuals for a given plan year.
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4.14 No Default. Except as disclosed in the SEC Filings or on the O'Gara
Contract Schedule, (i) neither O'Gara nor any of its Subsidiaries is in material
default under any material contract, agreement, commitment or engagement of any
kind; (ii) no event of default or event that, but for the giving of notice or
lapse of time, or both, would constitute an event of default exists or, upon the
Effective Time, will exist under any loan or credit agreement, note, bond,
mortgage, indenture or guarantee of indebtedness for borrowed money or other
material instrument to which O'Gara or any of its Subsidiaries is a party; and
(iii) the execution and delivery of this Agreement and the consummation of the
Merger will not contravene or conflict with or constitute a violation of, or
result in a default under, cancellation of, termination of, or acceleration of
obligations under, the Certificate or Articles of Incorporation, Articles of
Association, By-Laws or other organizational documents of O'Gara or any of its
Subsidiaries or any material contract, agreement, commitment, engagement,
judgment, injunction, order, decree or instrument to which O'Gara or any of its
Subsidiaries is a party or by which it or any of its assets are bound, which
default, event of default, contravention, conflict, violation, cancellation,
termination or acceleration would reasonably be expected to have a Material
Adverse Effect, or result in the incurrence by O'Gara or any of its Subsidiaries
of any material liability.
4.15 Joint Proxy Statement. When the Registration Statement is filed with
the Commission and the Joint Proxy Statement in connection with the Merger shall
first be mailed to O'Gara's and KHI's shareholders, and at all times subsequent
thereto up to and including the Effective Time, the information with respect to
O'Gara and its Subsidiaries set forth in the Registration Statement and the
Joint Proxy Statement (i) will comply in all material respects with the
provisions of the Act and of the Exchange Act and the requirements of any
applicable state "blue sky" laws and (ii) will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time, any event relating to O'Gara or any of its Subsidiaries
shall occur which, pursuant to the Act or the Exchange Act or the rules and
regulations thereunder, should be disclosed in the Registration Statement or the
Joint Proxy Statement and which is not so disclosed, O'Gara shall promptly so
inform KHI.
4.16 Compliance with Laws. O'Gara and its Subsidiaries (and each of them)
have complied and are currently in compliance in all material respects with all
applicable laws and governmental rules (including rules related to governmental
contracts), regulations and orders (including zoning ordinances), except when
the failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect. Except as disclosed in the SEC Filings, neither O'Gara
nor any of its Subsidiaries is in material default under, and no event has
occurred which, with the lapse of time or action by a third party, would be
reasonably expected to result in a material default under, the terms of any
judgment, decree, order or writ of any court, whether federal, state or local,
foreign or domestic, and whether at law or in equity. O'Gara has delivered to
KHI a true and complete copy of and description of its policies, and the
policies of its Subsidiaries, regarding the FCPA. Neither O'Gara nor any of its
Subsidiaries has received written notice of any violation of the FCPA by any
employees of O'Gara or any of its Subsidiaries.
4.17 Consents and Approvals. Except for the approval of O'Gara's
shareholders, the filing of the Certificate of Merger with respect to the Merger
with the Secretary of State of the State of Delaware, the filing of the
Registration Statement and any filings required under state "blue sky" laws, no
other corporate proceedings on the part of O'Gara or any of its Subsidiaries,
and no consent of or filing with any governmental agency or, except as set forth
on the O'Gara Contract Schedule, third party is required to be held, obtained or
made by O'Gara or any of its Subsidiaries in connection with the execution and
delivery of this Agreement and the consummation of the Merger. The ultimate
parent entity of O'Gara does not have $100,000,000 or more of assets as of its
last regularly prepared balance sheet or $100,000,000 or more of sales for its
most recently ended fiscal year for purposes of the HSR Act.
4.18 Patents, Trademarks and Copyrights. O'Gara and its Subsidiaries own
or have the right to use all material patents, trademarks, servicemarks,
tradenames, copyrights and other proprietary intellectual property necessary for
the conduct of their respective businesses as currently conducted (collectively,
the "O'Gara Intellectual Property"). Except as disclosed in the SEC Filings,
neither O'Gara nor any of its Subsidiaries has received any notice with respect
to any alleged infringement or unlawful use by O'Gara or its Subsidiaries of any
intangible property right owned or alleged to be owned by others. Except as set
forth in Schedule 4.18 of the
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O'Gara Disclosure Schedule, the Merger will not adversely affect the use by
O'Gara of any of the O'Gara Intellectual Property. Each of the unexpired filed
patents owned by O'Gara and its Subsidiaries is in full force and effect,
neither O'Gara nor any of its Subsidiaries has received any notice that such
filed patents infringe upon the rights of any Person, and, to the actual
knowledge of O'Gara and its Subsidiaries, no Person is infringing upon the
rights of O'Gara or its Subsidiaries under any such patent.
4.19 Environmental Matters. Except as disclosed in the SEC Filings (i)
there is no liability of O'Gara or any of its Subsidiaries under any
Environmental Requirement, whether absolute, determined, determinable or
contingent, and (ii) the properties, assets and operations of O'Gara and its
Subsidiaries are in compliance with all applicable Environmental Requirements,
except for any such liability or non-compliance that would not reasonably be
expected to have a Material Adverse Effect. Except as disclosed in the SEC
Filings, (i) no spill, release, threatened release or discharge of Hazardous
Substances into the environment has occurred at any of the facilities owned,
leased or operated by O'Gara and its Subsidiaries (the "O'Gara Facilities") or,
to O'Gara's and its Subsidiaries' actual knowledge, on any real property
adjacent thereto that would reasonably be expected to have a Material Adverse
Effect, and (ii) there has been no corrective action, remediation or clean up
required of O'Gara or any of its Subsidiaries by applicable Environmental
Requirements or by governmental authorities as a consequence of any such spill,
release, threatened release or discharge of Hazardous Substances. All corrective
action, remediation or other clean up activities undertaken by O'Gara or any of
its Subsidiaries has been performed, or is being performed, in accordance in all
material respects with all applicable Environmental Requirements. O'Gara and its
Subsidiaries have discharged in all material respects any and all applicable
record keeping and reporting requirements pursuant to all applicable
Environmental Requirements and all such reports and records are complete and
correct in all material respects and have been retained for the length of time
required by any applicable Environmental Requirements setting forth document
retention requirements. Except as disclosed in the SEC Filings or set forth in
Schedule 4.19 of the O'Gara Disclosure Schedule, none of the O'Gara Facilities
or, to O'Gara's and its Subsidiaries' actual knowledge, any property adjacent
thereto, or, to O'Gara's and its Subsidiaries' actual knowledge, any sites used
for the disposal of wastes generated by O'Gara or its Subsidiaries have been
designated as a "Superfund Site" or are otherwise the subject of an order of
removal or remedial action for which O'Gara or any of its Subsidiaries has
liability pursuant to the provisions of applicable Environmental Requirements
and there are no conditions or circumstances affecting the O'Gara Facilities or
any property adjacent thereto which, to O'Gara's and its Subsidiaries' actual
knowledge, might reasonably be expected to cause them to be designated as a
"Superfund Site" or render them subject to any such order of removal or remedial
action for which O'Gara or any of its Subsidiaries will have liability pursuant
to the provisions of applicable Environmental Requirements. Except as disclosed
in the SEC Filings or set forth in Schedule 4.19 of the O'Gara Disclosure
Schedule, no unresolved written notice, notification, demand, request for
information, citation, summons or order has been issued, no pending complaint
has been filed, no unpaid penalty has been assessed and no action, claim, suit
or proceeding or, to the actual knowledge of O'Gara and its Subsidiaries, no
investigation or review is pending or, to the actual knowledge of O'Gara and its
Subsidiaries, threatened by any governmental authority with respect to O'Gara or
any of its Subsidiaries and relating to or arising out of any Environmental
Requirements. To the actual knowledge of O'Gara and its Subsidiaries, no
Hazardous Substance is present at, on, in or under any of the O'Gara Facilities
in violation of applicable Environmental Requirements. All permits required by
applicable Environmental Requirements and necessary for the operation of the
businesses, or the use of the assets of O'Gara and its Subsidiaries have been
obtained and are in full force and effect. Except as disclosed in the SEC
Filings or set forth in Schedule 4.19 of the Disclosure Schedule, O'Gara and its
Subsidiaries are in material compliance with the terms of such permits, no
action or investigation has been taken, commenced or, to O'Gara's actual
knowledge, threatened by any governmental authority or any other Person to
revoke or modify such permits or to enforce the terms of or take action for
violation of such permits, and, to O'Gara's and its Subsidiaries' actual
knowledge, there is no reasonable basis for any such action or investigation.
O'Gara and its Subsidiaries do not own, lease or operate and have not within the
past four (4) years owned, leased or operated any property in New Jersey or
Connecticut that is subject to transfer act requirements of those states.
Neither O'Gara nor any of its Subsidiaries is, based upon actual knowledge,
required to incur now or within twelve (12) months after the Effective Time
capital expenditures for compliance with Environmental Requirements that would
reasonably be expected to have a Material Adverse Effect.
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4.20 No Material Adverse Change. Since the date of the latest O'Gara
Financial Statements, except as disclosed in the SEC Filings, there has been no
material adverse change in the business, properties, operations or financial
condition of O'Gara and its Subsidiaries taken as a whole.
4.21 Licenses and Permits. O'Gara and its Subsidiaries have obtained all
permits, licenses, franchises and authorizations from any governmental authority
which are necessary in connection with the ownership, lease or operation of
their respective properties or the conduct of their respective businesses as
heretofore and presently owned, leased and conducted, except for such permits or
licenses, the absence of which would not reasonably be expected to have a
Material Adverse Effect (collectively, the "O'Gara Licenses"). All of such
O'Gara Licenses are in full force and effect. Neither O'Gara nor any of its
Subsidiaries has received any notice that O'Gara or any of its Subsidiaries is
in violation of or default under any O'Gara License or that any O'Gara License
will be revoked, terminated or not renewed, except for any such violation,
default, revocation, termination or nonrenewal which would not reasonably be
expected to have a Material Adverse Effect.
4.22 Orders, Actions, Etc. Except as disclosed in the SEC Filings, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
governmental authority against O'Gara or any of its Subsidiaries or any of their
properties, assets or businesses that would reasonably be expected to have a
Material Adverse Effect. Except as disclosed in the SEC Filings, there are no
actions, suits or claims or legal, administrative or arbitration proceedings or
investigations pending against or, to O'Gara's or any of its Subsidiaries'
actual knowledge, threatened against any of O'Gara, its Subsidiaries, or any of
their properties, assets or businesses that would reasonably be expected to have
a Material Adverse Effect, and neither O'Gara nor any of its Subsidiaries has
received any written notice of any actions, suits or claims or legal,
administrative or arbitration proceedings or investigations affecting O'Gara,
its Subsidiaries or any of their properties, assets or businesses that would be
reasonably expected to have a Material Adverse Effect.
4.23 Labor Matters. Except as disclosed in the SEC Filings or set forth in
Schedule 4.23 of the O'Gara Disclosure Schedule, neither O'Gara nor any of its
Subsidiaries has engaged in any unfair labor practice with respect to persons
employed by or otherwise performing services primarily for O'Gara or any of its
Subsidiaries (the "O'Gara Business Personnel") or any representative of any
O'Gara Business Personnel, and neither O'Gara nor any of its Subsidiaries has
received written notice that there is an unfair labor practice complaint pending
against O'Gara or any of its Subsidiaries with respect to O'Gara Business
Personnel. There is no labor strike, dispute, slowdown or stoppage pending
against or, to O'Gara's actual knowledge, threatened against or affecting,
O'Gara or any of its Subsidiaries that would reasonably be expected to have a
Material Adverse Effect, and neither O'Gara nor any of its Subsidiaries has
experienced any primary work stoppage or other material labor difficulty
involving its employees during the last three (3) years that has had or would
reasonably be expected to have a Material Adverse Effect. O'Gara and its
Subsidiaries are in material compliance with the requirements of all applicable
labor and employment laws, rules and regulations.
4.24 Brokers. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
execution and delivery of, or the consummation of the transactions contemplated
by, this Agreement based on agreements or arrangements made by O'Gara or any of
its Subsidiaries, except for Dillon Read & Co., Inc. ("Dillon Read") and J.
Jeffrey Brausch & Company, the fees and expenses of which shall be paid by
O'Gara.
4.25 Pooling-of-Interests. Neither O'Gara nor any of its Subsidiaries or
shareholders has taken any action, or caused any event or condition to occur,
and there is no set of facts in existence relating to O'Gara or any of its
Subsidiaries or shareholders of which O'Gara has actual knowledge, which would
be reasonably expected to result in the failure of the Merger to constitute a
pooling-of-interests for accounting purposes, and, within ten (10) days after
the date hereof, O'Gara shall obtain a certificate to that effect from its
independent certified public accountants, Arthur Andersen LLP, and deliver a
copy of such certificate to KHI, which certificate shall be reasonably
acceptable in form and substance to KHI.
4.26 Full Disclosure. The representations and warranties made by O'Gara in
this Agreement, the O'Gara Disclosure Schedule and certificates to be furnished
by O'Gara or any of its Subsidiaries at the Closing hereunder do not contain and
will not contain any untrue statement of a material fact, and do not omit and
will not omit any
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material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE V
REGISTRATION OF O'GARA COMMON STOCK
Subject to the provisions of this Article V, as promptly as practicable
after execution of this Agreement, and in no event later than September 30,
1997, O'Gara shall prepare (with the assistance of KHI as described below) and
file with the Commission a Registration Statement on Form S-4 under the Act for
the registration of the O'Gara Common Stock to be delivered as a result of the
Merger. In connection with the preparation of the Registration Statement and the
related Joint Proxy Statement forming a part of the Registration Statement to be
mailed to the shareholders of O'Gara and KHI in connection with the meeting of
shareholders of O'Gara and KHI referred to in Article XI hereof, KHI and O'Gara
will cooperate with each other and will furnish the information relating to KHI,
O'Gara and NEWCO, as the case may be, required by the Act and the Exchange Act
to be set forth in the Registration Statement (including the Joint Proxy
Statement), in each case, within the time period necessary to permit O'Gara to
file such Registration Statement with the Commission no later than September 30,
1997, and also, in each case, in a timely fashion to enable O'Gara to respond to
any comments received from the Commission with respect thereto. O'Gara shall use
its commercially reasonable best efforts to cause such Registration Statement to
be declared effective under the Act as soon as may be practicable and to
distribute the Joint Proxy Statement contained therein to the O'Gara and KHI
shareholders as soon as practicable thereafter but not less than twenty (20)
business days prior to the date of the special meetings at which this Agreement
and the transactions contemplated hereby are submitted to O'Gara's and KHI's
shareholders for approval and adoption. O'Gara and KHI shall postpone the
special meetings of their respective shareholders in the event the twenty (20)
business day requirement would not be fulfilled. Except to the extent permitted
by Rule 145(b) promulgated by the Commission under the Act and except as
otherwise required by law or the rules of the National Association of Securities
Dealers, Inc., the NASDAQ National Market, none of O'Gara, NEWCO or KHI shall
publish any communication (including any press release) other than the
Registration Statement or notices and proxy materials accompanied by the Joint
Proxy Statement with respect to the Merger without first consulting with the
other parties and obtaining their approval, which shall not be unreasonably
withheld. O'Gara shall submit to KHI and its counsel the Registration Statement
and all proxy soliciting material for its review prior to the use thereof.
O'Gara shall use its commercially reasonable best efforts to maintain the
effectiveness of the Registration Statement by the preparation and filing of
amendments and/or supplements thereto from the original effective date through
the Effective Time. O'Gara shall not be required to maintain the effectiveness
of the Registration Statement or the Joint Proxy Statement for the purpose of
resales by affiliates of KHI.
ARTICLE VI
CONDITIONS TO OBLIGATIONS
OF O'GARA, NEWCO, KHI AND THE KHI PRINCIPAL SHAREHOLDER
The obligations of O'Gara, NEWCO, KHI and the KHI Principal Shareholder
under this Agreement are subject to the following conditions:
6.01 Necessary Governmental Approvals. All necessary governmental
approvals shall have been received from any required governmental authority, and
all necessary waiting periods shall have expired. Each party shall cooperate
fully with the other in applying for such approvals and in prosecuting
applications, including the execution of supplemental agreements and other
documents consistent with the terms of this Agreement.
6.02 Effectiveness of Registration Statement. The Registration Statement
shall have become effective pursuant to an order of the Commission, and there
shall have been no stop order issued or threatened by the Commission suspending
the effectiveness of the Registration Statement.
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6.03 No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect.
6.04 AIG Director. If requested by AIG, an individual nominated by AIG and
reasonably acceptable to O'Gara shall have been elected a director of O'Gara.
ARTICLE VII
CONDITIONS TO OBLIGATIONS
OF O'GARA AND NEWCO
The obligations of O'Gara and NEWCO under this Agreement are subject to the
following conditions:
7.01 Representations and Warranties True; Covenants and Obligations
Performed. All of the representations and warranties of KHI and the KHI
Principal Shareholder herein shall have been true and complete when made and
shall be true and complete in all material respects as of the Effective Time,
with the same force and effect as though such representations and warranties had
been made at the Effective Time. KHI shall have performed in all material
respects all covenants, agreements and obligations to be performed by it
hereunder prior to or at the Effective Time. KHI shall have delivered to O'Gara
certificates of its officers to such effect.
7.02 Opinion of Counsel. O'Gara shall have received an opinion of Kramer,
Levin, Naftalis & Frankel, counsel for KHI, dated the Effective Date of the
Merger, substantially in the form contained at Exhibit 7.02 attached hereto.
7.03 Auditor's Comfort Letter. If the Registration Statement and/or the
Proxy Statement shall contain any unaudited interim financial statements of KHI,
O'Gara shall have received, if requested, "comfort" letters from KHI's
independent certified public accountants, Deloitte & Touche, dated (i) the
effective date of the Registration Statement and (ii) the date of the Closing,
in each case substantially to the effect that:
(a) They are a firm of independent public accountants with respect to
KHI within the meaning of the Act and the rules and regulations of the
Commission thereunder;
(b) In their opinion the audited financial statements of KHI examined
by them and included in the Registration Statement comply as to form in all
material respects with the applicable requirements of the Act and the
applicable published rules and regulations of the Commission thereunder
with respect to registration statements on Form S-4; and
(c) On the basis of specified procedures (which do not constitute an
examination in accordance with generally accepted auditing standards),
consisting of a reading of the unaudited financial statements of KHI
included in the Registration Statement and of the latest available
unaudited financial statements of KHI, inquiries of officers of KHI
responsible for financial and accounting matters and a reading of the
minutes of meetings of shareholders and the Board of Directors of KHI,
nothing has come to their attention which causes them to believe: (i) that
the unaudited financial statements of KHI included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules and
regulations thereunder, (ii) that any such unaudited financial statements
are not, or any unaudited financial statements of KHI from which unaudited
quarterly financial information set forth in such Registration Statement
has been derived are not, fairly presented in all material respects in
conformity with United States generally accepted accounting principles
consistently applied and on a basis substantially consistent with that of
the audited financial statements or (iii) that during the period from
December 31, 1996 to a date five business days prior to the date of such
letter there was any change in the capital stock or any increase in long
term debt of KHI as compared to the amounts shown in the balance sheet as
of December 31, 1996 included in the KHI Financial Statements, except for
any acquisition publicly announced by KHI, or that during the period from
the date of said balance sheet to the most recent month-end for which
financial statements are available there was any material decrease in net
assets or any material decrease, as compared with the corresponding period
in the preceding year, in net income of KHI, except in
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all instances for changes or decreases which are set forth in such letter
or which the Registration Statement and/or the Proxy Statement discloses
have occurred.
7.04 Pooling-of-Interests. The Merger shall constitute a
pooling-of-interests for financial accounting purposes and O'Gara, at its
option, shall have received an opinion to that effect from Arthur Andersen LLP.
7.05 Opinion of Financial Advisor. The Board of Directors of O'Gara shall
have received an opinion from Dillon Read, dated the date of this Agreement, to
the effect that the consideration to be received in the Merger by O'Gara is fair
to O'Gara from a financial point of view, and such opinion shall not have been
withdrawn.
7.06 Shareholder Approval. The shareholders of O'Gara shall have approved
the Merger at the meeting of shareholders of O'Gara called pursuant to Article
XI.
7.07 Required Consents. All necessary consents (the "Required Consents")
under the Contracts identified in Schedule 7.07 of the KHI Disclosure Schedule
as requiring consents prior to consummation of the Merger shall have been
received.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS
OF KHI AND THE KHI PRINCIPAL SHAREHOLDER
The obligations of KHI and the KHI Principal Shareholder under this
Agreement are subject to the following conditions:
8.01 Representations and Warranties True; Covenants and Obligations
Performed. All of the representations and warranties of O'Gara and NEWCO herein
shall have been true and complete when made and shall be true and complete in
all material respects as of the Effective Time, with the same force and effect
as though such representations and warranties had been made at the Effective
Time. O'Gara and NEWCO each shall have performed in all material respects all
covenants, agreements and obligations to be performed by it hereunder prior to
or at the Effective Time. O'Gara and NEWCO shall have delivered to KHI
certificates of its officers to such effect.
8.02 Opinion of Counsel. KHI shall have received an opinion of Taft,
Stettinius & Hollister, counsel for O'Gara and NEWCO, dated the effective date
of the Merger, substantially in the form contained at Exhibit 8.02 attached
hereto.
8.03 Auditor's Comfort Letter. If the Registration Statement and/or the
Joint Proxy Statement shall contain any unaudited interim financial statements
of O'Gara, KHI shall have received, if requested, "comfort" letters from
O'Gara's independent certified public accountants, dated (i) the effective date
of the Registration Statement and (ii) the date of the Closing, in each case
substantially to the effect that:
(a) They are a firm of independent public accountants with respect to
O'Gara within the meaning of the Act and the rules and regulations of the
Commission thereunder;
(b) In their opinion the audited financial statements of O'Gara
examined by them and included in the Registration Statement comply as to
form in all material respects with the applicable requirements of the Act
and the applicable published rules and regulations of the Commission
thereunder with respect to registration statements on Form S-4; and
(c) On the basis of specified procedures (which do not constitute an
examination in accordance with generally accepted auditing standards),
consisting of a reading of the unaudited financial statements of O'Gara
included in the Registration Statement and of the latest available
unaudited financial statements of O'Gara, inquiries of officers of O'Gara
responsible for financial and accounting matters and a reading of the
minutes of meetings of shareholders and the Board of Directors of O'Gara,
nothing has come to their attention which causes them to believe: (i) that
the unaudited financial statements of O'Gara included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules and
regulations thereunder, (ii) that any such unaudited
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financial statements are not, or any unaudited financial statements of
O'Gara from which unaudited quarterly financial information set forth in
the Registration Statement has been derived are not, fairly presented in
all material respects in conformity with United States generally accepted
accounting principles consistently applied and on a basis substantially
consistent with that of the audited financial statements or (iii) that
during the period from December 31, 1996 to a date five business days prior
to the date of such letter there was any change in the capital stock or any
increase in long term debt of O'Gara as compared to the amounts shown in
the balance sheet as of December 31, 1996 included in the O'Gara Financial
Statements, except for any acquisition publicly announced by O'Gara, or
that during the period from the date of said balance sheet to the most
recent month-end for which financial statements are available there was any
material decrease in net assets or any material decrease, as compared with
the corresponding period in the preceding year, in net income of O'Gara,
except in all instances for changes or decreases which are set forth in
such letter or which the Registration Statement and/or the Proxy Statement
disclosures have occurred.
8.04 Required Consents. All necessary consents under the contracts
identified on Schedule 7.07 of the KHI Disclosure Schedules as requiring
consents prior to consummation of the Merger have been received.
8.05 Election of Principal Shareholder. The KHI Principal Shareholder
shall have been elected a director and the Chairman and CEO of O'Gara effective
as of the Effective Time.
8.06 No Labor Strikes. As of the date of consummation of the Merger, there
shall not be in existence any strike involving in excess of twenty percent (20%)
of the United States workforce of O'Gara.
8.07 HMMWV Contract. O'Gara shall not have received notice of the
termination of, or intent to terminate, the HMMWV contract.
ARTICLE IX
COVENANTS OF KHI AND KHI PRINCIPAL SHAREHOLDER
From the date hereof through the Effective Time, KHI and the KHI Principal
Shareholder jointly and severally covenant and agree as follows:
9.01 Access to Properties and Records. O'Gara's officers, employees,
attorneys, accountants and other authorized agents shall be given access to all
of the offices, properties and records of KHI and its Subsidiaries on reasonable
notice to allow O'Gara to make an investigation of KHI's and its Subsidiaries'
businesses, assets and affairs. O'Gara shall be permitted to make such extracts
or copies of such documents, books or records of KHI and its Subsidiaries as
O'Gara may desire and KHI shall furnish to O'Gara such financial and operating
data and other information concerning the business, assets and affairs of KHI
and its Subsidiaries as O'Gara may reasonably request. KHI shall instruct its
accountants and attorneys to disclose to O'Gara any and all non-privileged
information they may have with respect to the business, assets and affairs of
KHI and its Subsidiaries. O'Gara shall treat all information it receives
concerning KHI and its Subsidiaries during the course of its investigation as
confidential (subject to such disclosure as may be required by applicable law
with prompt notice thereof to be given to KHI) and shall return to KHI or
destroy all extracts and copies of documents, books and records which it has
received if the Merger is not consummated, pursuant to the terms of that certain
Confidentiality Agreement dated July 16, 1997 which shall survive the execution
and delivery of this Agreement.
9.02 Operations Pending Merger. KHI and its Subsidiaries will be operated
in all material respects in the ordinary course of business consistent with
prior practice without substantial change in current operational policy or
plans, and in compliance in all material respects with applicable laws,
including Environmental Requirements, and KHI will use commercially reasonable
best efforts to maintain KHI's and each of its Subsidiaries' properties and
facilities in their present condition, reasonable use and ordinary wear and tear
excepted, to retain KHI's and each of its Subsidiaries' key employees, and to
maintain KHI's and each of its Subsidiaries' material assets and KHI's and each
of its Subsidiaries' relationships with its customers and others having business
relations with
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KHI or any of its Subsidiaries. KHI further agrees that from the date hereof to
the Effective Time, neither it nor any of its Subsidiaries will, without the
prior written consent of O'Gara:
(a) Declare any dividends, make any distribution of assets to its
shareholders or purchase any shares of KHI Capital Stock or any stock
option;
(b) Create or incur any indebtedness for money borrowed except
indebtedness of up to $1,000,000 to the KHI Principal Shareholder or create
or incur any liability except in the ordinary course of business;
(c) Except for committed expenditures set forth on the Schedule 9.02
of the KHI Disclosure Schedule, make any capital expenditure in excess of
$750,000 in the aggregate or enter into any lease with an annual cost in
excess of $250,000;
(d) Increase the rate of compensation of any of its officers or
employees other than in the ordinary course of business consistent with
prior practice;
(e) Cancel any of the insurance existing at the date hereof or permit
any of its insurance to lapse or terminate unless it is replaced with
insurance with substantially the same coverage, limits and deductibles and
with no gap in coverage;
(f) Make any material contract not in the ordinary course of business;
(g) Default in any material respect under any material contract,
agreement, commitment or engagement of any kind, including those described
on the KHI Contract Schedule;
(h) Except as may be required by law, enter into, adopt, amend or
terminate any employee benefit or welfare trust, plan or arrangement,
except for stay bonuses provided to key employees of KHI and its
Subsidiaries with the prior written consent of O'Gara, which consent shall
not be unreasonably withheld or delayed;
(i) Acquire, sell, lease or dispose of any material assets, other than
the sale of inventory in the ordinary course of business consistent with
past practice;
(j) Except as may be required to conform with United States generally
accepted accounting principles, change any of the accounting principles
used by it;
(k) Make any material tax election or compromise relating to any tax
liability;
(l) Pay, discharge or satisfy any material claims or obligations
(whether absolute, asserted, unasserted, contingent or otherwise) other
than in the ordinary course of business consistent with prior practice;
(m) Take or agree to take any action which would result in any of the
conditions set forth in Articles VI, VII or VIII hereof not being satisfied
at or prior to the Closing; or
(n) Write off any material assets other than in the ordinary course of
business consistent with prior practices.
9.03 Best Efforts to Expedite Closing. From the date hereof through the
Effective Time, KHI shall exert its commercially reasonable best efforts and
cooperate with O'Gara to accomplish by the earliest practicable date all those
things within its control necessary to cause this Agreement to be carried out,
including but not limited to the making of applications to, and the obtaining of
approvals from, the appropriate regulatory agencies for the accomplishment of
the Merger. KHI shall cooperate with O'Gara in order to accomplish the
registration of the O'Gara Common Stock by the earliest practicable date.
9.04 No Solicitation. Neither KHI nor the KHI Principal Shareholder shall,
directly or indirectly, furnish information or access in response to requests
from any Person, or participate in discussions or negotiate with any such Person
concerning any proposal for a merger or other business combination involving KHI
or any of its Subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in any voting securities of, or a
substantial portion of the assets of, KHI or any of its Subsidiaries, other than
pursuant to the Merger.
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9.05 Tax Information. Within 30 days after the date hereof, KHI shall
deliver to O'Gara a list of (i) all United States federal income tax returns of
KHI and its Subsidiaries which have not been audited by the Internal Revenue
Service or are not closed by the applicable statute of limitations, (ii) all
jurisdictions, foreign or domestic, federal, state, provincial or local, to
which any tax is payable, or in which any tax return is required to be filed, by
KHI and its Subsidiaries, and (iii) all waivers or extensions granted by KHI,
its Subsidiaries or any member of any affiliate, consolidated, combined or
unitary group of which KHI or any of its Subsidiaries has been a member of any
statute of limitations in respect of taxes or tax returns.
ARTICLE X
COVENANTS OF O'GARA AND NEWCO
From the date hereof through the Effective Time, O'Gara and NEWCO jointly
and severally covenant and agree as follows:
10.01 Access to Properties and Records. KHI's officers, employees,
attorneys, accountants and other authorized agents shall be given free and full
access to all of the offices, properties and records of O'Gara and its
Subsidiaries on reasonable notice to allow KHI to make an investigation of
O'Gara's and its subsidiaries' businesses, assets and affairs. KHI shall be
permitted to make such extracts or copies of such documents, books or records of
O'Gara and its Subsidiaries as KHI may desire and O'Gara shall furnish to KHI
such financial and operating data and other information concerning the business,
assets and affairs of KHI and its Subsidiaries as KHI may reasonably request.
O'Gara shall instruct its accountants and attorneys to disclose to KHI any and
all non-privileged information they may have with respect to the business,
assets and affairs of O'Gara and its Subsidiaries. KHI shall treat all
information it receives concerning O'Gara and its Subsidiaries during the course
of its investigation as confidential (subject to such disclosures as may be
required by applicable law with prompt notice thereof to be given to O'Gara) and
shall return to O'Gara or destroy all extracts and copies of documents, books
and records which it has received if the Merger is not consummated, pursuant to
the terms of the Confidentiality Agreement referred to in Section 9.01 hereof.
10.02 Operations Pending Merger. O'Gara and its Subsidiaries will be
operated in all material respects in the ordinary course of business consistent
with prior practice without substantial change in current operational policy or
plans, and in compliance in all material respects with applicable laws,
including Environmental Requirements, and O'Gara will use commercially
reasonable best efforts to maintain O'Gara's and each of its Subsidiaries'
properties and facilities in their present condition, reasonable use and
ordinary wear and tear excepted, to retain O'Gara's and each of its
Subsidiaries' employees, and to maintain O'Gara's and each of its Subsidiaries'
assets and O'Gara's and each of its Subsidiaries' relationships with its
customers and others having business relations with O'Gara or any of its
Subsidiaries. O'Gara further agrees that from the date hereof to the Effective
Time, neither it nor any of its Subsidiaries will, without the prior written
consent of KHI:
(a) Declare any dividends, make any distribution of assets to its
shareholders or purchase any shares of O'Gara Common Stock or any stock
option (except for dividends paid by O'Gara's Subsidiaries to O'Gara or
another O'Gara Subsidiary and except as contemplated by Section 1.06);
(b) Create or incur any liability except in the ordinary course of
business or increase its indebtedness by more than $30,000,000, which
increase shall be for the purposes listed on Schedule 10.02 of the O'Gara
Disclosure Schedule;
(c) Increase the rate of compensation of any of its officers or
employees other than in the ordinary course of business consistent with
prior practice;
(d) Cancel any of the insurance existing at the date hereof or permit
any of its insurance to lapse or terminate unless it is replaced with
insurance with substantially the same coverage, limits and deductibles and
with no gap in coverage;
(e) Default in any material respect under any material contract,
agreement, commitment or engagement of any kind, including those described
on the O'Gara Contract Schedule;
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(f) Except as may be required by law or pursuant to plans or
arrangements described in the SEC Filings, enter into, adopt, amend or
terminate any employee benefit or welfare trust, plan or arrangement which
would reasonably be expected to have a material adverse effect on the value
of the shares of O'Gara Common Stock to be issued in connection with the
Merger, except as contemplated by Section 4.04;
(g) Sell, lease or dispose of any material assets, other than the sale
of inventory in the ordinary course of business consistent with past
practice;
(h) Except as may be required to conform with United States generally
accepted accounting principles, change any of the accounting principles
used by it;
(i) Make any tax election or compromise relating to any tax liability
in either case which would reasonably be expected to have a Material
Adverse Effect;
(j) Take or agree to take any action which would result in any of the
conditions set forth in Articles VI, VII or VIII hereof not being satisfied
at or prior to the Closing;
(k) Make any material contract not in the ordinary course of business
except for agreements entered into in connection with indebtedness
permitted by paragraph 10.02(b), acquisitions of assets or stock consented
to in writing by KHI (which consent shall not be unreasonably withheld or
delayed), capital expenditures or improvements involving not more than
$750,000 in the aggregate and acquisitions of assets or stock involving the
issuance by O'Gara of O'Gara Common Stock consented to in writing by KHI
(which consent shall not be unreasonably withheld or delayed); or
(l) Write off any material assets except in the ordinary course of
business consistent with prior practices.
(m) Issue O'Gara Common Stock except as permitted in Section 10.02(k)
and except pursuant to option plans and options described in Schedule 4.04
of the O'Gara Disclosure Schedule or in the SEC Filings.
10.03 Best Efforts to Expedite Closing. From the date hereof through the
Effective Time, O'Gara and NEWCO shall exert their commercially reasonable best
efforts and cooperate with KHI to accomplish by the earliest practical date all
those things within its control necessary to cause this Agreement to be carried
out, including but not limited to, the making of applications to, and the
obtaining of approvals from, the appropriate regulatory agencies for the
accomplishment of the Merger, including the registration of the O'Gara Common
Stock, the compliance with applicable state "blue sky" laws, and calling and
holding a special meeting of O'Gara shareholders at which the O'Gara Board of
Directors will present and recommend this Agreement to such shareholders for
their approval.
10.04 Repayment of KHI Shareholder Debt. Subject to confirmation by Arthur
Andersen LLP that the repayments contemplated in this Section 10.04 will not
adversely affect the pooling accounting treatment for the Merger, promptly
following the Effective Time, O'Gara shall cause KHI and its Subsidiaries to pay
(i) to AIG an amount not in excess of $2,000,000 principal amount, plus accrued
and unpaid interest thereon, in repayment of all indebtedness owing by KHI and
its Subsidiaries to AIG, and (ii) to the KHI Principal Shareholder an amount in
repayment of all amounts reflected in an advance account as owing to the KHI
Principal Shareholder by KHI and its Subsidiaries. In no event shall the total
amount of indebtedness paid to AIG and the KHI Principal Shareholder pursuant to
this Section 10.04 exceed $7,500,000. The parties acknowledge and agree that
certain other indebtedness, evidenced by various promissory notes, of KHI and
its Subsidiaries to the KHI Principal Shareholder in the approximate amount of
$310,000 (which amount is net of all liabilities or other amounts payable by the
KHI Principal Shareholder to KHI and its Subsidiaries) shall remain outstanding
following the Effective Time.
10.05 Tax Information. Within 30 days after the date hereof, O'Gara shall
deliver to KHI a list of (i) all United States federal income tax returns of
O'Gara and its Subsidiaries which have not been audited by the Internal Revenue
Service or are not closed by the applicable statute of limitations, and (ii) all
waivers or extensions granted by O'Gara, its Subsidiaries or any member of any
affiliate, consolidated, combined or unitary
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group of which O'Gara or any of its Subsidiaries has been a member of any
statute of limitations in respect of taxes or tax returns.
ARTICLE XI
SHAREHOLDERS' MEETINGS
Prior to the Closing, as soon as practicable after the effective date of
the Registration Statement, and in accordance with its Regulations and
applicable law, O'Gara shall duly call and hold a special meeting of its
shareholders at which it will present this Agreement for, and will recommend,
the approval of its shareholders. Prior to the Closing, as soon as practicable
after the effective date of the Registration Statement, and in accordance with
the By-laws and applicable law, KHI shall duly call and hold a special meeting
of its shareholders at which it will present this Agreement for, and will
recommend, the approval of its shareholders. Notwithstanding the foregoing, the
special meetings of shareholders shall not be held less than twenty (20)
business days after the distribution of the Joint Proxy Statement.
ARTICLE XII
TERMINATION OF MERGER AGREEMENT
This Agreement and the transactions contemplated herein may be terminated,
notwithstanding approval thereof by the shareholders of KHI, the shareholders of
O'Gara or by O'Gara as the sole shareholder of NEWCO, at any time prior to the
Effective Time (i) if consummation of the Merger has not occurred on or prior to
January 31, 1998; (ii) by agreement of each of the parties to this Agreement;
(iii) by the Board of Directors of O'Gara if any of the conditions precedent set
forth in Article VI or VII of this Agreement have not been satisfied on or
before the Closing; or (iv) by the Board of Directors of KHI if any of the
conditions precedent of Article VI or VIII of this Agreement have not been
satisfied on or before the Closing.
ARTICLE XIII
MUTUAL COVENANTS
13.01 Satisfaction of Conditions. From and after the date hereof, each of
the parties hereto shall use their commercially reasonable best efforts
(individually or jointly, as the case may be) to cause all conditions precedent
set forth in Articles VI, VII and VIII of this Agreement to be satisfied and
fulfilled at the earliest practicable date, to the extent the satisfaction or
fulfillment thereof is its responsibility hereunder or within its reasonable
control. If any event should occur, either within or without the control of any
party hereto, which would prevent fulfillment of the conditions precedent to the
obligations of any party to consummate the transactions contemplated by this
Agreement, all parties shall use their respective commercially reasonable best
efforts to cure or remove the effect of the event as expeditiously as possible.
13.02 Further Assurances. After the Closing, each of the parties shall,
from time to time upon any other party's request, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, all such further
assignments, documents, instruments, transfers, conveyances, discharges,
releases, assurances and consents, and shall take or cause to be taken such
further actions, as such other party may reasonably request to further evidence
or carry out the transactions contemplated by, and the purposes of, this
Agreement.
ARTICLE XIV
INDEMNIFICATION
14.01 Pre-closing Indemnification by KHI and the KHI Principal
Shareholder. Prior to the Effective Time, KHI and the KHI Principal Shareholder
shall jointly and severally indemnify and hold O'Gara and NEWCO harmless from
any and all losses, costs, expenses (including reasonable attorneys' fees) and
liabilities arising from any (i) breach of any representation or warranty of KHI
or the KHI Principal Shareholder set forth in this
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Agreement, (ii) breach or nonfulfillment of any covenant, agreement or
obligation of KHI or the KHI Principal Shareholder in this Agreement, (iii)
misrepresentation in the KHI Disclosure Schedule or any certificate furnished by
KHI or the KHI Principal Shareholder to O'Gara or NEWCO at the Closing under
this Agreement, and (iv) omission from the KHI Disclosure Schedule or any
certificate furnished by KHI or the KHI Principal Shareholder to O'Gara or NEWCO
at the Closing under this Agreement of a fact required to be stated therein or
necessary to make the information set forth therein, in light of the
circumstances under which they are made, not misleading.
14.02 Pre-closing Indemnification by O'GARA. Prior to the Effective Time,
O'Gara shall indemnify and hold KHI and the KHI Shareholder harmless from any
and all losses, costs, expenses (including reasonable attorneys' fees) and
liabilities arising from any (i) breach of any representation or warranty of
O'Gara or NEWCO set forth in this Agreement, (ii) breach or nonfulfillment of
any covenant, agreement or obligation of O'Gara or NEWCO in this Agreement,
(iii) misrepresentation in the O'Gara Disclosure Schedule or any certificate
furnished by O'Gara or NEWCO to KHI or the KHI Principal Shareholder at the
Closing under this Agreement, and (iv) omission from the O'Gara Disclosure
Statement or any certificate furnished by O'Gara or NEWCO to KHI or the KHI
Principal Shareholder at the Closing under this Agreement of a fact required to
be stated therein or necessary to make the information set forth therein, in
light of the circumstances under which they are made, not misleading.
14.03 Post-closing Indemnification by the KHI Principal Shareholder. The
parties acknowledge and agree that (i) O'Gara is entitled to rely upon, and
shall rely upon, facts and statements regarding KHI Matters (as hereinafter
defined) set forth in (or omitted from) the Registration Statement and the Joint
Proxy Statement, (ii) such facts and statements shall be deemed to be
representations and warranties made to O'Gara by the Principal Shareholder in
order to induce O'Gara to consummate the Merger, and (iii) the indemnification
in this Section 14.03 is made to provide a contract remedy to O'Gara for factual
misrepresentations or omissions notwithstanding the expiration of the
representations and warranties contained in Article III hereof at the Effective
Time. Accordingly, after the Effective Time, the KHI Principal Shareholder shall
indemnify and hold O'Gara and KHI harmless from any and all damages, losses and
liabilities arising from:
(a) any part of the Registration Statement, when such part became
effective, containing an untrue statement of a material fact regarding any
KHI Matters or omitting to state a material fact regarding any KHI Matters
required to be stated therein or necessary to make the statements regarding
KHI Matters therein not misleading;
(b) written or oral communications by representatives of KHI or any
Subsidiaries of KHI (the "KHI Representatives") to any Person that was a
holder of KHI Capital Stock and will hold (or have the right to receive
pursuant to the Merger) O'Gara Common Stock immediately after the Effective
Time, which communications include an untrue statement of a material fact
regarding any KHI Matters or omit to state a material fact necessary in
order to make the statements regarding any KHI Matters, in light of the
circumstances under which they were made, not misleading if the KHI
Principal Shareholder is unable to sustain the burden of proof that the KHI
Representatives did not know, and in the exercise of reasonable care could
not have known, of such untruth or omission; or
(c) the Joint Proxy Statement including an untrue statement of a
material fact regarding any KHI Matters or omitting to state a material
fact necessary in order to make the statements regarding any KHI Matters,
in light of the circumstances under which they were made, not misleading if
the KHI Principal Shareholder is unable to sustain the burden of proof that
the KHI Representative did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission;
provided, that (x) all facts and statements regarding KHI Matters set forth in
the Registration Statement and the Joint Proxy Statement shall have been
approved in advance by KHI or its counsel, or such facts and statements
regarding KHI Matters shall have been provided to KHI and its counsel at least
two (2) days prior to the date of mailing the Joint Proxy Statement to the
shareholders and neither KHI nor its counsel shall have objected in writing
thereto, and (y) the Registration Statement and Joint Proxy Statement contains
all facts and statements regarding KHI Matters reasonably requested to be
included therein by KHI or its counsel. No claim for indemnification shall be
maintained pursuant to this Section 14.03 unless brought within one (1) year
after the
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discovery of such claim, or after discovery of such claim should have been made
by the exercise of reasonable diligence. In no event shall any claim be brought
under this Section 14.03 more than three (3) years after the Effective Time. For
purposes of this Section 14.03, the term "KHI Matters" shall mean KHI, any
Subsidiary of KHI, any owner, officer, director or employee of KHI or any of its
Subsidiaries, the business, operations, properties, assets, prospects, financial
condition, results of operations and liabilities of KHI or any of its
Subsidiaries and any information required by the Act or the Exchange Act to be
included in the Registration Statement or the Joint Proxy Statement concerning
or relating to any of the foregoing.
14.04 Survival. The representations and warranties of KHI and the KHI
Principal Shareholder contained in Article III and the representations and
warranties of O'Gara and NEWCO contained in Article IV shall survive until the
Effective Time, at which time all such representations shall expire and be of no
further force and effect, and no claim based upon the breach of any such
representation or warranty shall survive the Effective Time, regardless of
whether asserted prior to the Effective Time. Claims based upon a breach of the
representations and warranties contained in Articles III and IV may be brought
and maintained at any time prior to the Effective Time, shall be indemnified as
provided in Sections 14.01 and 14.02 and shall survive the termination of this
Agreement. As between and among the parties to this Agreement, the directors and
officers of O'Gara, NEWCO and KHI (other than the KHI Principal Shareholder)
shall have no personal liability for any misrepresentation, warranty or breach
of this Agreement, caused either by action or inaction.
14.05 Survives Termination. The indemnification obligations of the parties
under this Article XIV shall survive the termination of this Agreement for any
reason.
ARTICLE XV
FEES AND EXPENSES
Whether or not the Merger is consummated, each party hereto shall bear its
own expenses in connection with this Agreement and the transactions contemplated
hereby.
ARTICLE XVI
NOTICES
All notices, consents, waivers or other communications between the parties
hereto shall be in writing and shall be deemed given or delivered on the date
actually received by personal delivery, facsimile, overnight courier, ordinary
mail or other such means, or five (5) days after being mailed by United States
certified or registered mail, return receipt requested, with postage prepaid, in
each case addressed as follows:
(a) If to KHI:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10027
Attention: General Counsel
Fax: 212-750-6194
Phone: 212-833-3221
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance, Esq.
Fax: 212-715-8000
Phone: 212-715-9236
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(b) If to O'Gara or NEWCO:
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attention: Wilfred T. O'Gara
Fax: 513-874-1262
Phone: 513-881-5440
with copies to:
The O'Gara Company
9113 LeSaint Drive
Fairfield, Ohio 45014
Attention: Abram S. Gordon, Esq.
Fax: 513-874-1262
Phone: 513-881-5481
and
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
Attention: Thomas D. Heekin, Esq.
Fax: 513-381-0205
Phone: 513-381-2838
(c) If to Kroll:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022
Attention: Jules Kroll
Fax: 212-750-6194
Phone: 212-833-3221
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Thomas E. Constance, Esq.
Fax: 212-715-8000
Phone: 212-715-9236
or to such other addresses, and to the attention of such other Persons, as any
party hereto may specify in a notice given pursuant to this Article XVI.
ARTICLE XVII
PUBLIC ANNOUNCEMENT
All parties shall consult with each other before issuing any press releases
or otherwise making any public statements with respect to this Agreement or the
Merger and shall not issue any such press release or make any such public
statement prior to such consultation.
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ARTICLE XVIII
GOVERNING LAW
Except for the application of the Delaware Law to the Merger, this
Agreement shall be construed in accordance with the laws of the State of New
York, applicable to agreements made and to be performed therein.
ARTICLE XIX
CAPTIONS; COUNTERPARTS
The captions in this Agreement are for convenience purposes only and shall
not be considered a part of or affect the construction or interpretation of any
provision of this Agreement. This Agreement may be executed in counterparts by
the parties and any such counterpart shall be deemed an original hereof.
ARTICLE XX
ENTIRE AGREEMENT
This Agreement is binding upon and is for the benefit of the parties hereto
and their respective successors, legal representatives and assigns. This
Agreement supersedes any other agreement, whether written or oral, that may have
been made or entered into by O'Gara, NEWCO, KHI or the KHI Principal Shareholder
or by any officer or officers of such parties relating to the Merger. This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof, and there are no agreements or commitments with respect
thereto except as set forth herein.
ARTICLE XXI
WAIVER; MODIFICATION; ASSIGNMENT
No delay on the part of any party hereto in the exercise of any right,
power or remedy arising hereunder shall operate as a waiver thereof. No waiver
shall be effective unless in writing and signed by the party granting the
waiver. This Agreement may be amended by agreement of the Boards of Directors of
the parties hereto at any time prior to the filing of the Certificate of Merger
with respect to the Merger except as otherwise provided under applicable law. No
amendment or modification of this Agreement shall be effective unless in writing
and signed by all parties hereto. No assignment of this Agreement or any rights
or obligations hereunder shall be effective without the prior written consent of
all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly exercised as of the date and year first above written.
ATTEST:
/s/ DAVID L. DICK
- ---------------------------------------------------
Assistant Secretary
ATTEST:
/s/ ABRAM S. GORDON
- ---------------------------------------------------
Secretary
ATTEST:
/s/ ABRAM S. GORDON
- ---------------------------------------------------
Secretary
KROLL HOLDINGS, INC.
By: /s/ JULES KROLL
--------------------------------------------------
Jules Kroll, Chairman
THE O'GARA COMPANY
By: /s/ THOMAS M. O'GARA
--------------------------------------------------
Thomas M. O'Gara, Chairman
VDE, INC.
By: /s/ WILFRED T. O'GARA
--------------------------------------------------
Wilfred T. O'Gara
President
/s/ JULES KROLL
- ---------------------------------------------------
Jules Kroll
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EXHIBIT 7.02
FORM OF OPINION OF COUNSEL TO
KHI AND THE KHI PRINCIPAL SHAREHOLDER
1. KHI is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now being conducted. KHI is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect on
KHI.
2. The execution, delivery and performance by KHI of the Merger Agreement
and the consummation by KHI of the Merger and the other transactions
contemplated by the Merger Agreement are within the corporate power and
authority of KHI and have been duly authorized by all necessary corporate action
of KHI. The Merger Agreement has been duly authorized, executed and delivered by
each of KHI and the KHI Principal Shareholder and constitutes the valid and
binding obligation of KHI and the KHI Principal Shareholder, enforceable against
each of them, as applicable, in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer, or similar laws affecting the
rights of creditors generally, subject to general principles of public policy,
limited by the unavailability of remedies of specific performance or injunctive
relief without appropriate judicial process, and subject to general principles
of equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
3. Other than as set forth in Schedule 3.17 of the KHI Disclosure Schedule,
the execution, delivery and performance by KHI and the KHI Principal Shareholder
of the Merger Agreement and the consummation by KHI of the Merger and by KHI and
the KHI Principal Shareholder of the other transactions contemplated by the
Merger Agreement do not, to our knowledge, require any consent, approval or
action by or in respect of, or any declaration, filing or registration by KHI or
any of its Subsidiaries with, a governmental or regulatory authority of the
United States, other than (i) a routine filing with the Secretary of State of
the State of Delaware necessary to consummate the Merger, (ii) the filing of the
Registration Statement and the Joint Proxy Statement with the Commission, and
(iii) such filings or notifications which would not prevent or delay
consummation of any of the transactions contemplated by the Merger Agreement in
any material respect, or otherwise prevent KHI or the KHI Principal Shareholder
from performing their respective obligations under the Merger Agreement in any
material respect.
4. The execution, delivery and performance by KHI and the KHI Principal
Shareholder of the Merger Agreement, and the consummation by KHI of the Merger
and by KHI and the KHI Principal Shareholder of the other transactions
contemplated by the Merger Agreement, do not contravene or conflict with or
constitute a violation of the Certificate of Incorporation or By-Laws of KHI or
any of its Subsidiaries or any judgment, injunction, order or decree of any
United States court or government regulatory authority of which we have
knowledge to which KHI or any of its Subsidiaries is a party or by which it or
any of its assets are bound, which contravention, conflict or violation would
reasonably be expected to have a Material Adverse Effect on KHI.
5. The authorized capital stock of KHI consists of 46,200 Class A shares of
common stock, $.01 par value per share ("KHI Class A Stock"), of which 23,100
shares are issued and outstanding as of the date hereof, and 153,800 shares of
common stock, $.01 par value per share ("KHI Common Stock"), of which 76,624
shares are issued and outstanding as of the date hereof. All issued and
outstanding shares of KHI Capital Stock are duly authorized, validly issued,
fully paid and nonassessable, and have not been issued in violation of any
preemptive rights of any shareholder of KHI or any other Person provided by
statute or the Certificate of Incorporation of KHI. Except for options to
purchase an aggregate of 8,821 shares of KHI Common Stock or as set forth in
Schedule 3.04 of the KHI Disclosure Schedule, there are no outstanding (i)
shares of KHI Capital Stock or other voting securities of KHI, (ii) securities
of KHI convertible into or exchangeable for shares of KHI Capital Stock or other
voting securities of KHI, (iii) options, warrants, exchange rights, subscription
rights or other agreements, commitments or rights to purchase or otherwise
acquire KHI Capital Stock or other voting securities from KHI, or (iv)
agreements, commitments or obligations of KHI to issue, sell, redeem, repurchase
or otherwise acquire, any KHI Capital Stock or securities convertible into or
exchangeable for KHI Capital Stock or other voting securities of KHI.
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EXHIBIT 8.02
FORM OF OPINION OF COUNSEL
TO O'GARA AND NEWCO
1. O'Gara is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio and has all requisite corporate
power and authority to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified would not be reasonably expected to have a Material Adverse Effect on
O'Gara.
2. NEWCO is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business makes such qualification necessary.
3. The execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement are
within each of O'Gara and NEWCO's corporate power and authority and have been
duly authorized by all necessary corporate action of each of O'Gara and NEWCO.
The Merger Agreement has been duly authorized, executed and delivered by each of
O'Gara and NEWCO and constitutes the valid and binding obligation of each of
O'Gara and NEWCO, enforceable against each of them in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or transfer, or similar laws
affecting the rights of creditors generally, subject to general principles of
public policy, limited by the unavailability of remedies of specific performance
or injunctive relief without appropriate judicial process, and subject to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law. [O'Gara's counsel is not
licensed to practice in New York and an appropriate qualification will be added
to the opinion.]
4. Other than as set forth in Schedule 4.17 of the O'Gara Disclosure
Schedule, the execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not,
to our knowledge, require any consent, approval or action by or in respect of,
or any declaration, filing or registration with, any governmental or regulatory
authority of the United States other than (i) a routine filing with the
Secretary of the State of Delaware necessary to consummate the Merger, (ii)
compliance with the applicable requirements of the Securities Act, the Exchange
Act and any applicable state securities laws in connection with the offering,
sale and delivery of the shares of O'Gara Common Stock to be issued in the
Merger and filings with the NASD and the NASDAQ National Market in connection
with listing the shares of O'Gara Common Stock to be issued in the Merger on the
Nasdaq National Market, and (iii) such filings or notifications which would not
prevent or delay consummation of any of the transactions contemplated by the
Merger Agreement in any material respect, or otherwise prevent O'Gara or NEWCO
from performing their respective obligations under the Merger Agreement in any
material respect.
5. The execution, delivery and performance by each of O'Gara and NEWCO of
the Merger Agreement and the consummation by each of O'Gara and NEWCO of the
Merger and the other transactions contemplated by the Merger Agreement do not
contravene or conflict with the Articles of Incorporation or Regulations of
O'Gara or the Certificate of Incorporation or By-laws of NEWCO or any judgment,
injunction, order or decree of any United States court or government regulatory
authority of which we have knowledge to which O'Gara or any of its Subsidiaries
is a party or by which it or any of its assets are bound, or which violation,
contravention or conflict would reasonably be expected to have a Material
Adverse Effect on O'Gara.
6. Immediately prior to the Effective Time, the authorized capital stock of
O'Gara consists of (i) 25,000,000 shares of common stock, $.01 par value per
share ("O'Gara Common Stock"), of which 7,279,310 shares are issued and
outstanding as of the date hereof, and 100,000 shares of preferred stock, $.01
par value per share, none of which is issued and outstanding as of the date
hereof. All such issued and outstanding shares of O'Gara Common Stock are duly
authorized, validly issued, fully paid and nonassessable, and have not been
issued in
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violation of any preemptive right of any shareholder of O'Gara or any other
Person provided by statute or the Articles of Incorporation of O'Gara. Except as
set forth in the SEC Filings or Schedule 4.04 of the O'Gara Disclosure Schedule,
to our knowledge, there are no outstanding (i) securities of O'Gara convertible
into or exchangeable for shares of capital stock or voting securities of O'Gara
or (ii) options, warrants, exchange rights, subscription rights or other
agreements, commitments or rights to purchase or otherwise acquire from O'Gara,
or (iii) agreements, commitments or obligations of O'Gara to issue, sell,
redeem, repurchase or otherwise acquire any capital stock or securities
convertible into or exchangeable for capital stock of O'Gara.
7. Immediately prior to the Effective Time, the authorized capital stock of
NEWCO consists of (i) 100 shares of common stock, $.01 par value per share
("NEWCO Common Stock"), all of which are issued and outstanding and owned by
O'Gara as of the date hereof. All such issued and outstanding shares of NEWCO
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of any
shareholder of NEWCO or any other Person provided by statute or the Certificate
of Incorporation of NEWCO. To our knowledge, there are no outstanding (i)
securities of NEWCO convertible into or exchangeable for shares of capital stock
or voting securities of NEWCO, (ii) options, warrants, exchange rights,
subscription rights or other agreements, commitments or rights to purchase or
otherwise acquire from NEWCO, or (iii) agreements, commitments or obligations of
NEWCO to issue, sell, redeem, repurchase or otherwise acquire any capital stock
or securities convertible into or exchangeable for capital stock of NEWCO.
8. The shares of O'Gara Common Stock to be issued and exchanged for shares
of KHI Capital Stock in the Merger pursuant to the Merger Agreement will, at the
Effective Time, be duly authorized and, upon issuance of such shares at and
after the Effective Time pursuant to and in compliance with the provisions of
Article II of the Merger Agreement, will be validly issued, fully paid and
nonassessable and will not be subject to preemptive rights. The shares of O'Gara
Common Stock issuable pursuant to Section 2.01 of the Merger Agreement have been
duly listed for trading on the NASDAQ National Market.
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APPENDIX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE O'GARA COMPANY
FIRST. The name of the corporation is THE KROLL-O'GARA COMPANY (the
"Corporation").
SECOND. The place in the State of Ohio where the Corporation's principal
office is to be located is the City of Fairfield in Butler County, Ohio.
THIRD. The purpose for which the Corporation is organized shall be to
engage in any lawful act or activity for which corporations may be formed under
the Ohio General Corporation Law, Ohio Revised Code sec.sec.1701.01 et seq.
FOURTH. The aggregate number of shares of stock which the Corporation
shall have authority to issue is Fifty-One Million (51,000,000) shares, which
shall be divided into two classes, consisting of:
(a) Fifty Million (50,000,000) shares of common stock ("Common Stock")
with a par value of $.01 per share.
(b) One Million (1,000,000) shares of preferred stock ("Preferred
Stock") with a par value of $.01 per share.
PART ONE: COMMON STOCK
The shares of Common Stock may be issued at any time or from time to time
for such amount of lawful consideration as may be fixed by the Board of
Directors. Each holder of Common Stock shall be entitled to one (1) vote for
each share of Common Stock held by such holder.
PART TWO: PREFERRED STOCK
Clause 1. Except as otherwise provided by this Article Fourth or by the
amendment or amendments adopted by the Board of Directors providing for the
issue of any series of Preferred Stock, the Preferred Stock may be issued at any
time or from time to time in any amount, not exceeding in the aggregate,
including all shares of any and all series thereof theretofore issued, the One
Million (1,000,000) shares of Preferred Stock hereinabove authorized, as
Preferred Stock of one or more series, as hereinafter provided, and for such
lawful consideration as shall be fixed from time to time by the Board of
Directors.
Clause 2. Authority is hereby expressly granted to the Board of Directors
from time to time to adopt amendments to these Articles of Incorporation
providing for the issue in one or more series of any unissued or treasury shares
of the Preferred Stock, and providing, to the fullest extent now or hereafter
permitted by the laws of the State of Ohio and notwithstanding the provisions of
any other Article of these Articles of Incorporation of the Corporation, in
respect of the matters set forth in the following subdivisions (i) to (ix),
inclusive, as well as any other rights or matters pertaining to such series:
(i) The designation and number of shares of such series;
(ii) Voting rights (to the fullest extent now or hereafter permitted
by the laws of the State of Ohio);
(iii) The dividend rate or rates of such series (which may be a
variable rate and which may be cumulative);
(iv) The dividend payment date or dates of such series;
(v) Redemption rights (to the fullest extent now or hereafter
permitted by the laws of the State of Ohio), including the price or prices
at which shares of such series may be redeemed;
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(vi) The amount of the sinking fund, if any, to be applied to the
purchase or redemption of shares of such series and the manner of its
application;
(vii) The liquidation price or prices of such series;
(viii) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or classes
or of any other series of the same class of stock of the Corporation or any
other property, and if made so convertible or exchangeable, the conversion
price or prices, or the rates of exchange at which such conversion or
exchange may be made and the adjustments thereto, if any; and,
(ix) Whether or not the issue of any additional shares of such series
or any future series in addition to such series shall be subject to any
restrictions and, if so, the nature of such restrictions.
Any of the voting rights, dividend rate or rates, dividend payment date or
dates, redemption rights and price or prices, sinking fund requirements,
liquidation price or prices, conversion or exchange rights and restrictions on
issuance of shares of any such series of Preferred Stock may, to the fullest
extent now or hereafter permitted by the laws of the State of Ohio, be made
dependent upon facts ascertainable outside these Articles of Incorporation or
outside the amendment or amendments providing for the issue of such Preferred
Stock adopted by the Board of Directors pursuant to authority expressly vested
in it by this Article Fourth. If the then-applicable laws of the State of Ohio
do not permit the Board of Directors to fix, by the amendment creating a series
of Preferred Stock, the voting rights of shares of such series, each holder of a
share of such series of Preferred Stock shall, except as may be otherwise
provided by law, be entitled to one (1) vote for each share of Preferred Stock
of such series held by such holder.
Clause 3. Before any dividends shall be declared or paid upon or set apart
for, or distribution made on, the Common Stock and before any sum shall be paid
or set apart for the purchase or redemption of Preferred Stock of any series or
for the purchase of the Common Stock, the holders of Preferred Stock of each
series shall be entitled to receive accrued dividends declared by the Board of
Directors, payable at the rate or rates fixed for such series in accordance with
the provisions of this Article Fourth, and no more, from the dividend payment
date thereof, or preceding dividend payment date or dates fixed from time to
time by the Board of Directors.
Clause 4. If upon any dissolution, liquidation or winding up of the
Corporation or reduction of its capital stock, the assets so to be distributed
among the holders of the Preferred Stock pursuant to the provisions of this
Article Fourth or of the amendment or amendments providing for the issue of such
Preferred Stock adopted by the Board of Directors pursuant to authority
expressly vested in it by this Article Fourth shall be insufficient to permit
the payment to such holders of the full preferential amounts aforesaid, then the
entire assets of the Corporation shall be distributed ratably among the holders
of the Preferred Stock in proportion to the full preferential amounts to which
they are respectively entitled as aforesaid.
Clause 5. The term "accrued dividends", whenever used herein with respect
to the Preferred Stock of any series, shall be deemed to mean that amount which
would have been paid as dividends declared on the Preferred Stock of such series
to date had full dividends been paid thereon at the rate fixed for such series
in accordance with the provisions of this Article Fourth, less in each case the
amount of all dividends declared paid upon the shares of such series.
FIFTH. The Corporation shall have the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation or any
provision that may be added or inserted in these Articles of Incorporation,
provided that:
(a) Such amendment, alteration, change, repeal, addition or insertion
is consistent with law and is accomplished in the manner now or hereafter
prescribed by statute or these Articles; and
(b) Any provision of these Articles of Incorporation which requires,
or the change of which requires, the vote or consent of all or a specific
number or percentage of the holders of shares of any class or series shall
not be amended, altered, changed or repealed by any lesser amount, number
or percentage of votes or consents of such class or series. Any rights at
any time conferred upon the shareholders of the Corporation are granted
subject to the provisions of this Article.
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SIXTH. Subject to the provisions of Article Fifth hereof, the affirmative
vote of shareholders entitled to exercise a majority of the voting power of the
Corporation shall be required to amend these Articles of Incorporation, approve
mergers and to take any other action which by law must be approved by a
specified percentage of the voting power of the Corporation or of all
outstanding shares entitled to vote.
SEVENTH. No holder of any shares of the Corporation shall have any
preemptive rights to subscribe for or to purchase any shares of the Corporation
of any class, whether such shares or such class be now or hereafter authorized,
or to purchase or subscribe for any security convertible into, or exchangeable
for, shares of any class or to which shall be attached or appertained any
warrants or rights entitling the holder thereof to purchase or subscribe for
shares of any class.
EIGHTH. Subject to the provisions of Article Fourth hereof, the
Corporation, through its Board of Directors, shall have the right and power to
purchase any of its outstanding shares at such price and upon such terms as may
be agreed upon between the Corporation and any selling shareholder.
NINTH. No shareholder shall have the right to vote cumulatively in the
election of directors.
TENTH. These Amended and Restated Articles of Incorporation shall take the
place of and supersede the existing Amended and Restated Articles of
Incorporation.
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APPENDIX C
[SBC WARBURG DILLON READ LETTERHEAD]
September 12, 1997
The Board of Directors
The O'Gara Company
9113 Le Saint Drive
Fairfield, Ohio 45014
Gentlemen:
We understand that The O'Gara Company (the "Company") and Kroll Holdings,
Inc. ("Kroll") have entered into a Plan and Agreement to Merge dated as of
August 8, 1997 (the "Agreement") pursuant to which a wholly owned subsidiary of
the Company will be merged with and into Kroll (the "Merger") as a result of
which Kroll will become a wholly owned subsidiary of the Company. Pursuant to
the Agreement, all shares of Class A Common Stock and Common Stock of Kroll,
including shares subject to outstanding warrants, options or other stock
issuance agreements, will be converted into an aggregate 6,650,000 shares of
Common Stock of the Company (the "Consideration").
You have requested our opinion as to whether the Consideration to be paid
by the Company, as set forth in the Agreement, is fair to the Company, from a
financial point of view.
SBC Warburg Dillon Read Inc. ("Dillon Read"), as part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Dillon Read has performed and continues to perform investment banking services
for the Company. For such services, Dillon Read has received customary fees. In
addition, in the ordinary course of business, we have traded securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement and the exhibits thereto, (ii) reviewed certain publicly available
business and financial information relating to the Company; (iii) reviewed the
reported price and trading activity for the Common Stock of the Company; (iv)
reviewed certain internal financial information and other data provided to us by
each of the Company and Kroll relating to the business and prospects of the
Company and Kroll, respectively, including financial projections prepared by the
management of the Company and Kroll, respectively, and the Consolidated
Financial Statements for the Year Ended December 31, 1996 and other audited
financial statements for Kroll, (v) conducted discussions with members of the
senior management of the Company and Kroll, (vi) reviewed the financial terms,
to the extent publicly available, of certain acquisition transactions which we
believed to be generally comparable to the Merger; (vii) reviewed publicly
available financial and securities market data pertaining to certain publicly
held companies in lines of business which we believed to be generally comparable
to Kroll; and (viii) conducted such other financial studies, analyses and
investigations, an considered such other information as we deemed necessary and
appropriate.
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[SBC WARBURG DILLON READ LETTERHEAD]
The Board of Directors
The O'Gara Company
September 12, 1997
Page Two
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have relied upon its being complete and accurate in all material respects.
We have not been requested to and have not made an independent evaluation or
appraisal of any assets or liabilities (contingent or otherwise) of Kroll, nor
have we been furnished with any such evaluation or appraisal. Further, we have
assumed, with your consent, that all of the information, including the
projections, provided to us by management of the Company and Kroll was prepared
in good faith and was reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company and
Kroll as to the future financial performance of Kroll, and was based upon the
historical performance of Kroll and certain estimates and assumptions which were
reasonable at the time made. With your consent, we have assumed that the Merger
will be treated as a pooling of interests. In addition, our opinion is based on
economic, monetary and market conditions existing and that could be evaluated on
the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be paid by the Company in connection with
the Merger is fair to the Company from a financial point of view.
Very truly yours,
SBC WARBURG DILLON READ INC.
<TABLE>
<S> <C>
By: /s/ WILLIAM P. POWELL By: /s/ AARON C. HILL
- --------------------------------------------- ---------------------------------------------
William P. Powell Aaron C. Hill
Authorized Signature Authorized Signature
</TABLE>
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APPENDIX D
SEC. 1701.84. DISSENTS IN CASE OF A MERGER, CONSOLIDATION, COMBINATION, OR
MAJORITY SHARE ACQUISITION.
The following are entitled to relief as dissenting shareholders under
section 1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant
to section 1701.78, 1701.781, 1701.79, 1701.791, or 1701.801 of the Revised
Code;
(B) In the case of a merger into a domestic corporation, shareholders
of the surviving corporation who under section 1701.78 or 1701.781 of the
Revised Code are entitled to vote on the adoption of an agreement of
merger, but only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign
parent corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the
shares so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one
or more domestic or foreign corporations are being merged pursuant to
section 1701.801 of the Revised Code.
SEC. 1701.85. PROCEDURE IN CASE OF DISSENTS.
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting
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shareholder, at the option of the corporation, exercised by written notice sent
to the dissenting shareholder within twenty days after the lapse of the
fifteen-day period, unless a court for good cause shown otherwise directs. If
shares represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a compliant in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceedings, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for hearing on the complaint or any adjournment of it, the court shall determine
from the complaint and from such evidence as is submitted by either party
whether the dissenting shareholder is entitled to be paid the fair cash value of
any shares and, if so, the number and class of such shares. If the court finds
that the dissenting shareholder is so entitled, the court may appoint one or
more persons as appraisers to receive evidence and to recommend a decision on
the amount of the fair cash value. The appraisers have such power and authority
as is specified in the order of their appointment. The court thereupon shall
make a finding as to the fair cash value of a share and shall render judgment
against the corporation for the payment of it, with interest at such rate and
from such date as the court considers equitable. The costs of the proceeding,
including reasonable compensation to the appraisers to be fixed by the court,
shall be assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or as fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken, and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of
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the agreement of merger by the directors of the particular subsidiary
corporation. The fair cash value of a share for the purposes of this section is
the amount that a willing seller who is under no compulsion to sell would be
willing to accept and that a willing buyer who is under no compulsion to
purchase would be willing to pay, but in no event shall the fair cash value of a
share exceed the amount specified in the demand of the particular shareholder.
In computing such fair cash value, any appreciation or depreciation in market
value resulting from the proposal submitted to the directors or to the
shareholders shall be excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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APPENDIX E
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock corporation;
and the words "depository receipt" mean a receipt or other instrument issued by
a depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the
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procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall also notify such stockholders of
the effective date of the merger or consolidation. Any stockholder entitled
to appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and
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to accept the terms offered upon the merger of consolidation. Within 120 days
after the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trail upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE> 241
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
299, L. '96, eff. 2-1-96 and Ch. 349, L. '96, eff. 7-1-96.)
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<PAGE> 242
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by O'Gara to any person made or threatened to be made a party to
any proceedings, other than a proceeding by or in the right of the registrant,
by reason of the fact that he is or was a director, officer, employee or agent
of O'Gara, against expenses, including judgments and fines, if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the registrant and, with respect to criminal actions, in which he
had no reasonable cause to believe that his conduct was unlawful. Similar
provisions apply to actions brought by or in the right of O'Gara, except that no
indemnification shall be made in such cases when the person shall have been
adjudged to be liable for negligence or misconduct to the registrant unless
determined by the court. The right to indemnification is mandatory in the case
of a director or officer who is successful on the merits or otherwise in defense
of any action, suit or proceeding or any claim, issue or matter therein.
Permissive indemnification is to be made by a court of competent jurisdiction,
the majority vote of a quorum of disinterested directors, the written opinion of
independent counsel or by the shareholders.
O'Gara's Code of Regulations provides that O'Gara shall indemnify such
persons to the fullest extent permitted by law.
O'Gara also maintains director and officer liability insurance which
provides coverage for claims against its officers and directors acting as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) Exhibits. The list of Exhibits is set forth beginning on page E-1 of
this Registration Statement and is incorporated by reference.
(B) Financial Statement Schedules. See Financial Statement Index on page
F-1 for the list of financial statements filed with this Registration Statement.
<TABLE>
<CAPTION>
PAGE DESCRIPTION
- ----- -------------------------------------------------------------------------------------
<S> <C>
The O'Gara Company
S-1 Report of Independent Public Accountants
S-2 Schedule II--Valuation and Qualifying Accounts.
</TABLE>
All other financial statement schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the consolidated financial statements or notes thereto.
<TABLE>
<S> <C>
Kroll Holdings, Inc.
S-3 Independent Auditors' Report
S-4 Independent Auditors' Report
S-5 Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other financial statement schedules are omitted due to the absence of
conditions under which they are required or because the information is shown in
the consolidated financial statements or notes thereto.
(C) Reports, Opinions or Appraisals
The opinion of SBC Warburg Dillon Read Inc. is filed as Appendix C to the
Proxy Statement/Prospectus constituting part of this Registration Statement and
is incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
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<PAGE> 243
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 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 Act
and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment 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.
(4) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(5) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of or included in the registration statement when it became effective.
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<PAGE> 244
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 Cincinnati, State of
Ohio, as of the day of September, 1997.
THE O'GARA COMPANY
By: /s/ WILFRED T. O'GARA
--------------------------------------
Wilfred T. O'Gara
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Thomas M. O'Gara, Wilfred T. O'Gara,
Nicholas P. Carpinello and Abram S. Gordon such person's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
United States Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that each said attorney-in-fact
and agent or his substitute may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated as of the day of September, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- --------------------------------------------
<C> <S>
/s/ THOMAS M. O'GARA Chairman of the Board
- -----------------------------------
Thomas M. O'Gara
/s/ WILFRED T. O'GARA President, Chief Executive Officer and
- ----------------------------------- Director (Principal Executive Officer)
Wilfred T. O'Gara
/s/ NICHOLAS P. CARPINELLO Executive Vice President and Treasurer
- ----------------------------------- (Principal Financial and Accounting
Nicholas P. Carpinello Officer)
/s/ DANIEL GAUTIER Director
- -----------------------------------
Daniel Gautier
/s/ RAYMOND E. MABUS Director
- -----------------------------------
Raymond E. Mabus
/s/ HUGH E. PRICE Director
- -----------------------------------
Hugh E. Price
/s/ JERRY E. RITTER Director
- -----------------------------------
Jerry E. Ritter
/s/ WILLIAM S. SESSIONS Director
- -----------------------------------
William S. Sessions
</TABLE>
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<PAGE> 245
MASTER EXHIBIT LIST
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
2.1 Plan and Agreement to Merge, dated as of August 8, 1997, by and among The O'Gara
Company, VDE, Inc., Kroll Holdings, Inc. and Jules B. Kroll (included as Appendix
A to the Proxy Statement/Prospectus included in this Registration Statement)
3.1 Amended and Restated Articles of Incorporation of The O'Gara Company *
3.2 Code of Regulations of The O'Gara Company *
4.1 Note Purchase Agreement, dated as of May 30, 1997, between and among The O'Gara
Company, Connecticut General Life Insurance Company, Life Insurance Company of
North America, Massachusetts Mutual Life Insurance Company, The Traveler's
Insurance Company, and The Guardian Life Insurance Company of America **
5.1 Opinion of Taft, Stettinius & Hollister (to be filed by amendment)
10.1 Agreement to armor HMMWVs between The O'Gara Company and the United States Army
Tank and Automotive Command, dated May 12, 1994, as amended *
10.2 Systems Technical Support Agreement between The O'Gara Company and the United
States Army, dated January 20, 1997 ***
10.3 Lease of Mulhauser Road facility between O'Gara-Hess & Eisenhardt Armoring Company
and OLG, Limited, dated March 12 1996, as amended *
10.4 Aircraft Lease between O'Gara-Hess & Eisenhardt Armoring Company and Longline
Leasing, Inc. and Excel Armor Products, Inc., dated February 13, 1995, as amended
*
10.5 Terms of Lease (English Translation) of Sao Paulo, Brazil facility between
O'Gara-Hess & Eisenhardt Armoring Company do Brazil and Piero Balducci and Elvira
Miriam Cob Balducci, dated March 8, 1996 *
10.6 The 1996 O'Gara Company's Stock Option Plan *
10.7 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Richard
L. Curotto, dated August 23, 1996 *
10.8 Employment Agreement between The O'Gara Company and Thomas M. O'Gara, dated August
23, 1996 *
10.9 Employment Agreement between The O'Gara Company and Wilfred T. O'Gara, dated
August 23, 1996 *
10.10 Employment Agreement between The O'Gara Company and Nicholas P. Carpinello, dated
August 23, 1996 *
10.11 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Gary W.
Allen, dated August 23, 1996 *
10.12 Employment Agreement between O'Gara-Hess & Eisenhardt Armoring Company and Michael
J. Lennon, dated August 23, 1996 *
10.13 Form of Accumulated Adjustments Account ("AAA") promissory notes to existing
shareholders *
10.14 Supply agreement between O'Gara Satellite Networks Limited and Glocom, Inc. *
10.15 Marketing agreement between O'Gara Satellite Networks Limited and Magellan Systems
Corporation *
10.16 License agreement between O'Gara Satellite Networks Limited and Morsviasputnik,
dated March 21, 1995 *
10.17 Asset Purchase Agreement between O'Gara-Hess & Eisenhardt Armoring Company de
Mexico, S.A. de C.V. and Palmer Associates, S.C., dated October 29, 1996 ***
10.18 Asset Purchase Agreement between O'Gara-Hess & Eisenhardt Armoring Company and
Palmer Associates, LTD., dated October 29, 1996 ***
</TABLE>
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<PAGE> 246
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.19 Acquisition Agreement between The O'Gara Company and Next Destination Limited,
dated February 5, 1997 ***
10.20 Acquisition Agreement between The O'Gara Company and Labbe, S.A., dated January
21, 1997 ****
10.21 Stock Purchase Agreement between O'Gara-Hess and Eisenhardt Armoring Company and
Jerome E. Hoffman, Gerald O. Smith, Rosemary Smith and Katherine L. Kropp, dated
March 24, 1997 ***
10.22 Loan Agreement, dated as of May 30, 1997, between The O'Gara Company, O'Gara-Hess
& Eisenhardt Armoring Company and KeyBank National Association **
10.23 Supplemental Agreement Modification to acquire 360 additional armored HMMWVs
between United States Army Tank and Automotive Armaments Command and O'Gara-Hess
and Eisenhardt Armoring Company, dated March 31, 1997 *****
10.24 Agreement to armor HMMWVs between The O'Gara Company and the United States Army
Tank and Automotive Armaments Command, dated September 27, 1996 *
10.25 Second Lease Amendment, dated March 31, 1997 between OLG Limited and O'Gara-Hess &
Eisenhardt Armoring Company******
10.26 Kroll Associates, Inc. Restricted Stock Plan, adopted on June 15, 1993 and amended
on November 10, 1993 (filed herewith)
10.27 Kroll Holdings, Inc. Management Stock Option Plan, effective January 1, 1995
(filed herewith)
10.28 Stock Option and Stockholders' Agreement, dated January 29, 1996, among Kroll
Holdings, Inc., Jules B. Kroll and Michael Cherkasky (filed herewith)
10.29 Stock Option and Stockholders' Agreement, dated January 29, 1996, among Kroll
Holdings, Inc., Jules B. Kroll and Nazzareno E. Paciotti (filed herewith)
10.30 Stockholders' Agreement, dated as of March 20, 1992, among Kroll Associates, Inc.,
Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc., Public
Advisory Services, Inc. and Palumbo Partners, Inc., Jules B. Kroll, and Robert J.
McGuire and Joseph R. Rosetti, as amended (filed herewith)
10.31 Stockholders' Agreement, dated as of December 31, 1992, among Kroll Associates,
Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc.,
Public Advisory Services, Inc. and Palumbo Partners, Inc., Jules B. Kroll, and
Robert J. McGuire, Joseph Rosetti and Ernest Broad, as amended (filed herewith)
10.32 Stockholders' Agreement, dated as of June 30, 1994, among Kroll Holdings, Inc.,
Jules B. Kroll and Brian M. Jenkins (filed herewith)
10.33 Plan and Agreement of Reorganization and Stockholders' Agreement, dated June 15,
1993, by and among American International Group, Inc., Jules B. Kroll and Kroll
Holdings, Inc. (filed herewith)
10.34 AIU Retainer Agreement (to be filed by amendment)
10.35 Letter Agreement, dated February 26, 1997, among Robert J. McGuire, Kroll
Holdings, Inc., Kroll Associates, Inc. and Jules B. Kroll, as amended June 2, 1997
(to be filed by amendment)
10.36 Note Purchase Agreement, dated as of December 15, 1989 among Kroll Associates,
Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc.,
Public Advisory Services, Inc. and Teachers Insurance and Annuity Association of
America, as amended (filed herewith)
10.37 Demand Promissory Note, dated June 29, 1995, in favor of American Insurance Group,
Inc. by Kroll Associates, Inc. (filed herewith)
10.38 Demand Promissory Note, dated July 28, 1995, in favor of American Insurance Group,
Inc. by Kroll Associates, Inc. (filed herewith)
10.39 Kroll Associates, Inc. Money Purchase Pension Plan and Trust, effective January 1,
1991, amended January 1, 1994 (filed herewith)
</TABLE>
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<PAGE> 247
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.40 Kroll Associates, Inc. 401(k) Savings Plan Trust, effective January 1, 1994 (filed
herewith)
10.41 Amended and Restated Lease of office space in New York, New York, dated December
, 1992, between Progress Partners and Kroll Associates, Inc. (filed herewith)
10.42 Agreement, dated August 8, 1997, between Thomas M. O'Gara and Kroll Holdings, Inc.
(filed herewith)
10.43 Agreement, dated August 8, 1997, between Jules B. Kroll and The O'Gara Company
(filed herewith)
10.44 Agreement, dated August 8, 1997, between American International Group, Inc. and
The O'Gara Company (to be filed by amendment)
10.45 Registration Rights Agreement, dated August 8, 1997, among Thomas M. O'Gara, Jules
B. Kroll and The O'Gara Company (filed herewith)
10.46 Registration Rights Agreement, dated , 1997, between American
International Group, Inc. and The O'Gara Company (to be filed by amendment)
10.47 Employment Agreement, dated , 1997, between The O'Gara Company and Jules
B. Kroll (to be filed by amendment)
10.48 Employment Agreement, dated , 1997, between Kroll Holdings, Inc. and
Michael G. Cherkasky (to be filed by amendment)
10.49 Employment Agreement, dated , 1997, between The O'Gara Company and
Nazzareno E. Paciotti (to be filed by amendment)
10.50 Employment Agreement, dated , 1997, between The O'Gara Company and Abram
S. Gordon (to be filed by amendment)
10.51 Amendment to Employment Agreement, dated , 1997, between O'Gara-Hess &
Eisenhardt Armouring Company and Michael J. Lennon (to be filed by amendment)
10.52 Amendment to Employment Agreement, dated , 1997, between The O'Gara
Company and Thomas M. O'Gara (to be filed by amendment)
10.53 Amendment to Employment Agreement, dated , 1997, between The O'Gara
Company and Wilfred T. O'Gara (to be filed by amendment)
10.54 Deed of Adherence, dated March 28, 1990, between Kroll Associates (Asia) Limited
and Royal Bank of Canada Trust Company (Caymen) Limited, as amended (to be filed
by amendment)
10.55 Deed of Variation and Trust, dated October 5, 1995 between Jardine Fleming Trust
Management Limited and Royal Bank of Canada Trust Company (Caymen) Limited (to be
filed by amendment)
10.56 Master Trust Deed, dated June 15, 1988, between Jardine Fleming Management Inc.
and Royal Bank of Canada Trust Company (Caymen) Limited (to be filed by amendment)
10.57 Promissory Notes between Jules B. Kroll and Kroll (to be filed by amendment)
11.1 Statements regarding computation of per share income (filed herewith)
21.1 Subsidiaries of The O'Gara Company (filed herewith)
23.1 Consents of Taft, Stettinius & Hollister (to be contained in Exhibits 5.1 and
99.1)
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in Exhibit 99.2)
23.3 Consent of Arthur Andersen LLP (filed herewith)
23.4 Consent of Deloitte & Touche LLP (filed herewith)
23.5 Consent of SBC Warburg Dillon Read Inc. (filed herewith)
23.6 Consent of KPMG Peat Marwick LLP (filed herewith)
24.1 Power of Attorney (contained in Signature Page)
</TABLE>
II-6
<PAGE> 248
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<S> <C>
99.1 Opinion of Taft, Stettinius & Hollister regarding certain tax matters (to be filed
by amendment)
99.2 Opinion of Kramer, Levin, Naftalis & Frankel regarding certain tax matters (to be
filed by amendment)
99.3 Consent of Jules B. Kroll to be named as a director (filed herewith)
99.4 Consent of Howard I. Smith to be named as a director (filed herewith)
99.5 Consent of Michael G. Cherkasky to be named as a director (filed herewith)
99.6 Consent of Marshall S. Cogan to be named as a director (filed herewith)
</TABLE>
- ---------------
* Filed as an Exhibit to The O'Gara Company's Registration Statement on
Form S-1, No. 333-11093 and incorporated herein by reference.
** Filed as an Exhibit to The O'Gara Company's Current Report on Form 8-K
(Date of Report: May 30, 1997) and incorporated herein by reference.
*** Filed as an Exhibit to The O'Gara Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by
reference.
**** Filed as an Exhibit to The O'Gara Company's Current Report on Form 8-K
(Date of Report: February 12, 1997) and incorporated herein by reference.
***** Filed as an Exhibit to The O'Gara Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by reference.
****** Filed as an Exhibit to The O'Gara Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 and incorporated herein by
reference.
- ---------------
The O'Gara Company will furnish to the Commission, upon request, its long-term
debt instruments not listed above.
II-7
<PAGE> 249
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The O'Gara Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of THE O'GARA COMPANY included in this
registration statement as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated March 19, 1997, except for Note 19 as to which the date is August
8, 1997. Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
accompanying index is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 19, 1997,
except for Note 19 as to which
the date is August 8, 1997
S-1
<PAGE> 250
THE O'GARA COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended December 31, 1994.................... $ 145 $ 45 $(90) $ 100
Year Ended December 31, 1995.................... $ 100 $ 52 $(43) $ 109
Year Ended December 31, 1996.................... $ 109 $151 $(49) $ 211
INVENTORY OBSOLESCENCE RESERVES:
Year Ended December 31, 1994.................... $ -- $ -- $ -- $ --
Year Ended December 31, 1995.................... $ -- $ -- $ -- $ --
Year Ended December 31, 1996.................... $ -- $264 $ -- $ 264
</TABLE>
S-2
<PAGE> 251
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kroll Holdings, Inc.
New York, New York
We have audited the consolidated financial statements of Kroll Holdings,
Inc. as of December 31, 1996 and for the year then ended, and have issued our
report thereon dated March 13, 1997 (August 8, 1997 as to Notes 7 and 17). Our
audit also included the financial statement schedule of Kroll Holdings, Inc.
listed in Item 21. This financial statement schedule is the responsibility of
Kroll Holdings, Inc.'s management. Our responsibility is to express an opinion
based on our audit. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
New York, New York
March 13, 1997
S-3
<PAGE> 252
INDEPENDENT AUDITORS' REPORT
The Stockholders of Kroll Holdings, Inc. and Subsidiaries:
Under date of March 28, 1996, we reported on the consolidated balance sheet
of Kroll Holdings, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the two-year period ended December 31,
1995, which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth herein.
/s/ KPMG PEAT MARWICK LLP
New York, New York
March 28, 1996
S-4
<PAGE> 253
KROLL HOLDINGS, INC. & SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BEGINNING CHARGED TO ENDING
BALANCE COSTS & EXPENSES DEDUCTIONS BALANCE
---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1994......... $2,238,116 2,070,185 (1,218,503) $3,089,798
Year ended December 31, 1995......... $3,089,798 3,050,310 (3,688,814) $2,451,294
Year Ended December 31, 1996......... $2,451,294 3,108,976 (3,857,539) $1,702,731
</TABLE>
S-5
<PAGE> 1
Exhibit 10.26
Adopted on June 15, 1993
Amended on November 10, 1993
KROLL HOLDINGS, INC.
RESTRICTED STOCK PLAN
1. PURPOSE OF THE PLAN
The purpose of the Kroll Holdings, Inc. Restricted Stock Plan (the
"Plan") is to retain certain managing directors and key employees of Kroll
Associates, Inc. (the "Company") and its Affiliates by providing such persons
with a proprietary interest in the Company and to provide them a continued
incentive to improve the growth and profitability of the Company.
2. DEFINITIONS
The following words and phrases when used in the Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
(a) "AFFILIATE" with respect to Kroll Holdings, Inc., shall mean Kroll
Associates, Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental
Services, Inc., or any other corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by Kroll Holdings, Inc.
(b) "AWARD" shall mean an award of Common Shares pursuant to
the Plan.
(c) "BENEFICIARY" shall mean the person or persons designated by a
Participant to receive Common Shares or other amounts payable under the Plan in
the event of such Participant's death. Such person shall be designated in
writing on forms provided for this purpose by the Committee and may be changed
from time to time by similar written notice to the Committee. In the absence of
a written designation, the Beneficiary shall be the Participant's surviving
spouse, if any, or if the Participant does not have a surviving spouse, his
estate.
(d) "BOARD" shall mean the Board of Directors of the Company.
(e) "CAUSE" shall mean a Participant's commission of a felony, gross
negligence or willful misconduct in connection with the performance of his
duties as an employee, fraudulent act or act or omission adverse to the
reputation of the Company.
(f) "COMMITTEE" shall mean the Committee appointed by the Board
pursuant to Section 3 of the Plan.
<PAGE> 2
(g) "COMMON SHARES" shall mean the common shares of the Company, par
value of $.01 per share.
(h) "COMPANY" shall mean Kroll Holdings, Inc.
(i) "DISABILITY" shall mean a permanent disability within the meaning
of the Company's long-term disability plan.
(j) "EFFECTIVE DATE" of the Plan shall mean June 15, 1993.
(k) "ELIGIBLE EMPLOYEE" shall mean (1) any Employee, excluding the
Majority Shareholder, who is managing director or key executive of the Company
or an Affiliate, or (2) certain other individuals who, in the judgment of the
Restricted Stock Plan Committee, should be eligible to participate in the Plan
due to the services they perform on behalf of the Company.
(l) "EMPLOYEE" shall mean a full-time employee of the Company or an
Affiliate. The terms "employed" and "employment" shall have correlative
meanings.
(m) "LONG TERM INCENTIVE PLAN" means the Long-Term Incentive Plan
adopted as of December 3, 1990, as amended and terminated effective June 15,
1993.
(n) "MAJORITY SHAREHOLDER" means Jules B. Kroll and his family, and
their respective estates and heirs.
(o) "PARTICIPANT" shall mean an Eligible Employee to whom an Award has
been made.
(p) "PLAN" shall mean the Kroll Holdings, Inc. Restricted Stock Plan.
(q) "PUBLIC OFFERING" shall mean an offer for sale of Common Shares
pursuant to an effective registration statement filed by the Company on Form 5-1
or a successor form thereto pursuant to the Securities Act.
(r) "SECURITIES ACT" shall mean the Securities act of 1933, as amended.
(s) "VESTING DATE" with respect to any Common Shares subject to an
Award shall mean the date on which such Common Shares vest pursuant to Section 6
of the Plan.
(t) "VESTING PERIOD" with respect to any Common Shares subject to an
Award shall mean the period from and including the date of the Award until but
excluding the Vesting Date for such Common Shares.
- 2 -
<PAGE> 3
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The members of the
Committee shall be appointed by the Board.
In addition to the other powers granted to the Committee under the
Plan, the Committee shall have, subject to the terms of the Plan, the power: (a)
to make Awards; b) to determine to which of the Eligible Employees Awards shall
be made; (c) to determine the time or times when Awards shall be made and to
determine the number of Common Shares subject to each such Award and the Vesting
Date or Vesting Dates for such Common Shares; (d) to prescribe the form of any
instrument evidencing an Award; (e) to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable for the administration of the
Plan; (f) to construe and interpret the Plan, such rules and regulations and the
instruments evidencing Awards; and (g) to make all other determinations
necessary or advisable for the administration of the Plan.
Any Award, determination, prescription or other act of the Committee
shall be conclusively binding upon all persons. No member of the Committee or
the Board shall be liable for any action or determination made in good faith
with respect to the Plan or any Award. To the full extent permitted by law, the
Company shall indemnify and save harmless each person made or threatened to be
made a party to any civil or criminal action or proceeding by reason of the fact
that such person, or such person's testator or intestate, is or was a member of
the Committee.
4. SHARES SUBJECT TO PLAN
The maximum number of Common Shares available for Awards under the Plan
shall be 9,240, which shall equal 9.24% of the outstanding Common Shares of the
Company after the consummation of the transactions contemplated by the Plan of
Reorganization and Stockholders Agreement dated as of June 15, 1993 by and among
American International Group, Inc., Jules B. Kroll and the Company. Common
Shares issued under the Plan may be either newly issued shares or treasury
shares, at the discretion of the Committee.
5. AWARDS OF COMMON SHARES
The Committee shall from time to time, in its sole discretion, but
subject to the provisions of the Plan, determine: (a) those Eligible Employees
to whom an Award should be made; (b) the number of Common Shares to be issued in
connection with the Award; and (c) the Vesting Date or Vesting Dates and other
terms and conditions of the Award. No Award may be granted under the Plan after
ten years after the Effective Date of the Plan.
Each Award shall be evidenced by a written award agreement, executed by
the Participant and the Company, substantially in form attached hereto.
- 3 -
<PAGE> 4
6. VESTING TERMS AND CONDITIONS
All Common Shares awarded to Participants shall be subject to the
following terms and conditions:
(a) At the time of an Award, the Committee shall establish a Vesting
Date or Vesting Dates with respect to the Common Shares subject to the Award,
PROVIDED, that Participants receiving Awards in 1993 who were participants in
the Company's Long Term Incentive Plan shall have Vesting Dates as follows:
Awards granted in 1993 to Participants who became participants in the Long Term
Incentive Plan prior to or in January 1991 will have a Vesting Date of January
1, 1996, and Awards granted in 1993 to Participants hereunder who became
participants in the Long Term Incentive Plan after January 1991 but before
January 1992 will have a Vesting Date of January 1, 1997.
(b) If during the Vesting Period for any Common Shares awarded to the
Participant, the Participant ceases to be an Employee by reason of death,
Disability or termination of employment at or after age 65 (other than a
termination by the Company for Cause) or upon termination of the Participant's
employment by the Company or an Affiliate without Cause, such Common Shares
shall immediately and fully vest.
(c) If a Participant ceases to be an Employee for any other reason
during the Vesting Period for any Common Shares awarded to the Participant, the
Common Shares (to the extent not theretofore vested pursuant to Paragraphs (b)
or (d) of this Section 6) shall be forfeited, without payment by the Company of
consideration therefor, immediately upon such Participant's termination of
employment.
(d) All Common Shares awarded to Participants not theretofore forfeited
shall immediately and fully vest upon a Public Offering of the Company or upon a
sale of substantially all of the stock or assets of the Company.
(e) At the time of an Award, the Committee may impose such additional
restrictions on the Common Shares awarded as it, in its sole discretion, deems
appropriate.
(f) Until Common Shares subject to an Award vest, the Participant shall
not sell, assign, devise, bequeath, pledge, transfer, hypothecate or in any
manner dispose of or part with such Common Shares or rights to such Common
Shares. No such sale or other attempt to transfer such Common Shares, whether
voluntary or involuntary, by operation of law or otherwise, shall vest the
transferee with any interest or right in or with respect to such Common Shares,
but immediately upon any attempt to transfer such Common Shares or rights
thereto, the portion of the Award represented by such Common Shares shall be
cancelled without payment by the Company of consideration therefor and the
transfer shall be of no force and effect.
- 4 -
<PAGE> 5
7. ISSUANCE OF CERTIFICATES
(a) Reasonably promptly after the receipt by the Company of the award
agreement executed by the Participant as provided in Section 5 hereof and of a
stock power endorsed by the Participant in blank with respect to the Common
shares awarded by the agreement, the Company shall cause to be issued stock
certificates, registered in the name of the Participant, evidencing the Common
Shares awarded by the agreement. Each certificate shall contain such legends as
the Committee deems appropriate.
(b) Each certificate issued pursuant to Section 7(a) of the Plan in
respect of an Award of Common Shares, together with the stock powers relating
to such Common Shares, shall be held by the Company as custodian for the
Participant. The Company shall issue to the Participant a receipt evidencing
the certificates held by it which are registered in the name of the
Participant. Reasonably promptly after any such Common Shares vest pursuant to
Section 6 hereof, the Company shall cause to be issued certificates evidencing
such Common Shares, and shall cause such certificates to be delivered to the
Participant. Each certificate shall contain such legends as the Committee deems
appropriate.
8. RIGHTS AS SHAREHOLDER
A Participant to whom an Award is made shall not be deemed for any
purpose to be, or have rights as, a shareholder of the Company by virtue of such
Award, except to the extent a stock certificate is issued therefor and then only
from the date such certificate is issued. No adjustments shall be made for
dividends or distributions or other rights for which the record date is prior to
the date such stock certificate is issued. After the date a stock certificate is
issued. After the date a stock certificate is issued, a Participant will have
the same rights per Common Share as the Majority Shareholder has per Common
Share to receive cash dividends with respect to the Common Shares subject to an
Award.
Unless the Committee otherwise determines, any securities and other
property (excluding dividends paid in cash) received by a Participant as a
result of any stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of common Shares or similar corporate change with
respect to an Award that had not theretofore vested will not vest until the
Common Shares subject to an Award vests, and shall be promptly deposited with a
custodian designated by the Company.
9. WITHHOLDING
Any person receiving Common Shares shall be required to pay to the
Company the amount of any taxes the Company is required by law to withhold with
respect to any Award or with respect to the vesting of Common Shares subject to
an Award. Such payment shall be due on the date the Company is required by law
to withhold such taxes. In the event that such payment is not made when due, the
Company shall have the right (a) to retain, or sell with 10 days' notice or such
longer notice as may be required by applicable
- 5 -
<PAGE> 6
law, a sufficient number of the Common Shares issued in connection with any
Award in order to cover all or part of the amount required to be withheld; (b)
to deduct, to the extent permitted by law, from any payment of any kind
otherwise due to such person from the Company all or part of the amount required
to be withheld; or (c) to pursue any other remedy available at law or in equity.
10. AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time terminate the Plan, subject to immediate
vesting of any theretofore unvested Common Shares and to such other conditions
as it deems necessary or appropriate. The Board may from time to time revise or
amend the Plan in any respects whatsoever except that, without approval of the
majority of outstanding Common Shares of the Company voting at a meeting duly
called at which a quorum is present, no such revision or amendment shall (a)
increase the number of Common Shares object to the Plan, (b) remove the
administration of the Plan from the Committee, (c) materially modify the
requirements as to eligibility for receipt of an Award, or (d) materially
increase the benefits accruing to Participants under the Plan.
11. COMPLIANCE WITH APPLICABLE LAW
Notwithstanding anything herein to the contrary, the Company shall not
be obligated to cause to be issued or delivered any certificates evidencing
Common Shares to be delivered pursuant to an Award, unless and until the Company
is advised by its counsel that the issuance and delivery of such certificates is
in compliance with all applicable laws, regulations of governmental authority
and the requirements of any exchange on which Common Shares are traded. The
Company shall in no event be obligated to register any securities pursuant to
the Securities Act or to take any other action in order to cause the issuance
and delivery of such certificates to comply with any such law, regulation or
requirement. The Committee may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such laws,
regulations and requirements, that the Participant make such covenants,
agreements and representations as the Committee, in its sole discretion, deems
necessary or desirable.
12. LIMITATION ON RIGHTS
No Eligible Employee or other person shall have a right to receive an
Award. The Committee's making an Award to an Eligible Employee shall neither
require the Committee to make an award to such Eligible Employee at any other
time nor preclude the Committee from making subsequent Awards to such Eligible
Employee. Each Award, if it is otherwise consistent with the applicable
provisions of the Plan, may provide for differing number of Common Shares and
other terms and conditions.
- 6 -
<PAGE> 7
The Plan is not a contract of employment, and the terms of employment
of any Eligible Employee shall not be affected in any way by the Plan or related
instruments except as specifically provided in the Plan or such related
instruments. The establishment of the Plan and making of Awards pursuant thereto
shall not be construed as conferring any legal rights upon any Eligible Employee
for continuation of employment or as interfering with or limiting the right of
the Company to terminate his employment, at any time, for any reason, for or
without cause, and without regard to the effect that such termination might have
upon him as a Participant.
13. GOVERNING LAW
The Plan shall be governed by the laws of the State of New York.
- 7 -
<PAGE> 8
RESTRSTK.FRM
REVISED: MARCH 23, 1994
RESTRICTED STOCK AWARD AGREEMENT
RESTRICTED STOCK AWARD AGREEMENT ("Agreement") dated as of ______,199_
________________ between Kroll Holdings, Inc., a Delaware corporation (the
"Company"), and ____________________ (the "Shareholder").
WHEREAS, the Company has determined to award the Shareholder ___shares
of common stock, par value $.01 per share (the "Common Shares"), of the Company
pursuant to the Company's Restricted Stock Plan (the "Plan"), subject to the
terms and conditions of the Plan and of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise
defined herein have the meaning given to such terms in the Plan. In addition, as
used in this Agreement, the following capitalized terms shall have the following
meanings.
(a) "Affiliate" shall mean with respect to any Person other
than the Company, a spouse of such Person, any relative (by blood,
adoption or marriage) of such Person, any director, officer or employee
of such Person, any trust formed by such Person, any other Person of
which such Person is a director, officer or employee, and any other
Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
(b) "Appraiser" shall mean an accounting firm selected
by the Board of Directors of the Company.
(c) "Call Date" shall mean the date specified in paragraph
(b) of Section 10 hereof.
(d) "Event of Default" shall mean an event that at the time
constitutes a default of the Company under any Note Purchase Agreement
in effect at the time.
(e) "Fair Value" of a Common Share shall be determined by the
Appraiser and shall be equal to the fair value of the Company
(determined in accordance with the considerations listed below) divided
by the total number of shares of Common Stock issued and outstanding at
the time determined on a fully diluted basis. The fair value of the
Company shall be the price at which the Common Shares of the Company
would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the latter is not
under any compulsion to sell, both
<PAGE> 9
parties having reasonable knowledge of relevant facts. In determining
the fair value of the Company, the Appraiser will consider the number
of Common Shares being sold and the restrictions contained in this
Agreement; the financial condition and operating results and prospects
of the Company, including: balance sheet, historical and at the
valuation date; assets; liabilities; and book value; historical
operating results, particularly profits generated and factors affecting
profits; dividends paid historically and dividend-paying capacity;
budgets; plans and projections of future performance; and prospects at
the valuation date. Fair Value shall be determined by an appraisal
conducted each year as of September 30th of such year commencing with
the year preceding expiration of the Vesting Period and continuing for
so long as Fair Value shall be required to be determined under this
Agreement. Such appraisal shall be conducted following the release of
the Company's unaudited September 30 financial statements.
(f) "Note Purchase Agreement" shall mean any long-term
debt agreements entered into by the Company.
(g) "Permitted Disposition" shall mean a disposition of Common
Shares described in Section 4.
(h) "Permitted Transferee" shall mean a Transferee who
receives his interest in the Common Shares as the result of a Permitted
Disposition, provided that such Transferee becomes a party to this
Agreement as provided in Section 3.
(i) "Person" shall mean an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a
government or any department or agency thereof.
(j) "Transfer" shall mean any transfer, sale, assignment,
gift, testamentary transfer, pledge, hypothecation or other disposition
of any interest. "Transferee" and "Transferor" shall have correlative
meanings.
2. AWARD OF SHARES. Pursuant to the terms of the Plan and of this
Agreement, the Company hereby awards the Shareholder ____ Common Shares. The
Vesting Date with respect to such Common Shares shall be __________, 199_.
3. LIMITATIONS ON TRANSFER. The Shareholder shall not Transfer any
Common Shares except as provided in this Agreement. It shall be a condition
precedent to any Transfer of Common Shares (but excluding Transfers made in
connection with a Public Offering) that the Transferee (if not already a party
to this Agreement), shall agree prior to the Transfer in writing with the
Company to be bound by the terms of this Agreement as if it had been an original
signatory hereto.
4. PERMITTED DISPOSITION. After the Vesting Date, the Shareholder shall
be entitled to Transfer Common Shares, at any time and from time to time (a) if
such Transfer is
- 2 -
<PAGE> 10
a testamentary transfer effected by operation of law or by will, (b) to a trust
for the benefit of such Shareholder or such Shareholder's spouse, issue or
siblings, (c) pursuant to and in accordance with Sections 7 (puts), 8 (right of
first refusal) and 9 (tag-along).
5. EFFECT OF VOID TRANSFERS. In the event of any purported transfer of
any of the Common Shares in violation of the provisions of this Agreement, such
purported transfer shall, to the extent permitted by applicable law, be void and
of no effect, and, until such time as a transfer in compliance with this
Agreement shall have occurred, (i) no dividend of any kind whatsoever nor any
distribution pursuant to liquidation or otherwise shall be paid by the Company
to the purported transferee in respect of such Common Shares, (ii) the voting
rights of such Common Shares, if any, on any matter whatsoever shall remain
vested in the transferor, (iii) the transferor shall continue to be bound with
respect to it obligations hereunder as the holder of such Common Shares and (iv)
no such purported transfer in violation of this Agreement shall be registered by
the Company on its books of registry.
6. SECURITIES ACT; LEGENDS ON STOCK. (a) The Shareholder acknowledges
and agrees that the certificate for the Common Shares shall bear the following
legends:
"The shares represented by this certificate are subject to the
terms and conditions of the Kroll Holdings, Inc. Restricted Stock Plan,
dated as of June 15, 1993, as amended, and of a Restricted Stock Award
Agreement dated as of ________ , 199_ and may not be sold, transferred,
hypothecated, assigned or encumbered, except as may be permitted by
aforesaid Plan and Agreement. A copy of the Restricted Stock Plan and
the Shareholder Agreement are on file and available for inspection at
the principal offices of Kroll Holdings, Inc.
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under any
state securities or blue sky laws. The shares may not be sold,
transferred, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act or an opinion of
counsel for Kroll Holdings, Inc. that registration is not required
under the Act."
(b) Prior to any Transfer of Common Shares, the holder
thereof will give written notice to the Company which issued such
shares of such holder's intention to effect such Transfer. The
following provisions shall then apply:
(i) If in the opinion of such Company's counsel the
proposed Transfer may be effected without registration of such
shares under the Securities Act, such Company shall, as promptly as
practicable, so notify the holder of such Common Shares and such
holder shall thereupon be entitled, subject to the other provisions of
this Agreement, to Transfer such Common Shares in accordance with the
terms of the notice delivered by such holder to such Company.
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<PAGE> 11
(ii) If such counsel is unable to conclude that the
proposed Transfer may be effected without registration of such
Common Shares under the Securities Act, such Company will, as
promptly as practicable, so notify the holder thereof and thereafter
such holder shall not be entitled to Transfer such Common Shares
until either such Common Shares have been effectively registered
under the Securities Act or the provisions of this paragraph (b) of
this Section 6 have otherwise been complied with.
7. SHAREHOLDER RIGHT TO PUT SHARES TO COMPANY. (a) Following expiration
of the Vesting Period and prior to a Public Offering, a Shareholder or his
Permitted Transferee shall have the right to sell to the Company, and the
Company shall have the obligation to purchase from the Shareholder or his
Permitted Transferee, Common Shares in accordance with the terms of this
Section 7.
(b) On or about December 1 of each year commencing with the year
immediately preceding expiration of the Vesting Period and continuing for so
long as the Shareholder has a right to sell Common Shares to the Company under
this Section 7, the Company shall inform the Shareholder of the Fair Value of a
Common Share as determined in the most recently completed appraisal of the
Company. The Shareholder shall have 30 days from the receipt of such information
to make an election to sell Common Shares to the Company. Such election shall be
made by written notice of the Shareholder to the Company specifying the number
of Common Shares the Shareholder wishes to sell to the Company.
(c) The Shareholder shall have the right to sell to the Company, and
the Company shall be obligated to purchase, in any calendar year no more than
1/3 of the total number of vested Common Shares awarded to a Shareholder
hereunder less, in the case of the first calendar year in which the Shareholder
could sell Common Shares under paragraph (b) of this Section 7, any Common
Shares repurchased by the Company pursuant to paragraph (e)(2) of this Section
7.
(d) Thirty days following receipt of a Shareholder's election to sell
Common Shares, the Company shall tender to the Shareholder or Permitted
Transferee a certified check in an amount equal to the product of the number of
Common Shares being sold and the Fair Value of a Common Share determined in the
most recently completed appraisal and the Shareholder or Permitted Transferee
shall deliver to the Company stock certificates for such Common Shares, duly
endorsed in blank.
(e) The Shareholder's or Permitted Transferee's right to sell and the
Company's obligation to purchase Common Shares subject to an Award shall be
subject to the following:
(1) The Company shall not be obligated to purchase
Common Shares from a Shareholder or Permitted Transferee if at the time
payment for such Common
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<PAGE> 12
Shares would be required to be made an Event of Default under any Note
Purchase Agreement has occurred and is continuing.
(2) In the event Common Shares subject to an Award
become vested prior to the Vesting Date for such Common Shares as a
result of termination of a Shareholder's employment due to death,
Disability, at or after age 65 (other than a termination by the Company
for Cause) or upon termination of Shareholder's employment by the
Company or an Affiliate without Cause, the Company shall not be
obligated to purchase the Common Shares specified in paragraph (c)
hereof until expiration of the original Vesting Period established for
such Common Shares. However, within 30 days of the occurrence of such
an event which accelerates vesting, a Shareholder or his Permitted
Transferee may by written notice request the Company to purchase, and
the Company shall be obligated within 30 days of receipt of such
written notice to purchase, up to 1/3 of the total number of vested
Common Shares awarded to a Shareholder hereunder. On the date specified
by the Company for such purchase, the Company shall tender to the
Shareholder or Permitted Transferee a certified check in an amount
equal to the product of the number of Common Shares being sold and the
Fair Value of a Common Share based on the most recently completed
appraisal of Fair Value immediately preceding the date specified for
purchase and the Shareholder or Permitted Transferee shall deliver to
the Company stock certificates for such Common Shares, duly endorsed in
blank.
8. SHAREHOLDER RIGHT TO TRANSFER AND COMPANY RIGHT OF FIRST REFUSAL.
Following the expiration of the right to put shares pursuant to Section 7 and
prior to a Public Offering, a Shareholder and his Permitted Transferees shall
have the right (subject to the other terms of this Agreement) to Transfer any
Common Shares held by such holder(s) in accordance with the terms of this
Section 8. In the event that such holder(s) obtains from an independent
purchaser a good faith BONA FIDE offer to purchase Common Shares held by such
holder, he shall promptly notify the Company in writing of the name and address
of such independent purchaser and inform the Company of the status of such
negotiations. When and if such holder (a "Selling Shareholder") decides to
Transfer any such Common Shares, such Selling Shareholder shall promptly deliver
to the Company a copy of such good faith BONA FIDE offer and a written notice
that, unless the Company exercises its rights granted in this Section 8, such
Selling Shareholder will Transfer his Common Shares in accordance therewith (the
"Shareholder Notice"). At any time during the ten business days following
receipt of the Shareholder Notice, the Company may give such Selling Shareholder
notice of exercise of its right to purchase all, but not less than all, of the
Common Shares which the Selling Shareholder has given notice of his intention to
Transfer, on the same terms and conditions specified in the Shareholder Notice
(the "Company Notice"). Upon receipt of the Company Notice, the Selling
Shareholder shall sell the Common Shares described in the Shareholder Notice to
the Company at a price equal to the product of the number of Common Shares being
sold and the Fair Value of a Common Share based on the most recently completed
appraisal of Fair Value immediately preceding the date of sale. If the Selling
Shareholder shall not receive the Company Notice as provided in the foregoing
sentence, he shall have the right to Transfer all, but not less than all, of the
Common Shares offered for Transfer
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<PAGE> 13
in the Shareholder Notice to the independent purchaser specified in the
Shareholder Notice, for the consideration and in accordance with the terms and
conditions set out in such Shareholder Notice and in compliance with the terms
of this Agreement, provided that such Selling Shareholder shall not Transfer any
Common Shares to (i) any Person, or Affiliate of such Person, which competes, or
is expected to compete, with the Company or any of its Affiliates, (ii) any
Person, or Affiliate of such Person, who the Company determines (in its sole
discretion) might cause harm to the Company by virtue of becoming a shareholder
of the Company, (iii) any bank or other financial institution for the purpose of
pledging or granting a security interest in such Common Shares in order to
secure indebtedness of such Selling Shareholder, (iv) any other shareholder of
the Company without the written consent of the Majority Shareholder, or (v) any
Person, or Affiliate of such Person, which has a material adverse interest to,
or is involved in a pending or threatened litigation or legal proceeding with,
the Company, the Majority Shareholder or any of their Affiliates.
9. SHAREHOLDER TAG-ALONG RIGHT. (a) In the event of a Public Offering
of the Company or a sale of substantially all of the stock or assets of the
Company, a Shareholder or his Permitted Transferee will be permitted to
participate in such transaction by selling the number of Common Shares owned by
the Shareholder and all of his Permitted Transferees equal to the greater of (i)
the product of the number of Common Shares owned by the Shareholder and all of
his Permitted Transferees and a fraction, the numerator of which is the total
number of Common Shares proposed to be sold by the Majority Shareholder and the
denominator of which is the total number of Common Shares then owned by the
Majority Shareholder and his Permitted Transferees plus the number of Common
Shares then owned by any other shareholder (and his Permitted Transferees) of
the Company entitled to participate in such sale, and (ii) the number of Common
Shares sufficient to provide proceeds equal to such Shareholder's tax liability
for all of his vested Common Shares. The Company shall notify each Shareholder
in writing of such Public Offering or sale, indicating the price and other
material terms and conditions of the proposed sale and the intended closing date
of such sale. Any purchase from a Shareholder under this Section 9 shall be at
the same price per Common Share and on the same terms and conditions as apply to
the purchase from the Majority Shareholder. Each Shareholder will have ten days
from receipt of such notice to notify the Company in writing of its election to
exercise its rights to participate in the sale. If the Company does not receive
notice from a Shareholder within such ten-day period, such Shareholder shall be
deemed to have elected not to exercise his rights under this Section 9 and the
Company may complete the proposed Public Offering or sale at the price and on
the terms and conditions of the notice to Shareholders.
(b) The Company shall have the right, but not the obligation to satisfy
the Shareholder's tag-along right by redeeming the number of Common Shares the
Shareholder is entitled to sell under this Section 9 in lieu of allowing the
Shareholder to participate in the sales transaction. On the date specified by
the Company in a written notice to the Shareholder for such redemption, the
Company shall tender to the Shareholder or Permitted Transferee a certified
check in an amount equal to the product of the number of Common Shares being
redeemed and the price per Common Share being paid in the sales transaction and
the Shareholder or Permitted
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<PAGE> 14
Transferee shall deliver to the Company stock certificates for such Common
Shares, duly endorsed in blank.
10. COMPANY'S RIGHT TO CALL COMMON SHARES FROM SHAREHOLDER.
(a) In the event that a Shareholder ceases to be employed by the
Company or an Affiliate after the Vesting Date for his Common Shares for any
reason other than (1) death, (2) Disability, (3) at or after age 65 (other than
a termination by the Company for Cause), or (4) termination by the Company or an
Affiliate without Cause, the Company shall have the right to purchase from such
Shareholder and all of his Permitted Transferees, and such Shareholder and all
of his Permitted Transferees shall have the obligation to sell to the Company,
all (but not less than all) of such Shareholder's and all of his Permitted
Transferee's vested Common Shares at a price equal to the product of the number
of Common Shares being purchased and the Fair Value of a Common Share based on
the most recently completed appraisal of Fair Value immediately preceding the
Call Date.
(b) The Company's right to purchase Common Shares shall be exercised by
the delivery of a written notice to the Shareholder, specifying the Call Date,
which date shall be not less than 60 and no more than 90 days after the date of
such notice, on which the Company shall purchase all (but not less than all) of
such Common Shares held by such Shareholder and all of his Permitted
Transferees.
11. RELEASE. THE SHAREHOLDER HEREBY RELEASES THE COMPANY
AND EACH OF ITS AFFILIATES, AND EACH OF THEIR RESPECTIVE OFFICERS
AND DIRECTORS, FROM ANY CLAIM THE SHAREHOLDER MAY HAVE AGAINST
EACH OR ANY OF SUCH PARTIES ARISING UNDER OR RELATING TO THE LONG
TERM INCENTIVE PLAN.
12. MISCELLANEOUS.
(a) COST OF APPRAISAL. Any cost incurred in connection with the
appraisal required to determine Fair Value shall be paid by the Company.
(b) OTHER SHAREHOLDERS AGREEMENTS. None of the Shareholders shall enter
into any stockholder agreement or arrangement of any kind with any person with
respect to the Common Shares inconsistent with the provisions of this Agreement
(whether or not such agreement or arrangement is with other stockholders that
are not parties to this Agreement).
(c) AMENDMENT. This Agreement may be amended, superseded, cancelled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by authorized representatives of the parties or, in the case
of a waiver, by an authorized representative of the party waiving compliance.
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<PAGE> 15
(d) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and transferees, provided that the
Shareholder may not assign to any person any of its rights hereunder other than
in accordance with the provisions hereof.
(e) NOTICES. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
If to a Shareholder:
To the address shown on the attached signature page.
If to the Company:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of which
together shall constitute one and the same document.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(h) INCORPORATION OF PLAN. All terms and provisions of the Plan are
incorporated herein and made part hereof as if stated herein. If any provision
hereof and of the Plan shall be in conflict, the terms of the Plan shall govern.
All capitalized terms used herein and not defined herein shall have the meanings
assigned to them in the Plan.
(i) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
(j) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement, is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
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<PAGE> 16
(k) MISCELLANEOUS. The headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
*****
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<PAGE> 17
IN WITNESS WHEREOF, Kroll Holdings, Inc. has caused this Agreement to
be duly executed by its duly authorized officer and the Shareholder has hereunto
signed this Agreement on his own behalf, THEREBY REPRESENTING THAT HE HAS
CAREFULLY READ AND UNDERSTANDS THIS AGREEMENT AND THE PLAN, as of the day and
year first above written.
KROLL HOLDINGS, INC.
By:
-----------------------
SHAREHOLDER
--------------------------
Name:
Address:
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<PAGE> 1
EXHIBIT 10.27
KROLL HOUSINGS, INC.
MANAGEMENT STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Kroll Holdings, Inc. Management Stock
Option Plan (the "Plan") is to promote the interests of the
Company and its stockholders by providing the Company's key
employees with an appropriate incentive to encourage them to
continue in the employ of the Company and to improve the growth
and profitability of the Company.
2. DEFINITIONS
As used in this Plan, the following capitalized terms shall have the
following meanings:
(a) "Affiliate" shall mean with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
(b) "Appraisal Date" shall mean December 31 of each year, commencing
with December 31,1996.
(c) "Appraised Value" shall mean, as of any Appraisal Date, the
appraised value of a share of Common Stock, as determined by the Appraiser, and
shall be equal to the appraised value of the Company as of such Appraisal Date
(determined in accordance with the considerations listed below), divided by the
sum of the total number of shares of Company Stock issued and outstanding as of
the Appraisal Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Appraisal Date. The Appraised Value of the Company shall be the price at which
the
<PAGE> 2
Common Stock would change hands between a willing buyer and a willing seller
when the former is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable knowledge of relevant
facts. In determining the Appraised Value of the Company, the Appraiser will
consider the financial condition and operating results and prospects of the
Company, including: balance sheet, historical and at the Appraisal Date; assets;
liabilities; book value; historical operating results, particularly profits
generated and factors affecting profits; dividends paid historically and
dividend-paying capacity; budgets; plans and projections of future performance;
and prospects at the Appraisal Date. Appraised Value shall be determined by an
appraisal conducted as of each Appraisal Date, and continuing for so long as
Appraised Value shall be required to be determined under the Plan. Such
appraisal shall be conducted following the release of the Company's audited
annual financial statements for the year ending on such Appraisal Date. The
Company shall be responsible for the costs of such appraisal.
(d) "Appraiser" shall mean an accounting, investment banking or other
appraisal firm selected by the Committee.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Call Date" shall have the meaning set forth in Section 5.8(b)
herein.
(g) "Cause" shall mean (i) the commission of a felony; (ii) gross
negligence or willful misconduct in connection with the performance of the
Participant's duties as an Employee; (iii) a fraudulent act or omission by the
Participant adverse to the reputation of the Company or any of its Affiliates;
(iv) the disclosure by the Participant of any trade secrets or confidential
information of the Company or any of its Affiliates to persons not authorized to
know same; or (v) the willful refusal to carry out reasonable instructions of
the Chairman, which has a material adverse effect on the Company or any of its
Affiliates. If, subsequent to
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<PAGE> 3
a Participant's termination of Employment, it is discovered that such
Participant's Employment could have been terminated for Cause, the
Participant's Employment shall, at the election of the Committee, in its sole
discretion, be deemed to have been terminated for Cause.
(h) "Chairman" shall mean the acting Chairman of the Company or its
Affiliates.
(i) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(j) "Committee" shall mean the Committee appointed by the Board
pursuant to Section 3 of the Plan.
(k) "Common Stock" shall mean the common stock of the Company,
excluding the class A common stock.
(l) "Company" shall mean Kroll Holdings, Inc.
(m) "Company Notice" shall have the meaning set forth in Section 5.7
herein.
(n) "Company Stock" shall mean the common stock of the Company,
including both the class A common stock and the Common Stock.
(o) "Corporate Event" shall mean the date that (i) more than 50% of the
shares of Company Stock, by vote and by value, are owned by persons other than
the Majority Stockholder or employees or employee benefit plans of the Company
or its Affiliates, or (ii) all or substantially all of the assets of the Company
are sold to persons other than the Majority Stockholder or employees or employee
benefit plans of the Company or its Affiliates.
(p) "Disability" shall mean a permanent disability as defined in Kroll
Associates' long-term disability plan.
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<PAGE> 4
(q) "Eligible Employee" shall mean (i) any Employee who is a managing
director or key executive of the Company or an Affiliate, or (ii) certain other
Employees who, in the judgment of the Committee, should be eligible to
participate in the Plan due to the services they perform on behalf of the
Company or an Affiliate.
(r) "Employment" shall mean employment with the Company or any
Affiliate. "Employee" and "Employed" shall have correlative meanings.
(s) "Exercise Date" shall have the meaning set forth in Section 4.10
herein.
(t) "Exercise Notice" shall have the meaning set forth in Section 4.10
herein.
(u) "Fair Value" shall mean, as of any Valuation Date, the fair value
of each share of Common Stock, determined by dividing (i) one-third of the
Operating Income of the Company and its subsidiaries for the thirty-six month
period ending on the Valuation Date immediately preceding the Exercise Date for
which the determination is being made multiplied by 12.91, by (ii) the sum of
the total number of shares of Company Stock issued and outstanding as of the
Valuation Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Valuation Date.
(v) "Grant" shall mean a grant of Options under the Plan and evidenced
by a Stock Option Grant Agreement.
(w) "Grant Date" shall mean the Grant Date as defined in Section 4.2
herein.
(x) "Kroll Associates" shall mean Kroll Associates, Inc.
(y) "Majority Stockholder" shall mean Jules B. Kroll and his family and
their respective donees, estates and heirs.
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<PAGE> 5
(z) "Note Purchase Agreement" shall mean any long-term debt, credit or
other agreements or arrangements entered into by the Company or its Affiliates.
(aa) "Operating Income" shall mean the operating (loss) profit as shown
in the monthly consolidated financial reports of the Company and its
subsidiaries, prepared in accordance with generally accepted accounting
principles.
(bb) "Options" shall mean the options to purchase Common Stock Granted
to the Participants under the Plan.
(cc) "Option Spread" shall mean, with respect to an Option, the excess,
if any, of the Fair Value of a share of Common Stock as of the Valuation Date
immediately preceding the Exercise Date over the exercise price of such Option
provided in the Stock Option Grant Agreement.
(dd) "Participant" shall mean an Eligible Employee to whom a Grant of
Options under the Plan has been made.
(ee) "Permitted Disposition" shall have the meaning set forth in
Section 5.2 herein.
(ff) "Permitted Transferee" shall mean a Transferee who receives his
interest in Common Stock as the result of a Permitted Disposition, provided that
the Transferee becomes a party to this Agreement as provided in Section 5.1.
(gg) "Person" shall mean an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
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<PAGE> 6
(hh) "Public Offering" shall mean an offer for sale of shares of
Company Stock pursuant to an effective registration statement filed by the
Company which issued such shares pursuant to the Securities Act.
(ii) "Put Notice" shall have the meaning set forth in Section 5.6(b).
(jj) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(kk) "Selling Stockholder" shall have the meaning set forth in Section
5.7 herein.
(ll) "Stock Option Grant Agreement" shall mean an agreement entered
into by each Participant and the Company evidencing the Grant of Options
pursuant to the Plan.
(mm) "Stockholder Notice" shall have the meaning set forth in Section
5.7 herein.
(nn) "Transfer" shall mean any transfer, sale, assignment, gift,
testamentary transfer, pledge, hypothecation or other disposition of any
interest. "Transferee" and "Transferor" shall have correlative meanings.
(oo) "Valuation Date" shall mean the last day of each month, commencing
with December 31, 1995.
(pp) "Vesting Date" shall mean the date an Option becomes
exercisable as defined in Section 4.3 herein.
3. ADMINISTRATION OF THE PLAN
The Committee shall be appointed by the Board and shall administer the
Plan. No member of the Committee shall participate in any decision that
specifically affects such member's interest in the Plan.
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<PAGE> 7
3.1 POWERS OF THE COMMITTEE. In addition to the other powers granted to
the Committee under the Plan, the Committee shall have the power: (a) to Grant
Options; (b) to determine to which of the Eligible Employees Grants shall be
made; (c) to determine the time or times when Grants shall be made and to
determine the number of shares of Common Stock subject to each such Grant and
the Vesting Dates for such Options; (d) to prescribe the form of any instrument
evidencing a Grant; (e) to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable for the administration of the Plan; (f) to
construe and interpret the Plan, such rules and regulations and the instruments
evidencing Grants; and (g) to make all other determinations necessary or
advisable for the administration of the Plan.
3.2 DETERMINATIONS OF THE COMMITTEE. Any Grant, determination,
prescription or other act of the Committee shall be final and conclusively
binding upon all persons.
3.3 INDEMNIFICATION OF THE COMMITTEE. No member of the Committee or the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Grant. To the full extent permitted by law, the
Company shall indemnify and save harmless each person made or threatened to be
made a party to any civil or criminal action or proceeding by reason of the fact
that such person, or such person's testator or intestate, is or was a member of
the Committee.
3.4 COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to
the contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Common Stock pursuant to the exercise of any
Options, unless and until the Committee has determined, with advice of counsel,
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Common Stock are listed or
traded. The Company shall in no event be obligated to register such shares of
Common Stock or to take any other action in order to comply with any such law,
regulation or
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<PAGE> 8
requirement with respect to the issuance and delivery of such certificates. In
addition to the terms and conditions provided herein, the Committee may require
that a Participant make such covenants, agreements and representations as the
Committee, in its sole discretion, deems necessary in order to comply with any
such laws, regulations or requirements.
4. OPTIONS
Subject to adjustment as provided in Section 4.14 hereof, the Committee
may Grant to Participants Options to purchase shares of Common Stock of the
Company which, in the aggregate, do not exceed 7700 shares of Common Stock. To
the extent that any Options Granted under the Plan terminate, expire or are
canceled without having been exercised, the shares covered by such Options shall
again be available for Grant under the Plan.
4.1 IDENTIFICATION OF OPTIONS. The Options Granted under the Plan shall
be non-qualified stock options which are not entitled to tax treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986.
4.2 GRANT DATE. The Grant Date of the Options shall be the date
designated by the Committee and specified in the Stock Option Grant Agreement as
the date the Options are Granted.
4.3 VESTING DATE OF OPTIONS. The Options shall become exercisable as
determined by the Committee, except that, with respect to Participants receiving
Options with a Grant Date of January 1, 1995, Vesting Dates shall be as follows
(a) 25% of Options become exercisable on January 1, 1996; and (1)) 18.75% become
exercisable each January 1 thereafter, except that the Options shall become
fully exercisable on (i) the date of a Corporate Event; or (ii) the date a
Participant's Employment ceases due to (A) Disability, (B) death, (C)
termination of Employment at or after age 65 other than for Cause, or (D)
termination of Employment by the Company or any of its Affiliates other than for
Cause.
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<PAGE> 9
4.4 EXPIRATION OF OPTIONS. The Options shall expire on the 10th
anniversary of the Grant Date.
4.5 TERMINATION OF EMPLOYMENT. The Options may only be exercised while
a Participant is Employed and, in the event a Participant's Employment ceases
due to such Participant's Disability, death, termination of Employment at or
after age 65 other than for Cause or termination of Employment by the Company or
an Affiliate other than for Cause, for a period of 90 days after the date of
such cessation or termination. In the event a Participant voluntarily terminates
his Employment before age 65, all Options, whether vested or unvested, shall
expire as of the date of such termination.
4.6 TERMINATION FOR CAUSE. In the event a Participant's Employment is
or is deemed to have been terminated by the Company for Cause, all Options,
whether vested or unvested, shall expire at the commencement of business as of
the date of such termination.
4.7 LIMITATION ON TRANSFER. During the lifetime of a Participant, the
Options shall be exercisable only by such Participant. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
4.8 EXERCISE OF OPTIONS.
(a) PRIOR TO A PUBLIC OFFERING. Prior to a Public Offering, a
Participant may exercise any or all of his vested Options by serving an Exercise
Notice on the Company as provided in Section 4.10 hereto. With respect to such
Options, the Company shall pay to such Participant an amount equal to the number
of Options exercised multiplied by the Option Spread determined as of the
Valuation Date immediately preceding the Exercise Date and payable in any
combination of cash or Common Stock (such Common Stock shall be valued at Fair
Value determined as of the Valuation Date used for determining the Option
Spread), as may be requested by such Participant, provided, however, that the
Company may limit the
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amount of cash compensation to an amount equal to 50 percent of the amount
payable to the Participant as determined above, less the Fair Value of any
shares of Common Stock (determined as of the Valuation Date used for determining
the Option Spread) withheld to satisfy the applicable withholding taxes pursuant
to Section 4.12 hereto. The Company may delay payment until the financial
information necessary to calculate Fair Value becomes available.
(b) SUBSEQUENT TO A PUBLIC OFFERING. Coincident with or following a
Public Offering, a Participant may exercise any or all of his vested Options by
serving an Exercise Notice on the Company as provided in Section 4.10 hereto.
The Participants may pay the exercise price in cash and/or by delivering freely
transferable shares of Common Stock of the Company, such shares to be valued at
their fair market value as of the Exercise Date.
4.9 EXERCISE OF OPTIONS BY BENEFICIARY(IES). Before any beneficiary or
beneficiaries of a Participant may exercise the Options granted herein upon such
Participant's death, such beneficiary or beneficiaries must agree to be bound by
the Plan, including, without limitation, the restrictions on Common Stock
provided in Section 5 herein, and the Stock Option Grant Agreement, as if they
had been original signatories thereto.
4.10 METHOD OF EXERCISE. The Options shall be exercised by delivery of
written notice to the Company's principal office (the "Exercise Notice"), to the
attention of its Secretary, no less than two business days in advance of the
effective date of the proposed exercise (the "Exercise Date"). Such notice shall
(a) specify the number of shares of Common Stock with respect to which the
Options are being exercised, the Exercise Date and any requests with respect to
the form of payment and withholding taxes as provided in Sections 4.8 and 4.12,
respectively, (b) be signed by the Participant or his beneficiary(ies), as the
case may be, and (c) if the Options are being exercised by the Participant's
beneficiary(ies), such beneficiary or beneficiaries shall indicate in writing
that they agree to and shall be bound by
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the Plan and Stock Option Grant Agreement as if they had been original
signatories thereto. The partial exercise of the Options, alone, shall not
cause the expiration, termination or cancellation of the remaining Options.
4.11 CERTIFICATES OF SHARES. Upon the exercise of the Options,
certificates of shares of Common Stock, if any, legended as provided in Section
5.4, shall be issued in the name of the Participant or his beneficiary(ies), as
the case may be, and delivered to such Participant or his beneficiary(ies), as
the case may be, as soon as practicable following the Exercise Date.
4.12 WITHHOLDING TAXES. At the time that a Participant exercises all or
part of his Options by delivery of the Exercise Notice, such Participant may
notify the Company within such Exercise Notice and request, in writing, that the
Company withhold a portion of the shares that are to be distributed to the
Participant to satisfy the applicable federal, state and local withholding taxes
incurred in connection with the exercise of the Options. Otherwise, the
Participants must pay to the Company in cash an amount sufficient to satisfy
such withholding taxes.
4.13 ADMINISTRATION OF OPTIONS.
(a) TERMINATION OF THE OPTIONS. The Committee may, at any time, in its
absolute discretion, without amendment to the Plan or any relevant Stock Option
Grant Agreement, terminate the Options then outstanding, whether or not
exercisable, provided, however, that the Company, in full consideration of such
termination, pay to such Participants an amount in cash for each such Option
equal to either (i) if the date of termination occurs prior to a Public
Offering, the Option Spread determined as of the Valuation Date immediately
preceding the date of termination, or (ii) if the date of termination occurs
coincident with or following a Public Offering, the excess of (x) the fair
market value of each share of Common Stock as of the date of termination over
(y) the exercise price of the Options.
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(b) AMENDMENT OF TERMS OF OPTIONS. The Committee may, in its absolute
discretion, amend the terms of the Options, provided, however, that any such
amendment shall not impair the Participants' rights under such Options without
such Participants' consent.
4.14 ADJUSTMENT UPON CHANGES IN COMPANY STOCK.
(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION.
Subject to any required action by the stockholders of the Company, in the event
of any increase or decrease in the number of issued shares of Company Stock
resulting from a subdivision or consolidation of shares of Company Stock or the
payment of a stock dividend (but only on the shares of Company Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Committee shall proportionally adjust the
number of shares of Common Stock subject to the Options and the exercise price
per share of Common Stock of each such Option.
(b) CERTAIN MERGERS. Subject to any required action by the stockholders
of the Company, in the event that the Company shall be the surviving corporation
in any merger or consolidation (except a merger or consolidation as a result of
which the holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Options would have received in
such merger or consolidation.
(c) CERTAIN OTHER TRANSACTIONS. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation involving the Company in which
the Company is not the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving corporation but the
holders of shares of Company Stock receive securities of another
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corporation and/or other property, including cash, the Committee shall, in its
absolute discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, the Options outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participants an amount in cash, for each share
of Common Stock subject to the Options, equal to the excess of (1) the
value, as determined by the Board in its absolute discretion, of the
property (including cash) received by the holder of a share of Common
Stock as a result of such event over (2) the exercise price of the
Options; or
(B) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for
an option on or stock appreciation right with respect to, as
appropriate, some or all of the property for which such Options are
exchanged and, incident thereto, make an equitable adjustment, as
determined by the Committee in its absolute discretion, in the exercise
price of the options or stock appreciation rights, or the number of
shares or amount of property subject to the options or stock
appreciation rights or, if appropriate, provide for a cash payment to
the Participants in partial consideration for the exchange of the
Options.
(d) OTHER CHANGES. In the event of any change in the capitalization
of the Company or a corporate change other than those specifically referred to
in Sections 4.14(a), (b) or (c) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares subject to
Options outstanding on the date on which such change occurs and in the per-share
exercise price of each such Option as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
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(e) NO OTHER RIGHTS. Except as expressly provided in the Plan or the
Stock Option Grant Agreements evidencing the Options, the Participants shall not
have any rights by reason of any subdivision or consolidation of shares of
Common Stock or shares of stock of any class, the payment of any dividend, any
increase or decrease in the number of shares of Common Stock or shares of stock
of any class or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in the Plan or
the Stock Option Grant Agreements evidencing the Options, no issuance by the
Company of shares of Common Stock or shares of stock of any class, or securities
convertible into shares of Common Stock or shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to the Options or the exercise price of
such Options.
4.15 RIGHTS AS STOCKHOLDERS. The Participants shall not have any rights
as stockholders with respect to any shares of Common Stock covered by or
relating to the Options granted pursuant to the Plan until the date the
Participants become the registered owners of such shares. Except as otherwise
expressly provided in Sections 4.13 and 4.14 hereof, no adjustment to the
Options shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
4.16 NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan shall
confer upon the Participants any right with respect to the continuation of their
Employment or interfere in any way with the right of the Company or an
Affiliate, subject to the terms of any separate Employment agreements to the
contrary, at any time to terminate such Employment or to increase or decrease
the compensation of the Participants from the rate in existence at the time of
the grant of the Options.
4.17 NO OBLIGATION TO EXERCISE. The Grant to the Participants of the
Options shall impose no obligation upon the Participants to exercise such
Options.
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5. RESTRICTIONS ON COMMON STOCK
The rights and obligations of the Participants and their Permitted
Transferees with respect to Common Stock obtained through the exercise of the
Options provided in the Plan shall be governed by the following terms and
conditions.
5.1 LIMITATION ON TRANSFER OF COMMON STOCK. The Participants shall not
Transfer any shares of Common Stock except as provided in the Plan. It shall be
a condition precedent to any Transfer of shares of Common Stock by the
Participants (but excluding Transfers referred to in Section 5.5 (Public
Offerings) hereof) that the Transferee, if not already a Participant in the
Plan, shall agree prior to the Transfer in writing with the Company to be bound
by the terms of the Plan and the Stock Option Grant Agreement as if it had been
an original signatory thereto.
5.2 PERMITTED DISPOSITION. The Participants shall be entitled to
Transfer shares of Common Stock, at any time and from time to time, (a) if such
Transfer is a testamentary transfer effected by operation of law or by will,
(b) to a trust for the benefit of such Participant or the Participant's spouse,
issue or siblings, or (c) pursuant to and in accordance with sections 5.5
(Public Offering), 5.6 (Puts), 5.7 (Right of First Refusal), 5.8 (Calls), 5.9
(Tag-Alongs) and 5.10 (Drag-Alongs).
5.3 EFFECT OF VOID TRANSFERS. In the event of any purported Transfer of
any shares of Common Stock in violation of the provisions of the Plan, such
purported Transfer shall, to the extent permitted by applicable law, be void and
of no effect, and, until such time as a Transfer in compliance with the Plan
shall have occurred, (a) no dividend of any kind whatsoever nor any distribution
pursuant to liquidation or otherwise shall be paid to the purported Transferee
in respect of such shares, (b) the voting rights of such shares, if any, on any
matter whatsoever shall remain vested in the Transferor, (c) the Transferor
shall continue
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to be bound with respect to its obligations hereunder as the holder of such
shares and (d) no such purported Transfer in violation of the Plan shall be
registered by the Company on its books of registry.
5.4 SECURITIES ACT; LEGENDS ON STOCK; NOTICE OF TRANSFER.
(a) LEGENDS ON STOCK. Upon the exercise of the Options,
each stock certificate representing shares of Common Stock (prior to a Public
Offering pursuant to Section 5.5) shall bear a legend in substantially the
following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, (the "Act") or
under any state securities or blue sky laws and may not be transferred
in the absence of such registration or any exception therefrom under
such Act or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
the Kroll Holdings, Inc. Management Stock Option Plan, as it may be
amended. A copy of such Management Stock Option Plan, and any
amendments thereto, is on file and available for inspection at the
principal offices of Kroll Holdings, Inc.
(b) NOTICE OF TRANSFER. Prior to any Transfer of shares of Common
Stock by the Participants or their Permitted Transferees, the Participants or
their Permitted Transferees will give written notice to the Company of the
intention to effect such Transfer. The following provisions shall then apply:
(i) If in the opinion of the Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company shall, as promptly as practicable, so
notify such Participant and he shall thereupon
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be entitled, subject to the other provisions of the Plan, to Transfer
such shares in accordance with the terms of the notice delivered by him
to the Company.
(ii) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company will, as promptly as practicable, so notify
such Participant and thereafter he shall not be entitled to Transfer
such shares until either such shares have been effectively registered
under the Securities Act or the provisions of this subdivision (b) of
this Section 5.4 have otherwise been complied with, it being understood
that the Company will not be requested or required to register such
shares of Common Stock.
5.5 PUBLIC OFFERING. In the event of a Public Offering, the
Participants shall be entitled, without the consent of any other Stockholder, to
Transfer any or all of their shares of Common Stock, at any time and from time
to time following such Public Offering.
5.6 PARTICIPANTS' RIGHTS TO PUT SHARES TO THE COMPANY.
(a) PUT RIGHTS. Commencing one year from the Exercise Date with
respect to the shares of Common Stock obtained through exercising the Options
pursuant to the Plan, the Participants or their Permitted Transferees shall have
the right to sell to the Company, and the Company shall have the obligation to
purchase from the Participants or their Permitted Transferees, the shares of
Common Stock obtained as a result of exercising the Options in accordance with
the terms of this Section 5.6.
(b) PUT NOTICE. No more than once each twelve-month period, the
Participants or their Permitted Transferees may exercise their right to sell
their shares of Common Stock to the Company by delivering written notice (the
"Put Notice") to the Company no less than two days in advance of the effective
date of exercise of the Put Rights (the "Put Date") specifying
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the number of shares of Common Stock such Participant or his Permitted
Transferees wish to sell to the Company and the Put Date.
(c) NUMBER OF SHARES. The Participants and their Permitted Transferees
shall have the right to sell to the Company, and the Company shall be obligated
to purchase, in any calendar year, no more than 1/3 of the total number of
shares of Common Stock that each Participant obtained as a result of exercising
the Options Granted hereunder, less shares of Common Stock for which such
Participant has been paid in cash pursuant to Section 4.8(a) hereto.
(d) PAYMENT FOR SHARES. Following receipt of the Put Notice pursuant to
this Section 5.6, the Company shall tender to the respective Participants or
Permitted Transferees a certified check in an amount equal to the product of the
number of shares of Common Stock being sold and the Appraised Value of a share
of Common Stock. The Appraised Value shall be determined as of the Appraisal
Date either (i) immediately preceding the Put Date if such Put Date is on or
before June 30, or (ii) immediately succeeding the Put Date if such Put Date is
after June 30 but before January 1 of the following calendar year. The Company
may delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Appraised Value by the
Appraiser. Regardless of whether payment has been delayed by the Company
pursuant to this Section 5.6, the Participant or Permitted Transferee shall
deliver to the Company stock certificates for such shares of Common Stock, duly
endorsed in blank, as soon as practicable after delivery of the Put Notice.
(e) RESTRICTION ON RIGHTS TO PUT. The Company shall not be obligated to
purchase shares of Common Stock from the Participants or Permitted Transferees
if, at the time payment for such shares of Common Stock would be required to be
made, (i) such payments would result in a breach of, or could constitute an
event of default under, any Note Purchase
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Agreement; (ii) an event of default of any Note Purchase Agreement has occurred
and is continuing; or (iii) such payments would violate applicable law.
(f) EXPIRATION OF PUT RIGHTS. The Put Rights shall expire on the date
that a Public Offering of Company Stock occurs.
5.7 PARTICIPANTS' RIGHT TO TRANSFER AND COMPANY'S RIGHT OF FIRST
REFUSAL. Prior to a Public Offering and following the fifth anniversary of the
Exercise Date with respect to the shares of Common Stock obtained through
exercising the Options pursuant to the Plan, the Participants and their
Permitted Transferees shall have the right (subject to the other terms of the
Plan) to Transfer such shares of Common Stock held by such holder(s) in
accordance with the terms of this Section 5.7. In the event that such holder(s)
obtains from an independent purchaser a good faith bona fide offer to purchase
shares of Common Stock held by such holder for a minimum of five years, he shall
promptly notify the Company in writing of the name and address of such
independent purchaser and inform the Company of the status of such negotiations.
When and if such holder (a "Selling Stockholder") decides to Transfer any such
shares of Common Stock, such Selling Stockholder shall promptly deliver to the
Company a copy of such good faith BONA FIDE offer along with the identity of the
independent purchaser and a written notice that, unless the Company exercises
its rights granted in this Section 5.7, such Selling Stockholder will Transfer
his shares of Common Stock in accordance therewith (the "Stockholder Notice").
At any time during the ten business days following receipt of the Stockholder
Notice, the Company may give such Selling Stockholder notice of exercise of its
right to purchase all, but not less than all, of the shares of Common Stock
which the Selling Stockholder has given notice of his intention to Transfer in
the Stockholder Notice (the "Company Notice"). Upon receipt of the Company
Notice, the Selling Stockholder shall sell the shares of Common Stock described
in the Stockholder Notice to the Company at a price equal to the product of the
number of shares of Common Stock being sold and the Appraised
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Value of a share of Common Stock. The Appraised Value shall be determined as of
the Appraisal Date either (x) immediately preceding the date of the Company
Notice if such date is on or before June 30, or (y) immediately succeeding the
date of the Company Notice if such date is after June 30 but before January 1 of
the following calendar year. The Company may delay such payment for a reasonable
time pending the availability of the necessary financial information and the
calculation of Appraised Value by the Appraiser. Regardless of whether the
Company delays such payment pursuant to this Section 5.7, if the Company
exercises its right of first refusal under this Section 5.7, the Participant or
Permitted Transferee shall deliver to the Company stock certificates for such
shares of Common Stock, duly endorsed in blank, as soon as practicable after
receipt of the Company Notice. If the Selling Stockholder shall not receive the
Company Notice as provided in the foregoing sentence, he shall have the right to
Transfer all, but not less than all, of the shares of Common Stock offered for
Transfer in the Stockholder Notice to the independent purchaser specified in the
Stockholder Notice, for the consideration and in accordance with the terms and
conditions set out in such Stockholder Notice and in compliance with the terms
of the Plan, provided that such Selling Stockholder shall not Transfer any
shares of Common Stock to (i) any Person, or Affiliate of such Person, who
competes, or is expected to compete, with the Company or any of its Affiliates,
(ii) any Person, or Affiliate of such Person, who the Company determines (in its
sole discretion) might cause harm to the Company by virtue of becoming a
stockholder of the Company, (iii) any bank or other financial institution for
the purpose of pledging or granting a security interest in such shares of Common
Stock in order to secure indebtedness of such Selling Stockholder, (iv) any
other shareholder of the Company without the written consent of the Majority
Stockholder, or (v) any Person, or Affiliate of such Person, which has a
material adverse interest to, or is involved in a pending or threatened
litigation or legal proceeding with, the Company, the Majority Stockholder or
any of their Affiliates.
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5.8 COMPANY'S CALL RIGHTS
(a) In the event that a Participant ceases to be Employed for any
reason other than (i) death, (ii) Disability, or (iii) termination at or after
age 65 (other than a termination by the Company for Cause), the Company shall
have the right to purchase from such Participant and all of his Permitted
Transferees, and such Participant and all of his Permitted Transferees shall
have the obligation to sell to the Company, all (but not less than all) of such
Participant's and/or his Permitted Transferee's shares of Common Stock at a
price equal to the product of (x) the number of shares of Common Stock being
purchased and (y) the Appraised Value of a share of Common Stock. The Appraised
Value shall be determined as of the Appraisal Date either (i) immediately
preceding the Call Date if such Call Date is on or before June 30, or (ii)
immediately succeeding the Call Date if such Call Date is after June 30 but
before January 1 of the following calendar year. The Company may delay such
payment for a reasonable time pending the availability of the necessary
financial information and the calculation of Appraised Value by the Appraiser.
Regardless of whether the Company delays such payment pursuant to this Section
5.8, the Participant or Permitted Transferee shall deliver to the Company stock
certificates for such shares of Common Stock, duly endorsed in blank, as soon as
practicable following the Call Date.
(b) The Company's right to purchase shares of Common Stock shall be
exercised by the delivery of a written notice to such Participant or his
Permitted Transferees, specifying the "Call Date," which date shall be not less
than one and no more than ninety days after the date of such notice, on which
the Company shall purchase all (but not less than all) of such shares of Common
Stock held by the Participant and/or his Permitted Transferees.
(c) The Call Rights shall expire on the date that a Public Offering of
Company Stock occurs.
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5.9 PARTICIPANTS' TAG-ALONG RIGHTS.
(a) In the event of a Public Offering or a sale of all or substantially
all of the stock of the Company, the Participants or their Permitted Transferees
will be permitted to participate in such transaction by selling the number of
shares of Common Stock owned by each Participant and all of his Permitted
Transferees as a result of exercising the Options provided herein equal to the
product of the number of shares of Common Stock owned by such Participant and
all of his Permitted Transferees and a fraction, the numerator of which is the
total number of shares of Common Stock proposed to be sold by the Majority
Stockholder (before giving effect to this provision) and the denominator of
which is the total number of shares of Common Stock then owned by the Majority
Stockholder and his Permitted Transferees plus the total number of shares of
Company Stock owned on or before the fifth business day prior to the date of
such Public Offering or sale, by any other stockholder of the Company entitled
to participate in such sale, including without limitation the other Participants
of the Plan. The Company shall notify the Participants in writing of such Public
Offering or sale, indicating the price and other material terms and conditions
of the proposed sale and the intended closing date of such sale. Any purchase
from the Participants under this Section 5.9 shall be at the same price per
share of Common Stock and on the same terms and conditions as apply to the
purchase of shares from the Majority Stockholder. Each Participant shall give
the Company written notice of how many shares of Common Stock he and all of his
Permitted Transferees desire to sell within 10 days of receiving notice of the
proposed transaction. If the Company does not receive notice from any
Participant or his Permitted Transferees within such ten-day period, such
Participant and/or his Permitted Transferees shall be deemed to have elected not
to exercise the rights under this Section 5.9 and the Company may complete the
proposed Public Offering or sale at the price and on the terms and conditions of
the notice to the Participants.
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(b) The Company shall have the right, but not the obligation, to
satisfy the Participants' Tag-Along Rights by redeeming the number of shares of
Common Stock that each Participant is entitled to sell under this Section 5.9 in
lieu of allowing the Participants to participate in the sales transaction. On
the date specified by the Company in a written notice to the Participants for
such redemption, the Company shall tender to each Participant or Permitted
Transferee a certified check in the amount equal to the product of the number of
shares of Common Stock being redeemed and the price per share of Common Stock
being paid in the sales transaction and each such Participant or Permitted
Transferee shall deliver to the Company stock certificates for such shares of
Common Stock, duly endorsed in blank.
5.10 MAJORITY STOCKHOLDER'S DRAG-ALONG RIGHTS. In the event that the
Majority Stockholder or any of his Permitted Transferees agree to sell all or
substantially all of their shares of Company Stock, the Majority Stockholder
shall have the right, but not the obligation, to require the Participants and
all of their Permitted Transferees to sell, and the Participants and all of
their Permitted Transferees shall have the obligation to sell, under the same
terms and conditions that are applicable to the sale by the Majority Stockholder
and at the same time as such sale, up to that total number of shares of Common
Stock owned by each Participant and all of his Permitted Transferees obtained by
multiplying (a) the total number of shares of Common Stock that are proposed to
be sold (before giving effect to this provision) by the Majority Stockholder and
all of his Permitted Transferees, by (b) a fraction, the numerator of which is
the total number of shares of Common Stock owned on or before the fifth business
day prior to the date of such sale by such Participant and all of his permitted
Transferees and the denominator of which is the total number of shares of Common
Stock owned by the Majority Stockholder and all of his Permitted Transferees.
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6. CERTAIN VOTING AGREEMENTS.
6.1 OBLIGATION TO BE COUNTED FOR A QUORUM. Once the Options are
exercised, the Participants and all of their Permitted Transferees shall be
present in person or represented by proxy at all meetings of the stockholders of
the Company, so that all shares owned by such Participants or their Permitted
Transferees may be counted for the purpose of determining the presence of a
quorum at such meetings.
6.2 VOTING BY STOCKHOLDERS. Once the Options are exercised, the
Participants shall vote any shares of Common Stock owned by them, and to cause
all of their Permitted Transferees to vote any shares of Common Stock owned by
such Permitted Transferees, whether by note, ballot, proxy or written consent,
in any vote of the stockholders of the Company in the same manner as the
Majority Stockholder, or upon the death of the Majority Stockholder, in the same
manner as the holders of a majority of the shares held by the Permitted
Transferees of the Majority Stockholder.
7. MISCELLANEOUS
7.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
If to the Participant:
To the address shown on the Stock Option Grant Agreement.
If to the Majority Stockholder:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: Jules B. Kroll
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If to the Company:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: General Counsel and Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.2 DESCRIPTIVE HEADINGS. The headings in the Plan are for convenience
of reference only and shall not limit or otherwise affect the meaning of the
terms contained herein.
7.3 SEVERABILITY. In the event that any one or more of the provisions,
subdivisions, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the Company, Majority
Stockholder and Participants shall be enforceable to the fullest extent
permitted by law.
7.4 GOVERNING LAW. The Plan shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without regard to
the provisions governing conflict of laws.
January 31, 1996
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STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 9th day of February, 1996 between KROLL
HOLDINGS, INC., a Delaware corporation, (the "Company") and _____________ (the
"Participant").
WHEREAS, the Company has adopted and maintains the Kroll Holdings, Inc.
Management Stock Option Plan (the "Plan") to promote the interests of the
Company and its stockholders by providing the Company's key employees with an
appropriate incentive to encourage them to continue in the employ of the Company
and to improve the growth and profitability of the Company;
WHEREAS, Section 4 of the Plan provides for the Grant to Participants
in the Plan of Options to purchase, or receive the appreciation in value of, as
the case may be, shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. GRANT OF OPTIONS. Pursuant to, and subject to, the terms and
conditions set forth herein and in the Plan, the Company hereby grants to the
Participant Options with respect to __________ shares of Common Stock of the
Company.
2. GRANT DATE. The Grant Date of the Options hereby Granted is January
1, 1995.
3. EXPIRATION OF OPTIONS. The Options hereby Granted shall expire on
the earlier of: (a) the 10th anniversary of the Grant Date; (b) the date the
Participant's Employment ceases due to voluntary termination of Employment
before the Participant attains age 65; or (c) 90 days after termination or
cessation of Employment due to the Participant's (i) death, (ii) Disability,
(iii) termination of Employment at or after age 65 other than for Cause, or (iv)
termination of Employment by the Company or an Affiliate other than for Cause.
4. TERMINATION OF EMPLOYMENT FOR CAUSE. In the event the Participant's
Employment is deemed to have been terminated for Cause, all Options, whether
vested or unvested, shall expire at the commencement of business as of the
date of such termination.
5. INCORPORATION OF PLAN. All terms and conditions of the Plan are
incorporated herein and made part hereof as if stated herein. If there is any
conflict between the terms and conditions of the Plan or this Agreement, the
terms and conditions of the Plan, as interpreted by the Committee, shall govern.
All capitalized terms used herein shall have the meaning given to such terms in
the Plan.
6. EXERCISE PRICE. The exercise price of each Option hereby Granted is
$400.00.
<PAGE> 27
7. VESTING DATE OF OPTIONS. The Vesting Date with respect to the
Options hereby Granted shall be as follows: (a) 25% of Options are exercisable
as of January 1, 1996; and (b) 18.75% become exercisable each January 1
thereafter, except that the Options shall become fully exercisable on (i) the
date of a Corporate Event; or (ii) the date a Participant's Employment ceases
due to (A) Disability, (B) death, (C) termination of Employment at or after age
65 other than for Cause, or (D) termination of Employment by the Company or any
of its Affiliates other than for Cause.
8. LIMITATION ON TRANSFER. During the lifetime of the Participant, the
Options shall be exercisable only by the Participant. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. All shares of Common Stock obtained pursuant to the Options
Granted herein shall not be transferred except as provided in, and in accordance
with, the Plan.
9. DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
10. INTEGRATION. This Agreement, and the other documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement, including without limitation the
Plan, supersedes all prior agreements and understandings between the parties
with respect to its subject matter.
11. OTHER STOCKHOLDERS' AGREEMENTS. The Participant or his respective
Permitted Transferees shall not enter into any stockholder agreement or
arrangement of any kind with any person with respect to the shares of Common
Stock received pursuant to the Options provided herein inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
12. SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that the
Participant may not assign to any Person any of his rights hereunder other than
in connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
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13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the provisions governing conflict of laws.
15. INJUNCTIVE RELIEF. The Participant acknowledges and agrees that a
violation of any of the terms of this Agreement, including without limitation
the Plan, will cause the Company irreparable injury for which adequate remedy at
law is not available. Therefore, the Participant agrees that the Company shall
be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining the Participant and/or any of
his Permitted Transferees from committing any violations of the provisions of
this Agreement, including without limitation the Plan.
16. PARTICIPANT ACKNOWLEDGMENT. The Participant hereby acknowledges
receipt of a copy of the Plan. The Participant hereby acknowledges that all
decisions, determinations and interpretations of the Committee in respect of the
Plan, this Agreement and the Options shall be final and conclusive.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its duly authorized officer and said Participant has hereunto signed
this Agreement on his own behalf, thereby representing that he has carefully
read and understands this Agreement and the Plan as of the day and year first
written above.
KROLL HOLDINGS, INC.
By:
--------------------------------
Nazzareno E. Paciotti
Chief Financial Officer
-----------------------------------
Address:
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Exhibit 10.28
STOCK OPTION AND STOCKHOLDERS' AGREEMENT
----------------------------------------
STOCK OPTION AND STOCKHOLDERS' AGREEMENT, dated as of January 29, 1996,
among Kroll Holdings, Inc., a Delaware corporation (the "Company"), Jules B.
Kroll, the Majority Stockholder (the "Majority Stockholder"), and Michael G.
Cherkasky, an Executive of the Company (the "Executive"):
WHEREAS, the Company has determined to award the Executive options to
purchase 1098 shares of non-class A common stock ("Common Stock") of the Company
at $150.00 per share (the "Options"), subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained the parties hereto hereby agree as
follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
(a) "Affiliate" shall mean with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
(b) "Appraiser" shall mean an accounting, investment banking or other
appraisal firm selected by the Board of Directors of the Company.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Call Date" shall have the meaning set forth in Section 3.8(b)
herein.
<PAGE> 2
(e) "Cause" shall mean (i) the commission of a felony; (ii) gross
negligence or willful misconduct in connection with the performance of the
Executive's duties as an Employee; (iii) a fraudulent act or omission by the
Executive adverse to the reputation of the Company or any of its Affiliates;
(iv) the disclosure by the Executive of any trade secrets or confidential
information of the Company or any of its Affiliates to persons not authorized to
know same; or (v) the willful refusal to carry out reasonable instructions of
the Chairman, which has a material adverse effect on the Company or any of its
Affiliates. If, subsequent to the Executive's voluntary termination of
Employment or involuntary termination of Employment without Cause, it is
discovered that the Executive's Employment could have been terminated for Cause,
the Executive's Employment shall, at the election of the Company, in its sole
discretion, be deemed to have been terminated for Cause.
(f) "Chairman" shall mean Jules B. Kroll or a successor Chairman of the
Company or its Affiliates.
(g) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(h) "Common Stock" shall mean the common stock of the Company,
excluding the class A common stock.
(i) "Company Notice" shall have the meaning set forth in Section 3.7
herein.
(j) "Company Stock" shall mean the common stock of the Company,
including both the class A common stock and the Common Stock.
(k) "Corporate Event" shall mean the date that (i) more than 50% of the
shares of Company Stock, by vote and by value, are owned by persons other than
the Majority Stockholder or employees or employee benefit plans of the Company
or its Affiliates, or (ii) all or substantially all of the assets of the Company
are sold to persons other than the Majority Stockholder or employees or employee
benefit plans of the Company or its Affiliates.
(l) "Disability" shall mean a permanent disability as defined in Kroll
Associates' long-term disability plan.
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<PAGE> 3
(m) "Employment" shall mean employment with the Company or any
Affiliate. "Employee" and "Employed" shall have correlative meanings.
(n) "Fair Value" shall mean, as of any Valuation Date, the fair value
of a share of Common Stock, as determined by the Appraiser, and shall be equal
to the fair value of the Company as of such Valuation Date (determined in
accordance with the considerations listed below), divided by the sum of the
total number of shares of Company Stock issued and outstanding as of the
Valuation Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Valuation Date. The fair value of the Company shall be the price at which the
Common Stock would change hands between a willing buyer and a willing seller
when the former is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable knowledge of relevant
facts. The determining the fair value of the Company, the Appraiser will
consider the financial condition and operating results and prospects of the
Company, including: balance sheet, historical and at the Valuation Date; assets;
liabilities; book value; historical operating results, particularly profits
generated and factors affecting profits; dividends paid historically and
dividend-paying capacity; budgets; plans and projections of future performance;
and prospects at the Valuation Date. Fair Value shall be determined by an
appraisal conducted as of each Valuation Date, and continuing for so long as
Fair Value shall be required to be determined under this Agreement. Such
appraisal shall be conducted following the release of the Company's audited
annual financial statements for the year ending on such Valuation Date. The
Company shall be responsible for the costs of such appraisal.
(o) "Grant Date" shall mean the Grant Date as defined in Section 2.2
herein.
(p) "Kroll Associates" shall mean Kroll Associates, Inc.
(q) "Majority Stockholder" shall mean Jules B. Kroll and his family and
their respective donees, estates and heirs.
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<PAGE> 4
(r) "Note Purchase Agreement" shall mean any long-term debt, credit or
other agreements or arrangements entered into by the Company or its Affiliates.
(s) "Options" shall mean the options to purchase Common Stock granted
to the Executive under this Agreement.
(t) "Permitted Disposition" shall have the meaning set forth in Section
3.2 herein.
(u) "Permitted Transferee" shall mean a Transferee who receives his
interest in Common Stock as the result of a Permitted Disposition, PROVIDED that
the Transferee becomes a party to this Agreement as provided in Section 3.1.
(v) "Person" shall mean an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
(w) "Public Offering" shall mean an offer for sale of shares of Company
Stock pursuant to an effective registration statement filed by the Company which
issued such shares pursuant to the Securities Act.
(x) "Put Notice" shall have the meaning set forth in Section 3.6(b).
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
(z) "Selling Stockholder" shall have the meaning set forth in Section
3.7 herein.
(aa) "Stockholder Notice" shall have the meaning set forth in Section
3.7 herein.
(bb) "Transfer" shall mean any transfer, sale, assignment, gift,
testamentary transfer, pledge, hypothecation or other disposition of any
interest. "Transferee" and "Transferor" shall have correlative meanings.
(cc) "Trustee" shall mean a trustee chosen by the Executive and
consented to by the Majority Stockholder, such consent not to be unreasonably
withheld.
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(dd) "Valuation Date" shall mean December 31 of each year, commencing
with December 31, 1995.
(ee) "Vesting Date" shall mean the date the Options become exercisable
as defined in Section 2.3 herein.
2. OPTIONS
The Company hereby grants to the Executive Options to purchase 1098
shares of Common Stock of the Company at $150.00 per share, subject to the
following terms and conditions:
2.1 IDENTIFICATION OF OPTIONS. The Options granted under this Agreement
shall be non-qualified stock options which are not entitled to tax treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986.
2.2 GRANT DATE. The Grant Date of the Options shall be the date this
Agreement is executed.
2.3 VESTING DATE OF OPTIONS. Fifty percent of the Options granted
pursuant to this Agreement are immediately exercisable on the Grant Date and the
remaining fifty percent of the Options shall become exercisable on the earliest
to occur of: (a) June 30,1997; (b) the date of a Corporate Event; or (c) the
date the Executive's Employment ceases due to (i) Disability, (ii) death, or
(iii) termination by the Company other than for Cause.
2.4 EXPIRATION OF OPTIONS. The Options shall expire on the third
anniversary of the Grant Date defined above, or, if a Corporate Event has
occurred before the third anniversary, on the 10th anniversary of such Grant
Date.
2.5 TERMINATION OF EMPLOYMENT. The Options may only be exercised while
the Executive is Employed and, in the event the Executive's Employment ceases
due to the Executive's Disability, death, termination of Employment at or after
age 65 other than for Cause or termination of Employment by the Company other
than for Cause, for a period of 90
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<PAGE> 6
days after the date of such cessation or termination. In the event the Executive
voluntarily terminates his Employment before age 65, all Options, whether vested
or unvested, shall expire as of the date of such termination.
2.6 TERMINATION FOR CAUSE. In the event the Executive's Employment is
or is deemed to have been terminated by the Company for Cause, all Options,
whether vested or unvested, shall expire at the commencement of business as of
the date of such termination.
2.7 LIMITATION ON TRANSFER. During the lifetime of the Executive, the
Options shall be exercisable only by him. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent and distribution.
2.8 EXERCISE OF OPTIONS. The Options shall be exercisable in whole or
in part; provided, that no partial exercise of the Options shall be for an
aggregate exercise price of less than $1000. The partial exercise of the
Options, alone, shall not cause the expiration, termination or cancellation of
the remaining Options.
2.9 EXERCISE OF OPTIONS BY BENEFICIARY(IES). Before any beneficiary or
beneficiaries of the Executive may exercise the Options granted herein upon the
Executive's death, such beneficiary or beneficiaries must agree to be bound by
this Agreement, including, without limitation, the restrictions on Common Stock
provided in Section 3 herein, as if they had been original signatories hereto.
2.10 METHOD OF EXERCISE. The Options shall be exercised by delivery of
written notice to the Company's principal office, to the attention of its
Secretary, no less than one business day in advance of the effective date of the
proposed exercise. Such notice shall (a) specify the number of shares of Common
Stock with respect to which the Options are being exercised, the effective date
of the proposed exercise and any request with respect to withholding taxes
pursuant to Section 2.13, (b) be signed by the Executive or his
beneficiary(ies), as the case may be, and (c) if the Options are being exercised
by the Executive's beneficiary(ies), such beneficiary or beneficiaries shall
indicate in writing that they agree to and shall be bound by this Agreement as
if they had been original signatories hereto.
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<PAGE> 7
2.11 CERTIFICATES OF SHARES. Upon the exercise of the Options,
certificates of shares of Common Stock, legended as provided in Section 3.4,
shall be issued in the name of the Executive or his beneficiary(ies), as the
case may be, and delivered to the Executive or his beneficiary(ies), as the case
may be, as soon as practicable following the effective date on which the Options
are exercised.
2.12 COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to
the contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Common Stock pursuant to the exercise of any
Options, unless and until the Company has determined, with advice of counsel,
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Common Stock are listed or
traded. The Company shall in no event be obligated to register such shares of
Common Stock or to take any other action in order to comply with any such law,
regulation or requirement with respect to the issuance and delivery of such
certificates. In addition to the terms and conditions provided herein, the
Company may require that a Participant make such covenants, agreements and
representations as the Company, in its sole discretion, deems necessary in order
to comply with any such laws, regulations or requirements.
2.13 WITHHOLDING TAXES. At the time that the Executive exercises all or
part of his Options, the Executive may notify the Company and request, in
writing, that the Company withhold a portion of the shares that are to be
distributed to the Executive to satisfy the applicable federal, state and local
withholding taxes incurred in connection with the exercise of the Options.
Otherwise, the Executive must pay to the Company in cash an amount sufficient to
satisfy such withholding taxes.
2.14 ADMINISTRATION OF OPTIONS.
(a) TERMINATION OF THE OPTIONS. The Board may, at any time, in its
absolute discretion, without amendment to this Agreement, terminate the Options
then outstanding, whether or not exercisable, provided, however, that the
Company, in full consideration of such termination, pays to the Executive an
amount in cash for each such Option equal to either (i) if
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<PAGE> 8
the date of termination occurs prior to a Public Offering, the excess of (x) the
Fair Value of the shares of Common Stock subject to the Options as of the
Valuation Date either (1) immediately preceding the date of termination if such
date is on or before June 30, or (2) immediately succeeding the date of
termination if such date is after June 30 but before January 1 of the following
calendar year, over (y) the exercise price of the Options, or (ii) if the date
of termination occurs coincident with or following a Public Offering, the excess
of (x) the fair market value of each share of Common Stock as of the date of
termination over (y) the exercise price of the Options.
(b) AMENDMENT OF TERMS OF OPTIONS. The Board may, in its absolute
discretion, amend the terms of the Options, provided, however, that any such
amendment shall not impair the Executive's rights under such Options without the
Executive's consent.
2.15 ADJUSTMENT UPON CHANGES IN COMPANY STOCK.
(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION.
Subject to any required action by the stockholders of the Company, in the event
of any increase or decrease in the number of issued shares of Company Stock
resulting from a subdivision or consolidation of shares of Company Stock or the
payment of a stock dividend (but only on the shares of Company Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Board shall proportionally adjust the
number of shares of Common Stock subject to the Options and the exercise price
per share of Common Stock of each such Option.
(b) CERTAIN MERGERS. Subject to any required action by the stockholders
of the Company, in the event that the Company shall be the surviving corporation
in any merger or consolidation (except a merger or consolidation as a result of
which the holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Options would have received in
such merger or consolidation.
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<PAGE> 9
(c) CERTAIN OTHER TRANSACTIONS. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation involving the Company in which
the Company is not the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving corporation but the
holders of shares of Company Stock receive securities of another corporation
and/or other property, including cash, the Board shall, in its absolute
discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, the Options outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Executive an amount in cash, for each share of
Common Stock subject to the Options, equal to the excess of (1) the
value, as determined by the Board in its absolute discretion, of the
property (including cash) received by the holder of a share of Common
Stock as a result of such event over (2) the exercise price of the
Options; or
(B) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for
an option on or stock appreciation right with respect to, as
appropriate, some or all of the property for which such Options are
exchanged and, incident thereto, make an equitable adjustment, as
determined by the Board in its absolute discretion, in the exercise
price of the options or stock appreciation rights, or the number of
shares or amount of property subject to the options or stock
appreciation rights or, if appropriate, provide for a cash payment to
the Executive in partial consideration for the exchange of the Options.
(d) OTHER CHANGES. In the event of any change in the capitalization of
the Company or a corporate change other than those specifically referred to in
Sections 2.15(a), (b) or (c) hereof, the Board may, in its absolute discretion,
make such adjustments in the number and class of shares subject to Options
outstanding on the date on which such change occurs and in the per-share
exercise price of each such Option as the Board may consider appropriate to
prevent dilution or enlargement of rights.
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<PAGE> 10
(e) NO OTHER RIGHTS. Except as expressly provided in this Agreement,
the Executive shall not have any rights by reason of any subdivision or
consolidation of shares of Common Stock or shares of stock of any class, the
payment of any dividend, any increase or decrease in the number of shares of
Common Stock or shares of stock of any class or any dissolution, liquidation,
merger or consolidation of the Company or any other corporation. Except as
expressly provided in this Agreement, no issuance by the Company of shares of
Common Stock or shares of stock of any class, or securities convertible into
shares of Common Stock or shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to the Options or the exercise price of the Options.
2.16 RIGHTS AS A STOCKHOLDER. The Executive shall not have any rights
as a stockholder with respect to any shares of Common Stock covered by or
relating to the Options granted pursuant to this Agreement until the date the
Executive becomes the registered owner of such shares. Except as otherwise
expressly provided in Sections 2.14 and 2.15 hereof, no adjustment to the
Options shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
2.17 NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in this Agreement
shall confer upon the Executive any right with respect to the continuation of
his Employment or interfere in any way with the right of the Company or an
Affiliate, subject to the terms of any separate Employment agreement to the
contrary, at any time to terminate such Employment or to increase or decrease
the compensation of the Executive from the rate in existence at the time of the
grant of the Options.
2.18 NO OBLIGATION TO EXERCISE. The grant to the Executive of the
Options shall impose no obligation upon the Executive to exercise such Options.
3. RESTRICTIONS ON COMMON STOCK
Upon the exercise of the Options provided in Section 2 above, the
rights and obligations of the Executive and his Permitted Transferees with
respect to Common Stock
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<PAGE> 11
obtained through the exercise of the Options provided under this Agreement shall
be governed by the following terms and conditions.
3.1 LIMITATION ON TRANSFER OF COMMON STOCK. The Executive shall not
Transfer any shares of Common Stock except as provided in this Agreement. It
shall be a condition precedent to any Transfer of shares of Common Stock by the
Executive (')ut excluding Transfers referred to in Section 3.5 (Public
Offerings) hereof) that the Transferee, if not already a party to this
Agreement, shall agree prior to the Transfer in writing with the Company and the
other parties hereto to be bound by the terms of this Agreement as if it had
been an original signatory hereto.
3.2 PERMITTED DISPOSITION. The Executive shall be entitled to Transfer
shares of Common Stock, at any time and from time to time, (a) if such Transfer
is a testamentary transfer effected by operation of law or by will, (b) to a
trust for the benefit of the Executive or the Executive's spouse, issue or
siblings, or (c) pursuant to and in accordance with sections 3.5 (Public
Offering), 3.6 (Puts), 3.7 (Right of First Refusal), 3.8 (Calls), 3.9
(Tag-Alongs) and 3.10 (Drag-Alongs).
3.3 EFFECT OF VOID TRANSFERS. In the event of any purported Transfer of
any shares of Common Stock in violation of the provisions of this Agreement,
such purported Transfer shall, to the extent permitted by applicable law, be
void and of no effect, and, until such time as a Transfer in compliance with
this Agreement shall have occurred, (a) no dividend of any kind whatsoever nor
any distribution pursuant to liquidation or otherwise shall be paid to the
purported Transferee in respect of such shares, (b) the voting rights of such
shares, if any, on any matter whatsoever shall remain vested in the Transferor,
(c) the Transferor shall continue to be bound with respect to its obligations
hereunder as the holder of such shares and (d) no such purported Transfer in
violation of this Agreement shall be registered by the Company on its books of
registry.
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3.4 SECURITIES ACT; LEGENDS ON STOCK; NOTICE OF TRANSFER.
(a) LEGENDS ON STOCK. Upon the exercise of the Options, each stock
certificate representing shares of Common Stock (prior to a Public Offering
pursuant to Section 3.5) shall bear a legend in substantially the following
form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, (the "Act") or
under any state securities or blue sky laws and may not be transferred
in the absence of such registration or any exception therefrom under
such Act or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
that certain Stock Option and Stockholders' Agreement, dated as of
January 29, 1996, as it may be amended, among Kroll Holdings, Inc.,
Jules B. Kroll, and Michael G. Cherkasky. A copy of such Stock Option
and Stockholders' Agreement, and any amendments thereto, is on file and
available for inspection at the principal offices of Kroll Holdings,
Inc.
(b) NOTICE OF TRANSFER. Prior to any Transfer of shares of Common Stock
by the Executive or his Permitted Transferees, the Executive or his Permitted
Transferees will give written notice to the Company of his intention to effect
such Transfer. The following provisions shall then apply:
(i) If in the opinion of the Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company shall, as promptly as practicable, so
notify the Executive and he shall thereupon be entitled, subject to the
other provisions of this Agreement, to Transfer such shares in
accordance with the terms of the notice delivered by him to the
Company.
(ii) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company will, as promptly as practicable, so notify
the Executive and thereafter he shall not be entitled to Transfer such
shares until either such shares have been effectively registered
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under the Securities Act or the provisions of this subdivision (b) of
this Section 3.4 have otherwise been complied with, it being understood
that the Company will not be requested or required to register such
shares of Common Stock.
3.5 PUBLIC OFFERING. In the event of a Public Offering, the Executive
shall be entitled, without the consent of any other Stockholder, to Transfer any
or all of his shares of Common Stock, at any time and from time to time
following such Public Offering. The Company has not made any commitment to
effect a Public Offering of its shares or otherwise register such shares for
resale.
3.6 EXECUTIVE'S RIGHT TO PUT SHARES TO THE COMPANY
(a) PUT RIGHTS. The Executive or his Permitted Transferees shall have
the right to sell to the Company, and the Company shall have the obligation to
purchase from the Executive or his Permitted Transferees, the shares of Common
Stock obtained as a result of exercising the Options in accordance with the
terms of this Section 3.6.
(b) PUT NOTICE. No more than once each twelve-month period, the
Executive or his Permitted Transferees may elect to sell their shares of Common
Stock to the Company by delivering written notice (the "Put Notice") to the
Company specifying the number of shares of Common Stock such Executive or his
Permitted Transferees wish to sell to the Company.
(c) NUMBER OF SHARES. The Executive and his Permitted Transferees shall
have the right to sell to the Company, and the Company shall be obligated to
purchase, in any calendar year, no more than 13 of the total number of shares
of Common Stock that the Executive obtained as a result of exercising the
Options granted hereunder.
(d) PAYMENT FOR SHARES. Following receipt of the Put Notice pursuant to
this Section 3.6, the Company shall tender to the Executive or Permitted
Transferee a certified check in an amount equal to the product of the number of
shares of Common Stock being sold and the Fair Value of a share of Common Stock.
The Fair Value shall be determined as of the Valuation Date either (i)
immediately preceding the date the Company received the Put Notice if such date
is on or before June 30, or (ii) immediately succeeding the date the Company
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<PAGE> 14
received the Put Notice if such date is after June 30 but before January 1 of
the following calendar year. The Company may delay such payment for a reasonable
time pending the availability of the necessary financial information and the
calculation of Fair Value by the Appraiser. Regardless of whether payment has
been delayed by the Company pursuant to this Section 3.6, the Executive or
Permitted Transferee shall deliver to the Company stock certificates for such
shares of Common Stock, duly endorsed in blank as soon as practicable after
delivery of the Put Notice.
(e) RESTRICTION ON RIGHT TO PUT. The Company shall not be obligated to
purchase shares of Common Stock from the Executive or Permitted Transferee if,
at the time payment for such shares of Common Stock would be required to be
made, (i) such payment would result in a breach of, or could constitute an event
of default under, any Note Purchase Agreement; (ii) an event of default of any
Note Purchase Agreement has occurred and is continuing; or (iii) such payment
would violate applicable law.
(f) EXPIRATION OF PUT RIGHTS. The Put Rights shall expire on the date
that a Public Offering of Company Stock occurs.
3.7 EXECUTIVE RIGHT TO TRANSFER AND COMPANY RIGHT OF FIRST REFUSAL.
Following the fifth anniversary of the date of this Agreement and prior to a
Public Offering, the Executive and his Permitted Transferees shall have the
right (subject to the other terms of this Agreement) to Transfer any shares of
Common Stock held by such holder(s) in accordance with the terms of this Section
3.7. In the event that such holder(s) obtains from an independent purchaser a
good faith BONA FIDE offer to purchase shares of Common Stock held by such
holder, he shall promptly notify the Company in writing of the name and address
of such independent purchaser and inform the Company of the status of such
negotiations. When and if such holder (a "Selling Stockholder") decides to
Transfer any such shares of Common Stock, such Selling Stockholder shall
promptly deliver to the Company a copy of such good faith BONA FIDE offer along
with the identity of the independent purchaser and a written notice that, unless
the Company exercises its rights granted in this Section 3.7, such Selling
Stockholder will Transfer his shares of Common Stock in accordance therewith
(the
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<PAGE> 15
"Stockholder Notice"). At any time during the ten business days following
receipt of the Stockholder Notice, the Company may give such Selling Stockholder
notice of exercise of its right to purchase all, but not less than all, of the
shares of Common Stock which the Selling Stockholder has given notice of his
intention to Transfer in the Stockholder Notice (the "Company Notice"). Upon
receipt of the Company Notice, the Selling Stockholder shall sell the shares of
Common Stock described in the Stockholder Notice to the Company at a price equal
to the product of the number of shares of Common Stock being sold and the Fair
Value of a share of Common Stock as of the Valuation Date either (i) immediately
preceding the date of the Company Notice if such date is on or before June 30,
or (ii) immediately succeeding the date of the Company Notice if such date is
after June 30 but before January 1 of the following calendar year. The Company
may delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Fair Value by the
Appraiser. Regardless of whether the Company delays such payment pursuant to
this Section 3.7, if the Company exercises its right of first refusal under this
Section 3.7, the Executive or Permitted Transferee shall deliver to the Company
stock certificates for such shares of Common Stock, duly endorsed in blank, as
soon as practicable after receipt of the Company Notice. If the Selling
Stockholder shall not receive the Company Notice as provided in the foregoing
sentence, he shall have the right to Transfer all, but not less than all, of the
shares of Common Stock offered for Transfer in the Stockholder Notice to the
independent purchaser specified in the Stockholder Notice, for the consideration
and in accordance with the terms and conditions set out in such Stockholder
Notice and in compliance with the terms of this Agreement, PROVIDED that such
Selling Stockholder shall not Transfer any shares of Common Stock to (i) any
Person, or Affiliate of such Person, who competes, or is expected to compete,
with the Company or any of its Affiliates, (ii) any Person, or Affiliate of such
Person, who the Company determines (in its sole discretion) might cause harm to
the Company by virtue of becoming a stockholder of the Company, (iii) any bank
or other financial institution for the purpose of pledging or granting a
security interest in such shares of Common Stock in order to secure indebtedness
of such Selling Stockholder, or (iv) any other shareholder of the Company
without the written consent of the Majority Stockholder, or (v) any Person, or
Affiliate of such Person, which has a material adverse interest to, or is
involved in a pending or threatened
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litigation or legal proceeding with, the Company, the Majority Stockholder or
any of their Affiliates.
3.8 COMPANY CALL RIGHTS
(a) In the event that the Executive ceases to be Employed for any
reason other than (1) death, (2) Disability, or (3) termination at or after age
65 (other than a termination by the Company for Cause), the Company shall have
the right to purchase from such Executive and all of his Permitted Transferees,
and such Executive and all of his Permitted Transferees shall have the
obligation to sell to the Company, all (but not less than all) of such
Executive's and/or his Permitted Transferee's shares of Common Stock at a price
equal to the product of (i) the number of shares of Common Stock being purchased
and (ii) the Fair Value of a share of Common Stock as of the Valuation Date
either (x) immediately preceding the Call Date if such Call Date is on or before
June 30, or (y) immediately succeeding the Call Date if such Call Date is after
June 30 but before January 1 of the following calendar year. The Company may
delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Fair Value by the
Appraiser. Regardless of whether the Company delays such payment pursuant to
this Section 3.8, the Executive or Permitted Transferee shall deliver to the
Company stock certificates for such shares of Common Stock, duly endorsed in
blank, as soon as practicable following the Call Date.
(b) The Company's right to purchase shares of Common Stock shall be
exercised by the delivery of a written notice to the Executive or his Permitted
Transferees, specifying the "Call Date," which date shall be not less than one
and no more than ninety days after the date of such notice, on which the Company
shall purchase all but not less than all) of such shares of Common Stock held by
the Executive and/or his Permitted Transferees.
(c) The Call Rights shall expire on the date that a Public Offering of
Company Stock occurs.
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3.9 EXECUTIVE'S TAG-ALONG RIGHTS.
(a) In the event of a Public Offering or a sale of all or substantially
all of the stock of the Company, the Executive or his Permitted Transferee will
be permitted to participate in such transaction by selling the number of shares
of Common Stock owned by the Executive and all of his Permitted Transferees as a
result of exercising the Options provided herein equal to the product of the
number of shares of Common Stock owned by the Executive and all of his Permitted
Transferees and a fraction, the numerator of which is the total number of shares
of Common Stock proposed to be sold by the Majority Stockholder (before giving
effect to this provision) and the denominator of which is the total number of
shares of Common Stock then owned by the Majority Stockholder and his Permitted
Transferees plus the total number of shares of Common Stock owned on or before
the fifth business day prior to the date of such Public Offering or sale, by any
other Stockholder of the Company entitled to participate in such sale. The
Company shall notify the Executive in writing of such Public Offering or sale,
indicating the price and other material terms and conditions of the proposed
sale and the intended closing date of such sale. Any purchase from the Executive
under this Section 3.9 shall be at the same price per share of Common Stock and
on the same terms and conditions as apply to the purchase from the Majority
Stockholder. The Executive shall give the Company written notice of how many
shares of Common Stock he and all of his Permitted Transferees desire to sell
within 10 days of receiving notice of the proposed transaction. If the Company
does not receive notice from the Executive or his Permitted Transferees within
such ten-day period, the Executive and/or his Permitted Transferees shall be
deemed to have elected not to exercise the rights under this Section 3.9 and the
Company may complete the proposed Public Offering or sale at the price and on
the terms and conditions of the notice to the Executive.
(b) The Company shall have the right, but not the obligation, to
satisfy the Executive's Tag-Along Rights by redeeming the number of shares of
Common Stock the Executive is entitled to sell under this Section 3.9 in lieu of
allowing the Executive to participate in the sales transaction. On the date
specified by the Company in a written notice to the Executive for such
redemption, the Company shall tender to the Executive or Permitted Transferee a
certified check in the amount equal to the product of the number of shares of
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Common Stock being redeemed and the price per share of Common Stock being paid
in the sales transaction and the Executive or Permitted Transferee shall deliver
to the Company stock certificates for such shares of Common Stock, duly endorsed
in blank.
3.10 MAJORITY STOCKHOLDER'S DRAG-ALONG RIGHTS. In the event that the
Majority Stockholder or any of his Permitted Transferees agree to sell all or
substantially all of their shares of Company Stock, the Majority Stockholder
shall have the right, but not the obligation, to require the Executive and all
of his Permitted Transferees to sell, and the Executive and all of his Permitted
Transferees shall have the obligation to sell, under the same terms and
conditions that are applicable to the sale by the Majority Stockholder and at
the same time as such sale, up to that total number of shares of Common Stock
owned by the Executive and all of his Permitted Transferees obtained by
multiplying (a) the total number of shares of Common Stock that are proposed to
be sold before giving effect to this provision) by the Majority Stockholder and
all of his Permitted Transferees, by (b) a fraction, the numerator of which is
the total number of shares of Common Stock owned on or before the fifth business
day prior to the date of such sale by the Executive and all of his permitted
Transferees and the denominator of which is the total number of shares of Common
Stock owned by the Majority Stockholder and all of his Permitted Transferees.
4. CERTAIN VOTING AGREEMENTS
4.1 OBLIGATION TO BE COUNTED FOR A QUORUM. Once the Options are
exercised, the Executive and all of his Permitted Transferees agree to be
present in person or represented by proxy at all meetings of the stockholders of
the Company, so that all shares owned by the Executive or his Permitted
Transferees may be counted for the purpose of determining the presence of a
quorum at such meetings.
4.2 VOTING BY STOCKHOLDERS. Once the Options are exercised, the
Executive agrees to vote any shares of Common Stock owned by him, and to cause
all of his Permitted Transferees to vote any shares of Common Stock owned by
such Permitted Transferees, whether by note, ballot, proxy or written consent,
in any vote of the stockholders of the Company in the same manner as the
Majority Stockholder, or upon the death of the Majority
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Stockholder, in the same manner as the holders of a majority of the shares held
by the Permitted Transferees of the Majority Stockholder.
5. MISCELLANEOUS
5.1 INTERPRETATION OF THIS AGREEMENT. The Board shall have full
authority to interpret and construe any provision of this Agreement, including,
without limitation, the terms of the Options provided hereto and the terms and
restrictions on shares of Common Stock obtained as a result of the exercise of
such Options, and to adopt such rules and regulations for administering such
provisions as it may deem necessary or appropriate. Decisions of the Board shall
be final and binding on all parties.
5.2 AMENDMENTS. This Agreement may be amended only by a written
instrument signed by all of the parties hereto, except with respect of the
Options as provided in Section 2.
5.3 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
5.4 INTEGRATION. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
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5.5 OTHER STOCKHOLDERS' AGREEMENTS. The Executive or his respective
Permitted Transferees shall not enter into any stockholder agreement or
arrangement of any kind with any person with respect to the shares of Common
Stock received pursuant to the Options provided herein inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
5.6 SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that the
Executive may not assign to any Person any of his rights hereunder other than in
connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
5.7 NOTICES. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
If to the Executive:
To the address shown on the attached signature page.
If to the Majority Stockholder:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: Jules B. Kroll
If to the Company:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 100224751
ATTENTION: General Counsel and Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
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5.8 DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
5.9 SEVERABILITY. In the event that any one or more of the provisions,
subdivisions, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
5.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
5.11 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the provisions governing conflict of laws.
5.12 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that a
violation of any of the terms of this Agreement will cause the Company
irreparable injury for which adequate remedy at law is not available. Therefore,
the Executive agrees that the Company shall be entitled to an injunction,
restraining order or other equitable relief from any court of competent
jurisdiction, restraining the Executive and/or any of his Permitted Transferees
from committing any violations of the provisions of this Agreement.
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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
or caused this Agreement to be executed on its behalf as of the date first
written above.
KROLL HOLDINGS, INC.
By: /s/ Robert L.
-----------------------------
Title:
MAJORITY STOCKHOLDER:
/s/ Jules B. Kroll
--------------------------------
Jules B. Kroll
EXECUTIVE:
/s/ Michael G. Cherkasky
--------------------------------
Name: Michael G. Cherkasky
Address:
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<PAGE> 1
Exhibit 10.29
STOCK OPTION AND STOCKHOLDERS' AGREEMENT
STOCK OPTION AND STOCKHOLDERS' AGREEMENT, dated as of January 29, 1996,
among Kroll Holdings, Inc., a Delaware corporation (the "Company"), Jules B.
Kroll, the Majority Stockholder (the "Majority Stockholder"), and Nazzareno E.
Paciotti, an Executive of the Company (the "Executive"):
WHEREAS, the Company has determined to award the Executive options to
purchase 1098 shares of non-class A common stock ("Common Stock") of the Company
at $150.00 per share (the "Options"), subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained the parties hereto hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
(a) "Affiliate" shall mean with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
(b) "Appraiser" shall mean an accounting, investment banking or other
appraisal firm selected by the Board of Directors of the Company.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Call Date" shall have the meaning set forth in Section 3.8(b)
herein.
<PAGE> 2
(e) "Cause" shall mean (i) the commission of a felony; (ii) gross
negligence or willful misconduct in connection with the performance of the
Executive's duties as an Employee; (iii) a fraudulent act or omission by the
Executive adverse to the reputation of the Company or any of its Affiliates;
(iv) the disclosure by the Executive of any trade secrets or confidential
information of the Company or any of its Affiliates to persons not authorized to
know same; or (v) the willful refusal to carry out reasonable instructions of
the Chairman, which has a material adverse effect on the Company or any of its
Affiliates. If, subsequent to the Executive's voluntary termination of
Employment or involuntary termination of Employment without Cause, it is
discovered that the Executive's Employment could have been terminated for Cause,
the Executive's Employment shall, at the election of the Company, in its sole
discretion, be deemed to have been terminated for Cause.
(f) "Chairman" shall mean Jules B. Kroll or a successor Chairman of the
Company or its Affiliates.
(g) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(h) "Common Stock" shall mean the common stock of the Company,
excluding the class A common stock.
(i) "Company Notice" shall have the meaning set forth in Section 3.7
herein.
(j) "Company Stock" shall mean the common stock of the Company,
including both the class A common stock and the Common Stock.
(k) "Corporate Event" shall mean the date that (i) more than 50% of the
shares of Company Stock, by vote and by value, are owned by persons other than
the Majority Stockholder or employees or employee benefit plans of the Company
or its Affiliates, or (ii) all or substantially all of the assets of the Company
are sold to persons other than the Majority Stockholder or employees or employee
benefit plans of the Company or its Affiliates.
(1) "Disability" shall mean a permanent disability as defined in Kroll
Associates' long-term disability plan.
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<PAGE> 3
(m) "Employment" shall mean employment with the Company or any
Affiliate. "Employee" and "Employed" shall have correlative meanings.
(n) "Fair Value" shall mean, as of any Valuation Date, the fair value
of a share of Common Stock, as determined by the Appraiser, and shall be equal
to the fair value of the Company as of such Valuation Date (determined in
accordance with the considerations listed below), divided by the sum of the
total number of shares of Company Stock issued and outstanding as of the
Valuation Date and the total number of options or any other instruments that
provide rights to acquire shares of Company Stock outstanding as of such
Valuation Date. The fair value of the Company shall be the price at which the
Common Stock would change hands between a willing buyer and a willing seller
when the former is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable knowledge of relevant
facts. In determining the fair value of the Company, the Appraiser will consider
the financial condition and operating results and prospects of the Company,
including: balance sheet, historical and at the Valuation Date; assets;
liabilities; book value; historical operating results, particularly profits
generated and factors affecting profits; dividends paid historically and
dividend-paying capacity; budgets; plans and projections of future performance;
and prospects at the Valuation Date. Fair Value shall be determined by an
appraisal conducted as of each Valuation Date, and continuing for so long as
Fair Value shall be required to be determined under this Agreement. Such
appraisal shall be conducted following the release of the Company's audited
annual financial statements for the year ending on such Valuation Date. The
Company shall be responsible for the costs of such appraisal.
(o) "Grant Date" shall mean the Grant Date as defined in Section 2.2
herein.
(p) "Kroll Associates" shall mean Kroll Associates, Inc.
(q) "Majority Stockholder" shall mean Jules B. Kroll and his family and
their respective donees, estates and heirs.
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(r) "Note Purchase Agreement" shall mean any long-term debt, credit or
other agreements or arrangements entered into by the Company or its Affiliates.
(s) "Options" shall mean the options to purchase Common Stock granted
to the Executive under this Agreement.
(t) "Permitted Disposition" shall have the meaning set forth in Section
3.2 herein.
(u) "Permitted Transferee" shall mean a Transferee who receives his
interest in Common Stock as the result of a Permitted Disposition, PROVIDED that
the Transferee becomes a party to this Agreement as provided in Section 3.1.
(v) "Person" shall mean an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
(w) "Public Offering" shall mean an offer for sale of shares of Company
Stock pursuant to an effective registration statement filed by the Company which
issued such shares pursuant to the Securities Act.
(x) "Put Notice" shall have the meaning set forth in Section 3.6(b).
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
(z) "Selling Stockholder" shall have the meaning set forth in Section
3.7 herein.
(aa) "Stockholder Notice" shall have the meaning set forth in Section
3.7 herein.
(bb) "Transfer" shall mean any transfer, sale, assignment, gift,
testamentary transfer, pledge, hypothecation or other disposition of any
interest. "Transferee" and "Transferor" shall have correlative meanings.
(cc) "Trustee" shall mean a trustee chosen by the Executive and
consented to by the Majority Stockholder, such consent not to be unreasonably
withheld.
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(dd) "Valuation Date" shall mean December 31 of each year, commencing
with December 31, 1995.
(ee) "Vesting Date" shall mean the date the Options become exercisable
as defined in Section 2.3 herein.
2. OPTIONS
The Company hereby grants to the Executive Options to purchase 1098
shares of Common Stock of the Company at $150.00 per share, subject to the
following terms and conditions:
2.1 IDENTIFICATION OF OPTIONS. The Options granted under this Agreement
shall be non-qualified stock options which are not entitled to tax treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986.
2.2 GRANT DATE. The Grant Date of the Options shall be the date this
Agreement is executed.
2.3 VESTING DATE OF OPTIONS. Fifty percent of the Options granted
pursuant to this Agreement are immediately exercisable on the Grant Date and the
remaining fifty percent of the Options shall become exercisable on the earliest
to occur of: (a) June 30, 1997; (b) the date of a Corporate Event; or (c) the
date the Executive's Employment ceases due to (i) Disability, (ii) death, or
(iii) termination by the Company other than for Cause.
2.4 EXPIRATION OF OPTIONS. The Options shall expire on the third
anniversary of the Grant Date defined above, or, if a Corporate Event has
occurred before the third anniversary, on the 10th anniversary of such Grant
Date.
2.5 TERMINATION OF EMPLOYMENT. The Options may only be exercised while
the Executive is Employed and, in the event the Executive's Employment ceases
due to the Executive's Disability, death, termination of Employment at or after
age 65 other than for Cause or termination of Employment by the Company other
than for Cause, for a period of 90
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days after the date of such cessation or termination. In the event the Executive
voluntarily terminates his Employment before age 65, all Options, whether vested
or unvested, shall expire as of the date of such termination.
2.6 TERMINATION FOR CAUSE. In the event the Executive's Employment is
or is deemed to have been terminated by the Company for Cause, all Options,
whether vested or unvested, shall expire at the commencement of business as of
the date of such termination.
2.7 LIMITATION ON TRANSFER. During the lifetime of the Executive, the
Options shall be exercisable only by him. No Option shall be assignable or
transferable otherwise than by will or by the laws of descent and distribution.
2.8 EXERCISE OF OPTIONS. The Options shall be exercisable in whole or
in part; provided, that no partial exercise of the Options shall be for an
aggregate exercise price of less than $1000. The partial exercise of the
Options, alone, shall not cause the expiration, termination or cancellation of
the remaining Options.
2.9 EXERCISE OF OPTIONS BY BENEFICIARY(IES). Before any beneficiary or
beneficiaries of the Executive may exercise the Options granted herein upon the
Executive's death, such beneficiary or beneficiaries must agree to be bound by
this Agreement, including, without limitation, the restrictions on Common Stock
provided in Section 3 herein, as if they had been original signatories hereto.
2.10 METHOD OF EXERCISE. The Options shall be exercised by delivery of
written notice to the Company's principal office, to the attention of its
Secretary, no less than one business day in advance of the effective date of the
proposed exercise. Such notice shall (a) specify the number of shares of Common
Stock with respect to which the Options are being exercised, the effective date
of the proposed exercise and any request with respect to withholding taxes
pursuant to Section 2.13, (b) be signed by the Executive or his
beneficiary(ies), as the case may be, and (c) if the Options are being exercised
by the Executive's beneficiary(ies), such beneficiary or beneficiaries shall
indicate in writing that they agree to and shall be bound by this Agreement as
if they had been original signatories hereto.
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2.11 CERTIFICATES OF SHARES. Upon the exercise of the Options,
certificates of shares of Common Stock, legended as provided in Section 3.4,
shall be issued in the name of the Executive or his beneficiary(ies), as the
case may be, and delivered to the Executive or his beneficiary(ies), as the case
may be, as soon as practicable following the effective date on which the Options
are exercised.
2.12 COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to
the contrary, the Company shall not be required to issue or deliver any
certificates evidencing shares of Common Stock pursuant to the exercise of any
Options, unless and until the Company has determined, with advice of counsel,
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable, the
requirements of any exchange on which the shares of Common Stock are listed or
traded. The Company shall in no event be obligated to register such shares of
Common Stock or to take any other action in order to comply with any such law,
regulation or requirement with respect to the issuance and delivery of such
certificates. In addition to the terms and conditions provided herein, the
Company may require that a Participant make such covenants, agreements and
representations as the Company, in its sole discretion, deems necessary in order
to comply with any such laws, regulations or requirements.
2.13 WITHHOLDING TAXES. At the time that the Executive exercises all or
part of his Options, the Executive may notify the Company and request, in
writing, that the Company withhold a portion of the shares that are to be
distributed to the Executive to satisfy the applicable federal, state and local
withholding taxes incurred in connection with the exercise of the Options.
Otherwise, the Executive must pay to the Company in cash an amount sufficient to
satisfy such withholding taxes.
2.14 ADMINISTRATION OF OPTIONS.
(a) TERMINATION OF THE OPTIONS. The Board may, at any time, in its
absolute discretion, without amendment to this Agreement, terminate the Options
then outstanding, whether or not exercisable, provided, however, that the
Company, in full consideration of such termination, pays to the Executive an
amount in cash for each such Option equal to either (i) if
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the date of termination occurs prior to a Public Offering, the excess of (x) the
Fair Value of the shares of Common Stock subject to the Options as of the
Valuation Date either (1) immediately preceding the date of termination if such
date is on or before June 30, or (2) immediately succeeding the date of
termination if such date is after June 30 but before January 1 of the following
calendar year, over (y) the exercise price of the Options, or (ii) if the date
of termination occurs coincident with or following a Public Offering, the excess
of (x) the fair market value of each share of Common Stock as of the date of
termination over (y) the exercise price of the Options.
(b) AMENDMENT OF TERMS OF OPTIONS. The Board may, in its absolute
discretion, amend the terms of the Options, provided, however, that any such
amendment shall not impair the Executive's rights under such Options without the
Executive's consent.
2.15 ADJUSTMENT UPON CHANGES IN COMPANY STOCK.
(a) INCREASE OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION.
Subject to any required action by the stockholders of the Company, in the event
of any increase or decrease in the number of issued shares of Company Stock
resulting from a subdivision or consolidation of shares of Company Stock or the
payment of a stock dividend (but only on the shares of Company Stock), or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Company, the Board shall proportionally adjust the
number of shares of Common Stock subject to the Options and the exercise price
per share of Common Stock of each such Option.
(b) CERTAIN MERGERS. Subject to any required action by the stockholders
of the Company, in the event that the Company shall be the surviving corporation
in any merger or consolidation (except a merger or consolidation as a result of
which the holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such Options would have received in
such merger or consolidation.
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<PAGE> 9
(c) CERTAIN OTHER TRANSACTIONS. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation involving the Company in which
the Company is not the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving corporation but the
holders of shares of Company Stock receive securities of another corporation
and/or other property, including cash, the Board shall, in its absolute
discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, the Options outstanding immediately prior to such event
(whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Executive an amount in cash, for each share of
Common Stock subject to the Options, equal to the excess of (1) the
value, as determined by the Board in its absolute discretion, of the
property (including cash) received by the holder of a share of Common
Stock as a result of such event over (2) the exercise price of the
Options; or
(B) provide for the exchange of each Option outstanding
immediately prior to such event (whether or not then exercisable) for
an option on or stock appreciation right with respect to, as
appropriate, some or all of the property for which such Options are
exchanged and, incident thereto, make an equitable adjustment, as
determined by the Board in its absolute discretion, in the exercise
price of the options or stock appreciation rights, or the number of
shares or amount of property subject to the options or stock
appreciation rights or, if appropriate, provide for a cash payment to
the Executive in partial consideration for the exchange of the Options.
(d) OTHER CHANGES. In the event of any change in the capitalization of
the Company or a corporate change other than those specifically referred to in
Sections 2.15(a), (b) or (c) hereof, the Board may, in its absolute discretion,
make such adjustments in the number and class of shares subject to Options
outstanding on the date on which such change occurs and in the per-share
exercise price of each such Option as the Board may consider appropriate to
prevent dilution or enlargement of rights.
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<PAGE> 10
(e) NO OTHER RIGHTS. Except as expressly provided in this Agreement,
the Executive shall not have any rights by reason of any subdivision or
consolidation of shares of Common Stock or shares of stock of any class, the
payment of any dividend, any increase or decrease in the number of shares of
Common Stock or shares of stock of any class or any dissolution, liquidation,
merger or consolidation of the Company or any other corporation. Except as
expressly provided in this Agreement, no issuance by the Company of shares of
Common Stock or shares of stock of any class, or securities convertible into
shares of Common Stock or shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to the Options or the exercise price of the Options.
2.16 RIGHTS AS A STOCKHOLDER. The Executive shall not have any rights
as a stockholder with respect to any shares of Common Stock covered by or
relating to the Options granted pursuant to this Agreement until the date the
Executive becomes the registered owner of such shares. Except as otherwise
expressly provided in Sections 2.14 and 2.15 hereof, no adjustment to the
Options shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
2.17 NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in this Agreement
shall confer upon the Executive any right with respect to the continuation of
his Employment or interfere in any way with the right of the Company or an
Affiliate, subject to the terms of any separate Employment agreement to the
contrary, at any time to terminate such Employment or to increase or decrease
the compensation of the Executive from the rate in existence at the time of the
grant of the Options.
2.18 NO OBLIGATION TO EXERCISE. The grant to the Executive of the
Options shall impose no obligation upon the Executive to exercise such Options.
3. RESTRICTIONS ON COMMON STOCK
Upon the exercise of the Options provided in Section 2 above, the
rights and obligations of the Executive and his Permitted Transferees with
respect to Common Stock
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<PAGE> 11
obtained through the exercise of the Options provided under this Agreement shall
be governed by the following terms and conditions.
3.1 LIMITATION ON TRANSFER OF COMMON STOCK. The Executive shall not
Transfer any shares of Common Stock except as provided in this Agreement. It
shall be a condition precedent to any Transfer of shares of Common Stock by the
Executive (but excluding Transfers referred to in Section 3.5 (Public Offerings)
hereof) that the Transferee, if not already a party to this Agreement, shall
agree prior to the Transfer in writing with the Company and the other parties
hereto to be bound by the terms of this Agreement as if it had been an original
signatory hereto.
3.2 PERMITTED DISPOSITION. The Executive shall be entitled to Transfer
shares of Common Stock, at any time and from time to time, (a) if such Transfer
is a testamentary transfer effected by operation of law or by will, (b) to a
trust for the benefit of the Executive or the Executive's spouse, issue or
siblings, or (c) pursuant to and in accordance with sections 3.5 (Public
Offering), 3.6 (Puts), 3.7 (Right of First Refusal), 3.8 (Calls), 3.9
(Tag-Alongs) and 3.10 (Drag-Alongs).
3.3 EFFECT OF VOID TRANSFERS. In the event of any purported Transfer of
any shares of Common Stock in violation of the provisions of this Agreement,
such purported Transfer shall, to the extent permitted by applicable law, be
void and of no effect, and, until such time as a Transfer in compliance with
this Agreement shall have occurred, (a) no dividend of any kind whatsoever nor
any distribution pursuant to liquidation or otherwise shall be paid to the
purported Transferee in respect of such shares, (b) the voting rights of such
shares, if any, on any matter whatsoever shall remain vested in the Transferor,
(c) the Transferor shall continue to be bound with respect to its obligations
hereunder as the holder of such shares and (d) no such purported Transfer in
violation of this Agreement shall be registered by the Company on its books of
registry.
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<PAGE> 12
3.4 SECURITIES ACT; LEGENDS ON STOCK; NOTICE OF TRANSFER.
(a) LEGENDS ON STOCK. Upon the exercise of the Options, each stock
certificate representing shares of Common Stock (prior to a Public Offering
pursuant to Section 3.5) shall bear a legend in substantially the following
form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, (the "Act") or
under any state securities or blue sky laws and may not be transferred
in the absence of such registration or any exception therefrom under
such Act or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
that certain Stock Option and Stockholders' Agreement, dated as of
January 29, 1996, as it may be amended, among Kroll Holdings, Inc.,
Jules B. Kroll, and Nazzareno E. Paciotti. A copy of such Stock Option
and Stockholders' Agreement, and any amendments thereto, is on file and
available for inspection at the principal offices of Kroll Holdings,
Inc.
(b) NOTICE OF TRANSFER. Prior to any Transfer of shares of Common Stock
by the Executive or his Permitted Transferees, the Executive or his Permitted
Transferees will give written notice to the Company of his intention to effect
such Transfer. The following provisions shall then apply:
(i) If in the opinion of the Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company shall, as promptly as practicable, so
notify the Executive and he shall thereupon be entitled, subject to the
other provisions of this Agreement, to Transfer such shares in
accordance with the terms of the notice delivered by him to the
Company.
(ii) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company will, as promptly as practicable, so notify
the Executive and thereafter he shall not be entitled to Transfer such
shares until either such shares have been effectively registered
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<PAGE> 13
under the Securities Act or the provisions of this subdivision (b) of
this Section 3.4 have otherwise been complied with, it being understood
that the Company will not be requested or required to register such
shares of Common Stock.
3.5 PUBLIC OFFERING. In the event of a Public Offering, the Executive
shall be entitled, without the consent of any other Stockholder, to Transfer any
or all of his shares of Common Stock, at any time and from time to time
following such Public Offering. The Company has not made any commitment to
effect a Public Offering of its shares or otherwise register such shares for
resale.
3.6 EXECUTIVE'S RIGHT TO PUT SHARES TO THE COMPANY
(a) PUT RIGHTS. The Executive or his Permitted Transferees shall have
the right to sell to the Company, and the Company shall have the obligation to
purchase from the Executive or his Permitted Transferees, the shares of Common
Stock obtained as a result of exercising the Options in accordance with the
terms of this Section 3.6.
(b) PUT NOTICE. No more than once each twelve-month period, the
Executive or his Permitted Transferees may elect to sell their shares of Common
Stock to the Company by delivering written notice (the "Put Notice") to the
Company specifying the number of shares of Common Stock such Executive or his
Permitted Transferees wish to sell to the Company.
(c) NUMBER OF SHARES. The Executive and his Permitted Transferees shall
have the right to sell to the Company, and the Company shall be obligated to
purchase, in any calendar year, no more than 1/3 of the total number of shares
of Common Stock that the Executive obtained as a result of exercising the
Options granted hereunder.
(d) PAYMENT FOR SHARES. Following receipt of the Put Notice pursuant to
this Section 3.6, the Company shall tender to the Executive or Permitted
Transferee a certified check in an amount equal to the product of the number of
shares of Common Stock being sold and the Fair Value of a share of Common Stock.
The Fair Value shall be determined as of the Valuation Date either (i)
immediately preceding the date the Company received the Put Notice if such date
is on or before June 30, or (ii) immediately succeeding the date the Company
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<PAGE> 14
received the Put Notice if such date is after June 30 but before January 1 of
the following calendar year. The Company may delay such payment for a reasonable
time pending the availability of the necessary financial information and the
calculation of Fair Value by the Appraiser. Regardless of whether payment has
been delayed by the Company pursuant to this Section 3.6, the Executive or
Permitted Transferee shall deliver to the Company stock certificates for
such shares of Common Stock, duly endorsed in blank as soon as practicable after
delivery of the Put Notice.
(e) RESTRICTION ON RIGHT TO PUT. The Company shall not be obligated to
purchase shares of Common Stock from the Executive or Permitted Transferee if,
at the time payment for such shares of Common Stock would be required to be
made, (i) such payment would result in a breach of, or could constitute an event
of default under, any Note Purchase Agreement; (ii) an event of default of any
Note Purchase Agreement has occurred and is continuing; or (iii) such payment
would violate applicable law.
(f) EXPIRATION OF PUT RIGHTS. The Put Rights shall expire on the date
that a Public Offering of Company Stock occurs.
3.7 EXECUTIVE RIGHT TO TRANSFER AND COMPANY RIGHT OF FIRST REFUSAL.
Following the fifth anniversary of the date of this Agreement and prior to a
Public Offering, the Executive and his Permitted Transferees shall have the
right (subject to the other terms of this Agreement) to Transfer any shares of
Common Stock held by such holder(s) in accordance with the terms of this Section
3.7. In the event that such holder(s) obtains from an independent purchaser a
good faith BONA FIDE offer to purchase shares of Common Stock held by such
holder, he shall promptly notify the Company in writing of the name and address
of such independent purchaser and inform the Company of the status of such
negotiations. When and if such holder (a "Selling Stockholder") decides to
Transfer any such shares of Common Stock, such Selling Stockholder shall
promptly deliver to the Company a copy of such good faith BONA FIDE offer along
with the identity of the independent purchaser and a written notice that, unless
the Company exercises its rights granted in this Section 3.7, such Selling
Stockholder will Transfer his shares of Common Stock in accordance therewith
(the
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<PAGE> 15
"Stockholder Notice"). At any time during the ten business days following
receipt of the Stockholder Notice, the Company may give such Selling Stockholder
notice of exercise of its right to purchase all, but not less than all, of the
shares of Common Stock which the Selling Stockholder has given notice of his
intention to Transfer in the Stockholder Notice (the "Company Notice"). Upon
receipt of the Company Notice, the Selling Stockholder shall sell the shares of
Common Stock described in the Stockholder Notice to the Company at a price equal
to the product of the number of shares of Common Stock being sold and the Fair
Value of a share of Common Stock as of the Valuation Date either (i) immediately
preceding the date of the Company Notice if such date is on or before June 30,
or (ii) immediately succeeding the date of the Company Notice if such date is
after June 30 but before January 1 of the following calendar year. The Company
may delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Fair Value by the
Appraiser. Regardless of whether the Company delays such payment pursuant to
this Section 3.7, if the Company exercises its right of first refusal under this
Section 3.7, the Executive or Permitted Transferee shall deliver to the Company
stock certificates for such shares of Common Stock, duly endorsed in blank, as
soon as practicable after receipt of the Company Notice. If the Selling
Stockholder shall not receive the Company Notice as provided in the foregoing
sentence, he shall have the right to Transfer all, but not less than all, of the
shares of Common Stock offered for Transfer in the Stockholder Notice to the
independent purchaser specified in the Stockholder Notice, for the consideration
and in accordance with the terms and conditions set out in such Stockholder
Notice and in compliance with the terms of this Agreement, PROVIDED that such
Selling Stockholder shall not Transfer any shares of Common Stock to (i) any
Person, or Affiliate of such Person, who competes, or is expected to compete,
with the Company or any of its Affiliates, (ii) any Person, or Affiliate of such
Person, who the Company determines (in its sole discretion) might cause harm to
the Company by virtue of becoming a stockholder of the Company, (iii) any bank
or other financial institution for the purpose of pledging or granting a
security interest in such shares of Common Stock in order to secure indebtedness
of such Selling Stockholder, or (iv) any other shareholder of the Company
without the written consent of the Majority Stockholder, or (v) any Person, or
Affiliate of such Person, which has a material adverse interest to, or is
involved in a pending or threatened
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<PAGE> 16
litigation or legal proceeding with, the Company, the Majority Stockholder or
any of their Affiliates.
3.8 COMPANY CALL RIGHTS
(a) In the event that the Executive ceases to be Employed for any
reason other than (1) death, (2) Disability, or (3) termination at or after age
65 (other than a termination by the Company for Cause), the Company shall have
the right to purchase from such Executive and all of his Permitted Transferees,
and such Executive and all of his Permitted Transferees shall have the
obligation to sell to the Company, all (but not less than all) of such
Executive's and/or his Permitted Transferee's shares of Common Stock at a price
equal to the product of (i) the number of shares of Common Stock being purchased
and (ii) the Fair Value of a share of Common Stock as of the Valuation Date
either (x) immediately preceding the Call Date if such Call Date is on or before
June 30, or (y) immediately succeeding the Call Date if such Call Date is after
June 30 but before January 1 of the following calendar year. The Company may
delay such payment for a reasonable time pending the availability of the
necessary financial information and the calculation of Fair Value by the
Appraiser. Regardless of whether the Company delays such payment pursuant to
this Section 3.8, the Executive or Permitted Transferee shall deliver to the
Company stock certificates for such shares of Common Stock, duly endorsed in
blank, as soon as practicable following the Call Date.
(b) The Company's right to purchase shares of Common Stock shall be
exercised by the delivery of a written notice to the Executive or his Permitted
Transferees, specifying the "Call Date," which date shall be not less than one
and no more than ninety days after the date of such notice, on which the Company
shall purchase all (but not less than all) of such shares of Common Stock held
by the Executive and/or his Permitted Transferees.
(c) The Call Rights shall expire on the date that a Public Offering of
Company Stock occurs.
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3.9 EXECUTIVE'S TAG-ALONG RIGHTS.
(a) In the event of a Public Offering or a sale of all or substantially
all of the stock of the Company, the Executive or his Permitted Transferee will
be permitted to participate in such transaction by selling the number of shares
of Common Stock owned by the Executive and all of his Permitted Transferees as a
result of exercising the Options provided herein equal to the product of the
number of shares of Common Stock owned by the Executive and all of his Permitted
Transferees and a fraction, the numerator of which is the total number of shares
of Common Stock proposed to be sold by the Majority Stockholder (before giving
effect to this provision) and the denominator of which is the total number of
shares of Common Stock then owned by the Majority Stockholder and his Permitted
Transferees plus the total number of shares of Common Stock owned on or before
the fifth business day prior to the date of such Public Offering or sale, by any
other Stockholder of the Company entitled to participate in such sale. The
Company shall notify the Executive in writing of such Public Offering or sale,
indicating the price and other material terms and conditions of the proposed
sale and the intended closing date of such sale. Any purchase from the Executive
under this Section 3.9 shall be at the same price per share of Common Stock and
on the same terms and conditions as apply to the purchase from the Majority
Stockholder. The Executive shall give the Company written notice of how many
shares of Common Stock he and all of his Permitted Transferees desire to sell
within 10 days of receiving notice of the proposed transaction. If the Company
docs not receive notice from the Executive or his Permitted Transferees within
such ten day period, the Executive and/or his Permitted Transferees shall be
deemed to have elected not to exercise the rights under this Section 3.9 and the
Company may complete the proposed Public Offering or sale at the price and on
the terms and conditions of the notice to the Executive.
(b) The Company shall have the right, but not the obligation, to
satisfy the Executive's Tag-Along Rights by redeeming the number of shares of
Common Stock the Executive is entitled to sell under this Section 3.9 in lieu of
allowing the Executive to participate in the sales transaction. On the date
specified by the Company in a written notice to the Executive for such
redemption, the Company shall tender to the Executive or Permitted Transferee a
certified check in the amount equal to the product of the number of shares of
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<PAGE> 18
Common Stock being redeemed and the price per share of Common Stock being paid
in the sales transaction and the Executive or Permitted Transferee shall deliver
to the Company stock certificates for such shares of Common Stock, duly endorsed
in blank.
3.10 MAJORITY STOCKHOLDER'S DRAG-ALONG RIGHTS. In the event that the
Majority Stockholder or any of his Permitted Transferees agree to sell all or
substantially all of their shares of Company Stock, the Majority Stockholder
shall have the right, but not the obligation, to require the Executive and all
of his Permitted Transferees to sell, and the Executive and all of his Permitted
Transferees shall have the obligation to sell, under the same terms and
conditions that are applicable to the sale by the Majority Stockholder and at
the same time as such sale, up to that total number of shares of Common Stock
owned by the Executive and all of his Permitted Transferees obtained by
multiplying (a) the total number of shares of Common Stock that are proposed to
be sold (before giving effect to this provision) by the Majority Stockholder and
all of his Permitted Transferees, by (b) a fraction, the numerator of which is
the total number of shares of Common Stock owned on or before the fifth business
day prior to the date of such sale by the Executive and all of his Permitted
Transferees and the denominator of which is the total number of shares of Common
Stock owned by the Majority Stockholder and all of his Permitted Transferees.
4. CERTAIN VOTING AGREEMENTS
4.1 OBLIGATION TO BE COUNTED FOR A QUORUM. Once the Options are
exercised, the Executive and all of his Permitted Transferees agree to be
present in person or represented by proxy at all meetings of the stockholders of
the Company, so that all shares owned by the Executive or his Permitted
Transferees may be counted for the purpose of determining the presence of a
quorum at such meetings.
4.2 VOTING BY STOCKHOLDERS. Once the Options are exercised, the
Executive agrees to vote any shares of Common Stock owned by him, and to cause
all of his Permitted Transferees to vote any shares of Common Stock owned by
such Permitted Transferees, whether by note, ballot, proxy or written consent,
in any vote of the stockholders of the Company in the same manner as the
Majority Stockholder, or upon the death of the Majority
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<PAGE> 19
Stockholder, in the same manner as the holders of a majority of the shares held
by the Permitted Transferees of the Majority Stockholder.
5. MISCELLANEOUS
5.1 INTERPRETATION OF THIS AGREEMENT. The Board shall have full
authority to interpret and construe any provision of this Agreement, including,
without limitation, the terms of the Options provided hereto and the terms and
restrictions on shares of Common Stock obtained as a result of the exercise of
such Options, and to adopt such rules and regulations for administering such
provisions as it may deem necessary or appropriate. Decisions of the Board shall
be final and binding on all parties.
5.2 AMENDMENTS. This Agreement may be amended only by a written
instrument signed by all of the parties hereto, except with respect of the
Options as provided in Section 2.
5.3 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
5.4 INTEGRATION. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
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<PAGE> 20
5.5 OTHER STOCKHOLDERS' AGREEMENTS. The Executive or his respective
Permitted Transferees shall not enter into any stockholder agreement or
arrangement of any kind with any person with respect to the shares of Common
Stock received pursuant to the Options provided herein inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
5.6 SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that the
Executive may not assign to any Person any of his rights hereunder other than in
connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
5.7 Notices. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
If to the Executive:
To the address shown on the attached signature page.
If to the Majority Stockholder:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: Jules B. Kroll
If to the Company:
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022-4751
ATTENTION: General Counsel and Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
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5.8 DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
5.9 SEVERABILITY. In the event that any one or more of the provisions,
subdivisions, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
5.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
5.11 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the provisions governing conflict of laws.
5.12 INJUNCTIVE RELIEF. The Executive acknowledges and agrees that a
violation of any of the terms of this Agreement will cause the Company
irreparable injury for which adequate remedy at law is not available. Therefore,
the Executive agrees that the Company shall be entitled to an injunction,
restraining order or other equitable relief from any court of competent
jurisdiction, restraining the Executive and/or any of his Permitted Transferees
from committing any violations of the provisions of this Agreement.
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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
or caused this Agreement to be executed on its behalf as of the date first
written above.
KROLL HOLDINGS, INC.
By:/s/ Robert J. McGuire
------------------------
Title:
MAJORITY STOCKHOLDER:
/s/ Jules B. Kroll
---------------------------
Jules B. Kroll
EXECUTIVE:
/s/ N.E. Paciotti
---------------------------
Nazzareno E. Paciotti
Address:
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Author: Linda Shum at KAHK
Date: 6/16/97 12:16 PM
Priority: Normal
CC: Nazz Paciotti at KANY
TO: Mary Ellen Lynch at KANY
Subject: Re: JF Provident Fund Series
------------------------Message Contents------------------------
Dear Mary,
The Hong Kong Pension Plan is still governed by the Deed of Adherence. Under the
Occupational Retirement Schemes Ordinance, employers who operate an occupational
retirement scheme are required to apply to the Registrar of Occupational
Retirement Schemes for registration of their schemes. In order to enable
registration and fully compliance with the requirements of the Ordinance, the
Plan is to be re-structured. That's about the amendment.
Our Plan was officially registered on June 21, 1996 (a copy of the Certificate
of Registration will be couriered to you).
There is no change in the Plan (a copy of the Deed of Adherence will also be
couriered to you).
I only have 2 years' history & will courier to you. A Trustee's Report &
Accounts will also be couriered to you for your reference.
Actually, there are programs similar to the pension scheme. I will also courier
the details for your info.
Apart from that, as stated the employment contract, they are also entitled to 4%
on the monthly salary as a retirement allowance. This is not a formal pension
plan.
Please let me know if you need any info.
Linda
<PAGE> 24
Occupational Retirement Schemes Ordinance (Cap. 426)
Certificate of Registration
This certificate is issued under section 18 of the Occupational Retirement
Schemes Ordinance in respect of the occupational retirement scheme named below:
Registration number:
R014521(0)
Date of registration:
21st June, 1996
Name of the scheme:
KROLL ASSOCIATES (ASIA) LIMITED
PROVIDENT FUND
Name of the relevant employer:
KROLL ASSOCIATES (ASIA) LIMITED
Issued by the Registrar of Occupational Retirement Schemes on:
21st June, 1996
/s/ Pauline Woo
(Miss Pauline Woo)
for Registrar of Occupational
Retirement Schemes
<PAGE> 25
DATED OCT. 5 , 1995
_______________
KROLL ASSOCIATES (ASIA) LIMITED
(AS EMPLOYER)
AND
ROYAL BANK OF CANADA TRUST COMPANY (CAYMAN) LIMITED
(AS TRUSTEE)
AND
JARDINE FLEMING TRUST MANAGEMENT LIMITED
(AS SPONSOR)
----------------------------
SECOND SUPPLEMENTAL DEED OF ADHERENCE
RE EXISTING SCHEME RELATING TO
KROLL ASSOCIATES (ASIA) LIMITED
PROVIDENT FUND
AND PARTICIPATING IN THE JF PROVIDENT PLAN FORMERLY
THE JARDINE FLEMING POOLED PROVIDENT FUND
----------------------------
<PAGE> 26
SECOND SUPPLEMENTAL DEED OF ADHERENCE
RE
KROLL ASSOCIATES (ASIA) LIMITED PROVIDENT FUND
PARTICIPATING IN JF PROVIDENT PLAN
DATED OCT. 5, 1995
- -----
PARTIES
- -------
(1) KROLL ASSOCIATES (ASIA) LIMITED the registered office of which is at
Room 906-911 Mount Parker House, 1111 King's Road, Taikoo Shing, Hong
Kong;
(2) ROYAL BANK OF CANADA TRUST COMPANY (CAYMAN) LIMITED the
registered office of which is at P.O. Box 245, Grand Cayman,
Cayman Islands, British West Indies;
(3) JARDINE FLEMING TRUST MANAGEMENT LIMITED the registered office
of which is at P.O. Box 3151, Road Town, Tortola, British
Virgin Islands.
RECITALS
- --------
(A) This Deed is supplemental to the Master Trust Deed and Deed of
Adherence (as amended).
(B) The Employer wishes to register its participation pursuant to the
provisions of the Occupational Retirement Schemes Ordinance and has
agreed to enter into this Deed and to amend the Rules as applicable to
it as hereinafter provided.
(C) The Deed of Variation and Trust was approved by an Extraordinary
Resolution of Custodians.
PROVISIONS
- ----------
1. INTERPRETATION
1.1 In this Deed including the Recitals unless the context otherwise requires
the following words and expressions shall have the meanings ascribed to them:-
1
<PAGE> 27
"DEED OF ADHERENCE"
the Deed of Adherence 28th March 1990 and made between the
Employer and the Trustee as amended by a Deed of Variation
dated 18th December 1990;
"DEED OF VARIATION AND TRUST"
the seventh supplemental trust deed called a Deed of Variation
and Trust dated Oct. 5 1995 and made between Jardine Fleming
Trust Management Limited and Royal Bank of Canada Trust
Company (Cayman) Limited by which the terms of the Master
Trust Deed were amended by the substitution of the terms of
the Deed of Variation and Trust therefor as the same may in
future be amended in accordance with its terms;
"EMPLOYER"
the said Kroll Associates (Asia) Limited;
"MASTER TRUST DEED"
the Master Trust Deed dated 15th June 1988 by which the
parties to the Master Trust Deed Jardine Fleming Management
Inc as Manager and Royal Bank of Canada Trust Company (Cayman)
Limited established the Jardine Fleming Pooled Provident Fund
as amended by First Supplemental Trust Deed dated 16th August
1988, a Second Supplemental Trust Deed dated 27th January
1989, a Third Supplemental Trust Deed dated 3rd July 1989, a
Fourth Supplemental Trust Deed dated 12th November 1992 and a
Fifth Supplemental Trust Deed dated 1st February 1993 and a
Sixth Supplemental Trust Deed dated 12th December 1994 and the
Deed of Variation and Trust;
1.2 In this Deed including the Recitals words and expressions defined in the
Deed of Variation and Trust shall have the same meanings in this Deed.
2. SUPPLEMENTAL
2.1 This Deed is supplemental to the Deed of Adherence and the Master Trust
Deed.
2.2 This Deed is entered into pursuant to Clause 6.2 of the Deed of
Variation and Trust.
3. EFFECTIVE DATE
The parties hereby agree and confirm that the effective date shall be
Oct. 5, 1995 the date of the Deed of Variation and Trust.
4. EMPLOYER'S COVENANT
The Employer shall hereby become an Employer for the purposes of the
Plan and gives the warranties and covenants as provided in Clause 8 of the Deed
of Variation and Trust. The Employer covenants to comply with the provisions of
the Master Trust Deed as from time to time in force and further to perform any
act or pay any sum required by law to be done or paid
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<PAGE> 28
by it as Employer for the Plan to be lawfully carried on in Hong Kong insofar as
attributable to the Employer.
5. EMPLOYER'S PAYMENT OF SUBSCRIPTIONS
The Employer hereby agrees to pay, or procure that payment be made, to
the Plan of all Contributions payable by the Employer and all Deductions
deducted from the salaries of Members employed by the Employer and all other
payments payable in accordance with these presents directly or by way of
indemnity or otherwise to the Trustee for account of the Plan or the Trustee for
its own account or to the Sponsor.
6. INDEMNITY BY EMPLOYER
The Employer shall indemnify the Trustee and the Sponsor for any loss,
cost or expense resulting directly or indirectly from any breach by it of its
obligations as Employer contained in these presents.
7. COVENANT OF THE TRUSTEE
The Trustee hereby extends to the Employer the covenants in Clause 10
of the Deed of Variation and Trust.
8. RULES
The parties hereto adopt the Rules as set out in the First Schedule
hereto in substitution for the existing Rules of the Kroll Associates (Asia)
Limited Provident Fund being the Rules as set out in Part A of the Second
Schedule of the Deed of Variation and Trust varied as set Out below and in the
event of any discrepancy between the variations below and the First Schedule the
terms of variation below shall prevail. The adoption of the Rules shall not
affect the continuance in membership of all Members as at the date of this Deed
who shall continue as such but henceforth subject to the revised Rules.
(a) Rule 1.1 is amended as follows:-
(i) in the definition "Accounting Date" by deleting the
words "30th June" and inserting in lieu thereof the
words "30th November";
(ii) by deleting the definitions "Deductions" and "Deduction
Units";
(iii) by deleting the words "and Deductions units" in the
definition " Employer's Direction";
(iv) by deleting the words "and Deductions" in the
definition "Employer's Mandate";
(v) by deleting the words "or Deduction Unit" in the
definition "Forfeited Unit";
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<PAGE> 29
(vi) by deleting the words "and Deduction Units" in the
definition "Member's Account";
(vii) by deleting the words "and Deductions" in the
definition "Subscriptions";
(b) Rule 1.2 is amended by deleting the words "or "net
Deductions"";
(c) Rule 3.1 is amended by deleting the words "five per cent (5%)"
and inserting in lieu thereof the words "twelve per cent
(12%)";
(d) Rule 3.2 is amended by deleting the words "or Deduction Unit";
(e) Rule 3.4 is deleted;
(f) Rule 4 is deleted;
(g) Rule 5.3 is amended by deleting the words "and the Deduction
Units";
(h) Rule 6.1 is amended by deleting the words "net Deductions and"
and "or Deduction Units";
(i) Rule 6.3 is amended by deleting the words "and the Deductions"
and "and Deduction Units";
(j) Rule 7 is amended by deleting the words "and Deduction Units"
wherever they appear;
(k) Rule 7.2 is amended by deleting the words "five (5)" and
inserting in lieu thereof the words "three (3)";
(l) Rule 7.6 is amended as follows:
(i) Rule 7.6(a)(i) is deleted;
(ii) Rule 7.6 (a)(ii) by deleting the words "rely on such
notice as provided in Rule 7.6(a)(i)" and inserting in
lieu thereof the words "assume that the Member's
Employment terminated on the date specified in the notice
unless a further notice is given" and by deleting the
existing table and inserting in lieu thereof:
Plan Service of the Member Percentage to be paid
-------------------------- ---------------------
Less than three (3) years Nil
Three (3) years or more
but less than four (4) years 30%
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<PAGE> 30
Four (4) years or more but
less than five (5) years 60%
Five (5) years or more but
less than six (6) years 75%
Six (6) years or more but
less than seven (7) years 80%
Seven (7) years or more but
less than eight (8) years 85%
Eight (8) years or more but
less than nine (9) years 90%
Nine (9) years or more but
less than ten (10) years 95%
Ten (10) years or more 100%
9. COSTS AND FEES
9.1 The Employer shall pay the Sponsor a fee of HK$7,500 to cover all costs of
the initial registration of its participation in the Plan under ORSO including
the audit fee payable by the Trustee (but not the fee of the Employer's auditor)
and the cost of a solicitors statement and statement of an overseas legal
practitioner and such other costs not payable out of the assets of the Plan in
connection with the Deed of Variation and Trust. The Employer shall be
responsible for the cost of its own legal advice on this Deed or otherwise in
connection with the Plan. Subject thereto, the Employer shall pay all fees costs
and expenses payable by it as Employer in connection with the continued
registration of its participation in the Plan under ORSO or otherwise incurred
or payable in connection therewith in respect of compliance with ORSO.
9.2 The Employer agrees to pay all costs and expenses otherwise payable out of
the Trust Property pursuant to Clause 42.2 of the Deed of Variation and Trust in
accordance with the provisions of the Deed of Variation and Trust on receipt of
an invoice thereof
9.3 The Switching Fee shall be payable by the Employer at the rate of HK$3,000
on any Switch as provided in Clause 41 of the Deed of Variation and Trust.
10. CONTINUANCE OF TRUST
The parties hereto confirm that nothing herein determines the trusts
established by the Master Trust Deed and Deed of Adherence and the Plan Fund as
defined in the Deed of Adherence shall continue to be held as part of the Trust
Property upon the trusts established by the Deed of Variation and Trust and this
Second Supplemental Deed of Adherence.
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<PAGE> 31
11. COMMENCEMENT DATE
The Commencement Date shall be 1st January 1990.
12. INVESTMENT INSTRUCTIONS
The instructions as in effect for the investment of Subscriptions prior
to the Effective Date shall continue as reference to the Growth Fund as Fund
established by the Master Trust Deed now is reference to the JF Provident Growth
Fund and reference to the Guaranteed Fund established by the Master Trust Deed
now is reference to the JF Provident Guaranteed Fund and shall constitute and be
accepted as the Mandate required by these presents. The Employer acknowledges it
has received, read and understood the Summary of Explanatory Memorandum of the
JF Provident Guaranteed Fund and the Summary of Explanatory Memorandum of the JF
Provident Growth Fund and the Investment Choice Advice as issued therewith by
the Trustee and the Sponsor.
13. LAW
This Deed shall be governed by the law of the Cayman Islands.
IN WITNESS whereof the parties hereto have executed this Deed.
Signed sealed and delivered by
Jeffrey Halpen, as attorney for )
ROYAL BANK OF CANADA TRUST )
COMPANY (CAYMAN) LIMITED )
in the presence of:- )
/s/????
The Official Seal of )
JARDINE FLEMING TRUST )
MANAGEMENT LIMITED )
was hereunto affixed )
in the presence of:- )
/s/????
- 6 -
<PAGE> 32
The Common Seal of )
KROLL ASSOCIATES (ASIA) )
LIMITED )
was hereunto affixed )
in the presence of:- )
/s/????
- 7 -
<PAGE> 33
FIRST SCHEDULE
RULES OF THE KROLL ASSOCIATES (ASIA) LIMITED PROVIDENT FUND A
PARTICIPATING SCHEME IN THE JF-PROVIDENT PLAN
Rules conformed to employer's scheme to be set out
1. INTERPRETATION
1.1 In these Rules, the following words and expressions have the
meaning ascribed to them unless the context otherwise requires:-
"ACCOUNTING DATE"
30th November of each year;
"ALTERNATE SCHEME"
a scheme, plan or trust for the provision of pension, retirement or
provident benefits or any similar purposes which is contributed to by
the Employer or by any Associate of the Employer and which the Employer
shall in the Deed of Adherence specify as an Alternate Scheme or shall
by notice to the Trustee given at any time determine is an Alternate
Scheme;
"ASSOCIATE"
has the meaning ascribed in the Deed;
"BENEFICIARIES"
all or any of the following:-
(a) the Member's spouse,
(b) any of the following relatives of a Member living or en
ventre sa mere at his death, namely, child, parent,
brother or sister or the spouse or child then living or en
ventre sa mere of any such child, parent, brother or
sister and for this purpose:-
(i) a relationship acquired by a process of legal
adoption shall be as valid as a blood
relationship;
(ii) a step child shall be deemed to be a child;
and
(iii) the foregoing relatives shall be construed
as including anyone who would be such a
relative if he or some other person through
whom the relationship is traced had been
born legitimate;
(c) any person who in the opinion of the Trustee was at any
time prior to the death of the Member wholly or
partially financially dependent upon such Member;
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<PAGE> 34
(d) any person nominated by the Member;
(e) the legal personal representatives of the Member;
"BENEFITS"
any sum due to a Member or his Beneficiaries pursuant to the
provisions of the Rules on Termination of Employment;
"COMMENCEMENT DATE"
the date specified as such in the Deed of Adherence;
"CONTRIBUTIONS"
the amounts paid to the Trustee by an Employer in accordance with Rule
3 and amounts certified to be Contributions pursuant to Rule 12.3 or
otherwise designated as such pursuant to these presents;
"CONTRIBUTION UNITS"
in respect of any Member, the Units from time to time standing to the
credit of a Member's Account being those subscribed for with
Contributions or any interest or income therefrom together with all
Units acquired with the proceeds of redemption of any Contribution Unit
or any interest or income therefrom save where otherwise expressly
provided in the Rules, the same are used to acquire Forfeited Units;
"DEALING DAY"
the day as of which any subscription or purchase of Units may
be made in accordance with the provisions of the relevant
Fund;
"DEED"
the Trust Deed of 15th June 1988 as amended by supplemental deeds, the
seventh such deed re-constituting the trusts being the Deed of
Variation and Trust to which these Rules form Part A of the Second
Schedule as from time to time varied, altered or modified in accordance
with the provisions thereof;
"DEED OF ADHERENCE"
the deed of adherence executed by the Employer pursuant to
which the Employer participates in the Plan as from time to
time amended;
"DIRECTION"
an Employer's Direction;
"DOLLARS, $"
the lawful currency of Hong Kong;
"ELIGIBLE EMPLOYEE"
any full-time permanent employee aged over eighteen (18) years
and under the Normal Retirement Age and who:-
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<PAGE> 35
(a) has satisfactorily completed his probationary period
(if any);
(b) is not a member of an Alternate Scheme;
"EMPLOYER"
the person named as such in the Deed of Adherence;
"EMPLOYER'S ACCOUNT"
an account maintained in the books of the Trustee in respect of the
Employer to which are credited all Forfeited Units allocated pursuant
to Rule 3.2;
"EMPLOYER'S DIRECTION"
an instruction given by the Employer in accordance with Rule 22
requiring the sale of all or any percentage of the Contribution Units
held in the Member's Account and/or of the Forfeited Units held in the
Employer's Account and the investment of the proceeds of redemption in
another Fund or other Funds or an instruction given by or on behalf of
the Employer in the circumstances permitted by these presents;
"EMPLOYER'S MANDATE"
the instruction in the Deed of Adherence or such later instruction from
the Employer as may from time to time be in effect as to the percentage
(if any) of the net Contributions given pursuant to Rule 21 received by
the Trustee each Month to be invested in each of the Funds given in
such form as the Trustee may approve or such instruction given by or on
behalf of the Employer in the circumstances permitted by these
presents;
"EMPLOYMENT"
continuous and full time permanent employment (including any
probationary period) with the Employer, provided that:-
(a) if a Member is transferred from another Employer in
circumstances where the provisions of Rule 7.6(b) apply
then Employment shall include the period of employment
with the former employer who is an Associate of the
Employer;
(b) whilst a Member continues to be an employee of an
Employer the following absences shall be construed for
the purposes of the Plan as Employment:-
(i) absence due to physical or mental ill-health or
incapacity for any period approved by the Employer,
save that if at the end of any approved period of
absence as aforesaid the Member has not returned to
work he will be deemed to have terminated his
Employment at the date of commencement of the
relevant period unless otherwise determined by the
Employer;
(ii) absence for any other reason under any special
circumstances for any period with the approval of the
Employer, save that if at the end of any
- 10 -
<PAGE> 36
approved period of absence as aforesaid the Member has not
returned to work he will be deemed to have terminated his
Employment at the date of commencement of the relevant period
unless otherwise determined by the Employer;
(c) if any Member with the agreement of his Employer is not
required, for a definite ascertainable period, to perform his
duties as an employee with that Employer and his Employer is not
required to pay him any salary or other allowance during that
period, the employment of such Member shall be deemed to be
suspended during such period and shall not be counted as
Employment. If the Member does not for any reason resume his
duties after that period of suspension, the Employment of the
Member shall be deemed to be terminated on the day immediately
preceding the period of such suspension;
(d) shall include in the case of a Transferred Member such period
of Employment with the employer from whom he transferred or such
proportion thereof as may be determined by the Trustee pursuant
to Rule 12.2;
"FORFEITED UNIT"
a Unit standing to the credit of the Employer's Account acquired with
the proceeds of redemption of a Contribution Unit which has been
forfeited or the proceeds of any Contribution Unit unclaimed pursuant
to Rule 17;
"FUND"
any Fund as defined in the Deed;
"MANDATE"
an Employer's Mandate;
"MEMBER"
an Eligible Employee who has joined the Plan and who continues
to have rights to Benefits hereunder;
"MEMBER'S ACCOUNT"
the account in respect of a Member to which are credited all
Contribution Units held in respect of that Member;
"MONTH"
a calendar month;
"NORMAL RETIREMENT BENEFIT"
a benefit calculated in accordance with Rule 7.1;
"NORMAL RETIREMENT AGE"
the age of sixty (60) years for all male and female Members;
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<PAGE> 37
"PLAN"
JF Provident Plan as constituted by these presents;
"PLAN SALARY"
in respect of each Member, the basic Monthly salary payable to that
Member by the Employer from time to time (including increases in his
salary backdated to the effective date thereof) but excluding
commissions, bonuses, premiums, any payments for special work outside
the usual scope of the Member's employment, payments for overtime or
other like payments or any payments for transportation, travelling,
meals or subsistence, allowance for cost of living and medical
allowance, housing allowance or similar staff benefits and in the case
of a Member who is paid other than monthly means the basic salary (as
above described) attributable to that Month;
"PLAN SERVICE"
in relation to each Member, the period of Employment including any
period to be included as Plan Service pursuant to Rule 12.2 which shall
be included by deeming the date of commencement of the period of
Employment to be a date the relevant period prior to the actual date of
commencement;
"RULES"
these Rules set out in Part A of the Second Schedule of the Deed and
variations therein or additions thereto for the time being in force
pursuant to the Deed of Adherence or otherwise;
"SUBSCRIPTIONS"
Contributions;
"TERMINATION OF EMPLOYMENT"
termination of Employment with an Employer, whether by reason of
resignation, retirement, dismissal, death, incapacity or otherwise save
on transfer of Employment pursuant to Rule 7.6(b) including termination
as provided in the definition of Employment on expiry of a relevant
absence;
"THESE PRESENTS"
the Deed, the relevant Deed of Adherence and the Rules;
"TRANSFERRED MEMBER"
a Member in respect of whom the Trustee has accepted any assets from
another scheme or fund of which such Member was previously a member
pursuant to Rule 12.1;
"TRANSFERRING MEMBER"
a Member who leaves Employment and in respect of whom the Trustee
transfers from the Plan to another scheme or fund any assets of the
Plan pursuant to Rule 13.1;
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<PAGE> 38
"TRUSTEE"
the Trustee or Trustees for the time being of the Plan;
"UNIT"
a unit or share or other participation or interest in a Fund or a
fraction thereof and for the avoidance of doubt in respect of any Fund
with more than class of units, is the class designated as the Fund save
in respect of a Forfeited Unit which shall unless the Trustee otherwise
agrees with the Employer represent moneys as held in accordance with
the Deed.
1.2 In these Rules, reference to "net Contributions" or net Subscriptions"
means the amount thereof after deduction of any costs, charges or other
deductions permitted by these presents and reference to "net proceeds of
redemption of Units" means the amount after deduction of any costs of currency
conversion or bank charges or other similar expenses or other deduction
authorized by these presents.
1.3 References in these Rules to Clauses are to Clauses of the Deed. All
words and expressions defined in the Deed shall have the same meaning herein and
the other provisions of Clause 1 shall apply hereto as if set out in full.
1.4 In the event of conflict of any translation of these Rules or any part
thereof, the English language version shall prevail to the exclusion of any
translation thereof
2. MEMBERSHIP
2.1 All Eligible Employees who are in Employment on or who commence
Employment on or after the Commencement Date may become Members on the first day
of the Month coincident with or next following the date on which they have :-
(a) completed the probationary period (if any) with the
Employer; and
(b) completed and signed the application form referred to
in Rule 2.3.
2.2 The Trustee may require proof of age satisfactory to it to be
produced by an Eligible Employee.
2.3 An Eligible Employee who wishes to become a Member of the Plan shall
complete and sign a form of application in such form as the Trustee may
prescribe and provide such other information as the Trustee may require. Such
application form shall be counter-signed by the Employer. The Trustee shall be
entitled to rely on the application form and information so provided as true and
accurate in all respects.
3. CONTRIBUTIONS OF THE EMPLOYER
3.1 Subject to Rule 3.2 and Rule 3.3, each Month the Employer shall pay to
the Trustee in Dollars by cheque delivered to the office or in the manner from
time to time specified by the
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<PAGE> 39
Trustee out of moneys belonging to the Employer for each Member (including
Member remaining in Employment alter Normal Retirement Age) a sum equivalent to
twelve per cent (12%) of the Plan Salary (rounded to the nearest Cent by
rounding down if the amount is below 0.005 and otherwise rounding up) payable to
the Member in the immediately preceding Month. If the Termination of Employment
of a Member occurs in a Month then the Employer shall pay the Contributions only
until the end of the last complete Month of Employment.
3.2 Any amount or Contribution Unit forfeited under Rule 7.6 or Rule 7.7 or
any amount or Contribution Unit unclaimed under Rule 17.1 when it ceases to be
due (unless the Employer otherwise instructs pursuant to Rule 17.2) shall be
applied by the Trustee to the Employer's Account and in the acquisition of
Forfeited Units. Forfeited Units (If any) from time to time credited thereto
shall be redeemed and the proceeds used to reduce the amount of future
Contributions due under Rule 3.1 from the Employer in the Month following that
in which the Forfeited Unit was credited to the Employer's Account unless the
Employer and the Trustee otherwise agree prior to the next Contribution being
due under Rule 3.1. Forfeited Units shall be invested as provided in the Deed
and the value thereof on redemption shall be the value on issue thereof.
3.3 If in any Month a Member has received an increase of Plan Salary
backdated to an earlier date then in that Month the Employer shall pay such
additional amount as is necessary so that the amount paid for the preceding
Months for that Member is the amount representing the percentage to be paid in
accordance with Rule 3.1.
3.4 The provision under Rule 3.4 is deleted.
4. The provisions under Rule 4 is deleted.
5. CREDIT OF SUBSCRIPTIONS AND ACQUISITION OF UNITS
5.1 The Trustee shall credit all net Subscriptions received in respect of
each Member to the Member's Account.
5.2 The Trustee shall as soon as practicable alter receipt of cleared
moneys in respect of any Subscriptions deduct any sums or charges which may be
deducted from Subscriptions in accordance with the terms of the Deed. The
Trustee shall apply the balance plus any sum to be applied on redemption of
Forfeited Units pursuant to Rule 3.2 to the purchase of Units in accordance with
the relevant Mandate at the price applicable on the first Dealing Day of the
relevant Fund alter receipt. The amount(s) so allocated shall be retained by the
Trustee until the first Dealing Day of the relevant Fund. The first Dealing Day
shall be the first day after the day on which the Trustee received cleared
moneys.
5.3 The Units acquired by the Trustee with any net Subscriptions shall be
allocated to the Member's Account of the relevant Member which shall show
separately the Contribution Units held.
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<PAGE> 40
5.4 On the payment of Benefits, the Trustee shall cancel all Units held in
the Member's Account of the relevant Member and the net proceeds of redemption
of the Units shall be utilized to pay out Benefits or dealt with as provided in
Rule 7 or in Rule 3.2 as the Rules provide.
6. ACCOUNTS AND STATEMENTS
6.1 The Trustee shall cause to be kept accounts for each Member showing
separately all and net Contributions received and Units subscribed and redeemed
and whether such Units are Contribution Units. The Trustee shall cause to be
kept an account for the Employer showing any sums forfeited or unclaimed and the
Forfeited Units representing the same and any Special Contributions and the
Forfeited Units representing the same. Forfeited Units shall be credited to the
Employer's Account in accordance with the provisions of Rule 7.
6.2 As soon as possible alter the audited accounts of the Plan relating to
the interest of the Employer and the Members are available, the Trustee shall
make the same available for inspection by Members (and after the death of any
Member by his Beneficiaries) at the usual business offices of the Sponsor in
Hong Kong during all or such part of the normal business hours of the Sponsor as
the Trustee and the Sponsor shall agree.
6.3 The Trustee shall issue, as soon as practicable alter the Accounting
Date in each year, and normally within two (2) months but no later than six (6)
months alter the relevant Accounting Date, a statement to each Member showing
the amount of the Contributions and the net Subscriptions received in respect of
that Member in the period from the Commencement Date or, if later, the last
Accounting Date to the Accounting Date on which the statements are made up. The
statement shall also show the Contribution Units held. The statement shall also
show the value of the relevant Units as at the relevant Accounting Date or, if
such day was not a Dealing Day the value of the relevant Units on the Dealing
Day immediately prior to the Accounting Date and the value of cash held
uninvested. The statement shall show the percentage increase or decrease in the
value of one Unit in each Fund for the Accounting Period. The statement shall
show the amount of the Vested Benefits of the relevant Member and the Benefits
the relevant Member could reasonably expect to receive on his retirement in
respect of the Plan Service of the Member as at the relevant Accounting Date.
6.4 The Trustee shall deliver the statements to the Employer and the
Employer shall promptly distribute the same to the Members.
6.5 A Member may at any time require a copy of any statements previously
issued to him to be sent to him by the Trustee on payment of such charge as the
Trustee may from time to time specify.
6.6 The Employer shall on receipt of notice of any amendment of these
presents, give a copy of it to each Member.
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<PAGE> 41
7. BENEFITS ON TERMINATION OF EMPLOYMENT
7.1 Retirement at Normal Retirement Age
-----------------------------------
The Employer shall give the Trustee notice of any Member retiring at
Normal Retirement Age specifying the date of retirement and the Trustee shall
redeem all Contribution Units held to the credit of the Member's Account of the
retiring Member on the first Dealing Day next following the date of the Member
leaving, or if later, the date of receipt of such notice. The Trustee shall be
entitled to assume that the Member retired on the date specified a said notice
unless a further notice is given. The proceeds of such redemption together with
any Subscriptions allocable to the Member's Account but not at that date used to
acquire Units, after any deduction authorized by these presents shall be payable
to the Member.
7.2 Early Retirement
----------------
The Employer shall give the Trustee notice of any Member retiring prior
to Normal Retirement Age specifying the date of retirement and the Trustee shall
redeem all Contribution Units held to the credit of the Member's Account of the
retiring Member on the first Dealing Day next following the date of the Member
leaving Employment or, if later, the date of receipt of such notice. The Trustee
shall be entitled to assume that the Member retired on the date specified in a
notice unless a further notice is given. The proceeds of such redemption
together with any Subscriptions allocable to the Member's Account but not at
that date used to acquire Units, after any deduction authorized by these
presents shall be payable to the Member. A Member shall not be treated as
retiring unless the Employer consents thereto and the relevant Member is aged
over forty-five (45) years and has completed not less than three (3) years of
Plan Service.
7.3 Late Retirement
---------------
The Employer shall give the Trustee notice of any Member retiring after
Normal Retirement Age specifying the date of retirement and the Trustee shall
redeem all Contribution Units held to the credit of the Member's Account of the
retiring Member on the first Dealing Day next following, the date of the Member
leaving Employment or, if later, the date of receipt of such notice. The Trustee
shall be entitled to assume that the Member retired on the date specified in a
notice unless a further notice is given. The proceeds of such redemption
together with any Subscriptions allocable to the Member's Account but not at
that date used to acquire Units, after any deduction authorized by these
presents shall be payable to the Member.
7.4 Death in Employment
-------------------
(a) In the event of a Member dying at any time and under any
circumstances whilst in Employment, the Employer shall give
notice thereof to the Trustee and the Trustee shall subject as
provided in Rule 7.4(c) redeem all Contribution Units held to
the credit of the Member's Account of the deceased Member on the
first Dealing Day next following the receipt of such notice.
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<PAGE> 42
(b) The Trustee shall hold the net proceeds of redemption of Units
received in accordance with Rule 7.4(a) together with any net
Subscriptions allocable to the relevant Member in cash not at
that date used to purchase Units net of any deduction authorized
by these presents separate and apart from the Plan upon trust to
pay or apply the whole or any part of the capital or income of
the same to or for the benefit of all or any one or more of the
Beneficiaries living at the date of the Member's death as the
Trustee may in its absolute discretion determine.
(c) Notwithstanding the foregoing provisions of Rule 7.4(b) the
amount held upon trusts of Rule 7.4(b) shall until payment is
made in accordance therewith be retained and may be invested in
securities or placed on Deposit with any bank or financial
institution in which monies of the Plan are permitted to be
invested at the absolute discretion of the Trustee and any costs
of dealing with the same shall be payable therefrom and any
income or interest arising thereon shall be added thereto.
(d) The Trustee shall be entitled to require a copy of the death
certificate of the relevant Member.
(e) A nomination (if any) made by a Member in respect of the
Benefits payable upon his death shall constitute a request to
the Trustee only and shall not be binding upon it nor prejudice
the Trustee's absolute discretion to determine to whom payment
is made in accordance with Rule 7.4(b).
7.5 Permanent Incapacity and Ill-health
-----------------------------------
In the event of the Termination of Employment of a Member as a result
of physical or mental ill health or incapacity which in the opinion of the
Employer having taken advice from a competent medical practitioner of western
medicine is of such nature as to render him permanently unfit to continue
employment with the Employer in the same or similar capacity as that for which
he was previously employed, the Trustee upon receipt of notice to such effect
from the Employer shall redeem all Contribution Units held to the Member's
Account of the relevant Member on the first Dealing Day next following the
receipt of such notice. The net proceeds of redemption of Units net of any
deduction authorized by these presents together with any net Subscriptions
allocable to the relevant Member in cash not at that date used to purchase Units
shall be payable to the Member. The Trustee shall be entitled to require a copy
of the certificate from the medical practitioner who has advised the Employer as
to the state of health of the relevant Member prior to making any payment out
hereunder.
7.6 Leaving Employment
-------------------
(a) Subject as is in these Rules otherwise provided, upon
Termination of Employment of a Member in circumstances other
than as set out in this Rule 7 the Employer shall give notice
thereof specifying the date of Termination of Employment and the
Trustee shall:
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<PAGE> 43
(i) the provision under Rule 7.6(a)(i) is deleted;
(ii) redeem all Contribution Units held to the credit of
the Member's Account of the relevant Member on the
first Dealing Day next following the date of
Termination of Employment or, if later, the date of
receipt of such notice. The Trustee shall be entitled
to assume that the Member's Employment terminated on
the date specified in the notice unless a further
notice is given. The Trustee shall pay to the Member
a percentage of the net proceeds of redemption of the
relevant Units and of any net Contributions allocable
to the relevant Member in cash not at that date used
to purchase Contribution Units net of any deduction
authorized by these presents calculated by reference
to the period of Plan Service of the Member as
follows for which purpose a year is counted by
reference to each anniversary of the first date of
Plan Service with a year expiring on the day
immediately preceding the anniversary:-
Plan Service of the Member Percentage to be paid
-------------------------- ---------------------
Less than three (3) years Nil
Three (3) years or more
but less than four (4) years 30%
Four (4) years or more but
less than five (5) years 60%
Five (5) years or more but
less than six (6) years 75%
Six (6) years or more but
less than seven (7) years 80%
Seven (7) years or more but
less than eight (8) years 85%
Eight (8) years or more but
less than nine (9) years 90%
Nine (9) years or more but
less than ten (10) years 95%
Ten (10) years or more 100%
(b) Notwithstanding anything to the contrary contained in
Rule 7.6(a), in the case of a Member leaving the
Employment of an Employer and immediately thereafter
becoming an employee of an Associate which is an
Employer hereunder the
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<PAGE> 44
Member shall be deemed not to have terminated his
Employment and all Contribution Units and Deduction Units
and any net Subscriptions credited to his Member's Account
shall with effect from the date on which he becomes an
employee of the Associate be deemed transferred to a
Member's Account attributable to the Associate and the
rights of the Employer shall be taken by the Associate
together with all obligations and the Member shall for all
purposes hereunder be treated as if the Employment with
the Employer were Employment by the Associate.
(c) Where pursuant to Rule 7.6(a)(ii) only a percentage of the
net proceeds of redemption of Contribution Units and net
Subscriptions is payable to the Member, the balance
thereof shall be forfeited and dealt with under Rule 3.2.
7.7 Dismissal
---------
(a) Notwithstanding anything to the contrary contained in
these Rules, the provisions of Rule 7.7(b) shall apply
if any Member shall be dismissed from the Employment of
an Employer upon any of the following grounds or shall
resign to avoid dismissal on such grounds and if the
Employer shall give notice to the Trustee of
Termination of Employment specifying the date of
termination and that the Employer wishes the provisions
of Rule 7.7(b) to apply and if the Trustee shall be
satisfied that the dismissal or resignation was upon
any such grounds namely :-
(i) willfully disobeying a lawful and reasonable
order; or
(ii) misconducting himself such conduct being
inconsistent with the due and faithful
discharge of his duties; or
(iii) by reason of fraud or dishonesty; or
(iv) being habitually neglectful in his duties; or
(v) upon any other grounds on which the Employer
would be entitled to terminate the contract
of employment of the relevant Member without
notice at common law.
(b) The Trustee shall redeem all Deduction Units held to
the credit of the Member's Account of the relevant
Member on the first Dealing Day next following the
Termination of Employment or, if later, the date of
receipt of such notice and pay the proceeds of
redemption of the relevant Units together with any net
Deductions allocable to the relevant Member in cash not
at that date used to purchase Deduction Units net of
any deduction authorized by these presents. The
relevant Member shall receive no other benefit from the
Plan. Ml Contribution Units shall be redeemed either
on the first Dealing Day next following receipt of notice
of Termination of Employment from the Employer or at the
Trustee's discretion if at such date it is not satisfied
that the provisions of this Rule 7.7 apply, the Trustee
- 19 -
<PAGE> 45
shall retain such Units and redeem the same on the first
Dealing Day after the date on which it is satisfied that
the provisions of this Rule 7.7 apply or do not apply. If
the Trustee redeems such Units prior to being satisfied as
aforesaid, then it shall hold the net proceeds of
redemption of the relevant Units together with any net
Contributions allocable to the relevant Member in cash not
at that date used to purchase Contribution Units net of
any deduction authorized by these presents on interest
bearing account until it is so satisfied and then if the
provisions hereof apply, the Trustee shall forfeit the
said sum and any interest accrued which shall be dealt
with under Rule 3.2 and if the provisions hereof do not
apply, shall pay out the same or the relevant part in
accordance with the provisions of Rule 7.6. The Trustee
shall be entitled to rely on a notice from the Employer
specifying the date of Termination of Employment.
8. INCORRECT NOTICE OF TERMINATION OF EMPLOYMENT
If an Employer shall for any reason give notice to the Trustee pursuant
to the Rules as to the Termination of Employment of a Member and the Member
shall for any reason not cease to be employed then the notice given by the
Employer shall be deemed invalid. The Trustee shall (if it has redeemed Units)
utilize the net proceeds of redemption thereof to purchase the same Units as
redeemed such that the position of the Member's Account of the relevant Member
is not affected by the redemption and if there shall be any shortfall in the sum
needed by reason of an increase in value of the relevant Units or otherwise,
unless the Member consented to the redemption in accordance with Rule 9 the
Employer shall pay such sum to the Trustee as shall cover the shortfall. If a
Member consented, the loss (if any) shall be borne by the Member. If any sums
have been paid to the Employer, Member or any other person as a result of any
notice incorrectly given as aforesaid or a notice specifying an incorrect basis
of Termination of Employment or an incorrect notice of Termination of Employment
the same (or relevant part) shall be repaid by the recipient to the Trustee.
9. ARRANGED DATE FOR BENEFIT PAYMENT
If the Employer and a Member so request by notice to the Trustee given
in such form as the Trustee may from time to time require but specifying the
name of the Member, the reason for termination of employment and the expected
date of termination of employment, then the Trustee may redeem Units for the
purpose of paying Benefits prior to the date on which it would otherwise do so
pursuant to these Rules in order that a cheque for the sum due as Benefits may
be delivered to the Employer on or before the expected date of Termination of
Employment. The Trustee shall not be obliged to accept such notice but if it
accepts and acts on such notice the Trustee shall redeem all Units standing to
the Member's Account of the relevant Member. The Trustee shall not be liable for
any reduction in Benefits due to the early redemption of Units nor if having
accepted such notice, for any reason not within the reasonable control of the
Trustee the cheque shall not be delivered by the expected date of Termination of
Employment.
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<PAGE> 46
10. CURRENCY
All Benefits payable shall be paid in the lawful currency of Hong Kong
unless the proceeds of redemption of Units shall be received by the Trustee in
any other currency in which case the Trustee may pay the same in that currency
or convert the same to Dollars deducting the costs of conversion therefrom as it
thinks fit or in such other Currency as the Member requests and the Trustee
agrees and in such case the rate of exchange shall be as determined by the
Trustee at its discretion and the costs of conversion shall be for the account
of the Member.
11. ALTERNATE SCHEME
The Employer may by notice to the Trustee specify that a scheme plan or
trust for the provision of pension, retirement or provident benefits or any
similar purposes to which the Employer or any of its Associates contribute shall
be an Alternate Scheme. A notice so given shall not affect the position of any
person who at the date of such notice is a Member.
12. TRANSFERRED MEMBERS
12.1 Upon the instruction of the Employer pursuant to Clause 56 and with the
consent of the Trustee, the Trustee shall accept as an asset of the Plan from
the trustees or other administrators of any other scheme or fund of which a
Member was previously a member, such sum or assets as such Member is entitled to
have transferred according to the provisions of that scheme or fund provided
that the trust deed or other document constituting such scheme or fund contains
power for the trustees or other administrators thereof to make such transfer.
12.2 The Trustee shall determine the proportion of employment with the
previous employer to be allowed as Plan Service and notice the Employer and the
Member of such determination. Such determination shall be final and conclusive
and be binding on the Member and the Employer.
12.3 Any cash sum received by the Trustee pursuant to Rule 12.1 shall be
deemed Deductions unless certified by the Trustee and trustee or administrator
of the scheme from which they are received to be Contributions and subject to
any deductions permitted by these presents shall be allocated to the Member's
Account of the relevant Member as Deductions received or as Contributions
received as applicable. If assets other than cash are received then the Trustee
shall sell the same in such manner as it thinks fit and the net proceeds thereof
shall be deemed Deductions and allocated to the Member's Account of the relevant
Member as Deductions received. The amounts received shall be used to subscribe
for Units in Funds in accordance with the Mandate current at that date on the
first Dealing Day of the relevant Fund or Funds next following receipt of such
sum or the net proceeds of sale of assets received. Any fees or charges shall be
deducted therefrom prior to the subscription for Units.
13. MEMBERS LEAVING TO JOIN OTHER SCHEME
13.1 Upon the instruction of the Employer and with the consent of a Member
leaving Employment, the Trustee shall pay in lieu of the Benefits payable to
that Member to the trustees or
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<PAGE> 47
other administrators of a retirement scheme or other fund or arrangement of
which the Member becomes a member, a sum being an amount equal to the Benefits
to which the Member would be entitled on the day immediately preceding the date
of Termination of Employment and shall notify the trustees or other
administrators of the other scheme or fund of the length of Plan Service and any
further information required by such trustees or other administrators provided
that:-
(a) such other scheme, fund or arrangement has any necessary
registration or exemption required for it to operate as a
retirement scheme;
(b) the trust deed or other document constituting such scheme
or fund or arrangement contains power for the trustees or
other administrators thereof to receive such transfer;
(c) the prior written consent of the Member is obtained.
13.2 Upon payment by the Trustee pursuant to Rule 13.1 the Member shall
cease to be a Member and shall have no claim against or other interest in the
Plan.
14. LIEN ON BENEFITS
14.1 All Benefits payable including moneys held on trusts pursuant to Rule
7.4(b) and Rule 16 shall be subject to a lien by the Trustee in respect of any
losses of the Employer arising directly from the dishonest act of the Member to
whom the Benefits are payable and for all debts owing to the Employer by the
Member in respect of whom the Benefits are payable provided that such debts have
been acknowledged in writing by such Member. The Employer may on or alter the
Termination of Employment of a Member give written notice to the Trustee that
the Employer reasonably believes there is a loss or debt giving rise to a lien
under this Rule and giving the Trustee particulars thereof and desiring it to
exercise such lien.
14.2 The Trustee shall exercise the lien under Rule 14.1 by deducting the
relevant sum from the proceeds of redemption of Units otherwise to be paid as
benefits and holding it on separate interest bearing account until the Trustee
is satisfied whether the monies are properly payable to the Employer or not. The
Trustee and the Employer shall use their reasonable endeavors to promptly
determine whether or not such a lien may be made and the amount thereof and/or
if payment may be made to the Employer or Member. Upon the Trustee being
satisfied that any sum is due to the Employer, the Trustee may pay to the
Employer upon or alter the Termination of Employment of the relevant Member for
the Employer's own use and benefit the amount of such losses or debts and the
Benefits of the Member concerned upon the termination of his employment shall be
reduced accordingly by such amount.
15. PROHIBITION OF ASSIGNMENT
The assignment, transfer or other disposal by a person of any right,
benefit or interest under the Plan is prohibited.
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<PAGE> 48
16. BANKRUPTCY OF A MEMBER
16.1 If any person (whether or not a Member) shall either wholly or
partially assign, charge or otherwise dispose of any present or future benefit
in the Plan or attempt or purport to do so or if he shall become bankrupt or
insolvent or if any other act shall be done or event shall happen whereby the
same if belonging absolutely to such person would be vested in or payable to or
charged in favor of any other person, firm or company save the lien permitted by
Rule 14.1, upon the happening of any of the events aforesaid all right, benefit
and interest of such person in the Plan shall cease. The Employer and the Member
shall continue until Termination of Employment of the Member to pay
Contributions and Deductions but on Termination of Employment if the relevant
person is the Member then the Benefits due to him shall be held by the Trustee
upon trust to apply the same for or towards the maintenance and personal support
of the relevant Member and/or his Beneficiaries in such manner and in such
proportion (but so that no payment is made to any assignee or purported assignee
of the Member or any person claiming under a charge or purported charge) as the
Employer may, in its absolute discretion, determine or to pay the same or any
part to the Employer where the Benefits would otherwise have been subject to a
lien pursuant to Rule 14.1 and payable to the Employer. If the relevant person
is not a Member, the interest of the Member shall not be prejudiced and the
Benefits shall be payable to him provided that if the relevant person would then
by reason of the death of the relevant Member or otherwise have had any claim to
all or any Benefits that claim shall have ceased as aforesaid but any sum
affected thereby maybe applied by the Trustee for the maintenance and personal
support of any of the Beneficiaries as the Employer determines (including the
relevant person).
17. FAILURE TO CLAIM
17.1 A person for the time being entitled to the receipt of Benefits shall
not be entitled to claim such Benefit or any part thereof more than twenty-four
(24) Months after they have fallen due and all interest therein shall cease if
the reason for the non-payment of such Benefits or part thereof within the
period of twenty-four (24) Months was:-
(a) the failure of that person to claim the Benefits; or
(b) the lack of knowledge by the Employer or of the Trustee of
the existence or whereabouts of that person or that such person
had or claimed to have a right to Benefits.
17.2 The Employer may notwithstanding the provisions of Rule 17.1 instruct the
Trustee to pay any Benefits or any part thereof to any such person as they think
fit and the Trustee shall approve or to hold the same for some further period.
If no such instruction is given or upon the expiry of such further period, the
moneys shall be forfeited and dealt with under Rule 3.2.
18. BENEFICIARY UNDER INCAPACITY
18.1 If any Benefits are payable to any Member or person who in the opinion
of the Trustee is incapable of managing his own affairs or if for any other
reason the Trustee shall think such action to be in the interests of such
person, the Trustee shall have the power to pay such Benefits or any
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<PAGE> 49
part thereof to such person, company or institution for the benefit of the
person as aforesaid as the Trustee shall think fit and the receipt of such
person, company or institution shall be a complete discharge to the Trustee and
exonerate it from all further liability or responsibility in relation thereto.
18.2 If any Benefits are payable to any Beneficiary who is an infant, the
Trustee shall have the power to pay the Benefits or any part thereof to the
parent or lawful guardian or guardians of such Beneficiary whose receipt
therefor shall be a full and sufficient discharge to the Trustee and the Trustee
shall not be responsible for seeing to the application of any moneys paid to
such parent or guardian or guardians.
19. NOMINATIONS
Any Member may by completion of a form of nomination in such form as
the Trustee may prescribe or in such other form or forms as the Trustee may
approve and giving of the same to the Trustee nominate any person or persons as
a Beneficiary and specify that the Member wishes such person or persons to
receive any Benefits from the Plan to the exclusion of any other person. Such
nomination may be withdrawn or superseded by the giving of a further nomination.
The nomination shall constitute an expression of the wishes of the Member and
shall not be binding upon the Trustee.
20. MEMBERSHIP NOT A CONTRACT OF EMPLOYMENT
Nothing in these Rules shall constitute a contract of employment or be
a consideration for employment of any person or give any person the right to be
retained in the employ of the Employer. In any action brought by a Member
against his Employer no damages shall be recoverable in respect of the loss of
any Benefits to which he may claim to be entitled under these presents.
21. MANDATES
21.1 The Employer may at such time as hereinafter provided give one (1)
Month's notice to the Trustee (or such shorter period as the Trustee may agree)
to amend the Employer's Mandate as given to take effect on the Commencement Date
or, if later, a notice given pursuant to this Rule 21 or by or on its behalf or
otherwise in accordance with the provisions of these presents by providing that
with effect from the first day of the Month commencing after expiry of the
notice, the percentage of all net Contributions and net Deductions to be
allocated to each Fund shall be as set out in the notice. The Employer may give
such notice only within the period of one (1) Month of receipt by it of the
statements to Members to be delivered to it in accordance with Rule 6.4.
21.2 Save as otherwise provided in these presents, the Employer shall not be
entitled to give more than one (1) such notice. The notice shall be in such form
as the Trustee may from time to time specify. The Trustee shall subject to the
provisions of these presents comply therewith. Any Mandate shall only be valid
to the extent it does not conflict with any limit imposed by the Trustee
pursuant to these presents.
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<PAGE> 50
22. DIRECTIONS
22.1 The Employer may at such time as hereinafter provided give not less
than one (1) Month's notice to the Trustee (or such shorter period as the
Trustee may agree) to specify that with effect from the next Dealing Day after
expiry of the notice, all or any proportion of the Contribution Units and
Deduction Units held for all Members in any Fund or Funds shall be redeemed and
the net proceeds of redemption of Units shall be used to acquire Units in
another Fund on the same Dealing Day if it is a Dealing Day for the Fund in
which Units will be acquired and if tit manager or other person so authorized in
respect of the Fund in which Units will be acquired so agrees and otherwise on
the first Dealing Day for the Fund in which Units will be acquired after receipt
of the proceeds and the Units shall be credited as Contribution Units or
Deduction Units in the Member's Accounts as applicable. The Employer may give
such notice only within the period of one (1) Month of receipt by it of the
statements to Members to be delivered to it in accordance with Rule 6.4. In any
case the Trustee shall, subject to Rule 22.2 and Rule 22.3 and the provisions of
the Deed, comply with a Direction.
22.2 Save as otherwise provided in these presents, the Employer shall be
entitled to give notice under Rule 22.1 only once in each calendar year. The
notice if it relates to Contribution Units shall apply to all Contribution Units
and Deduction Units.
22.3 The Employer shall not give a Direction unless a Mandate is given on
the same occasion and shall not give a Direction which requires an allocation of
funds in different proportions to that required by the accompanying Mandate or
allocation of all Units to one Fund by way of Mandate and of all Units to
another Fund by way of Direction. A Direction so given shall be invalid. Any
Direction shall be subject to any limit imposed by these presents. Where any
provision of these presents requires the Employer to give a Direction the
Employer shall give the same as provided in these presents or the same may in
accordance with the terms of these presents be given on its behalf.
23. TAXES OR DUTIES
If any of the Benefits payable in accordance with these Rules are
subject to taxes or duties either in Hong Kong or elsewhere the Trustee is
empowered to deduct therefrom such taxes or duties and to hold them for payment
to the proper authorities.
- 27 -
<PAGE> 1
Exhibit 10.30
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT, dated as of March 20, 1992, among
Kroll Associates, Inc., a Delaware corporation ("Kroll Associates"), Kroll
Associates U.K. Limited, a corporation organized under the laws of England,
Harrison/Kroll Environmental Services, Inc., a Louisiana corporation, Public
Advisory Services, Inc., a Delaware corporation and Palumbo Partners, Inc., a
Delaware corporation (each of the above corporate parties hereto is referred to
herein severally as a "Company" and jointly as the "Companies"), Jules B. Kroll,
an individual stockholder (the "Individual Stockholder"), and the management
stockholders listed on the signature pages hereof (the "Management
Stockholders", collectively with the Individual Stockholder, the
"Stockholders"):
W I T N E S S E T H
WHEREAS, the parties hereto want to set forth certain matters
regarding the investment by the Stockholders and the conduct of the Companies;
WHEREAS, the Stockholders are the record and beneficial owners
of all of the shares of common stock (the "Common Stock") of the Companies;
WHEREAS, the Stockholders and the Companies believe that they
can best ensure the continued success of the Companies by entering into this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized terms shall have the following meanings:
AFFILIATE: with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
APPRAISER: FIRST, Price Waterhouse & Company ("PW") so long as
PW is not disqualified ("Disqualified") because it (x) is not available or (y)
has at that time a significant business relationship with any of the parties to
this Agreement, SECOND, if
<PAGE> 2
PW is Disqualified, Deloitte & Touche ("DT") so long as DT is not Disqualified,
THIRD, if DT is Disqualified, Coopers & Lybrand ("CL") so long as CL is not
Disqualified, and FOURTH, if CL is Disqualified another "Big 6" or comparable
accounting firm mutually agreed upon by the parties hereto.
CAUSE: (A) the commission in the course of his employment of
any dishonest or fraudulent act, (B) the commission of a felony, (C) willful
refusal to carry out reasonable instructions of the Chairman which has a
material adverse affect upon any of the Companies, and (D) the willful
disclosure of any trade secrets or confidential information of any of the
Companies to persons not authorized to know same.
CHAIRMAN: Jules B. Kroll or a successor chairman of Kroll
Associates.
COMMISSION: the U.S. Securities and Exchange Commission.
COMMON STOCK: as defined in the second recital hereof.
COMPANY OR COMPANIES: as defined in the introductory paragraph
hereof.
COMPANY NOTICE: as defined in section 8.
DISABILITY: as defined in Kroll Associates' long-term
disability plan.
FAIR VALUE: as defined in section 7.
INDIVIDUAL STOCKHOLDER: as defined in the introductory
paragraph hereof.
KROLL ASSOCIATES: as defined in the introductory paragraph
hereof.
MANAGEMENT STOCKHOLDERS: as defined in the introductory
paragraph hereof.
PERMITTED TRANSFEREE: if any Stockholder Transfers shares of
Common Stock and such Transfer is in accordance with the terms of this
Agreement, PROVIDED that the Transferee becomes a party to this Agreement as
provided in section 2, PROVIDED FURTHER that any such Transfer by Management
Stockholders shall not adversely affect the Company's election as a Subchapter S
Corporation under the Internal Revenue Code, as amended so long as Kroll
Associates shall make such election, and PROVIDED FURTHER that any Transfer
shall be subject to the terms of that certain Note Purchase Agreement, dated as
of December 15, 1989, among the Company and certain of its Affiliates and
Teachers Insurance and Annuity Association of America, as amended.
2
<PAGE> 3
PERMITTED DISPOSITION: as defined in section 3.
PERSON: an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
PUBLIC OFFERING: an offer for sale of shares of Common Stock
pursuant to an effective registration statement filed by the Company which
issued such shares on Form S-1 or a successor form thereto pursuant to the
Securities Act.
PUT DATE: as defined in section 7.
PUT NOTICE: as defined in section 7.
SECURITIES ACT: the Securities Act of 1933, as amended.
SELLING STOCKHOLDER: as defined in section 8.
STOCKHOLDER: as defined in the introductory paragraph hereof.
STOCKHOLDER NOTICE: as defined in section 8.
TRANSFER: any transfer, sale, assignment, gift, testamentary
transfer, pledge, hypothecation or other disposition of any interest.
"TRANSFEREE" and "TRANSFEROR" shall have correlative meanings.
TRUSTEE: in the case of Robert J. McGuire, Raymond McGuire,
Joan McGuire, James J. McGuire and, in the case of Joseph R. Rosetti, William O.
Bittman, and in both such cases, such other trustees consented to by the
Individual Stockholder, such consent not to be unreasonably withheld.
2. LIMITATIONS ON TRANSFER. No Stockholder shall Transfer any
shares of Common Stock except as provided in this Agreement. It shall be a
condition precedent to any Transfer of shares of Common Stock (but excluding
Transfers referred to in section 6 (public offerings) hereof) that the
Transferee (if not already a party to this Agreement), shall agree prior to the
Transfer in writing with the Companies and the other parties hereto to be bound
by the terms of this Agreement as if it had been an original signatory hereto.
3. PERMITTED DISPOSITION. Each Management Stockholder shall be
entitled to Transfer shares of Common Stock, at any time and from time to time,
(A) if such Transfer is a testamentary transfer effected by operation of law or
by will, (B) to a trust for the benefit of such Management Stockholder or such
Management Stockholder's spouse, issue or siblings, (C) with the consent in
writing of all of the Stockholders, (D) pursuant to and in
3
<PAGE> 4
accordance with sections 6 (public offering), 7 (puts), 9 (right of first
refusal), 10 (tag-alongs) and 11 (drag alongs). The Individual Stockholder shall
be entitled to Transfer shares of Common Stock at any time and from time to time
(I) if such Transfer is a testamentary transfer effected by operation of law or
by will, (II) to an affiliate of the Individual Stockholder, (III) in a public
offering pursuant to section 6, (IV) to a trust for the benefit of the
Individual Stockholder or a member of his family and (V) subject to the
provisions of section 10 (tag alongs), to any Person.
4. EFFECT OF VOID TRANSFERS. In the event of any purported
Transfer of any shares of Common Stock in violation of the provisions of this
Agreement, such purported Transfer shall, to the extent permitted by applicable
law, be void and of no effect, and, until such time as a Transfer in compliance
with this Agreement shall have occurred, (I) no dividend of any kind whatsoever
nor any distribution pursuant to liquidation or otherwise shall be paid to the
purported Transferee in respect of such shares, (II) the voting rights of such
shares, if any, on any matter whatsoever shall remain vested in the Transferor,
(III) the Transferor shall continue to be bound with respect to its obligations
hereunder as the holder of such shares and (IV) no such purported Transfer in
violation of this Agreement shall be registered by the Company which issued such
shares on its books of registry.
5. SECURITIES ACT; LEGENDS ON STOCK. (A) Each stock
certificate representing shares of Common Stock (prior to a
public offering pursuant to section 6) shall bear a legend in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under any
state securities or blue sky laws and may not be transferred in the
absence of such registration or any exception therefrom under such Act
or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
that certain Stockholders' Agreement, dated as of March 20, 1992, as it
may be amended, among Kroll Associates, Inc., Kroll Associates U.K.
Limited, Harrison/Kroll Environmental Services, Inc., Kroll, Inc.,
Jules B. Kroll, and the other stockholders listed on the signature
pages thereof. A copy of such Stockholders' Agreement, and any
amendments thereto, is on file and available for inspection at the
principal offices of Kroll Associates, Inc."
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<PAGE> 5
(B) Prior to any Transfer of shares of Common Stock, the
holder thereof will give written notice to the Company which issued such shares
of such holder's intention to effect such Transfer. The following provisions
shall then apply:
(X) If in the opinion of such Company's counsel the
proposed Transfer may be effected without registration of
such shares under the Securities Act, such Company shall, as promptly
as practicable, so notify the holder of such shares and such holder
shall thereupon be entitled, subject to the other provisions of this
Agreement, to Transfer such shares in accordance with the terms of the
notice delivered by such holder to such Company.
(Y) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, such Company will, as promptly as practicable, so
notify the holder thereof and thereafter such holder shall not be
entitled to Transfer such shares until either such shares have been
effectively registered under the Securities Act or the provisions of
this subdivision (b) of this section 5 have otherwise been complied
with.
6. PUBLIC OFFERINGS, ETC. Each Stockholder shall be entitled,
without the consent of any other Stockholder, to Transfer any or all of the
shares of Common Stock owned by it, at any time and from time to time, in a
Public Offering. None of the Companies has made any commitment to effect a
Public Offering of their respective shares or otherwise register such shares for
resale.
7. MANAGEMENT STOCKHOLDERS' RIGHT TO PUT SHARES TO THE
COMPANY. 7.1 Following the fifth anniversary of the date hereof, a Management
Stockholder and all of his Permitted Transferees collectively shall have the
right on three different dates (each a "Put Date") to sell shares of Common
Stock to the Companies which issued such shares, and such Companies shall have
the obligation to purchase from such holder(s) of shares, the number of shares
of Common Stock specified in accordance with section 7.3 by such holder(s),
PROVIDED that such Management Stockholder and all of his Permitted Transferees
collectively shall not have such right prior to the sixth anniversary of the
date hereof unless (A) such Management Stockholder shall have continued to be
employed by one or more of the Companies through the third anniversary of the
date hereof or (B) if his employment shall have ceased before the third
anniversary of the date hereof due to his (1) death, (2) Disability or (3)
termination by a Company other than for Cause.
7.2 PUT NOTICE. The right of each Management Stockholder and
all of his Permitted Transferees collectively to sell shares of Common Stock to
the Companies shall be exercised on three dates only by the delivery of written
notices (each a "Put
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<PAGE> 6
Notice") to the Company, specifying the Put Date, which date shall be not less
than 60 and no more than 90 days after the date of such notice, on which the
Companies shall be required to close for cash, payable by wire transfer or other
immediately available funds, the purchase of such shares of Common Stock, and
specifying the number of shares the Companies shall be required to purchase
pursuant to section 7.3. Each Put Notice must include an equal proportion of all
the shares of Common Stock of all the Companies.
7.3 NUMBER AND PRICE OF SHARES. Each Company shall be
obligated to purchase no more than (1) 50% of the total number of shares of
Common Stock of such Companies held by each such Management Stockholder and all
of his Permitted Transferees collectively pursuant to the first Put Notice
delivered by such holder(s), (2) 25% of the shares of Common Stock of such
holder(s) (held immediately prior to the put pursuant to clause (1) above)
pursuant to the second Put Notice delivered by such holder(s), and (3) 25% of
the shares of such holder(s) (held immediately prior to the put pursuant to
clause (1) above) pursuant to the third Put Notice delivered by such holder(s).
A Management Stockholder and all of his Permitted Transferees collectively may
only deliver one Put Notice within any 12-month period. The price payable to
such holder(s) for such shares put to the Company shall be the Fair Value ("Fair
Value") of such shares on the Put Date. The Fair Value of such shares shall be
determined by the Appraiser. Such appraisal shall be paid for by the Companies.
The Appraiser shall determine the Fair Value of such shares as the product
obtained by multiplying the fair value of the Companies (collectively determined
in accordance with the considerations listed below) times the percentage
obtained by dividing the number of shares of Common Stock specified in the Put
Notice divided by the total number of shares of Common Stock issued and
outstanding at the time. The fair value of the Companies shall be the price at
which the Companies collectively would change hands between a willing buyer and
a willing seller when the former is not under any compulsion to buy and the
latter is not under any compulsion to sell, both parties having reasonable
knowledge of relevant facts. In determining the fair value of the Companies
collectively, the Appraiser will consider the financial condition and operating
results and prospects of the Companies, including: balance sheets, historical
and at the valuation date, assets, liabilities, and book value, historical
operating results, particularly profits generated and factors affecting profits,
dividends paid historically and dividend-paying capacity, budgets, plans, and
projections of future performance, and prospects at the valuation date.
8. COMPANIES AND INDIVIDUAL STOCKHOLDER'S RIGHT TO CALL SHARES
FROM MANAGEMENT STOCKHOLDERS 8.1 In the event that a Management Stockholder
ceases to be employed by at least one of the Companies for any reason other than
(1) death, (2) Disability or (3) termination by the Companies for any reason
other than for Cause, the Companies and, if the Companies elect not to exercise
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<PAGE> 7
fully their rights pursuant to this section 8.1, the Individual Stockholder
shall have the right to purchase from such Management Stockholder and all of his
Permitted Transferees, and such Management Stockholder and all of his Permitted
Transferees collectively shall have the obligation to sell to the Companies
and/or the Individual Stockholder all (but not less than all) of such Management
Stockholder's and all of his Permitted Transferee's shares of Common Stock at a
price equal to the Fair Value of such shares.
8.2 CALL NOTICE. The Company's and the Individual
Stockholder's right to purchase shares shall be exercised by the delivery of a
written notice (the "Call Notice") to such Management Stockholder, specifying
the Call Date, which date shall be not less than 60 and no more than 90 days
after the date of such notice, on which the Company and/or the Individual
Stockholder shall purchase all (but not less than all) of such shares of Common
Stock held by such Management Stockholder and all of his Permitted Transferees.
The Call Notice shall specify the relative number of shares to be purchased by
the Company and/or the Individual Stockholder.
8.3 PAYMENT FOR SHARES. The amount payable to such Management
Stockholder and any of his Permitted Transferees for such shares purchased
pursuant to this section 8 shall be an amount equal to the Fair Value of such
shares.
9. MANAGEMENT STOCKHOLDER RIGHT TO TRANSFER AND COMPANIES'
RIGHT OF FIRST REFUSAL. Following the fifth anniversary of the date hereof, a
Management Stockholder and all of his Permitted Transferees collectively shall
have the right (subject to the other terms of this Agreement) to Transfer any
shares of Common Stock held by such holder(s) in accordance with the terms of
this section 9; any such Transfer must include an equal proportion of all the
shares of Common Stock of all the Companies held by each such holder. In the
event that such holder(s) obtains from an independent purchaser a good faith
BONA FIDE offer to purchase shares of Common Stock held by such holder, he shall
promptly notify the Companies in writing of the name and address of such
independent purchaser and inform the Companies of the status of such
negotiations. When and if such holder, a ("Selling Stockholder"), decides to
Transfer any such shares of Common Stock, such Selling Stockholder shall
promptly deliver to the Companies a copy of such good faith BONA FIDE offer and
a written notice that, unless the Companies exercise their rights granted in
this section 9, such Selling Stockholder will Transfer his shares of Common
Stock in accordance therewith (the "Stockholder Notice"). At any time during the
ten business days following receipt of the Stockholder Notice, the Companies may
give such Selling Stockholder notice of exercise of its right to purchase all,
but not less than all, of the shares of Common Stock which the Selling
Stockholder has given notice of his intention to Transfer, on the same terms and
conditions specified in the Stockholder Notice (the "Company
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<PAGE> 8
Notice"). Upon receipt of the Company Notice, the Selling Stockholder shall sell
the shares of Common Stock described in the Stockholder Notice to the Companies
at a price equal to the Fair Value of such shares. If the Selling Stockholder
shall not receive the Company Notice as provided in the foregoing sentence, he
shall have the right to Transfer all, but not less than all, of the shares
offered for Transfer in the Stockholder Notice to the independent purchaser
specified in the Stockholder Notice, for the consideration and in accordance
with the terms and conditions set out in such Stockholder Notice and in
compliance with the terms of this Agreement, PROVIDED that such Selling
Stockholder shall not Transfer any such shares to (I) any Person, or Affiliate
of such Person, which competes, or is expected to compete, with the Companies or
any of their Affiliates, (II) any Person, or Affiliate of such Person, who the
Companies determine (in their sole discretion) might cause harm to the Companies
by virtue of becoming a stockholder of the Companies, (III) any bank or other
financial institution for the purpose of pledging or granting a security
interest in such shares in order to secure indebtedness of such Selling
Stockholder, (IV) any other stockholder of the Companies without the written
consent of the Individual Stockholder, or (V) any Person, or Affiliate of such
Person, which has a material adverse interest to, or is involved in a pending or
threatened litigation or legal proceeding with, the Companies, the Individual
Stockholder or any of their Affiliates.
10. MANAGEMENT STOCKHOLDERS' TAG-ALONG RIGHTS. In the
event that the Individual Stockholder or any of his Permitted Transferees
agrees to sell, other than a Permitted Disposition pursuant to section 3(I),
(II), (III) or (IV), any or all of the shares of Common Stock owned by such
holder, he shall promptly so notify the Management Stockholders and shall
provide in such notice the terms and conditions of the proposed sale. Each
Management Stockholder and all of his Permitted Transferees collectively shall
have the right, but not the obligation, to sell to the proposed purchaser, and
the Individual Stockholder and any such Permitted Transferees shall cause the
proposed purchaser to purchase, under the same terms and conditions that are
applicable to the sale by the Individual Stockholder and any of such Permitted
Transferees, and at the same time as such sale, up to that number of shares of
Common Stock (of the Company which issued such shares) owned by each such
Management Stockholder and all of his Permitted Transferees obtained by
multiplying (A) the total number of shares of Common Stock of such Company
that are proposed to be sold (before giving effect to this provision) by the
Individual Stockholder and all of his Permitted Transferees to the proposed
purchaser by (B) a fraction, the numerator of which is the total number of
shares of Common Stock of such Company owned by such Management Stockholder and
all of his Permitted Transferees and the denominator of which is the total
number of shares of Common Stock of such Company owned by the Individual
Stockholder and all of his Permitted Transferees. Each Management Stockholder
shall give the
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<PAGE> 9
Individual Stockholder and any of his Permitted Transferees written notice of
how many shares of such Common Stock he and all of his Permitted Transferees
desire to sell to the proposed purchaser within ten (10) days of receiving
notice of the proposed sale, such number of shares shall be allocated among such
Management Stockholder and all of his Permitted Transferees on a pro rata basis.
To the extent that any right granted to a Management Stockholder hereunder is
not exercised in full, the Management Stockholders who exercised their rights
hereunder may sell to the proposed purchaser all or any part of that number of
additional shares owned by them equal to the number of shares as to which the
right granted to such Management Stockholder was not exercised; such number of
shares shall be allocated among such Management Stockholders and their Permitted
Transferees on a pro rata basis.
11. INDIVIDUAL STOCKHOLDER'S DRAG-ALONG RIGHT. In the
event that the Individual Stockholder or any of his Permitted Transferees agrees
to sell, other than a Permitted Disposition pursuant to section 3(i), (ii),
(iii), or (iv), any or all of the shares of Common Stock owned by such holder,
such holder shall have the right, but not the obligation, to require each
Management Stockholder and all of his Permitted Transferees, and such Management
Stockholder and all of his Permitted Transferees shall have the obligation, to
sell, under the same terms and conditions that are applicable to the sale by the
Individual Stockholder or any of his Permitted Transferees, as the case may be,
and at the same time as such sale, up to that total number of shares of Common
Stock of such Company which issued such shares owned by each such Management
Stockholder and any of his Permitted Transferees obtained by multiplying (A) the
total number of shares of Common Stock of such Company that are proposed to be
sold (before giving effect to this provision) by the Individual Stockholder and
any of his Permitted Transferees, to the proposed purchaser by (B) a fraction,
the numerator of which is the total number of shares of Common Stock of such
Company owned by such Management Stockholder and any of his Permitted
Transferees and the denominator of which is the total number of shares of Common
Stock of such Company owned by the Individual Stockholder and any of his
Permitted Transferees.
12. CERTAIN VOTING AGREEMENTS. 12.1 OBLIGATION TO BE
COUNTED FOR A QUORUM. Each Management Stockholder agrees to be present in person
or represented by proxy at all meetings of the stockholders of each of the
Companies, so that all shares owned by such Management Stockholder or his
Permitted Transferees may be counted for the purposes of determining the
presence of a quorum at such meetings.
12.2 VOTING BY STOCKHOLDERS. (a) Each Management Stockholder
agrees to vote any shares of Common Stock owned by such Management Stockholder,
and to cause any of his Permitted Transferees to vote any shares of Common Stock
owned by such
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<PAGE> 10
Permitted Transferees, whether by vote, ballot, proxy or written consent, in any
vote of the stockholders of each of the Companies in the same manner as the
Individual Stockholder, or upon the death of the Individual Stockholder, in the
same manner as the holders of a majority of the shares held by the Permitted
Transferees of the Individual Stockholder.
13. MISCELLANEOUS. (A) OTHER STOCKHOLDERS AGREEMENTS. None of
the Stockholders or their respective Permitted Transferees shall enter into any
stockholder agreement or arrangement of any kind with any person with respect to
the Common Stock inconsistent with the provisions of this Agreement (whether or
not such agreement or arrangement is with other stockholders that are not
parties to this Agreement).
(B) AMENDMENTS. This Agreement may be amended only by a
written instrument signed by the holders of all of the shares of Common Stock.
(C) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that no
Stockholder may assign to any Person any of its rights hereunder other than in
connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
(D) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party hereto upon any breach or default
of any party under this Agreement, shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach of default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind of character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the extent
specifically set forth in such writing.
(E) INTEGRATION. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
- 10 -
<PAGE> 11
(F) NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first-class mail, overnight
courier, telex, telecopier or hand delivery:
(I) if to one of the Companies, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: Jules B. Kroll
Chairman
(II) if to the Individual Stockholder, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: Jules B. Kroll
Chairman
(III) if to any of the Management Stockholders, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: the name of such Management
Stockholder
or, in each case, to such other address as shall have been furnished to each
other party hereto in accordance with the provisions of this section 12. All
such notices and communications shall be deemed to have been given or made (I)
when delivered, if by hand or by overnight courier on the first business day
thereafter if such date of delivery is not a business day, (II) on the fifth
business day after being deposited in the mail, postage prepaid, if sent by
mail, (III) if sent by telex, when telex answer back is received or (IV) if
telecopied, when telecopy receipt is acknowledged.
(G) DESCRIPTIVE HEADINGS. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
(H) SEVERABILITY. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every
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<PAGE> 12
other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(I) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
(J) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
including the rules governing conflict of laws.
(K) INJUNCTIVE RELIEF. The Stockholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Stockholders irreparable injury for which adequate remedy at law is not
available. Therefore, the Stockholders agree that each Stockholder shall be
entitled to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Stockholder from committing any
violations of the provisions of this Agreement.
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
KROLL ASSOCIATES, INC.
By: /s/ Jules Kroll
-------------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules Kroll
-------------------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES INC.
By: /s/ Jules Kroll
-------------------------------------
Title:
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<PAGE> 13
PUBLIC ADVISORY SERVICES, INC.
By: /s/ Jules Kroll
-------------------------------------
Title:
PALUMBO PARTNERS, INC.
By: /s/ Jules Kroll
-------------------------------------
Title:
INDIVIDUAL STOCKHOLDER:
By: /s/ Jules Kroll
-------------------------------------
Jules B. Kroll
MANAGEMENT STOCKHOLDERS:
By: /s/ Robert J. McGuire
-------------------------------------
Robert J. McGuire
By: /s/ Joseph Rosetti
-------------------------------------
Joseph R. Rosetti
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<PAGE> 14
CONSENT AND AMENDMENT NO. 1 TO THE MARCH STOCKHOLDERS' AGREEMENT
----------------------------------------------------------------
Consent and Amendment No. 1, dated as of June 15, 1993 (this
"Amendment"), to Stockholders' Agreement, dated as of March 20, 1992 (the "March
Stockholders' Agreement"), among Kroll Associates, Inc., a Delaware corporation,
Kroll Associates U.K. Limited, a corporation organized under the laws of
England, Harrison/Kroll Environmental Services, Inc., a Louisiana corporation
and Palumbo Partners, Inc., a Delaware corporation (each of the above corporate
parties is referred to herein jointly as the "Companies"), Public Advisory
Services, Inc., a Delaware corporation, Jules B. Kroll, and the management
stockholders listed on the signature pages thereof (the "Management
Stockholders" and, together with Mr. Kroll, the "Stockholders").
WHEREAS, the parties hereto wish to take certain actions and make
certain amendments to the March Stockholders' Agreement in order to effect the
transactions contemplated hereby and by the Plan of Reorganization and
Stockholders' Agreement dated as of June 15, 1993 (the "Reorganization
Agreement") by and among American International Group, Inc. ("AIG"), Jules B.
Kroll and Kroll Holdings, Inc. ("Holdings"); and
WHEREAS, pursuant to this Amendment and the Reorganization Agreement,
the Stockholders and AIG will effect a reorganization of the Companies in which,
among other things, the Stockholders
<PAGE> 15
will contribute to Holdings all of the capital stock of the Companies held by
them (the "Outstanding Stock") and will receive, in exchange therefor, shares of
Common Stock, par value $.01 per share ("Common Stock"), of Holdings, as a
result of which Holdings shall become a holding company of the Companies and
their subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. All capitalized terms shall have the respective meanings ascribed to
them in the March Stockholders' Agreement unless otherwise defined herein.
2. The amendments set forth in, and effected by, paragraphs 4 through
20 of this Amendment are conditioned upon the consummation of the transactions
contemplated by this Amendment and the Reorganization Agreement and shall become
effective only upon the consummation of such transactions.
3. Each Stockholder hereby agrees that, at the Closing (as defined in
the Reorganization Agreement), he shall contribute to Holdings all of the shares
of outstanding Stock then held by him, free and clear of all Encumbrances (as
defined in the Reorganization Agreement), and together with all rights now and
hereafter attaching thereto, and in consideration therefor, Holding will issue
and deliver to each of the Stockholders the number of shares of Common Stock set
forth opposite his name on Schedule 1.2 to the Reorganization Agreement. To the
extent
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<PAGE> 16
required by the March Stockholders' Agreement, each Stockholder consents to the
transfers contemplated by the preceding sentence in accordance with Section 3(c)
of the March Stockholders' Agreement.
4. The first paragraph of the March Stockholders' Agreement is hereby
amended by deleting the words "Public Advisory Services, Inc., a Delaware
corporation" from the fifth and sixth lines thereof and by inserting the words
"Kroll Holdings, Inc., a Delaware corporation ("Holdings")," on the ninth line
thereof before the words "Jules B. Kroll".
5. The second recital of the March Stockholders' Agreement is hereby
amended by deleting the words "(the "Common Stock")" from the fourth line
thereof and the definition of "Common Stock" in Section 1 of the March
Stockholders' Agreement is hereby amended by deleting the words "as defined in
the second recital hereof" and by inserting in lieu thereof the words "the
Common Stock, par value $.01 per share, of Holdings."
6. Section 1 of the March Stockholders' Agreement is hereby further
amended in the following ways:
(i) by adding the following definition: "HOLDINGS" as
defined in the introductory paragraph hereof;
(ii) by deleting from the definition of "Permitted
Transferee" the second proviso thereof in its entirety; and
(iii) by deleting from the definition of "Public Offering" the
words "the Company which issued such shares" and inserting in lieu thereof the
word "Holdings".
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<PAGE> 17
7. Section 4 of the March Stockholders' Agreement is hereby amended by
deleting the words "the Company which issued such shares" from the penultimate
line thereof and inserting in lieu thereof the word "Holdings".
8. Section 5 of the March Stockholders' Agreement is hereby amended in
the following ways:
(i) by deleting, in the second paragraph of the legend,
provided in subsection (a), at the end of the seventh line thereof, the words
"Kroll, Inc.," and inserting in lieu thereof the words "Palumbo Partners, Inc.,
Kroll Holdings, Inc.,"; and
(ii) by deleting the words "the Company which issued such
shares" from the second and third lines of subsection (b), and the words "such
Company" from each of the first, third and last lines of subparagraph (x) and
the third line of paragraph (y), and, in each case, inserting in lieu thereof
the word "Holdings".
9. Section 6 of the March Stockholders' Agreement is hereby amended by
deleting from the fourth and fifth lines thereof the words "None of the
Companies has" and inserting in lieu thereof the words "Holdings has not", and
by deleting from the fifth and sixth lines thereof the words "their respective"
and inserting in lieu thereof the word "its".
10. Section 7.1 of the March Stockholders' Agreement is hereby amended
by deleting the words "the Companies which issued such shares on the date
hereof" from the sixth and seventh lines
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<PAGE> 18
thereof, and the words "such Companies" from the tenth line thereof, and, in
each case, inserting in lieu thereof the word "Holdings".
12. Section 7.2 of the March Stockholders' Agreement is hereby amended
(i) by deleting the words "the Companies" from each of the third, seventh and
tenth lines thereof, and the words "the Company" from the fifth line thereof,
and, in each case, inserting in lieu thereof the word "Holdings" and (ii) by
deleting the second sentence thereof in its entirety.
13. Section 7.3 of the March Stockholders' Agreement is hereby amended
(i) by deleting the words "Each Company" from the first line thereof, the words
"the Company" from the fourteenth line thereof, and the words "the Companies"
from the seventeenth line thereof, and, in each case, inserting in lieu thereof
the word "Holdings", (ii) by inserting the words "Holdings and" before the words
"the Companies" in each of the nineteenth, twenty-fourth, twenty-fifth,
twenty-ninth and thirty-first lines thereof and (iii) by deleting the words
"Common Stock" in the twenty-third line thereof and inserting in lieu thereof
the words "capital stock of Holdings".
14. Section 8.1 of March Stockholders' Agreement is hereby amended (i)
by deleting the words "the Companies" from each of the sixth line (both times)
and eleventh line thereof, and, in each case, inserting in lieu thereof the word
"Holdings", (ii) by deleting the word "Companies" from the first line thereof
and inserting in lieu thereof the word "Holdings", (iii) by deleting
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<PAGE> 19
the word "their" from the seventh line thereof and inserting in lieu thereof the
word "its" and (iv) by deleting the word "elect" from the sixth line thereof and
inserting in lieu thereof "elects".
15. Section 8.2 of the March Stockholders' Agreement is hereby amended
(i) by deleting the words "The Company" from the first line thereof and
inserting in lieu thereof the word "Holdings" and (ii) by deleting the words
"the Company" from each of the sixth and tenth lines thereof and inserting in
lieu thereof the word "Holdings".
16. Section 9 of the March Stockholders' Agreement is hereby amended
(i) by deleting the word "Companies" from the second line thereof, and the words
"the Companies" from each of the tenth/eleventh, twelfth, fifteenth, sixteenth,
twentieth, twenty-seventh, thirty-ninth, forty-first and forty-fifth lines
thereof, and, in each case, inserting in lieu thereof the word "Holdings", (ii)
by deleting from the sixth through eighth lines thereof the words "; any such
Transfer must include an equal proportion of all the Vested Shares of all the
Companies held by each such holder", (iii) by deleting the words "exercise
their" from the seventeenth line thereof and inserting in lieu thereof the words
"exercises its", (iv) by deleting the word "determine" from the thirty-ninth
line thereof and inserting in lieu thereof the word "determines" and (v) by
deleting the word "their" from the fortieth line thereof and inserting in lieu
thereof the word "its".
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<PAGE> 20
17. Section 10 of the March Stockholders' Agreement is hereby amended
(i) by deleting the words "(of the Company which issued such shares)" from the
fifteenth line thereof and (ii) by deleting all the words following "Common
Stock" on the eighteenth line thereof through the period at the end of such
second sentence on the twenty-sixth line thereof and inserting in lieu thereof
the following:
"then owned by such Management Stockholder and all of his Permitted
Transferees by (b) a fraction, the numerator of which equals the number
of shares of Common Stock to be purchased from the Individual
Stockholder and all of his Permitted Transferees and the denominator of
which equals the sum of the total number of shares of Common Stock then
owned by the Individual Stockholder and any of his Permitted
Transferees plus the number of shares of capital stock of Holdings then
owned by any other stockholder of Holdings entitled to participate in
such sale."
18. Section 11 of the March Stockholders' Agreement is hereby amended
(i) by deleting the words "of such company which issued such shares" from the
thirteenth line thereof and (ii) by deleting all the words following "Stock"
on the sixteenth line thereof through the period at the end of such Section 11
and inserting in lieu thereof the following:
"then owned by such Management Stockholder and all of his Permitted
Transferees by (b) a fraction, the numerator of which equals the number
of shares of Common Stock to be
7
<PAGE> 21
purchased from the Individual Stockholder and all of his Permitted
Transferees and the denominator of which equals the total number of
shares of Common Stock then owned by the Individual Stockholder and any
of his Permitted Transferees."
19. Section 12.1 of the March Stockholders' Agreement is hereby amended
by deleting the words "each of the Companies" from the fourth line thereof, and
Section 12.2 of the March Stockholders' Agreement is hereby amended by deleting
the words "each of the Companies" from the sixth line thereof, and, in each
case, inserting in lieu thereof the word "Holdings".
20. Section 13 of the March Stockholders' Agreement is hereby amended
in the following ways:
(i) by deleting the words "the holders of all of the shares of
Common Stock" from the second and third lines of subsection (b) thereof and
inserting in lieu thereof the words "all of the parties hereto";
(ii) by adding the words "Holdings or" before the word
"one" in the first line of subsection (f) (i) thereof; and
(iii) by adding the words "Holdings and" after the word "that"
at the end of the fourth line of subsection (k) thereof.
21. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE> 22
IN WITNESS WHEREOF, this Amendment has been executed and
delivered as of the date first written above.
KROLL HOLDINGS, INC.
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
KROLL ASSOCIATES, INC.
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
PUBLIC ADVISORY SERVICES, INC.
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
PALUMBO PARTNERS, INC.
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
INDIVIDUAL STOCKHOLDER
By: /s/ Jules Kroll
----------------------
Jules B. Kroll
<PAGE> 23
MANAGEMENT STOCKHOLDERS
/s/ Robert J. McGuire
Robert J. McGuire
/s/ Joseph R. Rosetti
Joseph R. Rosetti
<PAGE> 1
EXHIBIT 10.31
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT, dated as of December 31, 1992, among
Kroll Associates, Inc., a Delaware corporation ("Kroll Associates"), Kroll
Associates U.K. Limited, a corporation organized under the laws of England,
Harrison/Kroll Environmental Services, Inc., a Louisiana corporation, Public
Advisory Services, Inc., a Delaware corporation and Palumbo Partners, Inc., a
Delaware corporation (each of the above corporate parties hereto is referred to
herein severally as a "Company" and jointly as the "Companies"), Jules B. Kroll,
an individual stockholder (the "Individual Stockholder"), and the management
stockholders listed on the signature pages hereof (the "Management
Stockholders", collectively with the Individual Stockholder, the
"Stockholders"):
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties hereto want to set forth certain matters
regarding the stock granted by the Companies to the Management Stockholders on
the date hereof;
WHEREAS, the Stockholders and the Companies believe that the~
can best ensure the continued success of the Companies by entering into this
Agreement with respect to the shares of common stock (the "Common Stock") of the
Companies;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized terms shall have the following meanings:
AFFILIATE: with respect to any Person, a spouse of such
Person, any relative (by blood, adoption or marriage) of such Person, any
director, officer or employee of such Person, any trust formed by such Person,
any other Person of which such Person is a director, officer or employee, and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person.
APPRAISER: FIRST, Price Waterhouse & Company ("PW") so long as
PW is not disqualified ("Disqualified") because it (X) is not available or (Y)
has at that time a significant business relationship with any of the parties to
this Agreement, SECOND, if PW is Disqualified, Deloitte & Touche ("DT") so long
as DT is not Disqualified, THIRD, if DT is Disqualified, Coopers & Lybrand
("CL") so long as CL is not Disqualified, and FOURTH, if CL is
<PAGE> 2
Disqualified another "Big 6" or comparable accounting firm mutually agreed upon
by the parties hereto.
CAUSE: (A) the commission in the course of his employment of
any dishonest or fraudulent act, (B) the commission of a felony, (C) willful
refusal to carry out reasonable instructions of the Chairman which has a
material adverse affect upon any of the Companies, and (D) the willful
disclosure of any trade secrets or confidential information of any of the
Companies to persons not authorized to know same.
CHAIRMAN: Jules B. Kroll or a successor chairman of Kroll
Associates.
COMMISSION: the U.S. Securities and Exchange Commission.
COMMON STOCK: as defined in the second recital hereof.
COMPANY OR COMPANIES: as defined in the introductory
paragraph hereof.
COMPANY NOTICE: as defined in section 9.
DISABILITY: as defined in Kroll Associates' long-term
disability plan.
FAIR VALUE: as defined in section 8.
INDIVIDUAL STOCKHOLDER: as defined in the introductory
paragraph hereof.
KROLL ASSOCIATES: as defined in the introductory paragraph
hereof.
MANAGEMENT STOCKHOLDERS: as defined in the introductory
paragraph hereof.
PERMITTED TRANSFEREE: if any Stockholder Transfers shares of
Common Stock and such Transfer is in accordance with the terms of this
Agreement, PROVIDED that the Transferee becomes a party to this Agreement as
provided in section 2, PROVIDED FURTHER that any such Transfer by Management
Stockholders shall not adversely affect the Company's election as a Subchapter S
Corporation under the Internal Revenue Code, as amended, so long as Kroll
Associates shall make such election, and PROVIDED FURTHER that any Transfer
shall be subject to the terms of that certain Note Purchase Agreement, dated as
of December 15, 1989, among the Company and certain of its Affiliates and
Teachers Insurance and Annuity Association of America, as amended.
PERMITTED DISPOSITION: as defined in section 3.
2
<PAGE> 3
PERSON: an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
PUBLIC OFFERING: an offer for sale of shares of Common Stock
pursuant to an effective registration statement filed by the Company which
issued such shares on Form S-1 or a successor form thereto pursuant to the
Securities Act.
PUT DATE: as defined in section 8.
PUT NOTICE: as defined in section 8.
SECURITIES ACT: the Securities Act of 1933, as amended.
SELLING STOCKHOLDER: as defined in section 9.
STOCKHOLDER: as defined in the introductory paragraph hereof.
STOCKHOLDER NOTICE: as defined in section 9.
TRANSFER: any transfer, sale, assignment, gift, testamentary
transfer, pledge, hypothecation or other disposition of any interest.
"TRANSFEREE" and "TRANSFEROR" shall have correlative meanings.
TRUSTEE: in the case of Robert J. McGuire, Raymond McGuire,
Joan McGuire or James J. McGuire; in the case of Joseph R. Rosetti, William 0.
Bittman; in the case of Ernest Brod, Carol Brod; and in each such case, such
other trustees consented to by the Individual Stockholder, such consent not to
be unreasonably withheld.
VESTING DATE: as defined in section 7.
VESTED SHARES: as defined in section 8.
2. LIMITATIONS ON TRANSFER. No Stockholder shall Transfer any
shares of Common Stock except as provided in this Agreement. It shall be a
condition precedent to any Transfer of shares of Common Stock (but excluding
Transfers referred to in section 6 (public offerings) hereof) that the
Transferee (if not already a party to this Agreement), shall agree prior to the
Transfer in writing with the Companies and the other parties hereto to be bound
by the terms of this Agreement as if it had been an original signatory hereto.
3. PERMITTED DISPOSITION. Each Management Stockholder shall be
entitled to Transfer shares of Common Stock, at any time and from time to time,
(A) if such Transfer is a testamentary transfer effected by operation of law or
by will, (B) to a trust
3
<PAGE> 4
for the benefit of such Management Stockholder or such Management Stockholder's
spouse, issue or siblings, (C) with the consent in writing of all of the
Stockholders, (D) pursuant to and in accordance with sections 6 (public
offering), 8 (puts), 9 (right of first refusal), 10 (tag-alongs) and 11 (drag
alongs). The Individual Stockholder shall be entitled to Transfer shares of
Common Stock at any time and from time to time (I) if such Transfer is a
testamentary transfer effected by operation of law or by will, (II) to an
affiliate of the Individual Stockholder, (III) in a public offering pursuant to
section 6, (IV) to a trust for the benefit of the Individual Stockholder or a
member of his family and (V) subject to the provisions of section 10 (tag
alongs), to any Person.
4. EFFECT OF VOID TRANSFERS. In the event of any purported
Transfer of any shares of Common Stock in violation of the provisions of this
Agreement, such purported Transfer shall, to the extent permitted by
applicable.law, be void and of no effect, and, until such time as a Transfer in
compliance with this Agreement shall have occurred, (I) no dividend of any kind
whatsoever nor any distribution pursuant to liquidation or otherwise shall be
paid to the purported Transferee in respect of such shares, (II) the voting
rights of such shares, if any, on any matter whatsoever shall remain vested in
the Transferor, (III) the Transferor shall continue to be bound with respect to
its obligations hereunder as the holder of such shares and (IV) no such
purported Transfer in violation of this Agreement shall be registered by the
Company which issued such shares on its books of registry.
5. SECURITIES ACT: LEGENDS ON STOCK. (A) Each stock
certificate representing shares of Common Stock (prior to a public offering
pursuant to section 6) shall bear a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under any
state securities or blue sky laws and may not be transferred in the
absence of such registration or any exception therefrom under such Act
or under such state securities or blue sky laws.
The shares represented by this certificate may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or otherwise
disposed of or encumbered except in compliance with the provisions of
that certain Stockholders' Agreement, dated as of December 31, 1992, as
it may be amended, among Kroll Associates, Inc., Kroll Associates U.K.
Limited, Harrison/Kroll Environmental Services, Inc., Kroll, Inc.,
Jules B. Kroll, and the other stockholders listed on the signature
pages thereof. A copy of such Stockholders' Agreement, and any
amendments thereto, is on file and
4
<PAGE> 5
available for inspection at the principal offices of Kroll Associates,
Inc."
(B) Prior to any Transfer of shares of Common Stock, the
holder thereof will give written notice to the Company which issued such shares
of such holder's intention to effect such Transfer. The following provisions
shall then apply:
(X) If in the opinion of such Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, such Company shall, as promptly as practicable, so
notify the holder of such shares and such holder shall thereupon be
entitled, subject to the other provisions of this Agreement, to
Transfer such shares in accordance with the terms of the notice
delivered by such holder to such Company.
(Y) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, such Company will, as promptly as practicable, so
notify the holder thereof and thereafter such holder shall not be
entitled to Transfer such shares until either such shares have been
effectively registered under the Securities Act or the provisions of
this subdivision (B) of this section 5 have otherwise been complied
with.
6. PUBLIC OFFERINGS, ETC. Each Stockholder shall be entitled,
without the consent of any other Stockholder, to Transfer any or all of the
shares of Common Stock owned by it, at any time and from time to time, in a
Public Offering. None of the Companies has made any commitment to effect a
Public Offering of their respective shares or otherwise register such shares for
resale.
7. VESTING AND FORFEITURE. Upon the third anniversary of the
date hereof (the "Vesting Date"), the shares of Common Stock received by each
Management Stockholder on the date hereof will vest if such Management
Stockholder shall have continued to be employed by one or more of the Companies
through such date or if his employment ceases prior to such date due to his (1)
death, (2) Disability or (3) termination by the Companies other than for Cause.
A Management Stockholder shall forfeit the shares of Common Stock received on
the date hereof and all rights with respect thereto, as of the last date of his
employment, if he ceases to be employed by the Companies prior to the Vesting
Date other than a cessation of employment due to his (1) death, (2) Disability
or (3) termination by the Companies other than for Cause.
8. MANAGEMENT STOCKHOLDERS' RIGHT TO PUT SHARES TO THE
COMDANY. 8.1 Following the Vesting Date, a Management Stockholder and all of his
Permitted Transferees collectively shall have the right on three different dates
(each a "Put Date") to sell shares
5
<PAGE> 6
of Common Stock which have vested ("Vested Shares") pursuant to section 7 to the
Companies which issued such shares on the date hereof, and such Companies shall
have the obligation to purchase from such holder(s) of Vested Shares, the number
of Vested Shares specified in accordance with section 8.3 by such holder(s).
8.2 PUT NOTICE. The right of each Management Stockholder and
all of his Permitted Transferees collectively to sell Vested Shares to the
Companies shall be exercised on three dates only by the delivery of written
notices (each a "Put Notice") to the Company, specifying the Put Date, which
date shall be not less than 60 and no more than 90 days after the date of such
notice, on which the Companies shall be required to close for cash, payable by
wire transfer or other immediately available funds, the purchase of such Vested
Shares, and specifying the number of Vested Shares the Companies shall be
required to purchase pursuant to section 8.3. Each Put Notice must include an
equal proportion of all the Vested Shares of all the Companies held by each
Management Stockholder and all of his Permitted Transferees. A Management
Stockholder and all of his Permitted Transferees collectively may only deliver
one Put Notice within any 12-month period.
8.3 NUMBER AND PRICE OF SHARES. Each Company shall be
obligated to purchase no more than one-third of the total number of Vested
Shares held by each such Management Stockholder and all of his Permitted
Transferees collectively pursuant to each Put Notice delivered by such
holder(s). The price payable to such holder(s) for such shares put to the
Company shall be the Fair Value ("Fair Value") of such shares on the Put Date.
The Fair Value of such shares shall be determined by the Appraiser. Such
appraisal shall be paid for by the Companies. The Appraiser shall determine the
Fair Value of such shares as the product obtained by multiplying the fair value
of the Companies (collectively determined in accordance with the considerations
listed below) times the percentage obtained by dividing the number of shares of
Common Stock specified in the Put Notice divided by the total number of shares
of Common Stock issued and outstanding at the time. The fair value of the
Companies shall be the price at which the Companies collectively would change
hands between a willing buyer and a willing seller when the former is not under
any compulsion to buy and the latter is not under any compulsion to sell, both
parties having reasonable knowledge of relevant facts. In determining the fair
value of the Companies collectively, the Appraiser will consider the financial
condition and operating results and prospects of the Companies, including:
balance sheets, historical and at the valuation date, assets, liabilities, and
book value, historical operating results, particularly profits generated and
factors affecting profits, dividends paid historically and dividend-paying
capacity, budgets, plans, and projections of future performance, and prospects
at the valuation date.
6
<PAGE> 7
9. MANAGEMENT STOCKHOLDER RIGHT TO TRANSFER AND COMPANIES'
RIGHT OF FIRST REFUSAL. Following the fifth anniversary of the date hereof, a
Management Stockholder and all of his Permitted Transferees collectively shall
have the right (subject to the other terms of this Agreement) to Transfer Vested
Shares in accordance with the terms of this section 9; any such Transfer must
include an equal proportion of all the Vested Shares of all the Companies held
by each such holder. In the event that such holder(s) obtains from an
independent purchaser a good faith BONA FIDE offer to purchase Vested Shares, he
shall promptly notify the Companies in writing of the name and address of such
independent purchaser and inform the Companies of the status of such
negotiations. When and if such holder, a ("Selling Stockholder"), decides to
Transfer any Vested Shares, such Selling Stockholder shall promptly deliver to
the Companies a copy of such good faith BONA FIDE offer and a written notice
that, unless the Companies exercise their rights granted in this section 9, such
Selling Stockholder will Transfer his Vested Shares in accordance therewith (the
"Stockholder Notice"). At any time during the ten business days following
receipt of the Stockholder Notice, the Companies may give such Selling
Stockholder notice of exercise of its right to purchase all, but not less than
all, of the shares of Common Stock which the Selling Stockholder has given
notice of his intention to Transfer, on the same terms and conditions specified
in the Stockholder Notice (the "Company Notice"). Upon receipt of the Company
Notice, the Selling Stockholder shall sell the shares described in the
Stockholder Notice to the Companies at a price equal to the Fair Value of.such
shares. If the Selling Stockholder shall not receive the Company Notice as
provided in the foregoing sentence, he shall have the right to Transfer all, but
not less than all, of the shares offered for Transfer in the Stockholder Notice
to the independent purchaser specified in the Stockholder Notice, for the
consideration and in accordance with the terms and conditions set out in such
Stockholder Notice and in compliance with the terms of this Agreement, PROVIDED
that such Selling Stockholder shall not Transfer any such shares to (I) any
Person, or Affiliate of such Person, which competes, or is expected to compete,
with the Companies or any of their Affiliates, (II) any Person, or Affiliate of
such Pers9n, who the Companies determine (in their sole discretion) might cause
harm to the Companies by virtue of becoming a stockholder of the Companies,
(III) any bank or other financial institution for the purpose of pledging or
granting a security interest in such shares in order to secure indebtedness of
such Selling Stockholder, (IV) any other stockholder of the Companies without
the written consent of the Individual Stockholder, or (V) any Person, or
Affiliate of such Person, which has a material adverse interest to, or is
involved in a pending or threatened litigation or legal proceeding with, the
Companies, the Individual Stockholder or any of their Affiliates.
10. MANAGEMENT STOCKHOLDERS' TAG-ALONG RIGHTS. In the event
that the Individual Stockholder or any of his Permitted
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<PAGE> 8
Transferees agrees to sell, other than a Permitted Disposition pursuant to
section 3 (i), (ii), (iii) or (iv), any or all of the shares of Common Stock
owned by such holder, he shall promptly so notify the Management Stockholders
and shall provide in such notice the terms and conditions of the proposed sale.
Each Management Stockholder and all of his Permitted Transferees collectively
shall have the right, but not the obligation, to sell to the proposed purchaser,
and the Individual Stockholder and any such Permitted Transferees shall cause
the proposed purchaser to purchase, under the same terms and conditions that are
applicable to the sale by the Individual Stockholder and all of his Permitted
Transferees, and at the same time as such sale, up to that number of shares of
Common Stock (of the Company which issued such shares) owned by each such
Management Stockholder and all of his Permitted Transferees obtained by
multiplying (A) the total number of shares of Common Stock of such Company that
are proposed to be sold (before giving effect to this provision) by the
Individual Stockholder and all of his Permitted Transferees to the proposed
purchaser by (B) a fraction, the numerator of which is the total number of
shares of Common Stock of such Company owned by such Management Stockholder
and all of his Permitted Transferees and the denominator of which is the total
number of shares of Common Stock of such Company owned by the Individual
Stockholder and all of his Permitted Transferees. Each Management
Stockholder shall give the Individual Stockholder and all of his Permitted
Transferees written notice of how many shares of such Common Stock he and all
of his Permitted Transferees desire to sell to the proposed purchaser within
ten (10) days of receiving notice of the proposed sale, such number of shares
shall be allocated among such Management Stockholder and all of his Permitted
Transferees on a pro rata basis. To the extent that any right granted to a
Management Stockholder hereunder is not exercised in full, the Management
Stockholders who exercised their rights hereunder may sell to the proposed
purchaser all or any part of that number of additional shares owned by them
equal to the number of shares as to which the right granted to such Management
Stockholder was not exercised; such number of shares shall be allocated among
such Management Stockholders and their Permitted Transferees on a pro rata
basis.
11. INDIVIDUAL STOCKHOLDER'S DRAG-ALONG RIGHT. In the event
that the Individual Stockholder or any of his Permitted Transferees agrees to
sell, other than a Permitted Disposition pursuant to section 3(i), (ii), (iii),
or (iv), any or all of the shares of Common Stock owned by such holder, such
holder shall have the right, but not the obligation, to require each Management
Stockholder and all of his Permitted Transferees, and such Management
Stockholder and all of his Permitted Transferees shall have the obligation to
sell, under the same terms and conditions that are applicable to the sale by the
Individual Stockholder or any of his Permitted Transferees, as the case may be,
and at the same time as such sale, up to that total number of shares of Common
Stock of such Company which issued such shares owned by each such
8
<PAGE> 9
Management Stockholder and any of his Permitted Transferees obtained by
multiplying (A) the total number of shares of Common Stock of such Company
that are proposed to be sold (before giving effect to this provision) by the
Individual Stockholder and any of his Permitted Transferees, to the proposed
purchaser by (B) a fraction, the numerator of which is the total number of
shares of Common Stock of such Company owned by such Management Stockholder and
any of his Permitted Transferees and the denominator of which is the total
number of shares of Common Stock of such Company owned by the Individual
Stockholder and any of his Permitted Transferees
12. CERTAIN VOTING AGREEMENTS. 12.1 OBLIGATION TO BE COUNTED
FOR A QUORUM. Each Management Stockholder agrees to be present in person or
represented by proxy at all meetings of the stockholders of each of the
Companies, so that all shares owned by such Management Stockholder or his
Permitted Transferees may be counted for the purposes of determining the
presence of a quorum at such meetings.
12.2 VOTING BY STOCKHOLDERS. (a) Each Management Stockholder
agrees to vote any shares of Common Stock owned by such Management Stockholder,
and to cause all of his Permitted Transferees to vote any shares of Common Stock
owned by such Permitted Transferees, whether by vote, ballot, proxy or written
consent, in any vote of the stockholders of each of the Companies in the same
manner as the Individual Stockholder, or upon the death of the Individual
Stockholder, in the same manner as the holders of a malority of the shares held
by the Permitted Transferees of the Individual Stockholder.
13. MISCELLANEOUS. (A) OTHER STOCKHOLDERS AGREEMENTS. None of
the Stockholders or their respective Permitted Transferees shall enter into any
stockholder agreement or arrangement of any kind with any person with respect to
the shares of Common Stock received on the date hereof inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
(B) AMENDMENTS. This Agreement may be amended only by a
written instrument signed by all of the parties hereto.
(C) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and each of
their respective successors, assigns and Transferees, PROVIDED that no
Stockholder may assign to any Person any of its rights hereunder other than in
connection with a Transfer to such Person of shares in accordance with the
provisions hereof.
(D) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party hereto
9
<PAGE> 10
upon any breach or default of any party under this Agreement, shall impair any
such right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach of default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind of character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, shall be in writing and shall be effective only to
the extent specifically set forth in such writing.
(E) INTEGRATION. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
(F) NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first-class mail, overnight
courier, telex, telecopier or hand delivery:
(I) if to one of the Companies, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: Jules B. Kroll
Chairman
(II) if to the Individual Stockholder, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: Jules B. Kroll
Chairman
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<PAGE> 11
(III) if to any of the Management Stockholders, to:
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: the name of such Management
Stockholder
or, in each case, to such other address as shall have been furnished to each
other party hereto in accordance with the provisions of this section 12. All
such notices and communications shall be deemed to have been given or made (I)
when delivered, if by hand or by overnight courier on the first business day
thereafter if such date of delivery is not a business day, (II) on the fifth
business day after being deposited in the mail, postage prepaid, if sent by
mail, (III) if sent by telex, when telex answer back is received or (IV) if
telecopied, when telecopy receipt is acknowledged.
(G) DESCRIPTIVE HEADINGS. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
(H) SEVERABILITY. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(I) COUNTERPARTS This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(J) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
including the rules governing conflict of laws.
(K) INJUNCTIVE RELIEF. The Stockholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Stockholders irreparable injury for which adequate remedy at law is not
available. Therefore, the Stockholders agree that each Stockholder shall be
entitled to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Stockholder from committing any
violations of the provisions of this Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
KROLL ASSOCIATES, INC.
By: /s/ Jules Kroll
-------------------
Title:
KROLL ASSOCIATES U.K. LIMITED:
By: /s/ Jules Kroll
-------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES INC.
By: /s/ Jules Kroll
-------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By: /s/ Jules Kroll
-------------------
Title:
PALUMBO PARTNERS, INC.
By: /s/ Jules Kroll
-------------------
Title:
INDIVIDUAL STOCKHOLDER
By: /s/ Jules B. Kroll
-------------------
Jules B. Kroll
12
<PAGE> 13
MANAGEMENT STOCKHOLDERS:
By: /s/ Robert J. McGuire
-------------------------
Robert J. McGuire
By: /s/ Joseph R. Rosetti
-------------------------
Joseph R. Rosetti
By: /s/ Ernest Brod
-------------------------
Ernest Brod
13
<PAGE> 14
CONSENT AND AMENDMENT NO. 1 TO DECEMBER STOCKHOLDERS' AGREEMENT
- ---------------------------------------------------------------
Consent and Amendment No. 1, dated as of June 15, 1993 (this
"Amendment"), to Stockholders' Agreement, dated as of December 31, 1992 (the
"December Stockholders' Agreement"), among Kroll Associates, Inc., a Delaware
corporation, Kroll Associates U.K. Limited, a corporation organized under the
laws of England, Harrison/Kroll Environmental Services, Inc., a Louisiana
corporation and Palumbo Partners, Inc., a Delaware corporation (each of the
above corporate parties is referred to herein jointly as the "Companies"),
Public Advisory Services, Inc., a Delaware corporation, Jules B. Kroll, and the
management stockholders listed on the signature pages thereof (the "Management
Stockholders" and, together with Mr. Kroll, the "Stockholders").
WHEREAS, the parties hereto wish to take certain actions and make
certain amendments to the December Stockholders' Agreement in order to effect
the transactions contemplated hereby and by the Plan of Reorganization and
Stockholders' Agreement dated as of June 15, 1993 (the "Reorganization
Agreement") by and among American International Group, Inc. ("AIG"), Jules B.
Kroll and Kroll Holdings, Inc. ("Holdings"); and
WHEREAS, pursuant to this Amendment and the Reorganization Agreement,
the Stockholders and AIG will effect a reorganization of the Companies in which,
among other things, the Stockholders
<PAGE> 15
will contribute to Holdings all of the capital stock of the Companies held by
them (the "Outstanding Stock") and will receive, in exchange therefor, shares
of Common Stock, par value $.01 per share ("Common Stock"), of Holdings, as a
result of which Holdings shall become a holding company of the Companies and
their subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. All capitalized terms shall have the respective meanings ascribed to
them in the December Stockholders' Agreement unless otherwise defined herein.
2. The amendments set forth in, and effected by, paragraphs 4 through
18 of this Amendment are conditioned upon the consummation of the transactions
contemplated by this Amendment and the Reorganization Agreement and shall become
effective only upon the consummation of such transactions.
3. Each Stockholder hereby agrees that, at the Closing (as defined in
the Reorganization Agreement), he shall contribute to Holdings all of the shares
of Outstanding Stock then held by him, free and clear of all Encumbrances (as
defined in the Reorganization Agreement), and together with all rights now and
hereafter attaching thereto, and in consideration therefor, Holding will issue
and deliver to each of the Stockholders the number of shares of Common Stock set
forth opposite his name on Schedule 1.2 to the Reorganization Agreement. To the
extent
2
<PAGE> 16
required by the December Stockholders' Agreement, each Stockholder consents to
the transfers contemplated by the preceding sentence in accordance with Section
3(c) of the December Stockholders' Agreement.
4. The first paragraph of the December Stockholders' Agreement is
hereby amended by deleting the words "Public Advisory Services, Inc., a Delaware
corporation" from the fifth and sixth lines thereof and by inserting the words
"Kroll Holdings, Inc., a Delaware corporation ("Holdings")," on the ninth line
thereof, before the words "Jules B. Kroll".
5. The second recital of the December Stockholders' Agreement is hereby
amended by deleting the words "(the "Common Stock")" from the fourth line
thereof and the definition of "Common Stock" in Section 1 of the December
Stockholders' Agreement is hereby amended by deleting the words "as defined in
the second recital hereof" and by inserting in lieu thereof the words "the
Common Stock, par value $.01 per share, of Holdings."
6. Section 1 of the December Stockholders' Agreement is hereby further
amended in the following ways:
(i) by adding the following definition: "Holdings: as
defined in the introductory paragraph hereof.";
(ii) by deleting from the definition of "Permitted
Transferee" the second proviso thereof in its entirety; and
(iii) by deleting from the definition of "Public Offering" the
words "the Company which issued such shares" and inserting in lieu thereof the
word "Holdings".
3
<PAGE> 17
7. Section 4 of the December Stockholders' Agreement is hereby amended
by deleting the words "the Company which issued such shares" from the
penultimate line thereof and inserting in lieu thereof the word "Holdings".
8. Section 5 of the December Stockholders' Agreement is hereby amended
in the following ways:
(i) by deleting, in the second paragraph of the legend,
provided in subsection (a), at the end of the seventh line thereof, the words
"Kroll, Inc.," and inserting in lieu thereof the words "Palumbo Partners, Inc.,
Kroll Holdings, Inc.,"; and
(ii) by deleting the words "the Company which issued such
shares" from the second and third lines of subsection (b), and the words "such
Company" from each of the first, third and last lines of subparagraph (x) and
the third line of paragraph (y), and, in each case, inserting in lieu thereof
the word "Holdings".
9. Section 6 of the December Stockholders' Agreement is hereby amended
by deleting from the fourth and fifth lines thereof the words "None of the
Companies has" and inserting in lieu thereof the words "Holdings has not", and
by deleting from the fifth and sixth lines thereof the words "their respective"
and inserting in lieu thereof the word "its".
10. Section 7 of the December Stockholders' Agreement is hereby amended
by deleting from each of the third and ninth lines thereof the words "on the
date hereof".
4
<PAGE> 18
11. Section 8.1 of the December Stockholders' Agreement is hereby
amended by deleting the words "the Companies which issued such shares on the
date hereof" from the sixth and seventh lines thereof, and the words "such
Companies" from the tenth line thereof, and, in each case, inserting in lieu
thereof the word "Holdings".
12. Section 8.2 of the December Stockholders' Agreement is hereby
amended (i) by deleting the words "the Companies" from each of the third,
seventh and tenth lines thereof, and the words "the Company" from the fifth line
thereof, and, in each case, inserting in lieu thereof the word "Holdings" and
(ii) by deleting the second sentence thereof in its entirety.
13. Section 8.3 of the December Stockholders' Agreement is hereby
amended (i) by deleting the words "Each Company" from the first line thereof,
the words "the Company" from the sixth line thereof, and the words "the
Companies" from the ninth line thereof, and, in each case, inserting in lieu
thereof the word "Holdings", (ii) by inserting the words "Holdings and" before
the words "the Companies" in each of the eleventh, sixteenth, seventeenth,
twenty-first and twenty-third lines thereof and (iii) by deleting the words
"Common Stock" in the fifteenth line thereof and inserting in lieu thereof the
words "capital stock of Holdings".
14. Section 9 of the December Stockholders' Agreement is hereby amended
(i) by deleting the word "Companies" from the second line thereof, and the words
"the Companies" from each of
5
<PAGE> 19
the tenth/eleventh, twelfth, fifteenth, sixteenth, twentieth, twenty-seventh,
thirty-ninth, forty-first and forty-fifth lines thereof, and, in each case,
inserting in lieu thereof the word "Holdings", (ii) by deleting from the sixth
through eighth lines thereof the words "; any such Transfer must include an
equal proportion of all the Vested Shares of all the Companies held by each such
holder", (iii) by deleting the words "exercise their" from the seventeenth line
thereof and inserting in lieu thereof the words "exercises its", (iv) by
deleting the word "determine" from the thirty-ninth line thereof and inserting
in lieu thereof the word "determines" and (v) by deleting the word "their" from
the fortieth line thereof and inserting in lieu thereof the word "its".
15. Section 10 of the December Stockholders' Agreement is hereby
amended (i) by deleting the words "(of the Company which issued such shares)"
from the fifteenth line thereof and (ii) by deleting all the words following
"Common Stock" on the eighteenth line thereof through the period at the end of
such second sentence on the twenty-sixth line thereof and inserting in lieu
thereof the following:
"then owned by such Management Stockholder and all of his Permitted
Transferees by (b) a fraction, the numerator of which equals the number
of shares of Common Stock to be purchased from the Individual
Stockholder and all of his Permitted Transferees and the denominator of
which equals the sum of the total number of shares of Common Stock then
6
<PAGE> 20
owned by the Individual Stockholder and any of his Permitted
Transferees plus the number of shares of capital stock of Holdings then
owned by any other stockholder of Holdings entitled to participate in
such sale."
16. Section 11 of the December Stockholders' Agreement is hereby
amended (i) by deleting the words "of such Company which issued such shares"
from the thirteenth line thereof and (ii) by deleting all the words following
"Stock" on the sixteenth line thereof through the period at the end of such
Section 11 and inserting in lieu thereof the following:
"then owned by such Management Stockholder and all of his Permitted
Transferees by (b) a fraction, the numerator of which equals the number
of shares of Common Stock to be purchased from the Individual
Stockholder and all of his Permitted Transferees and the denominator of
which equals the total number of shares of Common Stock then owned by
the Individual Stockholder and any of his Permitted Transferees."
17. Section 12.1 of the December Stockholders' Agreement is hereby
amended by deleting the words "each of the Companies" from the fourth line
thereof, and Section 12.2 of the December Stockholders' Agreement is hereby
amended by deleting the words "each of the Companies" from the sixth line
thereof, and, in each case, inserting in lieu thereof the word "Holdings".
18. Section 13 of the December Stockholders' Agreement is hereby
amended in the following ways:
7
<PAGE> 21
(i) by deleting the words "received on the date hereof"
from the fifth line of subsection (a) thereof;
(ii) by adding the words "Holdings or" before the word
"one" in the first line of subsection (f) (i) thereof; and
(iii) by adding the words "Holdings and" after the word "that"
at the end of the fourth line of subsection (k) thereof.
19. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8
<PAGE> 22
IN WITNESS WHEREOF, this Amendment has been executed and
delivered as of the date first written above.
KROLL HOLDINGS, INC.
By: /s/ Jules B. Kroll
----------------------
KROLL ASSOCIATES, INC.
By: /s/ Jules B. Kroll
----------------------
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules B. Kroll
----------------------
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By: /s/ Jules B. Kroll
----------------------
PUBLIC ADVISORY SERVICES, INC.
By: /s/ Jules B. Kroll
----------------------
PALUMBO PARTNERS, INC.
By: /s/ Jules B. Kroll
----------------------
INDIVIDUAL STOCKHOLDER
By: /s/ Jules B. Kroll
----------------------
Jules B. Kroll
<PAGE> 23
MANAGEMENT STOCKHOLDERS
/s/ Robert J. McGuire
---------------------------
Robert J. McGuire
/s/ Joseph R. Rosetti
---------------------------
Joseph R. Rosetti
/s/ Ernest Brod
---------------------------
Ernest Brod
<PAGE> 24
MANAGEMENT STOCKHOLDER CONTRIBUTION
On and subject to the terms and conditions set forth in the Consent and
Amendment No. 1 to December Stockholders' Agreement, dated as of June 15, 1993,
to which the undersigned is a party (the "December Amendment") and the
Reorganization Agreement (as defined in the December Amendment), the undersigned
hereby assigns, transfers, conveys, contributes and delivers to Kroll Holdings,
Inc. ("Holdings") all right, title and interest of the undersigned in and to any
and all shares of capital stock of each of Kroll Associates, Inc., Kroll
Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc. and Palumbo
Partners Inc. owned by the undersigned, or to which the undersigned is entitled.
There shall be no continuing liability on the part of any of such corporations
to the undersigned, and the undersigned hereby expressly releases each such
corporation from any claim or demand whatsoever, in each case, relating to a
direct equity ownership by the undersigned in any such corporation; provided
that the undersigned shall receive the equity interest in Holdings to which the
undersigned is entitled under the December Amendment and the Reorganization
Agreement.
IN WITNESS WHEREOF, I have executed this Management Stockholder
Contribution on this 15th day of June, 1993.
/s/ Robert J. McGuire
-------------------------
<PAGE> 25
MANAGEMENT STOCKHOLDER CONTRIBUTION
On and subject to the terms and conditions set forth in the Consent and
Amendment No. 1 to December Stockholders' Agreement, dated as of June 15, 1993,
to which the undersigned is a party (the "December Amendment") and the
Reorganization Agreement (as defined in the December Amendment), the undersigned
hereby assigns, transfers, conveys, contributes and delivers to Kroll Holdings,
Inc. ("Holdings") all right, title and interest of the undersigned in and to any
and all shares of capital stock of each of Kroll Associates, Inc., Kroll
Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc. and Palumbo
Partners Inc. owned by the undersigned, or to which the undersigned is entitled.
There shall be no continuing liability on the part of any of such corporations
to the undersigned, and the undersigned hereby expressly releases each such
corporation from any claim or demand whatsoever, in each case, relating to a
direct equity ownership by the undersigned in any such corporation; provided
that the undersigned shall receive the equity interest in Holdings to which the
undersigned is entitled under the December Amendment and the Reorganization
Agreement.
IN WITNESS WHEREOF, I have executed this Management Stockholder
Contribution on this 15th day of June, 1993.
/s/ Joseph R. Rosetti
-------------------------
<PAGE> 26
MANAGEMENT STOCKHOLDER CONTRIBUTION
On and subject to the terms and conditions set forth in the Consent and
Amendment No. 1 to December Stockholders' Agreement, dated as of June 14, 1993,
to which the undersigned is a party (the "December Amendment") and the
Reorganization Agreement (as defined in the December Amendment), the undersigned
hereby assigns, transfers, conveys, contributes and delivers to Kroll Holdings,
Inc. ("Holdings") all right, title and interest of the undersigned in and to any
and all shares of capital stock of each of Kroll Associates, Inc., Kroll
Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc. and Palumbo
Partners Inc. owned by the undersigned, or to which the undersigned is entitled.
There shall be no continuing liability on the part of any of such corporations
to the undersigned, and the undersigned hereby expressly releases each such
corporation from any claim or demand whatsoever, in each case, relating to a
direct equity ownership by the undersigned in any such corporation; provided
that the undersigned shall receive the equity interest in Holdings to which the
undersigned is entitled under the December Amendment and the Reorganization
Agreement.
IN WITNESS WHEREOF, I have executed this Management Stockholder
Contribution on this 14th day of June, 1993.
/s/ Ernest Bond
-------------------------
<PAGE> 1
EXHIBIT 10.32
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT, dated as of June 30, 1994 among Kroll
Holdings, Inc., a Delaware corporation (the "Company") and Jules B. Kroll, an
individual stockholder (the "Individual Stockholder"), and the management
stockholder listed on the signature pages hereof (the "Management Stockholder",
collectively with the Individual Stockholder, the "Stockholders"):
W I T N E S S E T H
WHEREAS, the parties hereto want to set forth certain matters regarding
the stock granted by the Company to the Management Stockholder on the date
hereof;
WHEREAS, the Stockholders and the Company believe that they can best
ensure the continued success of the Company by entering into this Agreement with
respect to the shares of common stock (the "Common Stock") of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the following meanings:
AFFILIATE: with respect to any Person, a spouse of such Person, any
relative (by blood, adoption or marriage) of such Person, any director, officer
or employee of such Person, any trust formed by such Person, any other Person of
which such Person is a director, officer or employee, and any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person.
APPRAISER: FIRST Price Waterhouse & Company ("PW") so long as PW is not
disqualified ("Disqualified") because it (X) is not available or (Y) has at that
time a significant business relationship with any of the parties to this
Agreement, SECOND, if PW is Disqualified, Deloitte & Touche ("DT") so long as DT
is not Disqualified, THIRD, if DT is Disqualified, Coopers & Lybrand ("CL") so
long as CL is not Disqualified, and FOURTH, if CL is Disqualified, another "Big
6" or comparable accounting firm mutually agreed upon by the parties hereto.
CAUSE: (A) the commission in the course of his employment of any
dishonest of fraudulent act, (B) the commission of a felony, (C) willful refusal
to carry out reasonable instructions of the Chairman which has a material
adverse affect upon the Company, and (D) the willful disclosure of any trade
secrets or confidential information of the Company to persons not authorized to
know same.
<PAGE> 2
CHAIRMAN: Jules B. Kroll or a successor chairman of Kroll Associates.
COMMISSION: the U.S. Securities and Exchange Commission.
COMMON STOCK: as defined in the second recital hereof.
COMPANY: as defined in the introductory paragraph hereof.
COMPANY NOTICE: as defined in section 9.
DISABILITY: as defined in Kroll Associates' long-term disability plan.
FAIR VALUE: as defined in section 8.
INDIVIDUAL STOCKHOLDER: as defined in the introductory paragraph
hereof.
KROLL ASSOCIATES: Kroll Associates, Inc.
MANAGEMENT STOCKHOLDER: as defined in the introductory paragraph
hereof.
PERMITTED TRANSFEREE: if any Stockholder Transfers shares of Common
Stock and such Transfer is in accordance with the terms of this Agreement,
PROVIDED that the Transferee becomes a party to this Agreement as provided in
section 2, PROVIDED FURTHER that any such Transfer shall be subject to the terms
of that certain Note Purchase Agreement, dated as of December 15, 1989, among
Kroll Associates and certain of its Affiliates and Teachers insurance and
Annuity Association of America, as amended.
PERMITTED DISPOSITION: as defined in section 3.
PERSON: an individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any department or
agency thereof.
PUBLIC OFFERING: an offer for sale of shares of Common Stock pursuant
to an effective registration statement filed by the Company which issued such
shares on Form S-1 or a successor form thereto pursuant to the Securities Act.
PUT DATE: as defined in section 8.
PUT NOTICE : as defined in section 8;
SECURITIES ACT: the Securities Act of 1933, as amended.
SELLING STOCKHOLDER: as defined in the introductory paragraph hereof.
2
<PAGE> 3
STOCKHOLDER NOTICE: as defined in Section 9.
TRANSFER: any transfer, sale, assignment, gift, testamentary transfer,
pledge, hypothecation or other disposition of any interest. "TRANSFEREE" and
"TRANSFEROR" shall have correlative meanings.
TRUSTEE: ____________________________ and such other trustees consented
to by the Individual Stockholder, such consent not to be unreasonably withheld.
VESTING DATE: as defined in section 7.
VESTING SHARES: as defined in Section 8.
2. LIMITATIONS ON TRANSFER. The Management Stockholder shall not
Transfer any shares of Common Stock except as provided in this Agreement. It
shall be a condition precedent to any Transfer of shares of Common Stock by the
Management Stockholder (but excluding Transfers referred to in section 6 (public
offerings) hereof) that the Transferee (if not already a party to this
Agreement), shall agree prior to the Transfer in writing with the Company and
the other parties hereto to be bound by the terms of this Agreement as if it had
been an original signatory hereto.
3. PERMITTED DISPOSITION. The Management Stockholder shall be entitled
to Transfer shares of Common Stock, at any time and from time to time, (A) if
such Transfer is a testamentary transfer effected by operation of law or by
will, (B) to a trust for the benefit of the Management Stockholder or the
Management Stockholder's spouse, issue or siblings, (C) with the consent in
writing of all of the Stockholders, (D) pursuant to and in accordance with
sections 6 (Public offering), 8 (puts), 9 (right of first refusal), 10
(tag-alongs) and 11 (drag alongs).
4. EFFECT OF VOID TRANSFERS. In the event of any purported Transfer of
any shares of Common Stock in violation of the provisions of this Agreement,
such purported Transfer shall, to the extent permitted by applicable law, be
void and of no effect, and, until such time as a Transfer in compliance with
this Agreement shall have occurred, (I) no dividend of any kind whatsoever nor
any distribution pursuant to liquidation or otherwise shall be paid to the
purported Transferee in respect of such shares, (II) the voting rights of such
shares, if any, on any matter whatsoever shall remain vested in the Transferor,
(III) the Transferor shall continue to be bound with respect to its obligations
hereunder as the holder of such shares and (IV) no such purported Transfer in
violation of this Agreement shall be registered by the Company which issued such
shares on its books of registry.
5. SECURITIES ACT: LEGENDS ON STOCK. (A) Each stock certificate
representing shares of Common Stock (prior to a Public Offering pursuant to
section 6) shall bear a legend in substantially the following form:
3
<PAGE> 4
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state securities or
blue sky laws and may not be transferred in the absence of such registration or
any exception therefrom under such Act or under such state securities or blue
sky laws.
The shares represented by this certificate may not be sold, assigned,
transferred, exchanged, mortgaged, pledged or otherwise disposed of or
encumbered except in compliance with the provisions of that certain
Stockholders' Agreement, dated as of July , 1994, as it may be amended, among
Kroll Holdings, Inc., Jules B. Kroll, and the other stockholders listed on the
signature pages thereof. A copy of such Stockholders' Agreement, and any
amendments thereto, is on file and available for inspection at the principal
offices of Kroll Holdings, Inc.
(B) Prior to any Transfer of shares of Common Stock by the Management
Stockholder, the Management stockholder will give written notice to the Company
of his intention to effect such Transfer. The following provisions shall then
apply:
(X) If in the opinion of the Company's counsel the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company shall, as promptly as practicable, so
notify the Management Stockholder and he shall thereupon be entitled,
subject to the other provisions of this Agreement, to Transfer such
shares in accordance with the terms of the notice delivered by him to
the Company.
(Y) If such counsel is unable to conclude that the proposed
Transfer may be effected without registration of such shares under the
Securities Act, the Company will, as promptly as practicable, so notify
the Management Stockholder and thereafter he shall not be entitled to
Transfer such shares until either such shares have been effectively
registered under the Securities Act or the provisions of this
subdivision (B) of this section 5 have otherwise been complied with.
6. PUBLIC OFFERING, ETC. The Management Stockholder shall be entitled,
without the consent of any other Stockholder, to Transfer any or all of his
shares of Common Stock, at any time and from time to time, in a Public Offering.
The Company has not made any commitment to effect a Public Offering of its
shares or otherwise register such shares for resale.
7. VESTING AND FORFEITURE. Upon the fourth anniversary of the date
hereof (the "Vesting Date"), the shares of Common Stock received by the
Management Stockholder on the date hereof will vest if such Management
Stockholder shall have continued to be employed by the Company through such date
or if his employment ceases prior to such date due to his (1) death, (2)
Disability or (3) termination by the Company other than for Cause. A Management
Stockholder shall forfeit the shares of Common Stock received on the date hereof
and all rights with respect thereto, as of the last date of his employment, if
he ceases to be employed by the
4
<PAGE> 5
Company prior to the Vesting Date other than a cessation of employment due to
his (1) death, (2) Disability or (3) termination by the Company other than for
Cause.
8. MANAGEMENT STOCKHOLDER'S RIGHT TO PUT SHARES TO THE COMPANY. 8.1
Following the Vesting Date, the Management Stockholder and all of his Permitted
Transferees collectively shall have the right on three different dates (each a
"Put Date") to sell shares of Common Stock which have vested ("Vested Shares")
pursuant to section 7, and the Company shall have the obligation to purchase the
number of Vested Shares specified in accordance with section 8.3.
8.2 PUT NOTICE. The right of the Management Stockholder and all of his
Permitted Transferees collectively to sell Vested shares to the Company shall be
exercised on three dates only by the delivery of written notices (each a "Put
Notice") to the Company, specifying the Put Date, which date shall be not less
than 60 and no more than 90 days after the date of such notice, on which the
Company shall be required to close for cash, payable by wire transfer or other
immediately available funds, the purchase of such Vested Shares, and specifying
the number of Vested Shares the Company shall be required to purchase pursuant
to section 8.3. A Management Stockholder and all of his Permitted Transferees
collectively may only deliver one Put Notice within any 12-month period.
8.3 NUMBER AND PRICE OF SHARES. The Company shall be obligated to
purchase no more than one-third of the total number of Vested Shares held by the
Management Stockholder and all of his Permitted Transferees collectively
pursuant to each Put Notice. The price payable to such holder(s) for such shares
put to the Company shall be the Fair Value ("Fair Value") of such shares on the
Put Date. The Fair Value of such shares shall be determined by the Appraiser.
Such appraisal shall be paid for by the Company. The Appraiser shall determine
the Fair Value of such shares as the product obtained by multiplying the fair
value of the Company (determined in accordance with the considerations listed
below) times the percentage obtained by dividing the number of shares of Common
Stock specified in the Put Notice divided by the total number of shares of
Common Stock issued and outstanding at the time. The fair value of the Company
shall be the price at which the company collectively would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both
parties having reasonable knowledge of relevant facts. In determining the fair
value of the Company, the Appraiser will consider the financial condition and
operating results and prospects of the Company, including: balance sheets,
historical and at the valuation date, assets, liabilities, and book value,
historical operating results, particularly profits generated and factors
affecting profits, dividends paid historically and dividend-paying capacity,
budgets, plans, and projections of future performance, and prospects at the
valuation date.
9. MANAGEMENT STOCKHOLDER RIGHT TO TRANSFER AND COMPANY RIGHT OF FIRST
REFUSAL. Following the fifth anniversary of the date hereof, the Management
Stockholder and all of his Permitted Transferees collectively shall have the
right (subject to the other terms of this Agreement) to Transfer Vested Shares
in accordance with the terms of this section 9. In
5
<PAGE> 6
the event that such holder(s) obtains from an independent purchaser a good faith
BONA FIDE offer to purchase Vested Shares, he shall promptly notify the Company
in writing of the name and address of such independent purchaser and inform the
Company of the status of such negotiations. When and if such holder, a ("Selling
Stockholder"), decides to Transfer any Vested Shares, such Selling Stockholder
shall promptly deliver to the Company a copy of such good faith BONA FIDE offer
and a written notice that, unless the Company exercises its rights granted in
this section 9, such Selling Stockholder will Transfer his Vested Shares in
accordance therewith (the "Stockholder will Transfer his Vested Shares in
accordance therewith (the "Stockholder Notice"). At any time during the ten
business days following receipt of the Stockholder Notice, the Company may give
such Selling Stockholder notice of exercise of its right to purchase all, but
not less than all, of the shares of Common Stock which the Selling Stockholder
has given notice of his intention to Transfer, on the same terms and conditions
specified in the Stockholder Notice (the "Company Notice"). Upon receipt of the
Company Notice, the Selling Stockholder shall sell the shares described in the
Stockholder Notice to the Company at a price equal to the Fair Value of such
shares. If the Selling Stockholder shall not receive the Company Notice as
provided in the foregoing sentence, he shall have the right to Transfer all, but
not less than all, of the shares offered for Transfer in the Stockholder Notice
to the independent purchaser specified in the Stockholder Notice, for the
consideration and in accordance with the terms and conditions set out in such
Stockholder Notice and in compliance with the terms of the Agreement, PROVIDED
that such Selling Stockholder shall not Transfer any such shares to (I) any
Person, or Affiliate of such Person, which competes, or is expected to compete,
with the Company or any of its Affiliates, (II) any Person, or Affiliate of such
Person, who the Company determines (in its sole discretion) might cause harm to
the Company by virtue of becoming a stockholder of the Company (III) any bank or
other financial institution for the purpose of pledging or granting a security
interest in such shares in order to secure indebtedness of such Selling
Stockholder, (IV) any other stockholder of the Company without the written
consent of the Individual Stockholder, or (V) any Person, or Affiliate of such
Person, which has a material adverse interest to, or is involved in a pending or
threatened litigation or legal proceeding with, the Company, the Individual
Stockholder or any of their Affiliates.
10. MANAGEMENT STOCKHOLDER'S TAG-ALONG RIGHTS. In the event of a Public
Offering or a sale of substantially all of the stock or assets of the Company,
the Management Stockholder and all of his Permitted Transferees collectively
shall have the right, but not the obligation, to participate in such
transaction on the same terms and conditions that are applicable to the
Individual Stockholder and all of his Permitted Transferees, up to that number
of shares of Common Stock owned by the Management Stockholder and all of his
Permitted Transferees obtained by multiplying the total number of shares of
Common Stock of the Management Stockholder and all of his Permitted Transferees
by a fraction, the numerator of which is the total number of shares of Common
Stock to be sold by the Individual Stockholder and all of his Permitted
Transferees and the denominator of which is the total number of shares of
Common Stock owned by the Individual Stockholder and all of his Permitted
Transferees plus the total number of shares of Common Stock owned by any other
shareholder of the Company entitled to participate in such sale. The Management
Stockholder shall give the Company and all of his Permitted Transferees written
notice of how many shares of Common Stock he and all of his
6
<PAGE> 7
Permitted Transferees desire to sell within then (10) days of receiving notice
of the proposed transaction.
11. INDIVIDUAL STOCKHOLDER'S DRAG-ALONG RIGHT. In the event that the
Individual Stockholder or any of his Permitted Transferees agrees to sell
substantially all of his shares of Common Stock, the Individual Stockholder
shall have the right, but not the obligation, to require the Management
Stockholder and all of his Permitted Transferees, and the Management Stockholder
and all of his Permitted Transferees shall have the obligation to sell, under
the same terms and conditions that are applicable to the sale by the Individual
Stockholder and at the same time as such sale, up to that total number of shares
of Common Stock owned by the Management Stockholder and all of his Permitted
Transferees obtained by multiplying (A) the total number of shares of Common
Stock that are proposed to be sold (before giving effect to this provision) by
the Individual Stockholder and all of his Permitted Transferees, by (B) a
fraction, the numerator of which is the total number of shares of Common Stock
owned by the Management Stockholder and all of his Permitted Transferees and the
denominator of which is the total number of shares of Common Stock owned by the
Individual Stockholder and all of his Permitted Transferees.
12. CERTAIN VOTING AGREEMENTS. 12.1 OBLIGATION TO BE COUNTED FOR A
QUORUM. The Management Stockholder agrees to be present in person or represented
by proxy at all meetings of the stockholders of the Company, so that all shares
owned by the Management Stockholder or his Permitted Transferees may be counted
for the purposes of determining the presence of a quorum at such meetings.
12.2 VOTING BY STOCKHOLDERS. (A) The Management Stockholder agrees to
vote any shares of Common Stock owned by him, and to cause all of his Permitted
Transferees to vote any shares of Common Stock owned by such Permitted
Transferees, whether by note, ballot, proxy or written consent, in any vote of
the stockholders of the Company in the same manner as the Individual
Stockholder, or upon the death of the Individual Stockholder, in the same manner
as the holders of a majority of the shares held by the Permitted Transferees of
the Individual Stockholder.
13. MISCELLANEOUS. (A) OTHER STOCKHOLDERS AGREEMENTS. The Management
Stockholder or his respective Permitted Transferees shall not enter into any
stockholder agreement or arrangement of any kind with any person with respect to
the shares of Common Stock received on the date hereof inconsistent with the
provisions of this Agreement (whether or not such agreement or arrangement is
with other stockholders that are not parties to this Agreement).
(B) AMENDMENTS. This Agreement may be amended only by a written
instrument signed by all of the parties hereto.
(C) SUCCESSORS ASSIGNS AND TRANSFEREES. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and each of their
respective successor, assigns
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<PAGE> 8
and Transferees, PROVIDED that the Management Stockholder may not assign to any
Person any of its rights hereunder other than in connection with a Transfer to
such Person of shares in accordance with the provisions hereof.
(D) DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of any
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach of default abe deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consenter approval of any kind of character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, shall be in
writing and shall be effective only to the extent specifically set forth in such
writing.
(E) INTEGRATION. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with a respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter.
(F) NOTICES. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first-class mail, overnight
courier, telex, telecopier or hand delivery:
(I) if to the Company, to:
Kroll Holdings, Inc.
900 Third Avenue
New York, NY 10022
Attention: Jules B. Kroll
Chairman
(II) if to the Individual Stockholder, to:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022
Attention: Jules B. Kroll
Chairman
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<PAGE> 9
(III) if to the Management Stockholder, to:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022
Attention: Brian Jenkins
or, in each case, to such other addresses shall have been furnished to each
other party hereto in accordance with the provisions of this section 12. All
such notices and communications shall be deemed to have been given or made (I)
when delivered, if by hand or by overnight courier on the first business day
thereafter if such date of delivery is not a business day, (II) on the fifth
business day after being deposited in the mail, postage prepaid, if sent by
mail, (III) if sent by telex, when telex answer back is received or (IV) if
telecopied, when telecopy receipt is acknowledged.
(G) DESCRIPTIVE HEADINGS. The headings in this Agreement
are for convenience of reference only and shall not limit or
otherwise affect the meaning of the terms contained herein.
(H) SEVERABILITY. In the event that any one or more of the provisions,
subdivisions, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions, subdivisions,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(I) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
(J) GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, including the
rules governing conflict of laws.
(K) INJUNCTIVE RELIEF. The Stockholders acknowledge and agree that a
violation of any of the terms of this Agreement will cause the Stockholders
irreparable injury for which adequate remedy at law is not available. Therefore,
the Stockholders agree that each Stockholder shall be entitled to an injunction,
restraining order or other equitable relief from any court of competent
jurisdiction, restraining any Stockholder from committing any violations of the
provisions of this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, each of the undesigned has executed this Agreement
or cause this Agreement to be executed on its behalf as of the date first
written above.
KROLL HOLDINGS, INC.
By: /s/ Jules Kroll
-------------------------
Title:
INDIVIDUAL STOCKHOLDER:
By: /s/ Jules Kroll
-------------------------
Jules B. Kroll
MANAGEMENT STOCKHOLDER:
By: /s/ Brian M. Jenkins
-------------------------
Brian M. Jenkins
10
<PAGE> 1
EXHIBIT 10.33
================================================================================
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT
by and among
AMERICAN INTERNATIONAL GROUP, INC.,
JULES B. KROLL
and
KROLL HOLDINGS, INC.
-------------
June 15, 1993
-------------
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
I. REORGANIZATION
1.1 AIG Contribution........................................................................ 2
1.2 Kroll Contribution...................................................................... 3
1.3 Effect of the Reorganization............................................................ 3
1.4 Closing................................................................................. 6
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Due Organization, Etc................................................................... 5
2.2 Licenses; Permits....................................................................... 6
2.3 Authorization; Execution and Delivery of
Agreement. ............................................................................ 6
2.4 No Conflicts; Consents.................................................................. 7
2.5 Capital Stock........................................................................... 9
2.6 No Brokers.............................................................................. 10
2.7 Litigation and Claims................................................................... 11
2.8 Financial Statements; Taxes............................................................. 11
2.9 Use of Proceeds......................................................................... 12
III. REPRESENTATIONS AND WARRANTIES OF AIG
3.1 Due Organization, Etc................................................................... 13
3.2 Authorization; Execution and Delivery of
Agreement.............................................................................. 13
3.3 No Consent.............................................................................. 14
3.4 No Brokers.............................................................................. 14
3.5 Litigation and Claims................................................................... 14
3.6 Investment Purposes..................................................................... 15
3.7 Accredited Investor..................................................................... 15
IV. REPRESENTATIONS AND WARRANTIES OF MR. KROLL
4.1 Title to the Kroll Group Stock.......................................................... 15
4.2 Authority............................................................................... 15
V. REGISTRATION RIGHTS
5.1 Piggy-Back Registration................................................................. 16
5.2 Filings; Information.................................................................... 29
5.3 Participation in Underwritten Registrations............................................. 22
5.4 Indemnification and Contribution Relating to
Registrations.......................................................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
Page
----
<S> <C>
VI. COVENANTS OF THE COMPANY
6.1 Financial Statements and Other Reports.................................................. 27
6.2 Composition of Board.................................................................... 28
6.3 Restrictions on the Company............................................................. 29
VII. COVENANTS OF AIG AND MR. KROLL
7.1 Term.................................................................................... 31
7.2 Restrictions on AIG..................................................................... 31
7.3 Voting.................................................................................. 33
7.4 Sale of Shares.......................................................................... 34
7.5 Tag-Along Rights........................................................................ 36
7.6 Confidentiality......................................................................... 37
7.7 Stock Legend............................................................................ 38
VIII. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
8.1 Conditions to the Obligations of AIG.................................................... 39
8.2 Conditions to the Obligations of the Company and Mr. Kroll.............................. 41
IX. GENERAL PROVISIONS
9.1 Public Disclosure and Confidentiality................................................... 43
9.2 Survival of Representations, Warranties and
Agreements............................................................................ 43
9.3 Termination............................................................................. 43
9.4 Notices................................................................................. 44
9.5 Specific Performance.................................................................... 45
9.6 Fees and Expenses....................................................................... 46
9.7 Entire Agreement........................................................................ 46
9.8 Waivers and Amendments.................................................................. 46
9.9 Governing Law........................................................................... 47
9.10 Binding Effect; No Assignment.......................................................... 47
9.11 Counterparts............................................................................ 47
9.12 Further Assurances...................................................................... 47
9.13 Captions................................................................................ 48
9.14 Construction and Representation by Counsel.............................................. 48
9.15 No Third-Party Beneficiaries............................................................ 48
9.16 Definitions............................................................................. 48
</TABLE>
ii
<PAGE> 4
SCHEDULES
---------
1.2 Common Stock Issued to the Existing Stockholders
2.1 Encumbrances and Partially Owned Subsidiaries
EXHIBITS
--------
A Form of Notes
iii
<PAGE> 5
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT
-------------------------------------------------
PLAN OF REORGANIZATION AND STOCKHOLDERS AGREEMENT (the
"AGREEMENT") dated as of June 15, 1993 by and among AMERICAN INTERNATIONAL
GROUP, INC., a Delaware corporation ("AIG"), JULES B. KROLL and KROLL HOLDINGS,
INC., a Delaware corporation (the "COMPANY").
WHEREAS, Mr. Kroll owns 92% of the capital stock of each of
Kroll Associates, Inc., a Delaware corporation ("Associates"), Harrison/Kroll
Environmental Services, Inc., a Louisiana corporation ("H/K"), Palumbo Partners,
Inc., a Delaware corporation ("Palumbo"), and Kroll Associates U.K. Limited, a
corporation organized under the laws of England ("U.K.") (Associates, H/K,
Palumbo and O.K., together with the Subsidiaries (as hereinafter defined) of
each such entity, are hereinafter referred to, collectively, as the "KROLL
GROUP" and, individually, as a "MEMBER OF THE KROLL GROUP");
WHEREAS, AIG, Mr. Kroll and all of the other holders of
capital stock of the members of the Kroll Group (other than the Subsidiaries)
(such holders are hereinafter referred to as the "EXISTING STOCKHOLDERS") wish
to provide for the reorganization described herein (the "REORGANIZATION");
WHEREAS, in connection with the Reorganization, AIG will
contribute cash and notes to the Company and will receive, in exchange therefor,
23,100 shares (the "Shares") of the Company's Class A Common Stock, par value
$.01 per share ("'CLASS A COMMON STOCK");
<PAGE> 6
WHEREAS, in connection with the Reorganization, Mr. Kroll and
the Existing Stockholders will contribute all of the capital stock held by them
of the members of the Kroll Group (the "OUTSTANDING STOCK") and will receive, in
exchange therefor, shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), as a result of which the Company shall become a holding
company of the Kroll Group; and
WHEREAS, it is intended that the Reorganization shall
constitute a tax-free transaction in which the contribution to the Company of
cash, notes and the capital stock of the Kroll Group shall be made solely in
exchange for the capital stock of a corporation that, immediately following such
contribution, is controlled by the parties making such contributions, as
provided in Section 351 of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements of the parties hereto contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the satisfaction or waiver of the conditions
hereof, the parties hereto do hereby agree as follows:
I. REORGANIZATION
1.1. AIG CONTRIBUTION. Upon the terms and subject to the
conditions set forth in this Agreement, the Company agrees to issue and deliver
to AIG, the Shares. As
2
<PAGE> 7
consideration for the Shares, at the Closing (as hereinafter defined), AIG shall
contribute to the Company $14,999,990, of which $10,000,000 shall be paid in
immediately available funds and $4,999,990 shall be paid in the form of two
notes substantially in the form of Exhibit A to this Agreement (the
"Notes").
1.2. KROLL CONTRIBUTION. Upon the terms and subject to the conditions
set forth in this Agreement, the Company agrees to issue and deliver to Mr.
Kroll and each of the Existing Stockholders the number of shares of Common Stock
set forth opposite his name on Schedule 1.2 to this Agreement. As consideration
for such shares of Common Stock, at the Closing, Mr. Kroll and each of the
Existing Stockholders shall contribute to the Company all of the shares of
Outstanding Stock then held by him, free and clear of all Encumbrances (as
hereinafter defined), and together with all rights now and hereafter attaching
thereto. As used herein, "ENCUMBRANCE" shall mean any lien, pledge, claim,
option, encumbrance, mortgage, hypothecation, equity, charge, or any other
similar limitation, except any such limitation contemplated by this Agreement.
1.3. EFFECT OF THE REORGANIZATION. By virtue of the
Reorganization, on the Closing Date (as hereinafter defined), except as set
forth in Schedule 2.l, each member of the Kroll Group will be a wholly owned
subsidiary of the Company.
3
<PAGE> 8
1.4. CLOSING. (a) The Closing of the transactions provided for
in this Agreement (the "CLOSING") shall take place at the offices of Cleary,
Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York at 10:00 a.m.
on June 15, 1993 or such other place and at such other time as the parties may
agree after each of the conditions set forth in Article VIII of this Agreement
shall have been fulfilled or waived in accordance herewith (the "CLOSING DATE").
(b) At the Closing, the Company will deliver to AIG the
following:
(i) a stock certificate representing the Shares;
and
(ii) the documents referred to in Section 8.1 of
this Agreement.
(c) At the Closing, the Company will deliver to Mr. Kroll and
each of the Existing Stockholders a stock certificate representing the number of
shares of Common Stock to which he is entitled as set forth in Section 1.2 of,
and Schedule 1.2 to, this Agreement;
(d) At the Closing, AIG will deliver the following:
(i) to the Company, the consideration for the
Shares, in the forms and amounts as set
forth in Section 1.1; and
(ii) to the Company and Mr. Kroll, the documents
referred to in Section 8.2 of this
Agreement.
4
<PAGE> 9
(e) At the Closing, Mr. Kroll and each of the Existing
Stockholders will deliver the following:
(i) to the Company, all of the shares of
Outstanding Stock held by such individual;
and
(ii) to AIG, the documents referred to in Section
8.1 of this Agreement.
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of AIG and
Mr. Kroll that:
2.1. DUE ORGANIZATION, ETC. The Company and each member of the
Kroll Group is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and each has
all requisite corporate power and authority to own, operate and lease its
respective properties and assets and to conduct its respective businesses as now
conducted and is qualified to do business in each state or other jurisdiction
where the nature of its properties, assets or businesses requires such
qualification other than where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, business, operations, properties or assets
(collectively, the "CONDITION") of the Company or any member of the Kroll Group.
All of the outstanding shares of capital stock of each member
5
<PAGE> 10
of the Kroll Group are validly issued, fully paid and nonassessable, and, except
as set forth on Schedule 2.1 of this Agreement, all of such outstanding shares
shall, as of the Closing, be owned, directly or indirectly, by the Company free
and clear of all Encumbrances. As used herein, "SUBSIDIARY" means a corporation
or other business entity or arrangement a majority of the outstanding voting
securities or ownership interests of which is owned, directly or indirectly, by
the Company, by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
2.2. LICENSES; PERMITS. Each member of the Kroll Group has
obtained and maintains in full force and effect all permits, licenses, consents,
approvals, registrations, memberships, authorizations and qualifications under
all federal, state, local and foreign laws and regulations, and with all
federal, state, local and foreign governmental or regulatory authorities (each,
an "AUTHORITY"), required for the conduct by it of its businesses and the
ownership or possession by it of its properties and assets other than where the
failure to obtain or maintain such permits, licenses, consents, approvals,
registrations, memberships, authorizations or qualifications would not,
individually or in the aggregate, have a material adverse effect on the
Condition of the Company or any member of the Kroll Group.
2.3. AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT. (a)
The execution and delivery of this Agreement,
6
<PAGE> 11
the issuance of the Shares to AIG and the Common Stock to Mr. Kroll and the
Existing Stockholders and management under the Restricted Stock Plan (as
hereinafter defined) and the consummation of the transactions contemplated
hereby (i) are within the corporate power and authority of the Company, and (ii)
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(b) As of the Closing Date, the Shares shall be in due and
proper form, duly authorized by all necessary corporate action on the part of
the Company, and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration therefor set forth herein,
including payment in full of all amounts due on the Notes, the Shares will be
validly issued, fully paid and nonassessable.
2.4. NO CONFLICTS; CONSENTS. The execution and delivery of
this Agreement, the issuance of the Shares to AIG and the Common Stock to Mr.
Kroll and the Existing Stockholders and management under the Restricted Stock
Plan and the consummation of the transactions contemplated hereby do not
conflict with, or result in any violation of or default under, or permit the
acceleration of any obligation under, or the creation or imposition of any
Encumbrance on, any of the
7
<PAGE> 12
properties or assets of the Company or any member of the Kroll Group under, (i)
any provision of the certificate of incorporation or by-laws of the Company or
any member of the Kroll Group, (ii) any indenture, lease, mortgage, deed of
trust, loan agreement or other agreement or instrument, or any permit, of the
Company or any member of the Kroll Group or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation of any Authority to which the
Company or any member of the Kroll Group is a party or by which any of them is
bound, other than as set forth herein or where such conflict, violation,
default, acceleration or Encumbrance would not, individually or in the
aggregate, have a material adverse effect on the Condition of the Company and
the Kroll Group taken as a whole or on the benefits intended to be afforded to
AIG or Mr. Kroll under this Agreement. No consent, approval, order or
authorization of, or registration, declaration, filing with or notice to, any
Authority or third party is required to be made or obtained by the Company or
any member of the Kroll Group (including, without limitation, under any
environmental or occupational, health and safety laws) in order to execute or
deliver this Agreement, effect the Reorganization, issue the Shares or Common
Stock or consummate the transactions contemplated hereby except (i) the
amendment to the Stockholders' Agreement dated as of March 20, 1992 among the
Kroll Group, Robert J. McGuire and Joseph R. Rosetti, (ii) the amendment to the
Stockholders' Agreement
8
<PAGE> 13
dated as of December 31, 1992 among the Kroll Group, Robert J. McGuire, Joseph
R. Rosetti and Ernest Brod, (iii) the consent of Teachers Insurance and Annuity
Association of America and Herbert Kurz (collectively, "TIAA") under the Note
Purchase Agreement dated as of December 15, 1989 and as amended by Consent and
Amendment No. 1 dated November 4, 1991 (the "Note Purchase Agreement") and (iv)
where the failure to make or obtain any such consent, approval, order,
authorization, registration, declaration, filing or notice would not have a
material adverse affect on the Condition of the Company and the Kroll Group
taken as a whole or on the benefits intended to be afforded to AIG or Mr. Kroll
under this Agreement.
2.5. CAPITAL STOCK. (a) As of the Closing Date, the authorized
capital stock of the Company will consist solely of 153, 800 shares of Common
Stock, of which 67, 663 shares shall be issued to Mr. Kroll and the Existing
Stockholders and outstanding, and 46,200 shares of Class A Common Stock, of
which 23,100 shares shall be issued to AIG and outstanding. Upon the
consummation of the transactions contemplated by this Agreement all of the
issued and outstanding shares of Common Stock and Class A Common Stock will have
been validly issued and fully paid and non-assessable.
(b) As of the Closing Date, other than as contemplated by this
Agreement, there shall not be authorized or outstanding any subscriptions,
options, conversion rights,
9
<PAGE> 14
warrants or other agreements, securities or commitments of any nature whatsoever
(whether oral or written and whether firm or conditional) obligating the Company
or any Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, to any person any shares of Common Stock or any other shares of the
capital stock of the Company or any shares of the capital stock of any
Subsidiary, or any securities convertible into or exchangeable for any such
shares, or obligating any such person to grant, extend or enter into any such
agreement or commitment, except for 9,240 restricted shares of Common Stock
authorized for issuance under the Company's Restricted Stock Plan dated as of
the Closing Date (the "Restricted Stock Plan"), of which 7,700 shares of Common
Stock are being awarded as of the Closing Date and 1,540 shares of Common Stock
shall be reserved for supplemental awards to participants under the plan. Except
as provided herein, no class of capital stock of the Company is entitled to
preemptive rights.
2.6. NO BROKERS. No Broker, finder, investment banker or other
person or entity has acted on behalf of the Company in connection with the
transactions contemplated by this Agreement in such manner as to give rise to
any valid claim against AIG for any broker's fee, finder's fee or similar
compensation in connection with the transactions contemplated by this Agreement.
10
<PAGE> 15
2.7. LITIGATION AND CLAIMS. There is no claim, prosecution,
suit, action, arbitration, proceeding, investigation or review pending or, to
the knowledge of the Company, threatened against or affecting the Company, any
member of the Kroll Group or any of their respective properties or assets which
questions the validity of this Agreement, the Shares, the Common Stock or any
action taken or to be taken pursuant hereto, seeks to prohibit or impose any
limitations on AIG's ownership of the Shares or Mr. Kroll's ownership of the
Common Stock or which is reasonably likely to have a material adverse effect on
the transactions contemplated by this Agreement. Neither the Company nor any
member of the Kroll Group is in default with respect to any judgment, decree,
injunction, rule or order of any court, arbitrator or Authority outstanding
against or binding upon the Company or any member of the Kroll Group, other than
where any such defaults would not, individually or in the aggregate, have a
material adverse effect on the Condition of the Company or any member of the
Kroll Group.
2.8. FINANCIAL STATEMENTS; TAXES. (a) The combined financial
statements for the fiscal year ended December 31, 1992 (the "FINANCIAL
STATEMENTS") delivered to AIG were prepared in accordance with generally
accepted accounting principles, applied on a consistent basis during the periods
involved (except as may be set forth in the notes thereto), and on that basis
fairly present the combined
11
<PAGE> 16
financial position, assets and liabilities of the Kroll Group as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended, subject, in the case of any interim financial
statements, to normal year-end adjustments and any other adjustments described
therein.
(b) Except as otherwise set forth in the Financial Statements,
all tax returns, statements, reports, withholding obligations and forms
thereinafter collectively referred to as "RETURNS") required to be filed with
any Authority on or before the Closing Date by the Company or any member of the
Kroll Group have been filed or will be filed on or before the Closing Date in
accordance with all applicable laws; the Company and all relevant members of the
Kroll Group have timely paid all taxes shown as due and payable on the Returns;
and no action, suit, proceeding, investigation, audit or claim relating to taxes
is proposed or pending against the Company or any member of the Kroll Group that
would affect the Financial Statements; other than where such failure to file or
pay or where such action, suit, proceeding, investigation, audit or claim would
not, individually or in the aggregate, have a material adverse effect on the
Condition of the Company or any member of the Kroll Group.
2.9. USE OF PROCEEDS. The Company intends to use the proceeds
from the capital contribution for the Shares for general corporate purposes.
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III. REPRESENTATIONS AND WARRANTIES OF AIG
AIG represents and warrants to the Company and Mr.
Kroll that:
3.1. DUE ORGANIZATION, ETC. AIG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2. AUTHORIZATION; EXECUTION AND DELIVERY OF AGREEMENT. AIG
has a requisite corporate power and authority to execute this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of AIG. This
Agreement has been duly executed and delivered by AIG and this Agreement
constitutes, and, when executed and delivered by AIG, the Notes will constitute,
a legal, valid and binding obligation of AIG enforceable against AIG in
accordance with its terms. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, nor the compliance
with or fulfillment of the terms and provisions hereof will conflict with or
result in a breach or violation of, or constitute with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancelation or acceleration) under, any of the terms, conditions or provisions
of (i) any corporate governance documents of AIG, (ii) any agreement, indenture,
mortgage,
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lien, lease or other instrument or restriction of any kind to which AIG is a
party or by which AIG is otherwise bound or affected or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to AIG.
3.3. NO CONSENT. No consent, approval, order or authorization
of, or registration, declaration, filing with or notice to, any Authority is
required to be made or obtained by AIG in order to execute or deliver this
Agreement or to consummate the transactions contemplated hereby.
3.4. NO BROKERS. No Broker, finder, investment banker or other
person or entity has acted on behalf of AIG in connection with the transactions
contemplated by this Agreement in such manner as to give rise to any valid claim
against the Company, any member of the Kroll Group or any Subsidiary for any
broker's fee, finder's fee or similar compensation in connection with the
transactions contemplated by this Agreement.
3.5. LITIGATION AND CLAIMS. There is no claim, prosecution,
suit, action, arbitration, proceeding, investigation or review pending or, to
the knowledge of AIG, threatened against or affecting AIG, or any of its
properties or assets which questions the validity of this Agreement or any
action taken pursuant hereto or which is reasonably likely to have a material
adverse effect on the transactions contemplated by this Agreement.
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3.6. INVESTMENT PURPOSES. AIG is acquiring the Shares solely
for its own account for the purpose of investment and not with a view to the
public distribution thereof.
3.7. ACCREDITED INVESTOR. AIG (i) has such knowledge and
experience in business and financial matters and with respect to investments in
securities to enable it to understand and evaluate the risks of such investments
and form an investment decision with respect thereto and is able to bear the
risk of such investment for an indefinite period and to afford a complete loss
thereof and (ii) is an "accredited investor" as defined in Rule 501 ta) of
Regulation D under the Securities Act of 1933, as amended (the "SECURITIES
ACT").
IV. REPRESENTATIONS AND WARRANTIES OF MR. KROLL
Mr. Kroll hereby represents and warrants to AIG and the
Company that:
4.1. TITLE TO THE KROLL GROUP STOCK. Mr. Kroll is the lawful
owner, of record and beneficially, of 92% of the capital stock of Associates,
H/K, Palumbo and U.K. and has good and marketable title to such shares, free and
clear of any Encumbrances.
4.2. AUTHORITY. Mr. Kroll has all requisite power and
authority and capacity to enter into this Agreement and to perform his
obligations hereunder and this
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Agreement is a legal, valid and binding obligation of Mr. Kroll, enforceable
against him in accordance with its terms.
V. REGISTRATION RIGHTS
5.1. PIGGY-BACK REGISTRATION. (a) If at any time after the
Closing the Company proposes to file a registration statement under the
Securities Act with respect to an offering of securities of the Company for the
account of Mr. Kroll, then the Company shall give written notice of such
proposed filing to AIG as soon as practicable (but in no event less than ten
business days before the anticipated filing date), and such notice shall offer
AIG the opportunity to include some or all of its Registrable Securities (as
hereinafter defined) in such registration (a "PIGGY-BACK REGISTRATION"). The
Company shall use its best efforts to cause the managing Underwriter or
Underwriters (as hereinafter defined) of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company included therein. As used herein, "REGISTRABLE
SECURITIES" means the Shares until (i) a registration statement covering such
Shares has been declared effective by the Securities and Exchange Commission
(the "COMMISSION") and the Shares have been disposed of pursuant to such
effective registration statement or (ii) such Shares are sold under
circumstances in which all of the applicable
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conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met. As used herein, "UNDERWRITER" means a securities dealer
who purchases any Registrable Securities as principal and not as part of such
dealer's market-making activities.
(b) The Company will bear all expenses of registrations
pursuant to Section 5.1(a) of this Agreement (other than underwriting discounts
and commissions and brokerage commissions and fees, if any, payable with respect
to Registrable Securities sold by AIG), including, without limitation,
registration fees, printing expenses, expenses of compliance with Blue Sky or
other state securities laws, and legal and audit fees incurred by the Company in
connection with such registration and amendments or supplements in connection
therewith.
(c) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 5.1(a) concludes
that the aggregate size of such offering is such that the price of the
securities offered would be materially and adversely affected by inclusion of
the Registrable Securities requested to be included by AIG, then the number of
Registrable Securities to be offered for the account of AIG shall be reduced to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing Underwriter or
Underwriters; PROVIDED that the
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proportion by which the amount of such class of securities intended to be
offered by AIG is reduced shall not exceed the proportion by which the amount of
such class of securities intended to be offered by persons other than the
Company is reduced. As used herein, "Person" means an individual or a
corporation, partnership, association, trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
(d) To the extent not inconsistent with applicable law, AIG
agrees not to effect any public sale or distribution of the security being
registered (except as part of such registration) or a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 under the Securities Act,
during the ninety day period prior to, and during the 180 day period beginning
on the effective date of such registration statement, if and to the extent
requested by the Company in the case of a non-underwritten public offering or if
and to the extent requested by the managing Underwriter or Underwriters in the
case of an underwritten public offering.
(e) In the event AIG chooses to sell some or all of its
Registrable Securities pursuant to Section 5.1(a), AIG shall have the option to
convert those Shares it intends to sell in such Piggy-Back Registration to
Common Stock on a share for share basis and if the managing Underwriter or
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Underwriters of such offering concludes that the failure of AIG to convert such
Shares to common Stock would adversely affect the marketing of the securities
offered, AIG agrees to convert such Shares to Common Stock.
5.2. FILINGS; INFORMATION. Whenever AIG requests that any
Registrable Securities be registered pursuant to Section 5.1(a) hereof, the
Company will use its best efforts to include such Registrable Securities in such
registered sale and in connection with any such request:
(a) the Company will, if requested, prior to filing a
registration statement or prospectus or any amendment or supplement thereto,
furnish to AIG copies of such registration statement as proposed to be filed,
and thereafter furnish to AIG such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as AIG may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by AIG;
(b) After the filing of the registration statement relating to
the Registrable Securities, the Company will promptly notify AIG of any stop
order issued or threatened by the Commission and take all reasonable actions
required to
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prevent the entry of such stop order or to remove it if entered;
(c) the Company will immediately notify AIG, at any time when
a prospectus relating to Registrable Securities is required to be delivered
under the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to AIG any such
supplement or amendment;
(d) the Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(e) the Company will make available for inspection by AIG and
any attorney, accountant or other professional retained by AIG (collectively the
"INSPECTORS"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "RECORDS") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information
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reasonably requested by any Inspectors in connection with such registration
statement. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
registration statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction; and
(f) the Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(g) The Company may require AIG to promptly furnish in writing
to the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be required, in the opinion of counsel to the Company,
in connection with such registration.
AIG agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 5.2(c) hereof,
AIG will forthwith discontinue disposition of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until AIG's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 5.2(c) hereof, and,
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if so directed by the Company, AIG will deliver to the Company all copies, other
than permanent file copies then in AIG's possession, of the most recent
prospectus covering the Registrable Securities at the time of receipt of such
notice.
5.3. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. AIG may not
participate in any underwritten registration hereunder unless AIG completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and this Agreement.
5.4. INDEMNIFICATION AND CONTRIBUTION RELATING TO
REGISTRATIONS. (a) The Company agrees to indemnify and hold harmless AIG, its
officers, directors and agents, and each Person, if any, who controls AIG within
the meaning of Section 20 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact on the part of the Company contained
in any registration statement or prospectus relating to the Registrable
Securities (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission or alleged omission on the part of the Company to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading,
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except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by AIG or on AIG's behalf
for use therein; PROVIDED, HOWEVER, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of AIG if
the Person asserting any such loss, claim, damage or liability purchased the
Registrable Securities from AIG and if it is determined that it was the
responsibility of AIG to provide such Person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage or liability.
(b) AIG agrees to indemnify and hold harmless the Company, its
officers, directors and agents and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to AIG, but only with reference to information relating to AIG furnished in
writing by AIG or on AIG's behalf for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus; PROVIDED HOWEVER that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of the Company if the Person asserting any such loss,
claim, damage
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or liability purchased the Registrable Securities from the Company and if it is
determined that it was the responsibility of the Company to provide such Person
with a current copy of the prospectus and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be entitled to be sought pursuant to Section 5.4(a) or 5.4(b),
such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against
whom such indemnity may be sought ("INDEMNIFYING PARTY") in writing and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all fees and expenses. The failure of an Indemnified Party to give
notice as described in the preceding sentence shall relieve the Indemnifying
Party of its obligation to indemnify the Indemnified Party, or to contribute to
the amount paid or payable by such Indemnified Party, under this Agreement to
the extent that the Indemnifying Party shall have been prejudiced as a result of
such failure. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have
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mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such Indemnified Parties, and
that all such fees and expenses shall be reimbursed as they are incurred. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 5.4 is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein for any reason other than the failure to give
notice as provided in Section 5.4(c), then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified
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Party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect both the relative benefits received by
the Company on the one hand and AIG on the other from the relevant offering, and
the relative fault of the Company on the one hand and of AIG on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits-received by the Company on the one hand
and AIG on the other shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and commissions but
before deducting expenses) received by the Company bears to that received by
AIG. The relative fault of the Company on the one hand and of AIG on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and AIG agree that it would not be just and
equitable if contribution pursuant to this Section 5.4(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
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paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of Section 11
(f) of the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
VI. COVENANTS OF THE COMPANY
The Company covenants and agrees that:
6.1. FINANCIAL STATEMENTS AND OTHER REPORTS. For so long as
AIG owns Shares which represent more than 5% of the voting power of the
Company's outstanding voting securities:
(a) the Company will, as soon as practicable and in any event
within 45 days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, furnish to AIG consolidated statements of
income, retained earnings, cash flows and changes in stockholders' equity of the
Company and its Subsidiaries for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and a consolidated
balance sheet of the Company and its Subsidiaries as of the end of such
quarterly
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period, setting forth in each case in comparative form figures for the
corresponding period or date in the preceding fiscal year, all in reasonable
detail and certified by an authorized financial officer of the Company, subject
to changes resulting from year-end adjustments;
(b) the Company will, as soon as practicable and in any event
within 90 days after the end of each fiscal year, furnish to AIG consolidated
statements of income, retained earnings, cash flows and changes in stockholders'
equity of the Company and its Subsidiaries for such year, and a consolidated
balance sheet of the Company and its Subsidiaries as of the end of such year,
setting forth in each case in comparative form the corresponding figures from
the preceding fiscal year, all in reasonable detail and examined and reported on
by independent public accountants of recognized standing selected by the
Company; and
(c) the Company will, promptly upon transmission thereof,
furnish to AIG copies of all such financial statements, proxy statements,
notices and reports as it shall send to all its stockholders generally and
copies of all such registration statements (without exhibits), other than
registration statements relating to employee benefit or dividend reinvestment
plans, and any regular and periodic reports as it may file with the Commission.
6.2. COMPOSITION OF BOARD. The Board of Directors of the
Company (the "Board") shall be comprised as of the Closing of four members and
AIG shall be entitled to designate
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one individual (which designee shall not include individuals whose membership on
the Board would be a violation of law) for membership on the Board. If during
the Voting Agreement Period (as hereinafter defined) the size of the Board is
changed, at each election of directors during the Voting Agreement Period, AIG
shall be entitled to designate such number of individuals for membership on the
Board such that the ratio of the total number of members of the Board designated
by AIG to the total number of members of the Board equals the ratio of the total
voting power of securities of the Company then beneficially owned by AIG to the
total voting power of securities of the Company then outstanding, rounded to the
nearest whole number.
6.3. RESTRICTIONS ON THE COMPANY. (a) If, during the Agreement
Period (as hereinafter defined), the Company issues additional Equity Securities
(as hereinafter defined) (an "ADDITIONAL ISSUANCE"), except for issuances
pursuant to (i) any currently outstanding stock option, warrant, convertible
security or other right to purchase shares of any equity securities of the
Company, (ii) any benefit plan or other employee or director arrangement adopted
or implemented after the date of this Agreement, (iii) an employee stock
ownership plan not in excess of 5% of the outstanding Equity Securities or (iv)
any stock split, stock dividend or similar distribution made available to
holders of Common Stock generally, then AIG shall be entitled to purchase from
the Company during the twenty-five day period following the date
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on which the Company has given AIG written notice of the occurrence of the
Additional Issuance, at a price per share equal to the fair market value per
share of the consideration to be received for the Equity Securities to be issued
in such Additional Issuance, that number of Equity Securities that equals the
product of (x) the total number of Equity Securities offered in the Additional
Issuance by (y) a fraction, the numerator of which equals the number of Equity
Securities owned by AIG immediately prior to the Additional Issuance and the
denominator of which equals the aggregate number of Equity Securities
outstanding immediately prior to the Additional Issuance, rounded to the nearest
whole share.
(b) During the period from the date hereof through December
31, 1994, the Company agrees to limit the salary paid by the Company to Mr.
Kroll to no more than $500,000 on an annual basis; PROVIDED, HOWEVER, that, in
the event the Board, in the good faith exercise of its business judgment,
determines that Mr. Kroll's performance has been exceptional and/or that the
financial results of the Kroll Group's operation has been extraordinarily good,
the Board may consider an increase to Mr. Kroll's salary. During such period,
any bonuses paid to Mr. Kroll shall be made on the same basis as currently in
place at Associates. Thereafter, the Board will determine Mr. Kroll's
compensation in the ordinary exercise of its fiduciary duties.
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VII. COVENANTS OF AIG AND MR. KROLL
7.1. TERM. The agreements contained in this Article VII, other
than those contained in Section 7.3, shall remain in effect (the "AGREEMENT
PERIOD") until the earlier to occur of the following events: (i) AIG does not
own Shares that represent more than 5% of the voting power of the Company's
outstanding voting securities and (ii) such agreements are terminated or
superseded pursuant to Sections 9.3 or 9.8.
7.2. RESTRICTIONS ON AIG. AIG agrees that, without the prior
written consent of the Company or as expressly contemplated by the Agreement,
AIG will not, and will cause each of its Affiliates (as hereinafter defined) not
to, singly or as part of a group, directly or indirectly:
(a) acquire or propose to acquire any equity securities of the
Company ("EQUITY SECURITIES") or any rights to acquire any Equity Securities;
(b) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) with respect to any Equity Securities (including by the execution
of actions by written consent), become a "participant" in any "election contest"
(as such terms are defined or used in Rule 14a-11 under the Exchange Act) with
respect to the Company or seek to advise, encourage or influence any person or
entity with respect to the voting of any Equity Securities;
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(c) initiate, propose or otherwise solicit, or participate in
the solicitation of, stockholders for the approval of one or more stockholder
proposals with respect to the Company as described in Rule 14a-8 under the
Exchange Act or knowingly induce any other individual or entity to initiate any
stockholder proposal relating to the Company;
(d) form, join or in any way participate in a "group" or act
in concert with any other person or entity with respect to any Equity Securities
of the Company;
(e) participate in or encourage the formation of any group
which owns or seeks or offers to acquire beneficial ownership of securities of
the Company or rights to acquire such securities or which seeks or offers to
affect control of the Company or for the purpose of circumventing any provision
of this Agreement;
(f) act in concert with any other entity with respect to any
Equity Securities or otherwise act, alone or in concert with others, to seek or
offer to control or influence, in any manner, the management, the Board or the
policies of the Company; PROVIDED, HOWEVER, that the participation in
deliberations of the Board by the individual or individuals designated by AIG
for election to the Board in accordance with Section 6.2 hereof shall not be
considered a violation of this Section 7.2(f); or
(g) solicit, seek or offer to negotiate with or make any
public statement or public proposal to the Company (or non-public statement or
proposal that would impose a legal
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obligation on the Company to make a public announcement), or otherwise make any
public announcement with respect to (i) any form of business combination or
transaction involving the Company, (ii) any form of restructuring,
recapitalization or similar transaction with respect to the Company, (iii) any
request to amend, waive or terminate the provisions of this Article VII or (iv)
any proposal, statement or action inconsistent with the terms of this Article
VII, or (v) knowingly encourage, aid or otherwise induce any person to take any
of the actions set forth in this Section 7.2. As used herein, an "AFFILIATE" of
a specified Person is a Person that directly, or indirectly, controls, or is
controlled by, or is under common control with, the Person specified.
7.3. VOTING. For a period of five years from the Closing (or
until such earlier time as AIG no longer owns Shares) (the "VOTING AGREEMENT
PERIOD"), AIG shall be present, in person or by proxy, at all meetings of
stockholders of the Company so that all Equity Securities beneficially owned by
AIG shall be counted for purposes of determining the presence of a quorum at
such meetings. The Voting Agreement Period shall be extended automatically for a
period of one year on the last day of each year of the Agreement Period (each a
"VOTING EXTENSION DATE") unless, prior to any Voting Extension Date, AIG
delivers to the Company a written notice of election stating that the Voting
Agreement Period shall not be extended for an additional one-year period. If AIG
elects not to extend the Voting Agreement Period on or prior to any Voting
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Extension Date, the Voting Agreement Period shall not thereafter be extended and
the provisions contained in this Section 7.3 shall terminate on the last day of
the Voting Agreement Period; PROVIDED, that in no event shall the remaining term
of the Voting Agreement Period exceed the Agreement Period. During the Voting
Agreement Period, in all elections of directors of the Company, each of AIG and
Mr. Kroll shall cast its or his votes in favor of election of the nominees of
the Board nominated in accordance with Section 6.2 hereof. Upon the date AIG is
no longer entitled to designate any nominees for election to the Board, AIG
shall cause those members of the Board that have been designated by AIG to
resign from the Board, effective immediately.
7.4. SALE OF SHARES. (a) During the five year period
following the Closing, AIG shall not sell, transfer or otherwise
dispose of any of the Shares to any Person other than the
Company.
(b) After the date that is five years from the date hereof,
AIG may sell, transfer or otherwise dispose of any Shares provided that (i) the
sale, transfer or disposition is made in accordance with the requirements of the
Securities Act, (ii) the sale, transfer or disposition is made in accordance
with Section 7.4(d) hereof, (iii) the transferee is not a Person that is,
directly or indirectly, engaged in any business or line of business that (in the
reasonable opinion of the Company) competes in any material way with any
business or line of business then engaged in by the Company or any of
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its Subsidiaries and (iv) AIG will use all reasonable efforts to see that no
Person owns more than 5% of the voting power of the Company's securities as a
result of any such sale, transfer or disposition.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
of this Section 7.4, (i) AIG may sell or otherwise transfer its Shares pursuant
to Article V or Section 7.5 and (ii) AIG may sell or otherwise transfer Shares
at any time to one or more Affiliates of AIG that agree to be bound by the terms
of this Agreement.
(d) Other than for sales and transfers described in paragraph
(c) of this Section 7.4, in the event that AIG desires to sell, transfer or
otherwise dispose of Shares as permitted by this Section 7.4, AIG shall notify
the Company and Mr. Kroll in writing at least sixty days prior to effecting such
transfer and in such notice shall state the number of Shares to be transferred,
the consideration to be received by AIG and the date on which the proposed
transfer is to occur (the "TRANSFER NOTICE"). The Company and Mr. Kroll shall
each have the option, exercisable by notice given in writing to AIG within
thirty days of the date of the Transfer Notice, to acquire all or part of the
Shares AIG desires to transfer for the consideration specified in the Transfer
Notice on a date no later than thirty days from the date the Company or Mr.
Kroll elects to exercise its or his option. In the event that both the Company
and Mr. Kroll elect to acquire all or part of the Shares specified in the
Transfer Notice and
35
<PAGE> 40
such elections would require the transfer of a greater number of Shares than are
so specified, then the Shares specified in such Transfer Notice shall be divided
between the Company and Mr. Kroll pro rata in proportion to the number of Shares
which each elected to purchase. If the Company and Mr. Kroll do not elect to
exercise any option granted pursuant to this paragraph (d), or the elections of
the Company and Mr. Kroll do not result in the purchase by them of the full
number of Shares specified in the Transfer Notice, AIG may transfer such number
of Shares, after giving effect to the elections, if any, of the Company and Mr.
Kroll, on the terms set forth in the Transfer Notice at any time within sixty
days of the date of the Purchase Notice. If AIG does not consummate the
transactions giving rise to such option within such sixty-day period then any
subsequent sale or transfer shall be subject again to this paragraph (d) as if
AIG had not provided notice to the Company and Mr. Kroll of a proposed sale or
transfer.
7.5. TAG-ALONG RIGHTS. Mr. Kroll agrees, in connection with
any binding agreement reached by him with any Person (other than an Affiliate of
Mr. Kroll or a Member of the Kroll Family (as hereinafter defined)) relating to
the sale by Mr. Kroll of all or a portion of his shares of Common Stock and if
requested by AIG, to cause the prospective purchaser to purchase from AIG up to
that number of the Shares then owned by AIG which equals the product of (x) the
total number of Shares then owned by AIG multiplied by (y) a fraction, the
numerator of which equals the number of shares
36
<PAGE> 41
of Common Stock to be purchased from Mr. Kroll and the denominator of which
equals the sum of the total number of shares of Common Stock then owned by Mr.
Kroll plus the number of shares of Common Stock then owned by any other
stockholder of the Company entitled to participate in such sale (the "SALE
RATIO"). Mr. Kroll shall notify AIG in writing of any such binding agreement,
indicating the price and other material terms and conditions of the proposed
sale, the intended closing date of such sale and the Sale Ratio. Any purchase
from AIG under this Section 7.5 shall be at the same price per Share and on the
same terms and conditions as apply to the purchase from Mr. Kroll. AIG will have
ten days from receipt of such notice to notify Mr. Kroll in writing of its
election to exercise its rights under this Section 7.5. If Mr. Kroll does not
receive notice from AIG within such ten-day period, AIG will be deemed to have
elected not to exercise its rights under this Section 7.5 and Mr. Kroll may
complete the proposed sale of his Common Stock at the price and on the terms and
conditions of his notice to AIG. As used herein, "MEMBER OF THE KROLL FAMILY"
shall mean any spouse, child, adopted or natural, grandchild, parent, sibling,
or in-law of Mr. Kroll.
7.6. CONFIDENTIALITY. AIG agrees that any information obtained
by it pursuant to this Agreement (including without limitation in accordance
with Section 5.2 and 6.1 of this Agreement), or as a result of the transactions
contemplated by the Agreement, shall be, and shall be kept, confidential and
shall not be used by AIG for any purpose,
37
<PAGE> 42
other than a registered sale of its Registrable Securities, unless and until
such information is made generally available to the public for a period of not
less than three days. AIG further agrees that it will, upon learning that
disclosure of any information is sought in a court of competent jurisdiction or
any other governmental agency, give notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of such
information.
7.7. STOCK LEGEND. Each of AIG and Mr. Kroll acknowledges and
agrees that the certificates for the Class A Common Stock and the Common Stock
of the Company shall bear the following legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
under any state securities or blue sky laws. The shares may not be
sold, transferred, pledged or hypothecated in the absence of an
effective registration statement for the shares under the Act or an
opinion of counsel for Kroll Holdings, Inc. that registration is not
required under the Act.
These shares are subject to certain limitations on transfer
set forth in an agreement dated June 15, 1993 between American
International Group, Inc., Jules B. Kroll and Kroll Holdings, Inc.
including, but not limited to, restrictions on transfer, pledge,
encumbrances or other dispositions. A copy
38
<PAGE> 43
of such agreement is on file with the Secretary of Kroll Holdings,
Inc."
VIII. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
8.1. CONDITIONS TO THE OBLIGATIONS OF AIG. The obligations of
AIG to consummate the transactions contemplated by this Agreement are subject to
the fulfillment, at or before the Closing Date, of each of the following
conditions (subject to the right of AIG to waive any such condition):
(a) The representations and warranties of each of the Company
and Mr. Kroll contained in this Agreement and in any statement, certificate,
exhibit, schedule or other document delivered by the Company and Mr. Kroll
pursuant hereto or in connection with the transactions contemplated hereby,
shall have been true and correct in all material respects as of the date of this
Agreement and shall be true and correct in all material respects at and as of
the Closing Date as if made on and as of the Closing Date (except to the extent
that any representation or warranty is made as of a specific date, in which case
such representation or warranty shall be true and correct as of such specified
date). The Company and Mr. Kroll shall have performed in all material respects
all of its obligations under this Agreement to be performed at or prior to the
Closing Date; and AIG shall have received at the time of the Closing
certificates from the Company and Mr. Kroll reasonably satisfactory in form to
AIG
39
<PAGE> 44
certifying to the satisfaction of all of the conditions set forth in this
Section 8.1(a).
(b) No action, suit or proceeding shall have been instituted
or threatened which seeks to restrain, prohibit or declare illegal the
transactions contemplated by this Agreement by an Authority. No temporary
restraining order or injunction shall have been issued by any court or
governmental body restraining or prohibiting, and no other Legal Requirement (as
hereinafter defined) shall have come into effect making illegal, the performance
of this Agreement or the consummation of any of the transactions contemplated
hereby. As used herein, "LEGAL REQUIREMENT" shall include laws, regulations,
ordinances, orders, decrees, permits, licenses, consents, approvals,
registrations, memberships, authorizations and qualifications required by any
Authority.
(c) All consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Authority and all material consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Person in connection with the consummation of the transactions contemplated
hereby shall have been obtained or made, and all waiting periods specified under
applicable Legal Requirements, and all extensions thereof, the passing of which
is required for such consummation shall have passed. Without limiting the
foregoing, the Consent of TIAA under the Note Purchase Agreement shall have been
obtained.
40
<PAGE> 45
(d) No proceeding shall have been instituted or consented to
by or against the Company or any subsidiary seeking to adjudicate any of them
bankrupt or insolvent, or seeking liquidation, winding up, reorganization or
other similar actions, or seeking the entry of an order to rely on the
appointment of a receiver, trustee or other similar official for it or any of
them and the Company shall not have taken any corporate action to authorize any
of the above.
(e) The Company shall have delivered a certificate or
certificates for the Shares in the name of AIG and such other instruments of
transfer or conveyance as are reasonably requested by AIG to vest in AIG or its
designee good, valid and marketable title to the Shares.
(f) All of the shares of Outstanding Stock shall have been
contributed to the Company.
(g) AIG shall have received an opinion of Cleary, Gottlieb,
Steen & Hamilton, counsel for the Company, dated the Closing Date and addressed
to AIG, substantially in the form of Exhibit B hereto.
8.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND MR.
KROLL. The obligations of the Company and Mr. Kroll to consummate the
transactions contemplated by this Agreement are subject to the fulfillment, at
or before the Closing Date , of the following conditions (subject to the right
of the Company or Mr. Kroll to waive any such condition as applied to it or
him):
41
<PAGE> 46
(a) The representations and warranties of AIG contained in
this Agreement shall have been true and correct in all material respects as of
the date of this Agreement and shall be true and correct in all material
respects as of the Closing Date as if made on and as of the Closing Date (except
to the extent that any representation or warranty is made as of a specific date,
in which case such representation or warranty shall be true and correct as of
such specified date). AIG shall have performed in all material respects all of
its obligations under this Agreement to be performed at or prior to the Closing
Date and the Company and Mr. Kroll shall have received at the time of the
Closing a certificate from AIG reasonably satisfactory in form to the Company
and Mr. Kroll certifying to the satisfaction of the condition set forth in this
Section 8.2(a).
(b) No action, suit or proceeding shall have been instituted
or threatened which seeks to restrain, prohibit or declare illegal, or to obtain
a material amount of damages arising from the transactions contemplated by this
Agreement and no temporary restraining order or injunction shall have been
issued by any court or governmental body restraining or prohibiting, and no
Legal Requirement shall have come into effect making illegal, performance of
this Agreement or the consummation of any of the transactions contemplated
hereby.
(c) All consents, approvals, permits and authorizations
required to be obtained from, and all filings required to be made with, any
Authority and all material
42
<PAGE> 47
consents, approvals, permits and authorizations required to be obtained from,
and all filings required to be made with, any Person in connection with the
consummation of the transactions contemplated hereby shall have been obtained or
made, and all waiting periods specified under applicable Legal Requirements, and
all extensions thereof, the passing of which is required for such consummation,
shall have been passed.
(d) All of the shares of Outstanding Stock and the cash and
notes described in Section 1.1 shall have been contributed to the Company.
IX. GENERAL PROVISIONS
9.1. PUBLIC DISCLOSURE AND CONFIDENTIALITY. Each party hereby
agrees that no press release or public announcement or communication will be
made or caused to be made concerning the execution or performance of this
Agreement or the terms hereof unless specifically approved in advance by both
parties.
9.2. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations and warranties contained herein or in any other
document or instrument delivered in connection herewith shall survive the
Closing.
Articles V, VI, VII and IX of this Agreement shall survive the
Closing without limitation as to time, except as specifically provided herein.
9.3. TERMINATION. (a) Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be
43
<PAGE> 48
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:
(i) By mutual written consent of the parties to
this Agreement;
(ii) By the Company or Mr. Kroll, if such party shall
have determined in good faith that one or more of the conditions set
forth in Section 8.2 cannot be fulfilled as a result of an occurrence
or event beyond the control of the Company and Mr. Kroll;
(iii) By AIG, if AIG shall have determined in
good faith that one or more of the conditions set forth in
Section 8.1 cannot be fulfilled as a result of an occurrence
or event beyond the control of AIG; or
(iv) By any party if the Closing shall not have
occurred by June 18, 1993 (other than as a result of a breach of this
Agreement by the party seeking termination).
(b) If this Agreement is terminated and the transactions
contemplated hereby are not consummated as provided above, this Agreement shall
become void and of no further force and effect, except for (i) any liability of
the breaching party for any willful breach of a covenant or agreement contained
in this Agreement causing or permitting such termination; and (ii) the
provisions of Section 7.6, which shall survive any such termination.
9.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if
44
<PAGE> 49
delivered personally or sent by certified mail, telex or facsimile (and promptly
confirmed by certified mail, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to the Company or to Mr. Kroll to:
Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022
Attention: Robert P. Connolly, Esq.
Facsimile: (212) 644-5794
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Allan G. Sperling
Facsimile: (212) 225-3999
(b) if to AIG to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Edward E. Matthews
Facsimile: (212) 509-5296
with a copy to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: General Counsel
Facsimile: (212) 514-6894
9.5. SPECIFIC PERFORMANCE. Because the remedy at law for any
breach of this Agreement that an aggrieved party has not otherwise waived would
be inadequate, the parties hereto hereby consent to the granting of an
injunction or other equitable relief, without the necessity of actual
45
<PAGE> 50
monetary loss being proved, in order that any breach or threatened breach of
this Agreement be restrained.
9.6. FEES AND EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated and except as provided herein,
each of the parties to this Agreement shall bear its own expenses incurred in
connection with the negotiation, preparation, execution and Closing of this
Agreement and the transactions provided for hereby.
9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding among the parties with respect to the Reorganization
and supersedes all prior discussions, agreements and undertakings, written or
oral, of any and every nature with respect thereto.
9.8. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by authorized representatives of the
parties. No such written instrument shall be effective unless it expressly
recites that it is intended to amend, supersede, cancel, renew or extend this
Agreement or to waive compliance with one or more of the terms hereof, as the
case may be. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise
46
<PAGE> 51
thereof or the exercise of any other such right, power or privilege.
9.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT, BY THE
LAWS OF THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE
OF DELAWARE NECESSARILY APPLY) (IN EACH CASE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW). The parties agree that any service of process to be made
hereunder may be made by certified mail, return receipt requested, addressed to
the party at the address appearing in Section 9.4 together with a copy to be
delivered to such party's attorneys as provided in Section 9.4.
9.10. BINDING EFFECT NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. This Agreement is not assignable without the
prior written consent of each of the parties hereto or by operation of law.
9.11. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts which together shall constitute one and
the same instrument.
9.12. FURTHER ASSURANCES. Each party shall, at the request of
the other party, at any time and from time to time following the Closing
promptly execute and deliver, or cause to be executed and delivered, to such
requesting party all such further instruments and take all such further action
as
47
<PAGE> 52
may be reasonably necessary or appropriate to confirm or carry out the
provisions and intents of this Agreement and of the instruments delivered
pursuant to this Agreement.
9.13. CAPTIONS. All section titles or captions contained in
this Agreement or in any Exhibit or Schedule annexed hereto or referred to
herein, and the table of contents to this Agreement, are for convenience only,
shall not be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement. All references herein to sections shall be
deemed references to such parts of this Agreement, unless the context shall
otherwise require.
9.14. CONSTRUCTION AND REPRESENTATION BY COUNSEL. The parties
hereto acknowledge and represent that in the negotiation and drafting of this
Agreement they have been represented by and relied upon the advice of counsel of
their choice. The parties hereto affirm that their counsel have had a
substantial role in the drafting and negotiation of this Agreement and,
therefore, the rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any exhibit or schedule attached hereto.
9.15. NO THIRD-PARTY BENEFICIARIES. It is understood and
agreed among the parties hereto that this Agreement and the representations,
warranties and covenants made herein are made expressly and solely for the
benefit of the other party hereto (or their respective successors or
48
<PAGE> 53
permitted assigns), and that no other person shall be entitled or be deemed to
be a third-party beneficiary of any party's rights under this Agreement.
9.16. DEFINITIONS. The following terms shall have the
respective meanings specified in the indicated Sections of this Agreement:
<TABLE>
<CAPTION>
Term Agreement Section
---- -----------------
<S> <C>
Additional Issuance 6.3(a)
Affiliate 7.2
Agreement Recitals
Agreement Period 7.1
AIG Recitals
Associates Recitals
Authority 2.2
Board 6.2
Class A Common Stock Recitals
Closing 1.4(a)
Closing Date 1.4(a)
Commission 5.1(a)
Common Stock Recitals
Company Recitals
Condition 2.1
Encumbrance 1.2
Equity Securities 7.2(a)
Existing Stockholders Recitals
Exchange Act 5.4(a)
Financial Statements 2.8(a)
H/K Recitals
Indemnified Party 5.4(c)
Indemnifying Party 5.4(c)
Inspectors 5.4(e)
Kroll Group Recitals
Legal Requirement 8.1(b)
Member of the Kroll family 7.5
member of the Kroll Group Recitals
Note Purchase Agreement 2.4
Notes 1.1
Outstanding Stock Recitals
Palumbo Recitals
Person 5.1(c)
Piggy-Back Registration 5.1(a)
Records 5.2(e)
Registrable Securities 5.1(a)
Reorganization Recitals
Restricted Stock Plan 2.5(b)
Returns 2.8(b)
</TABLE>
49
<PAGE> 54
<TABLE>
<S> <C>
Sale Ratio 7.5
Securities Act 3.7
Shares Recitals
Subsidiary 2.1
TIAA 2.4
Transfer Notice 7.4(d)
U.K. Recitals
Underwriter 5.1(a)
Voting Agreement Period 7.3
Voting Extension Date 7.3
</TABLE>
50
<PAGE> 55
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, all as of the date first written above.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ Kathleen E. Shannon
-----------------------------
Title: Vice President
JULES B. KROLL
By: /s/ Jules B. Kroll
-----------------------------
Jules B. Kroll
KROLL HOLDINGS, INC.
By: /s/ Jules B. Kroll
-----------------------------
Title:
<PAGE> 56
SCHEDULE 1.2
<TABLE>
<CAPTION>
Name Shares of Kroll Holdings, Inc.
- -----------------------------------------------------------------------------------
<S> <C>
Jules B. Kroll 61,500
Robert J. McGuire 3,272.5
Joseph R. Rosetti 2,310
Ernest Brod 577.5
</TABLE>
<PAGE> 57
SCHEDULE 2.1
Kroll Asia
- ----------
Kroll Associates, Inc. owns a 50% interest in this joint venture with
Jardine, Matheson & Co., Limited, Hong Kong Security Limited and Erskine Company
Limited.
Kroll France
- ------------
500 shares of capital stock outstanding. 499 shares held by Kroll
Associates U.K. Limited and 1 share held by Jules B. Kroll.
<PAGE> 58
EXHIBIT A
$2,999,990 New York, New York
June 15, 1993
For value received, AMERICAN INTERNATIONAL GROUP, INC., a
Delaware corporation ("AIG"), hereby promises to pay on the day six months
following the date hereof to KROLL HOLDINGS, INC., a Delaware corporation (the
"Company" ), in lawful money of the United States of America, the principal sum
of Two Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety Dollars
($2,999,990), together with interest on such principal sum from and including
the date hereof to but excluding the date of payment at the rate of 3 1/2% per
annum, for the actual number of days elapsed on the basis of a year consisting
of 360 days.
This Note is one of the Notes referred to in, and is subject
to and governed by, the Agreement. As used herein, the "Agreement" means the
Plan of Reorganization and Stockholders Agreement dated as of June 15, 1993 by
and among AIG, Jules B. Kroll and the Company, as it may be supplemented,
amended or modified at any time from time to time in accordance with its
provisions.
Neither this Note nor any interest herein may be transferred
or assigned by the Company except with the prior written consent of AIG, and any
assignment or attempted assignment other than pursuant to the foregoing shall be
null and void.
AIG hereby waives all requirements as to diligence,
presentment, demand for payment, protest and notice of any kind with respect to
this Note; PROVIDED, however, that the Company shall forward this Note, marked
canceled, promptly following the Company's receipt of full payment hereunder.
Purchaser agrees that no extension of time for payment of this Note shall
release, discharge, modify, change or affect its liability under this Note.
This Note may be prepaid in whole or in part without penalty
upon two days' notice to the Company.
<PAGE> 59
This Note shall be governed by and construed and interpreted
in accordance with the law, without regard to principles governing choice of
law, of the State of New York.
AMERICAN INTERNATIONAL GROUP, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
2
<PAGE> 60
EXHIBIT A
$2,000,000 New York, New York
June 15, 1993
For value received, AMERICAN INTERNATIONAL GROUP, INC., a
Delaware corporation ("AIG"), hereby promises to pay on the ninetieth day
following the date hereof to KROLL HOLDINGS, INC., a Delaware corporation ( the
"Company"), in lawful money of the United States of America, the principal sum
of Two Million Dollars ($2,000,000), together with interest on such principal
sum from and including the date hereof to but excluding the date of payment at
the rate of 3 1/4% per annum, for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This Note is one of the Notes referred to in, and is subject
to and governed by, the Agreement. As used herein, the "Agreement" means the
Plan of Reorganization and Stockholders Agreement dated as of June 15, 1993 by
and among AIG, Jules B. Kroll and the Company, as it may be supplemented,
amended or modified at any time from time to time in accordance with its
provisions.
Neither this Note nor any interest herein may be transferred
or assigned by the Company except with the prior written consent of AIG, and any
assignment or attempted assignment other than pursuant to the foregoing shall be
null and void.
AIG hereby waives all requirements as to diligence,
presentment, demand for payment, protest and notice of any kind with respect to
this Note; PROVIDED, however, that the Company shall forward this Note, marked
canceled, promptly following the Company's receipt of full payment hereunder.
AIG agrees that no extension of time for payment of this Note shall release,
discharge, modify, change or affect its liability under this Note.
This Note may be prepaid in whole or in part without penalty
upon two days' notice to the Company.
<PAGE> 61
This Note shall be governed by and construed and interpreted
in accordance with the law, without regard to principles governing choice of
law, of the State of New York.
AMERICAN INTERNATIONAL GROUP, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
2
<PAGE> 62
- --------------------------------------------------------------------------------
PARTNERSHIP AGREEMENT
OF
ELECTRONIC RECOVERY GROUP
---------------------
As of May 1, 1994
- --------------------------------------------------------------------------------
<PAGE> 63
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I: CONSTRUCTION......................................................................................... 1
1.1 Definitions.......................................................................... 1
1.2 Interpretation....................................................................... 5
1.3 Headings............................................................................. 5
ARTICLE II: ORGANIZATION........................................................................................ 5
2.1 Organization......................................................................... 5
2.2 Name................................................................................. 5
2.3 Purposes............................................................................. 5
2.4 Principal Office..................................................................... 5
2.5 Certificate of Doing Business........................................................ 6
2.6 Partners............................................................................. 6
2.7 Term................................................................................. 6
ARTICLE III: PARTNERS' CAPITAL................................................................................... 6
3.1 Partners' Capital.................................................................... 6
3.2 Capital Calls........................................................................ 6
3.3 Performance of Other Obligations .................................................... 7
ARTICLE IV: CAPITAL ACCOUNTS AND SHARING RATIOS................................................................. 7
4.1 Partner's Capital Accounts........................................................... 7
ARTICLE V: PROFIT AND LOSS ALLOCATIONS.......................................................................... 8
5.1 Profit Allocations................................................................... 8
5.2 Loss Allocations..................................................................... 9
5.3 Timing of Allocations................................................................ 9
ARTICLE VI: APPLICATION AND DISTRIBUTION OF PARTNERSHIP
FUNDS......................................................................................... 10
6.1 Capital Contributions and Cash Receipts.............................................. 10
6.2 Net Cash Flow........................................................................ 10
6.3 Time of Distributions................................................................ 10
ARTICLE VII: ACCOUNTING AND TAX MATTERS......................................................................... 11
7.1 Financial Records and Reports........................................................ 11
7.2 Tax Returns.......................................................................... 11
7.3 Accounting and Tax Elections......................................................... 11
7.4 Federal Income Tax Proceedings....................................................... 11
7.5 Bank Accounts and Investments........................................................ 12
ARTICLE VIII: MANAGEMENT OF THE PARTNERSHIP; POWERS AND
DUTIES OF THE PARTNERS........................................................................ 12
8.1 Management and Conduct of Operations................................................. 12
8.2 Consent of Partners.................................................................. 14
8.3 Duties of Partners................................................................... 15
8.4 Indemnification and Exculpation...................................................... 15
ARTICLE IX: PARTNERS' COMPENSATION.............................................................................. 16
9.1 Fees and Allowances.................................................................. 16
</TABLE>
ii
<PAGE> 64
<TABLE>
<S> <C>
9.2 Permitted Compensation............................................................... 16
9.3 Other Benefits....................................................................... 16
ARTICLE X: OTHER ACTIVITIES OF PARTNERS......................................................................... 17
ARTICLE XI: RESTRICTIONS ON PARTNERS' INTERESTS................................................................. 18
11.1 Limitations on Disposition........................................................... 18
11.2 Exceptions for Alienation............................................................ 18
11.3 Purchase and Sale Options............................................................ 18
11.4 Right of First Refusal............................................................... 20
ARTICLE XII: RIGHT TO CONTINUE BUSINESS OF PARTNERSHIP.......................................................... 21
ARTICLE XIII: DISSOLUTION AND WINDING UP........................................................................ 21
13.1 Events of Dissolution................................................................ 21
13.2 Liquidating Trustee.................................................................. 22
13.3 Procedure on Winding Up.............................................................. 22
13.4 Distribution of Assets............................................................... 22
ARTICLE XIII: MISCELLANEOUS..................................................................................... 23
14.1 Notices.............................................................................. 23
14.2 Further Assurances................................................................... 24
14.3 Organizational Expenses.............................................................. 24
14.4 Severability......................................................................... 24
14.5 Governing Law........................................................................ 24
14.6 Entire Agreement: Amendment.......................................................... 24
14.7 Binding Effect: Successors........................................................... 24
14.8 Arbitration.......................................................................... 24
</TABLE>
ii
<PAGE> 65
PARTNERSHIP AGREEMENT, dated as of May 1, 1994, by and between KROLL
ELECTRONIC RECOVERY, INC., a Delaware corporation ("KCOR"), and SABIN
ENVIRONMENTAL PROCESSING, INC., a Connecticut corporation ("SEP").
R E C I T A L S:
The parties desire to establish a joint venture, which will be known as
"Electronic Recovery Group" (the "Partnership") and will engage in the business
of recovering and recycling used computers and their component parts, and to
provide for the governance, administration and conduct of the affairs of the
Partnership.
In consideration of the foregoing and the mutual covenants hereinafter
set forth, the parties agree as follows:
ARTICLE I
CONSTRUCTION
1.1 DEFINITIONS. For the purposes of this Agreement, the initially
capitalized terms set forth below shall have the following defined meanings:
"Act" shall mean the Connecticut Uniform Partnership Act, as from time
to time amended and in force, and any successor connecticut statute applicable
to the Partnership.
"Affiliate" of a specified person shall mean (i) a person directly or
indirectly through one or more intermediaries controlling, controlled by, or
under common control with, the specified person; (ii) a person owning or
controlling 10% or more of the outstanding voting or equity securities of the
specified person; (iii) a person in whom the specified person owns or controls
10% or more of the outstanding voting or equity securities; (iv) any officer or
director of or partner in the specified person; and (v) a person which the
specified person serves as an officer or director or in which the specified
person is a partner.
"Agreement" shall mean this Partnership Agreement, including its
recitals and any exhibits, as it may be amended and in force from time to time.
"AIG" shall mean American International Group, Inc., a licensed insurer
and an Affiliate of the Managing Partner.
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"Bankruptcy" of a Partner shall be deemed to occur when that Partner
(i) makes an assignment for the benefit of creditors; (ii) files a voluntary
petition in bankruptcy; (iii) is adjudged a bankrupt or insolvent, or has
entered against it an order of relief in any bankruptcy or insolvency
proceeding; (iv) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation; (v) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding described in the preceding clause
(iv); (vi) seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of himself or of any substantial part of it properties;
(vii) is the subject of any proceeding against it seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, and such proceeding has not been
dismissed within 120 days after its commencement; or (viii) has, without its
consent or acquiescence, suffered the appointment of a trustee, receiver or
liquidator of itself or of all or any substantial part of its properties, and
such appointment is not vacated or stayed within 90 days after such appointment,
or if within 90 days after the expiration of any such stay the appointment is
not vacated. A Partner is referred to as being "Bankrupt" if the Bankruptcy of
that Partner is deemed to have occurred.
"Capital Account" shall mean the separate account maintained by the
Partnership for each Partner, the balance of which is determined by entering
credits and charges in accordance with Section 4.1.
"Capital Contribution" shall mean the total capital contributed by each
Partner pursuant to Sections 3.1 and 3.2.
"Capital Deficit" shall mean, with respect to any Partner, the excess,
if any, at any date of (i) all charges to its Capital Account on or prior to
that date over (ii) the sum of all credits to its capital Account on or prior to
that date.
"Cash Receipts" shall mean all income and other payments received by
the Partnership in cash during any Fiscal Quarter, but excluding Capital
Contributions.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Cumulative Priority Return" shall mean, as of any date, the amount, if
any, by which the aggregate amount of the Priority Return accrued from the
inception of the Partnership through that date exceeds the amount of Profits
allocated to SEP
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pursuant to Section 5.1(ii) during the same period, adjusted, if such date is
other than the last day of a Fiscal Year, to reflect an interim allocation of
current Profits as of that date based upon an interim closing of the books of
the Partnership.
"Designated Processor" shall mean the entity, which may be Sabin Metal
Corporation or any other Affiliate of SEP, from time to time designated by SEP
to process materials on behalf of the Partnership for the recovery of precious
metals contained therein and to dispose of such metals on behalf of the
Partnership.
"Exempt Income" shall mean all items of Partnership income which are
exempt from federal income tax.
"Fiscal Quarter" shall mean each fiscal quarter of the Partnership,
which shall correspond to the calendar quarters; but upon termination of the
Partnership, the end of the last Fiscal Quarter shall coincide with the end of
the Partnership's last Fiscal Year.
"Fiscal Year" shall mean the fiscal year of the Partnership, which
shall be the calendar year; but upon termination of the Partnership, "Fiscal
Year" shall mean the period from the end of the last preceding Fiscal Year to
the date of termination.
"Interest" shall mean the interest of a Partner in the Partnership
(including the interests in the Partnership of all Affiliates of such Partner).
"Liquidation Gain" or "Liquidation Loss" shall mean all gain or loss
that would have been recognized by the Partnership for federal income tax
purposes if assets to be distributed by the Partnership in kind pursuant to
Section 13 .4 were sold for cash by the Liquidating Trustee on a date not more
than 90 days prior to such distribution at prices equal to their fair market
values as determined by the Managing Partner.
"Losses" shall mean the net losses of the Partnership for federal
income tax purposes, as determined pursuant to this Agreement for each Fiscal
Year or other relevant accounting period.
"Managing Partner" shall mean KCOR, and any other person admitted to
the Partnership in substitution for KCOR, so long as KCOR or such other person
remains a Partner and Arthur J. Hedge, Jr. is its president, chief executive
officer and a director.
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"Net Cash Flow" for any period shall mean Cash Receipts for that period
less all Partnership expenses paid during that period, including but not limited
to (i) amounts paid to the Partnership Accountants for preparing Partnership tax
returns and financial statements, (ii) all filing fees and all franchise and
other taxes imposed on the Partnership, (b) reserves for tax liabilities of the
Partnership, and (c) such other reserves as the Partners deem reasonable under
the circumstances.
"Nondeductible Expenditures" shall mean all items of Partnership
expenditure described in code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to the Regulations promulgated under Code
Section 704(b).
"Partners" shall mean, KCOR and SEP and any other person admitted to
the Partnership in substitution for or in addition to KCOR or SEP, so long as
that person remains a Partner.
"Partnership" shall me an the partnership organized under this
Agreement and any entity which succeeds to the assets and business thereof.
"Partnership Accountants" shall mean a firm of independent certified
public accountants designated by the Partners.
"Percentage Interest" shall mean, with respect to each Partner, 50%.
"Priority Return" shall mean, for each calendar month, the equivalent
of interest on the balance as of the first day of that month of the sum of (i)
50% of Unrecovered Capital plus (ii) Cumulative Priority Return, calculated at
the annual yield quoted for U.S. Treasury obligations maturing on or about the
first day of the 121st month thereafter (or on the business day most proximate
thereto), as reported by the Wall Street Journal as of the first business day of
such month (a "business day" being a day on which the Wall Street Journal is
published).
"Profits" shall mean the net profits of the Partnership for federal
income tax purposes, as determined pursuant to this Agreement for each Fiscal
Year or other relevant accounting period.
"Regulations" shall mean the rules and regulations promulgated under
the Code.
"Tax Credit" shall mean any item of tax credit for federal, state or
local income tax purposes.
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"Tax Matters Partner" shall have the meaning defined in the
Code.
"Term" shall mean the period fixed by Section 2.7 for the duration of
the Partnership's existence, without regard to any event which may cause or
effect the dissolution of the partnership prior to the expiration of that
period.
"Transferee" shall mean any person who acquires all or any part of a
Partner's interest in the Partnership by operation of law or as otherwise
permitted by this Agreement.
"Unrecovered Capital" shall mean, as of any date, the amount, if any,
by which (a) the Capital Account of SEP as of that ate exceeds (b) the Capital
Account of KCOR as of that if such date is other than the last day of a Fiscal
Year, to reflect an interim allocation of current Profits or Losses as of that
date based upon an interim closing of the books of the Partnership.
1.2 INTERPRETATION. When the context in which words are used in this
Agreement indicates that such is the intent, singular words include the plural
and vice versa and masculine words include the feminine and the neuter and vice
versa. The word "person" includes, in addition to a natural person, a
corporation, partnership, firm, trust or other form of association or entity
which is not a natural person. References to Articles, Sections or Schedules are
to the appropriate articles, sections or schedules of this Agreement unless
otherwise expressly so stated. The words "herein", "hereof", and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section, Exhibit or other subdivision.
1.3 HEADINGS. The headings in this Agreement are inserted for
convenience of reference only and shall not be construed to define or limit the
scope, extent or intent of this Agreement or any of its provisions.
ARTICLE II
ORGANIZATION
2.1 ORGANIZATION. The Partnership shall be a partnership under and in
accordance with the laws of the State of Connecticut.
2.2 NAME. The name of the Partnership shall be "Electronic Recovery
Group."
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2.3 PURPOSES. The purposes of the Partnership are to engage in the
business of recovering and recycling or otherwise disposing of used computers
and other electronic equipment and component parts thereof, including
electronics, precious metals, scrap metals and other recyclables. The
Partnership may do all things necessary or useful in connection with the
fulfillment of its purposes but shall not engage in any other business except
with the express written agreement of the Partners.
2.4 PRINCIPAL OFFICE. The principal office of the Partnership shall be
in care of the Managing Partner, or such other place as the Partners, in their
discretion, may designate. The Partnership shall have a mailing address as
specified in Section 14.1.
2.5 CERTIFICATE OF DOING BUSINESS. Promptly upon the Partnership's
commencement of business in the State of Connecticut or any other State, the
Partnership shall file in the proper filing offices in all jurisdictions where
required within such State a Certificate of Adoption of Trade Name and all such
other certificates or filings as are required for the conduct of the business of
the Partnership in that State in accordance with all applicable laws therein.
2.6 PARTNERS.
The names and addresses of the Partners are as follows:
Kroll Electronic Recovery, Inc.
181 Harbor Drive
Stamford, CT 06902
Sabin Environmental Processing, Inc.
181 Harbor Drive
Stamford, CT 06902
2.7 TERM. The existence of the Partnership shall commence on April 1,
1994 and shall continue until December 31, 2010, unless the Partnership is
sooner dissolved and terminated pursuant to Article XV or by operation of law.
ARTICLE III
PARTNERS' CAPITAL
3.1 PARTNERS' CAPITAL. SEP has contributed to the capital of the
Partnership the sum of $100,000. Subject to the provisions of Section 3.3, SEP
shall hereafter from time to time at the request of the Managing Partner
contribute additional sums
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to the capital of the Partnership as necessary to carry on the Partnership's
business; PROVIDED, HOWEVER, that the aggregate of all sums contributed and
required to be contributed to the capital of the Partnership by SEP pursuant to
this Section 3.1 shall not exceed $500,000, irrespective of any amounts that may
be distributed to SEP pursuant to this Agreement.
3.2 CAPITAL CALLS. (a) Except as provided in Sections 3.1 and 3.2(b), a
Partner shall not be obligated to repay to the Partnership or any other Partner
any Capital Deficit or negative balance in its Capital Account arising at any
time during the Term or upon dissolution and liquidation of the Partnership.
(b) The Partners shall provide additional financing to the
Partnership from time to time, as and when necessary to carry on the
Partnership's business, to the extent requirements of the Partnership exceed
additional sums required to be contributed to capital by SEP pursuant Section
3.1. Such additional financing shall be provided in the form of capital or
loans, as the Partners may agree, but if the Partners are unable to reach
agreement, such additional financing shall be provided in the form of capital.
Each of the Partners shall provide its Percentage Interest of such additional
financing, but if either Partner fails to provide its full share of such
financing at the date agreed by the Partners, the other Partner may fund the
difference by making a demand loan to the Partnership, with interest at a fixed
annual rate which is equal to 250 basis points above the highest "prime rate"
reported by the Wall Street Journal as of the date of such loan.
3.3 PERFORMANCE OF OTHER OBLIGATIONS. The parties acknowledge that the
obligation of SEP to contribute additional capital pursuant to Section 3.1 shall
be subject at all times to the conditions that (a) the Partnership and KCOR and
its Affiliates shall have fully and faithfully performed their respective
obligations to or for the benefit of SEP and its Affiliates under this Agreement
and otherwise, (b) the Partnership shall continue to process and dispose of
precious metals only through a Designated Processor in accordance with Section
8.1(b), (c) Sabin Metal Corporation or another Designated Processor shall
continue to be approved by AIG as a "precious metal refiner" as contemplated by
Section 8.1(c), and (d) the Partnership shall continue to have and maintain
insurance coverage against environmental liabilities in the manner and to the
extent contemplated by Section 8.1(c), and the insurers providing such coverage
shall have fully and faithfully performed their obligations under the related
policies of insurance.
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ARTICLE IV
CAPITAL ACCOUNTS AND SHARING RATIOS
4.1 PARTNER'S CAPITAL ACCOUNTS. The Partnership shall maintain a
separate Capital Account for each Partner. Capital Accounts shall be credited
and charged as follows:
(a) Each Partner's Capital Account shall be credited with (i)
the payments of that Partner's Capital Contribution, if any; (ii) each
amount of Profits and other items of income allocated or specially
credited to that Partner pursuant to Article V or other provisions of
this Agreement; and (iii) in the event of any distribution of
Partnership assets in kind pursuant to Section 13.4, an amount equal to
that Partner's share of Liquidation Gain.
(b) Each Partner's Capital Account shall be charged with (i)
each amount of Net Cash Flow and other funds of the Partnership
distributed or deemed distributed to that Partner pursuant to Article
VI or Section 13.4; (ii) each amount of Losses, Nondeductible
Expenditures and other items of loss or expense allocated or specially
charged to that Partner pursuant to Article V or other provisions of
this Agreement; (iii) in the event of any distribution of Partnership
assets in kind pursuant to Section 13 4, an amount equal to that
Partner's share of Liquidation Losses; and (iv) in the event of any
distribution of Partnership assets in kind pursuant to Section 13.4, an
amount equal to the fair market value of the assets distributed to that
Partner (less liabilities assumed by that Partner and liabilities to
which such assets are subject as determined by the Liquidating
Trustee).
In the event a Partner transfers all or any part of its Interest in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it is attributable to the transferred
Interest; PROVIDED, HOWEVER, that if the transfer causes a termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code, the Capital Accounts
of all Partners, including the transferee, shall be redetermined as of the date
of such termination. In such event, the Capital Account of each Partner shall be
equal to the net fair market value of its Interest as of such date. Subsequent
to such redetermination, allocations of income, gain, loss and deduction with
respect to assets held by the Partnership on the date of such redetermination
shall be governed by the principles set forth in Section 704(c) of the Code and
the Regulations thereunder.
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ARTICLE V
PROFIT AND LOSS ALLOCATIONS
5.1 PROFIT ALLOCATIONS. (a) All Profits of the Partnership (including
each item of income, loss or deduction entering into the computation thereof),
Exempt Income and Liquidation Gain shall be allocated to the Partners each
Fiscal Year as follows:
(i) first, if any Partner has a negative balance
in its Capital Account (as determined after charging each Partner's Capital
Account with the amount of distributions paid or deemed paid to that Partner by
the Partnership during that Fiscal Year), to all such Partners in proportion to
the negative balances in their Capital Accounts until no Partner has a negative
balance in its Capital Account;
(ii) next, to SEP in an amount equal to the
excess, if any, of the lesser of (A) all distributions of Net Cash Flow made to
SEP during that Fiscal Year and all prior Fiscal Years and (B) the Cumulative
Priority Return determined as of the date of such allocation, over (C) all
Profits previously allocated to SEP; and
(iii) then, to the Partners in the ratio of their
Percentage Interests.
(b) If Profits or other items allocable pursuant to this
Section 5.1 shall consist of more than one kind of income or gain or other items
in any instance ordinary gain, long-term gain, short-term gain, or Code Section
1231 gain), then the aggregate amounts allocated to each Partner under this
section 5.1 shall, in each such instance, include a portion of each kind of
income or gain or other item so allocable.
5.2 LOSS ALLOCATIONS. All Losses (including each item of income, loss
or deduction entering into the computation thereof) Liquidation Loss and
Nondeductible Expenditures shall be allocated to the Partners in the ratio of
their Percentage Interests.
5.3 TIMING OF ALLOCATIONS. (a) Except as otherwise expressly provided
in this Agreement or required by the Code, allocations of Profits or Losses,
Nondeductible Expenditures and Exempt Income shall be made as of the last day of
each Fiscal Year of the Partnership, except that the books of the Partnership
shall be closed and such allocations shall be made as of the last
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day of any month in which a Partner withdraws or its Interest is sold pursuant
to any of the provisions of this Agreement.
(b) Gain or Loss recognized upon the occurrence of a sale,
exchange, transfer, assignment or other disposition of any asset of the
Partnership (but not including occasional sales in the ordinary course of
business of inventory, operating equipment or furniture, fixtures or equipment)
or any collection in respect of property, hazard or casualty insurance (but not
business interruption insurance) or any damage award of the Partnership, shall
be allocated on the date of such occurrence.
ARTICLE VI
APPLICATION AND DISTRIBUTION OF PARTNERSHIP FUNDS
6.1 CAPITAL CONTRIBUTIONS AND CASH RECEIPTS. Capital contributed to the
Partnership shall be applied by the Managing Partner to meet expenses and
obligations of the Partnership. The Managing Partner shall apply Cash Receipts
to pay, prepay or reserve for Partnership obligations, expenses and liabilities,
as the Partners, in their discretion, deem appropriate.
6.2 NET CASH FLOW. Net Cash Flow shall be distributed among the
Partners in the following order of priority:
(a) first if and for so long as there shall be any balance of
Unrecovered Capital or Cumulative Priority Return, to the Partners in the ratio
of 80% to SEP and 20% to KCOR; and
(b) then, to the Partners in the ratio of their Percentage Interests.
6.3 TIME OF DISTRIBUTIONS. Subject to the provisions of Section 13.4,
Net Cash Flow for any period shall be distributed by the Managing Partner as
frequently as the Managing Partner, in its discretion, deems appropriate, but no
less frequently than annually. Net Cash Flow for the period ended upon a
Partner's withdrawal or the sale of its Interest pursuant to any of the
provisions of this Agreement shall be distribute within 30 days after such
withdrawal or sale. For purposes of adjusting Capital Accounts and making
allocations pursuant to Articles IV and V, any distribution of Net Cash Flow
received within a given Fiscal Year but paid to the Partners within the first 90
days of the subsequent Fiscal Year shall be deemed to have been distributed on
the last day of the Fiscal Year in which such Net Cash Flow was received by the
Partnership.
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ARTICLE VII
ACCOUNTING AND TAX MATTERS
7.1 FINANCIAL RECORDS AND REPORTS. (a) The Managing Partner shall
maintain complete accurate and up-to-date books and the Partnership's business.
The books and records shall be maintained at the principal office of the
Partnership or at another office designated for that purpose by the Managing
Partner upon prior notice to the other Partners. Any Partner and its duly
authorized representatives may examine the books an records of the Partnership
during normal business hours, at the place where they are maintained, and may
obtain photocopies of any of such books and records at its own expense.
(b) Within 90 days after the end of each Fiscal Year, the
Managing Partner shall cause to be prepared and distributed to the Partners an
annual report of the Partnership for such Fiscal Year, containing a balance
sheet of the Partnership as of the end of the Fiscal Year and statements of
income, cash flow, Partners' equity and changes in financial position of the
Partnership for the Fiscal Year, all prepared in accordance with generally
accepted accounting principles, duly audited by the Partnership Accountants and
accompanied by the report of such accountants thereon.
7.2 TAX RETURNS. The Managing Partner shall cause the Partnership's
federal, state and local income tax returns for each year to be filed not later
than the dates when such filings are required by law. The Managing Partner shall
cause a copy of each such return to be transmitted to each Partner within 90
days after the end of the year (or, if the return cannot be completed within
such period despite the application of diligent effort, provide each Partner
with information on an estimated basis, in appropriate detail, as to such
Partner's allocable share of Partnership items), so that each Partner will have
such information available as necessary for preparation of its own income tax
returns on a timely basis.
7.3 ACCOUNTING AND TAX ELECTIONS. All elections required or permitted
to be made by the Partnership under the Code shall be made by the Managing
Partner, based upon the advice of the Partnership Accountants, in such manner as
the Managing Partner determines to be the most advantageous to the Partners.
7.4 FEDERAL INCOME TAX PROCEEDINGS. The Managing Partner shall be the
Tax Matters Partner of the Partnership and, pursuant to the requirements of the
Code, shall notify the other
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Partners of all administrative and judicial federal tax proceedings relating to
the Partnership.
7.5 BANK ACCOUNTS AND INVESTMENTS. The bank accounts of the Partnership
shall be maintained in the name of the Partnership in such banking institutions
as the Managing Partner shall determine. Withdrawals shall be made only in the
regular course of Partnership business on such signature or signatures as the
Managing Partner may determine, except that withdrawals of amounts in excess of
$50,000 shall require the signature of at least one person designated by SEP.
All Partnership funds not currently required in the operation of the business
may be invested by the Partnership only in (i) the Partnership's bank accounts,
(ii) securities with maturities of one year or less from the date of acquisition
which are either issued, fully guaranteed or insured by the United States
Government or any agency thereof, (iii) certificates of deposit, Eurodollar time
deposits, overnight bank deposits and banker's acceptances having maturities of
one year or less from the date of acquisition, (iv) commercial paper of an
issuer rated at least A-1 by Standard & Poor's Corporation or P1 by Moody's
Investors Service, Inc., or carrying an equivalent rating by any other
nationally recognized statistical rating agency if both of the two named rating
agencies cease publishing ratings on investments, or (v) such other investments
as are approved by the Partners. All receipts, funds and income of the
Partnership shall be promptly deposited in the Partnership's bank account and
shall not be commingled with any funds of any Partner or any other person.
ARTICLE VIII
MANAGEMENT OF THE PARTNERSHIP;
POWERS AND DUTIES OF THE PARTNERS
8.1 MANAGEMENT AND CONDUCT OF OPERATIONS. (a) The Managing Partner
shall manage the day to day operations of the Partnership for the purposes set
forth in Section 2.3 and shall have all power and authority necessary, useful or
convenient to enable it to do so, subject to the express terms and provisions of
this Agreement, including provisions requiring consent to specific actions or
transactions by the other Partners. Notwithstanding the foregoing, in the event
that Arthur J. Hedge, Jr. shall cease to be the president, chief executive
officer and a director of KCOR, the functions of the Managing Partner shall be
exercised jointly by the Partners unless SEP shall otherwise agree. The Managing
Partner may provide administrative services to the Partnership but shall be
entitled to reimbursement for such services only if and to the extent such
services and reimbursement are expressly consented to and approved by SEP, in
advance, as contemplated by Section 9.2.
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(b) All processing of materials to obtain precious metals and
all refining and disposition of precious metals which may be useful or necessary
in the conduct of the Partnership's business shall be performed by a Designated
Processor, unless the conduct of such activities by a Designated Processor would
result in a violation of law or, in the judgment of the Managing Partner acting
in good faith and upon prior notice and detailed explanation to SEP and the
Designated Processor, would expose the Partnership or any of its customers to
actual or potential liability for violations of environmental law or otherwise
would not comply with prevailing legal standards for avoidance of damage to the
environment and are likely to have a materially adverse effect upon the
interests of the Partnership. The Managing Partner shall notify each Designated
Processor of any defects in environmental practices or procedures employed by
the Designated Processor promptly upon becoming aware of such defects and shall
allow the Designated Processor a reasonable time to correct the same prior to
discontinuing the processing and disposition of materials and precious metals by
the Designated Processor on behalf of the Partnership. In performing such
services for the Partnership, the Designated Processor shall recover and refine
precious metals contained in products provided to it by the Partnership and
shall dispose of such metals for the Partnership's account. The Designated
Processor shall receive compensation for such services at competitive rates. If
and to the extent that the processing and disposition of materials (including
precious metals) on behalf of the Partnership may be performed, not in violation
of any provision of this Agreement, by any Person other than a Designated
Processor, the Managing Partner shall ensure that the Persons performing such
services are approved providers of such services for purposes of the insurance
coverage described in Section 8.1(c).
(c) The Partnership shall obtain insurance against environmental
liability in connection with the processing and disposition of materials or
property. Such insurance shall be made available under one or more policies of
liability insurance obtained by the Partnership from AIG or any of its
subsidiaries or another insurer of comparable stature and rating. The insurance
shall designate the Partnership as named insured and may name one or more
clients or customers of the Partnership as additional insureds; the annual
policy limit shall be not less than $20,000,000 (or such lesser amount as the
Partners may agree); and coverage shall be available on a "claims made" basis
with such deductible amounts as the Partners may agree. The Managing Partner
represents and warrants to SEP that Sabin Metal Corporation has been approved by
AIG as a "precious metals refiner" for purposes of such insurance coverage and
that such coverage is therefore available with respect to the processing
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and refining of materials by Sabin Metal Corporation as a Designated Processor
as contemplated by Section 8.1(b).
8.2 CONSENT OF PARTNERS.
Without limitation, each of the following Partnership actions shall
require the unanimous consent of the Partners:
(i) the location and leasing or other acquisition of
offices and other permanent installations or facilities;
(ii) the incurring of obligations under any contract involving
the payment by the Partnership of more than $50,000, or any contract
requiring performance by the Partnership over a term of more than one
year unless such contract is terminable by the Partnership, without
obligation, on not more than 30 days notice;
(iii) a sale of material assets of the Partnership, excluding
any disposition for less than $50,000 of materials or other property
acquired by the Partnership for processing or other disposition or
derived from materials or property so acquired;
(iv) the disbursement of funds of the Partnership in excess of
$15,000 for any capital expenditure;
(v) the incurring of any loan or indebtedness of the
Partnership in excess of $15,000 in any instance or in the aggregate;
(vi) any undertaking in the nature of a guarantee;
(vii) any loan of Partnership funds or extension of credit by
the Partnership (not including the provision of goods or services by
the Partnership to its customers or clients on open account for payment
in the ordinary course of business);
(viii) the acquisition of property, or a legal or beneficial
interest therein, other than materials and other property acquired for
processing or disposition in the ordinary course of the Partnership's
business, or fixtures, furniture and equipment acquired for use in the
ordinary course of the Partnership's business;
(ix) the granting or consent to the imposition of any
security interest or material encumbrance on Partnership
assets;
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(x) the selection or change of the partnership's depreciation
or accounting methods or the change of the Partnership's Fiscal Year;
(xi) the designation of the Partnership's counsel and the
Partnership Accountants;
(xii) amendment of the Partnership Agreement;
(xiii) the confession of judgment by the Partnership, or the
adjustment, settlement or compromise of any claim, obligation, debt,
demand, suit or judgment against the Partnership involving more than
$15,000;
(xiv) the payment of a fee to any Partner or Affiliate
of a Partner, except as expressly authorized in Section 9.2;
and
(xv) the establishment of the annual capital and operating
budgets for the Partnership and the determination of funds required for
the conduct of the Partnership's business, including the timing and
amount of contributions to capital by SEP pursuant to Section 3.1 or by
the Partners pursuant to Section 3.3.
8.3 DUTIES OF PARTNERS. The Partners shall devote such time to the
affairs of the Partnership as is necessary, in their reasonable judgment, to
properly supervise the activities and business of the Partnership and to fulfill
their obligations under this Agreement. Without limitation of the foregoing, the
Managing Partner shall provide to the Partnership the services of Arthur J.
Hedge, Jr. to the extent necessary or appropriate to supervise and develop the
Partnership's operations in a proper and businesslike manner, including the
establishment and leasing of offices and other required facilities, the
negotiation and administration of sales, business and financial arrangements
with third parties, the hiring of personnel, the maintenance of books and
records, the supervision of accountants and the performance of such other
functions of an executive nature as would normally be conducted by the chief
operating officer of a business organized as a corporation.
8.4 INDEMNIFICATION AND EXCULPATION. The Partnership, its receiver or
its trustee shall indemnify and save harmless each of the Partners from any
claim, liability or damage (excluding any liability or damages relating to
income taxes) that such Partner may incur by reason of any act it performed or
omitted to perform in its capacity as a Partner, including but not limited to
reasonable attorneys' fees incurred by it in connection with the defense of any
action based on any such act
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or omission, except to the extent attributable to such Partner's bad faith,
wilful misconduct, gross negligence or breach of this Agreement.
ARTICLE IX
PARTNERS' COMPENSATION
9.1 FEES AND ALLOWANCES. Except as set forth in Section 9.2, the
Partners shall not be entitled to receive from the Partnership any management
fees or salary.
9.2 PERMITTED COMPENSATION.
(a) SEP or its Affiliates shall be entitled to receive processing fees
and other payments or profits at competitive rates for recovering and refining
precious metals on behalf of the Partnership as contemplated by Section 8.1(b).
(b) Affiliates of KCOR (including AIG) shall be entitled to receive
premiums at competitive rates in respect of insurance coverage provided by such
Affiliates to or for the benefit of the Partnership (including the Partners) or
its customers as contemplated by Section 8.1(c).
(c) KCOR and its Affiliates shall be entitled to reimbursement from the
Partnership for the costs of administrative services provided to the Partnership
by KCOR or any of its Affiliates but only if and to the extent that such
services are provided to the Partnership with the prior written consent of SEP
and the rates of reimbursement for such services are approved by SEP prior to
the rendering of such services.
(d) The Partnership may borrow money from any Partner or any Affiliate
of a Partner and pay interest on the amounts borrowed as contemplated by Section
3.2(b).
9.3 OTHER BENEFITS. Except as expressly permitted by Section 9.2, the
Partners and their Affiliates shall not (i) contract for or receive separate
fees or benefits, directly or indirectly, as a result of their interest in any
person which supplies goods or services to the Partnership, or (ii) otherwise
transact business with the Partnership, unless prior to such transaction the
material terms of such transaction have been disclosed to and consented to by
each Partner.
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ARTICLE X
OTHER ACTIVITIES OF PARTNERS
Except as otherwise provided in this Article X, nothing in this
Agreement shall limit or restrict the right of any Partner, directly or
indirectly, to engage in business ventures and investments other than the
Partnership or any other Partner any right or interest in any such other venture
or investment or any income, profit or other benefit derived therefrom. Each of
the Partners covenants and agrees (and shall procure for the benefit of the
Partnership covenants to the same effect from the Partner's principal
Affiliates, excluding, in the case of KCOR, AIG) that neither it nor any
Affiliate of it shall, directly or indirectly (as a venturer, partner,
stockholder, agent or other representative), invest, engage, participate or
become interested, affiliated or connected with, be employed by or render
services to, any Person (other than the Partnership) which shall engage in a
business that is similar to or competitive with the business of the Partnership
as contemplated hereby; PROVIDED, HOWEVER, that the foregoing shall not (i) in
any way apply to or hinder or restrict AIG and its subsidiaries (other than
Kroll Associates, Inc., its subsidiaries and any other entity by which Arthur J.
Hedge, Jr. is employed or in which he has an investment or to which he renders
services as an officer, director or consultant) from the making of any
investment or the conduct of its or their respective businesses, whether or not
in competition with the Partnership, (ii) restrict SEP or any Affiliate of SEP
from the conduct of its metals processing, trading and refining businesses or
from rendering to others any services similar to those which it renders or may
render to the Partnership, (iii) restrict Kroll Associates and its subsidiaries
from rendering services to Persons other than the Partnership to the extent that
such services are not competitive with those offered by the Partnership to other
Persons, or (iv) restrict the ownership by a Partner and all of its Affiliates,
solely as a passive investment, of securities of any business if such ownership
is (x) not as controlling person or as a member of a group that controls such
business, and (y) not as a direct or indirect beneficial owner of 5% or more of
any class of securities of such business. The restrictions contained in this
Article X shall continue in force with respect to any Partner which withdraws
from the Partnership or whose Interest is purchased pursuant hereto for a period
of two years following such withdrawal or purchase. Each of the Partners
acknowledges that the remedies at law for breach of the provisions of this
Article X will be inadequate and, therefore, in the event of any threatened or
actual breach of the provisions of this Article X the Partnership and the
remaining Partner shall be entitled to
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obtain temporary and permanent injunctive relief from any court of competent
jurisdiction, without being required to post a bond or prove damages, in
addition to any other remedies it may at law or in equity.
ARTICLE XI
RESTRICTIONS ON PARTNERS' INTERESTS
11.1 LIMITATIONS ON DISPOSITION. Except as expressly permitted under
the further provisions of this Article XI, a Partner shall not assign, pledge,
sell, encumber, mortgage, pledge or alienate in any way any part of its Interest
in the Partnership without he prior written consent of the other partner, which
may be given or withheld solely in the discretion of such other Partner. The
sale or other encumbrance or transfer of interests in any Partner which is a
partnership, or of the stock of any Partner which is a corporation, or of the
stock of any corporation which is the general partner of any Partner which is a
partnership, shall be subject to all of the provisions of this Agreement
permitting and restricting alienation. Each Partner shall cause all of its
partners or shareholders to execute an agreement confirming that they are bound
by the foregoing provisions.
11.2 EXCEPTIONS FOR ALIENATION. There shall be no limitation on the
sale or other transfer of an Interest by any Partner to any Affiliate, provided
that the transferee agrees in writing to be bound by all of the terms and
conditions of this Agreement with the same force and effect as if such
transferee had been an original party hereto. There shall be no limitation on
the sale or other transfer by the shareholders of a corporate Partner of stock
in such Partner, or on the sale or other transfer by the partners of any Partner
which is a partnership, or on the sale or other transfer by the shareholders of
a corporation which is the general partner of any Partner which is a
partnership, to a spouse or lineal descendant (or spouses thereof) of said
shareholder or such partner or to an existing partner or shareholder of such
partnership or corporation (as the case may be), provided the transferee agrees
in writing to be bound by the terms of this Agreement.
11.3 PURCHASE AND SALE OPTIONS. (a) In the event that (i) a dispute
shall remain unresolved between the Partners for more than 30 days concerning
any matter as to which their agreement is required for the operation of the
business of the Partnership or (ii) Arthur J. Hedge, Jr. shall have ceased to be
actively engaged in the business of the Partnership and a person acceptable to
SEP shall not have been designated by KCOR as his successor within 60 days
thereafter (any such event, an
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"Option Trigger"), either Partner shall have the right to exercise the rights
and privileges set forth in this Section 11.3 to purchase the Interest of the
other Partner or to sell its Interest to the other Partner.
(b) Upon the occurrence of an Option Trigger, either Partner
(the "Offering Partner) shall have the right by written notice given as set
forth n Section 14.1 to tender to the other Partner (the "Receiving Partner") an
offer to sell (the "Offer to Sell") the entire Interest of the Offering Partner
to the Receiving Partner, and an offer to purchase (the Offer to Purchase") the
entire interest of the Receiving Partner. The price in the Offer to Sell shall
be the same as the price in the Offer to Purchase (as calculated on a percentage
of interest in the profits of the Partnership) and shall be for all cash, except
that the price to be paid for the Interest of SEP after such calculation shall
be increased by 50% of the amount of Unrecovered Capital as of the day of
closing of the proposed transaction. For example, if the Percentage Interest of
the Offering Partner is 50%, and the Offer to Sell is made in the amount of
$1,000,000, the Offer to Purchase must also be in the amount of $1,000,000,
except that if the Offer to Sell is made by SEP and the balance of Unrecovered
Capital at the time of closing of the sale $300,000, the Offer to Sell will be
adjusted to be $1,150,000. Similarly, if the Percentage Interest of the Offering
Partner is 75% and the Offer to Sell is made in the amount of $1,500,000, the
Offer to Purchase must be made in the amount of $500,000 (subject to a
corresponding adjustment for Unrecovered Capital). The Offers shall be
irrevocable for a period of 30 business days from and after the delivery of such
Offers and the Receiving Partner may, prior to expiration of said period, accept
either the Offer to Sell or the Offer to Purchase. Upon acceptance, the Offering
Partner shall be obligated to sell or to purchase an Interest, as the case may
be, and the Receiving Partner shall be reciprocally obligated. If the Receiving
Partner shall fail, within such 30 business day period, to unconditionally
accept either the Offer to Sell or the Offer to Purchase, the Receiving Partner
shall be deemed to have accepted the Offer to Purchase, that is, it shall be
obligated to sell its Interest to the Offering Partner.
(c) The closing of the sale of an Interest shall occur 180
days after the date the Offers were made, or on such earlier date as may be
specified by the Partner purchasing the Interest being sold. Each Partner shall
pay its own expenses in connection with such purchase and sale. The selling
Partner shall execute and deliver such documents of transfer and assignment as
shall be necessary to convey its interest in the Partnership and all other
property and assets of the Partnership to the purchasing Partner (or its
designee) with all required
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transfer taxes or stamps affixed and paid for by the Partner customarily
obligated to pay the same.
(d) Any Partner purchasing the Interest of the other Partner
under the terms hereof shall indemnify and hold the selling Partner harmless
from all liabilities of the Partnership under any then existing agreements or
other obligations arising with respect to the Partnership and shall use its best
efforts to cause the selling Partner to be removed as a maker or guarantor of
any Partnership indebtedness or other obligations.
(e) Each Partner shall have the right to specific performance
to compel the other Partner to carry out its obligations and covenants set forth
in this Section 11.3.
11.4 RIGHT OF FIRST REFUSAL.
At any time more than three years after the date hereof, either Partner
(hereinafter a "Selling Partner") may sell its entire Interest in the
Partnership subject to the following:
(a) The Selling Partner must obtain a bona fide and binding
offer to purchase its entire interest from a bona fide purchaser. The Selling
Partner shall serve written notice upon the other Partner in accordance with
Section 14.1, confirming that it has such a bona fide offer for the purchase of
its entire Interest, stating the name of the purchaser desiring to purchase
same, the sales price and the terms of payment and other conditions of such sale
("Sale Offer"). Said notice shall also contain an Offer to Sell such interest to
the other Partner for the price and upon the terms and conditions contained in
said bona fide offer (which must be for cash and/or purchase money financing)
subject to the terms and conditions hereinafter set forth. Notwithstanding the
foregoing, the other Partner, upon receipt of the Sale Offer, shall have up to
30 business days to agree to acquire such Interest of the Selling Partner
pursuant to the Offer to Sell and up to 180 business days from the date of the
Offer to Sell to acquire such interest of the Selling Partner in the
Partnership.
(b) In the event that the non-Selling Partner does not
exercise the option to purchase the Interest so offered within 30 business days
after the receipt of the Sale Offer, the Selling Partner shall be free to
dispose of its interest, but only to the purchaser named in the aforesaid bona
fide offer of purchase, at the price and upon the terms and conditions set forth
in the Sale Offer, which Sale Offer must provide for a closing not later than 60
business days following the termination of the non-Selling Partner's option and
provided that the purchaser agrees in writing to be bound by all of the terms
and
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provisions of this Agreement and assumes its pro rata share of all obligations
of the Partnership.
ARTICLE XII
RIGHT TO CONTINUE BUSINESS OF PARTNERSHIP
In the event of the dissolution, removal, withdrawal or Bankruptcy of a
Partner or the appointment of a receiver for, or seizure by a judgment creditor
of, a Partner' s Interest in the Partnership, or upon the occurrence of any
event with respect to a Partner which would result in the dissolution of the
Partnership under the Act, that Partner (the "Terminating Partner") or its legal
representative shall promptly notify the remaining Partners, and the Partnership
shall be dissolved, but all of the surviving Partners may elect to continue the
business of the Partnership for the balance of the Term, with all of the
Partnership property as before. The election may be made by the surviving
Partners by notice to the Terminating Partner within 30 days after receipt by
the surviving Partners of notice of the event. Upon such election the
Partnership shall be reconstituted, the Terminating Partner shall be deemed to
have offered to sell its Interest for the balance in its Capital Account in
accordance with Section 11.3, and the surviving Partners shall continue the
business of the Partnership with all of the Partnership's assets in accordance
with the provisions this Agreement. If no election to continue the business of
the Partnership is effective within 90 days after an event giving rise to
dissolution, the Partnership's business shall be wound up pursuant to Article
XIII.
ARTICLE XIII
DISSOLUTION AND WINDING UP
13.1 EVENTS OF DISSOLUTION. The Partnership shall be dissolved and its
business shall be wound up upon the earliest of the following to occur:
(a) the expiration of the Term;
(b) the distribution, disposition (except by way of an
installment sale) or abandonment of all of the Partnership's
assets other than cash;
(c) at the option of SEP, upon notice to KCOR, in the event
that (i) the Partnership or KCOR or any of its Affiliates shall default in the
full and faithful performance of any of their respective obligations to or for
the benefit of SEP and its
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Affiliates under this Agreement or otherwise, (ii) the Partnership shall process
and dispose of precious metals through a Person other than a Designated
Processor, (iii) the Partnership shall fail to maintain in force insurance
coverage as described in Section 8.1(c) or any insurer shall default under the
terms of any such coverage obtained by the Partnership, or (iv) Sabin Metal
Corporation or any other Designated Processor shall cease to be approved by AIG
as a precious metals refiner for purposes of such coverage;
(d) the dissolution, removal, withdrawal or Bankruptcy
of a Partner, or the appointment of a receiver for, or seizure by a judgment
creditor of, a Partner's interest in the Partnership, or any event with respect
to a Partner that would result in the dissolution of the Partnership under the
Act, unless any remaining or successor Partner elects to continue the business
of the Partnership for the balance of the Term pursuant to Article XII; or
(e) the agreement of the Partners to dissolve the Partnership.
13.2 LIQUIDATING TRUSTEE. Except as otherwise expressly
permitted under this Agreement, upon the dissolution of the Partnership the
business of the Partnership shall be would up and its assets liquidated by a
Liquidating Trustee or Trustees who shall be (i) the Managing Partner, or if
there shall not be a Managing Partner, (ii) SEP. In carrying out the winding up
of the business and the liquidation of the assets of the Partnership, the
Liquidating Trustee shall have all of the rights and powers of the Managing
Partner under this Agreement.
13.3 PROCEDURE ON WINDING UP. A reasonable time shall be
allowed for the orderly winding up of the Partnership's business, the
liquidation of its assets and the discharge of its liabilities to enable the
Liquidating Trustee to minimize the losses attendant upon liquidation. The
operations of the Partnership shall continue during liquidation solely for the
purpose of winding up the Partnership's business. Upon completion of the winding
up and liquidation, each of the Partners shall be furnished with a statement,
reviewed by the Partnership Accountants, which sets forth the assets and
liabilities of the Partnership at the date of complete liquidation. Upon
distribution of the statement, the Liquidating Trustee shall cause a certificate
of cancellation of the Partnership to be duly prepared, executed and filed.
13.4 DISTRIBUTION OF ASSETS. The proceeds of liquidation shall
be applied and distributed first, to SEP to pay any balance of Unrecovered
Capital, next, to the Partners in proportion to the positive balances, if any,
in their Capital
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Accounts (after giving effect to all allocations of Profits and Losses resulting
from or arising prior to the liquidation of the Partnership's assets), and then,
to the Partners in the ratio of their Percentage Interests. No Partner or
permitted assignee shall have the right to require a partition of any or all of
the Partnership property. In the event the Liquidating Trustee, in its
discretion, shall determine that it is necessary to make a distribution of all
or any of the assets of the Partnership in kind, those assets may be divided and
distributed based upon valuations assigned by the Liquidating Trustee pursuant
to an appraisal by an independent appraiser selected by the Liquidating Trustee,
but if not so divided, such assets shall be transferred and conveyed to all of
the Partners or their permitted assignees, as tenants in common, so as to vest
in each of them an undivided interest in the whole of those assets, entitling
each of them to participate in those assets, as the Liquidating Trustee shall
determine, either (i) subject to and in accordance with the distribution
priorities set forth above or (ii) to the extent of such relative interests in
such assets as shall be determined by the Liquidating Trustee to reflect the
relative rights and interests derived from such priorities and its estimate of
the value of those assets.
ARTICLE XI
MISCELLANEOUS
14.1 NOTICES. All notices, demands, requests, consents or other
communications required, permitted or provided for under this Agreement shall be
effective only if in writing and shall be deemed to have been given when
delivered by personal service or deposited in the United States mail and sent by
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
(a) if to the Partnership, to both of the Partners at their
respective addresses provided for in this Section 14.1, or any other address
designated by written agreement of the Partners; and
(b) (i) if to KCOR, at its address set forth in Section
2.6(a), and
(ii) if to SEP, to 300 Pantigo Place, Suite 102, East Hampton,
New York 11937.
(c) Either Partner may change its address for purposes of this
Section 14.1 by notice to the Partnership in the manner herein provided for.
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14.2 FURTHER ASSURANCES. Each of the Partners hereafter shall
execute and deliver such further instruments and do such further acts and things
consistent with the provisions of this Agreement as may be required or useful to
carry out the intent and purpose of this Agreement.
14.3 ORGANIZATIONAL EXPENSES. All expenses of organizing the
Partnership, including legal fees; and expenses incurred by the Partners in
connection therewith, shall be borne by the Partnership.
14.4 SEVERABILITY. Every provision of this Agreement is
intended to be severable. If any term or provision of this Agreement is held to
be illegal, invalid or unenforceable for any reason whatsoever, such illegality,
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement.
14.5 GOVERNING LAW. This Agreement shall be governed by and
construed for all purposes in accordance with the laws of the State of New York
applicable to contracts made and to be performed in that State, except that
matters relating to the organization and existence of the Partnership shall be
governed by the Act to the extent the provisions thereof are applicable.
14.6 ENTIRE AGREEMENT: AMENDMENT. (a) Except as otherwise
expressly provided in this Agreement, this instrument incorporates the entire
agreement and understanding among the parties with respect to its subject matter
and supersedes any prior or written understanding between the Partners relating
to the same subject matter.
(b) This Agreement may not be amended or terminated, nor may
any provision hereof be waived in any instance, except by an instrument in
writing executed by all of the Partners or by the Partner to be charged with
such waiver.
14.7 BINDING EFFECT: SUCCESSORS. Except as otherwise provided
in this Agreement, all provisions of this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by and against the successors and assigns
of the parties.
14.8 ARBITRATION. Any dispute between or among any Partners
relating to the interpretation of or arising out of this Agreement or relating
to the Partnership shall be resolved by binding arbitration before a panel of
three arbitrators in New York, New York in accordance with the rules of the
American Arbitration Association then obtaining. Costs of the arbitration shall
be borne in accordance with the award of the arbitrators.
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The arbitrators shall not have power or authority to modify or reform this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
KROLL ELECTRONIC RECOVERY, INC . SABIN ENVIRONMENTAL
PROCESSING, INC.
By: /s/ Arthur J. Hedge, Jr. By: /s/ Andrew Sabin
--------------------------- ----------------------
Name: Arthur J. Hedge, Jr. Name: Andrew Sabin
Title: President Title: President
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WAIVER AGREEMENT
This Waiver Agreement, dated as of November 8, 1994 (the "Waiver
Agreement"), is among American International Group, Inc. ("MG"), Jules B. Kroll
("JBK") and Kroll Holdings, Inc. ("Kroll"). All capitalized terms used herein
without definition shall have the respective meanings ascribed to them in the
Stockholder Agreement (as defined below).
WHEREAS, MG became a stockholder of Kroll pursuant to the Plan of
Reorganization and Stockholder Agreement, dated June 15, 1993 (the "Stockholder
Agreement"), by and among MG, JBK and Kroll,
WHEREAS, Section 6.3 of the Stockholder Agreement contains certain
restrictions with respect to the issuance of additional Equity Securities by
Kroll, and
WHEREAS, Kroll wishes to obtain MG's waiver of Section 6.3 of the
Stockholder Agreement with respect to the issuance of 1,648 (one thousand six
hundred and forty eight) shares (the "Shares") of its Common Stock to Brian M.
Jenkins, Deputy Chairman of Kroll.
NOW THEREFORE, the parties hereto hereby agree as follows:
MG hereby agrees to waive Section 6.3 of the Stockholder
Agreement to the extent required with respect to the issuance
of the Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
Agreement to be executed as of the day and year first written above and, in the
case of the corporate parties, on their behalf by a duly authorized officer.
AMERICAN INTERNATIONAL GROUP, INC.
By /s/ Edward E. Matthews
------------------------------
Title:
KROLL ASSOCIATES, INC.
By /s/ Jules Kroll
------------------------------
Title:
JULES B. KROLL
By /s/ Jules Kroll
------------------------------
<PAGE> 1
EXHIBIT 10.36
================================================================================
KROLL ASSOCIATES, INC.
KROLL ASSOCIATES U.K. LIMITED
HARRISON/KROLL ENVIRONMENTAL SERVICES, INC.
PUBLIC ADVISORY SERVICES, INC.
--------------------------------
NOTE PURCHASE AGREEMENT
Dated as of December 15, 1989
--------------------------------
$20,000,000 10.55% Senior Notes
due December 15, 1999
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
<C> <C>
1. THE NOTES .......................................................................................... 1
1.1. Authorization of Notes ............................................................ 1
1.2. Sale and Purchase of Notes ........................................................ 2
1.3. Closing .......................................................................... 2
1.4. Use of Proceeds ................................................................... 3
1.5. Purchase for Investment ........................................................... 3
1.6. Source of Funds ................................................................... 3
2. CONDITIONS OF CLOSING................................................................................. 3
2.1. Proceedings Satisfactory 4
2.2. Opinions of Counsel ................................................................ 4
2.3. Representations and Warranties ..................................................... 4
2.4. Performance; No Default ............................................................ 4
2.5. Compliance Certificate ............................................................. 4
2.6. Legal Investment ................................................................... 4
2.7. Absence of Certain Events .......................................................... 5
2.8. Sale to Other Purchaser ............................................................ 5
2.9. Private Placement Number ........................................................... 5
2.10. Payment Under Marine Midland
Facility ......................................................................... 5
3. PAYMENT, PREPAYMENT AND PURCHASE OF NOTES ............................................................ 5
3.1. Required Annual Prepayments and
Payment at Maturity of the Notes ................................................. 5
3.2. Optional Prepayments ............................................................... 6
3.3. Special Purchase of Notes .......................................................... 7
3.4. Notice of Optional Prepayments ..................................................... 7
3.5. Allocation of Partial Prepayments .................................................. 7
3.6. Maturity, etc. ..................................................................... 8
3.7. Acquisition of Notes ............................................................... 8
4. FINANCIAL STATEMENTS; INFORMATION .................................................................... 8
5. INSPECTION OF PROPERTIES AND BOOKS;
CONFIDENTIALITY ................................................................................... 13
6. COVENANTS ........................................................................................... 14
</TABLE>
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<TABLE>
SECTION PAGE
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<S> <C>
6.1. Maintenance of Certain Financial
Conditions .........................................................................14
6.2. Debt .................................................................................15
6.3. Liens ................................................................................17
6.4. Transactions with Affiliates .........................................................20
6.5. Subsidiary Stock and Debt ............................................................21
6.6. Consolidation, Merger, Sale of
Assets, etc. .......................................................................22
6.7. Investments, etc. ....................................................................23
6.8. Restricted Payments and Restricted
Investments ........................................................................25
6.9. Nature of Business ...................................................................27
6.10. Payment of Notes; Maintenance of
Books and Office; Fiscal Year ......................................................27
6.11. Corporate Existence; Payment of Taxes;
Maintenance of Properties; Insurance;
Compliance with Laws; Maintenance of
Patents, etc. ......................................................................28
6.12. Phantom Plan .........................................................................30
6.13. Purchase of Notes Upon Change of
Control ............................................................................30
7. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY .......................................................................................31
7.1. Organization and Authority of
the Obligors .......................................................................31
7.2. Subsidiaries .........................................................................31
7.3. Qualification ........................................................................31
7.4. Financial Statements .................................................................32
7.5. Changes, etc. ........................................................................32
7.6. Title to Property ....................................................................33
7.7. Compliance with Other Instruments,
etc. ...............................................................................33
7.8. Governmental Authorizations, etc. ....................................................34
7.9. Litigation ...........................................................................34
7.10. Patents, Trademarks, Authorizations,
etc. ...............................................................................34
7.11. Taxes ................................................................................35
7.12. Compliance with ERISA ................................................................35
7.13. Private Offering .....................................................................36
7.14. Use of Proceeds; Margin Regulations ..................................................36
7.15. Existing Debt; Investments ...........................................................37
7.16. Status Under Certain Statutes ........................................................37
7.17. Labor Matters ........................................................................37
7.18. Disclosure ...........................................................................38
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
8. EVENTS OF DEFAULT; REMEDIES ............................................................................38
8.1. Events of Default Defined;
Acceleration of Maturity ...........................................................38
8.2. Default Remedies .....................................................................42
8.3. Remedies Cumulative ..................................................................42
8.4. Remedies Not Waived ..................................................................42
8.5. Annulment of Acceleration of Notes ...................................................43
9. DEFINITIONS AND CONSTRUCTION ...........................................................................43
9.1. Defined Terms ........................................................................43
9.2. Accounting Terms .....................................................................57
10. REGISTRATION, TRANSFER OF EXCHANGE
OF NOTES .............................................................................................58
10.1. Registration .........................................................................58
10.2. Sale and Assignment ..................................................................58
10.3. Exchange of Notes ....................................................................58
11. LOST, ETC. NOTES .......................................................................................59
12. AMENDMENT AND WAIVER ...................................................................................59
13. HOME OFFICE PAYMENT ....................................................................................60
14. LIABILITIES OF THE PURCHASER ...........................................................................61
15. MISCELLANEOUS ..........................................................................................61
15.1. Expenses .............................................................................61
15.2. Reliance on and Survival of
Representations ....................................................................61
15.3. Successors and Assigns ...............................................................62
15.4. Notices ..............................................................................62
15.5. Appointment of Agent for Obligors ....................................................62
15.6. Law Governing ........................................................................62
15.7. Headings, etc. .......................................................................63
15.8. Substitution of Purchaser ............................................................63
15.9. Entire Agreement .....................................................................63
15.10. Counterparts .........................................................................63
SCHEDULE I - Information relating to Purchasers
</TABLE>
<PAGE> 5
KROLL ASSOCIATES, INC.
KROLL ASSOCIATES U.K. LIMITED
HARRISON/KROLL ENVIRONMENTAL SERVICES, INC.
PUBLIC ADVISORY SERVICES, INC.
c/o Kroll Associates, Inc.
900 Third Avenue
New York, New York 10022
as of December 15, 1989
To Each Purchaser Identified on
the Signature Page of this
Agreement:
Ladies and Gentlemen:
KROLL ASSOCIATES, INC., a Delaware corporation (herein,
together with its successors and assigns, "KROLL"), KROLL ASSOCIATES U.K.
LIMITED, a corporation organized under the laws of England (herein, together
with its successors and assigns, "KROLL U.K."), HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC., a Louisiana corporation (herein, together with its successors
and assigns, "H/K ENVIRONMENTAL"), and PUBLIC ADVISORY SERVICES, INC., a
Delaware corporation (herein, together with its successors and assigns, "PUBLIC"
and, together with Kroll, Kroll U.K. and H/K Environmental, referred to herein
individually as an "OBLIGOR" and collectively as the "OBLIGORS", hereby agree
with you as follows:
1. THE NOTES.
1.1 AUTHORIZATION OF NOTES. Each of the Obligors has duly
authorized the issuance and sale of $20,000,000 in aggregate principal amount of
their joint and several 10.55% Senior Notes due December 15, 1999 (together with
all notes issued in substitution or exchange therefor in accordance with the
terms of this Agreement, the "NOTES"), each of which shall (I) bear interest on
the unpaid principal amount thereof at the rate of 10.55% per annum (computed on
the basis of a 360-day year of twelve 30-day months) payable semiannually on
June 15 and December 15 of each year commencing on June 15, 1990, and with
interest on any overdue principal (including any overdue prepayment of
principal) and (to the extent permitted by applicable law) on any overdue
premium and any overdue interest, at the rate of 11.55% per
<PAGE> 6
annum until paid, such overdue interest (if any) to be payable semiannually as
aforesaid or, at the option of the registered holder of such Note, on demand,
and (II) mature and be payable as to the entire remaining unpaid principal
amount thereof on December 15, 1999. The Notes shall be substantially in the
form of Exhibit A. Capitalized terms used and not otherwise defined herein shall
have the respective meanings assigned thereto in Section 9.
1.2. SALE AND PURCHASE OF NOTES. The Obligors will issue and
sell to you and, subject to the terms and conditions hereof and in reliance on
the representations and warranties of each Obligor contained herein and
otherwise made in writing by or on behalf of any Obligor in connection with the
transactions contemplated hereby, you will purchase from the Obligors, at the
Closing provided for in Section 1.3, Notes in the aggregate principal amount
shown opposite your name on Schedule I at a purchase price equal to 100% of such
principal amount.
Concurrently with the execution and delivery by the Obligors
to you of this counterpart of this instrument, the Obligors are executing and
delivering a counterpart of this instrument to the other purchaser identified in
Schedule I (the "OTHER PURCHASER") providing for the sale of Notes by the
Obligors to the Other Purchaser in the principal amount specified in Schedule I.
The sales of Notes to you and the Other Purchaser (you and the Other Purchaser
being hereinafter sometimes called collectively the "PURCHASERS") are to be
separate sales made by the Obligors to the Purchasers. The obligations of the
Purchasers hereunder shall be several and not joint, and their Agreement shall
for all purposes be construed and deemed to be a separate agreement between the
Obligors and each of the Purchasers, the Purchasers acting severally and not
jointly, with the same effect as though a separate agreement with each such
Purchaser to the effect herein provided were hereby entered into between the
Obligors and each such Purchaser.
1.3. CLOSING. The closing of the sale and purchase of the
Notes to be purchased by you and the Other Purchaser (the "CLOSING") shall take
place at the offices of Breed, Abbott & Morgan, Citicorp Center, 153 East 53rd
Street, New York, New York 10022, commencing at 10:00 A.M., New York time, on
December 15, 1989, or on such subsequent Business Day occurring on or prior to
December 29, 1989 as you, the Other Purchaser and the Obligors shall agree (the
"CLOSING DATE"). At the Closing, the Obligors will deliver to you the Notes to
be purchased by you in the form of one or more Notes (as you may designate),
each dated the Closing
-2-
<PAGE> 7
Date and registered in your name (or the name of your nominee), against delivery
by you to Kroll or its order of immediately available funds in the amount of the
general corporate purposes price therefor. If at the Closing the Obligors shall
fail to tender such Notes to you as provided herein, or if at the Closing any of
the conditions specified in Section 2 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights you
may have by reason of such failure or such non-fulfillment.
1.4. USE OF PROCEEDS. The proceeds from the sale of the Notes
(subject in any event to Section 7.14) will be applied as follows:
(a) $12,500,000 of such proceeds will be paid as dividends to
JBK during the fiscal years of the Obligors ending December 31, 1989
and December 31, 1990;
(b) $6,800,000 of such proceeds will be applied on the Closing
Date to repay Funded Debt to Kroll listed as Items 1 and 2 on Schedule
II; and
(c) the balance will be used for general corporate purposes by
the Obligors.
1.5 PURCHASE FOR INVESTMENT. You represent to the Obligors
that on the Closing Date you will acquire the Notes being purchased by you for
your own account for investment and not with a view to the resale or
distribution of any part thereof, PROVIDED that, subject to the provisions of
Section 10.2, the disposition of your property shall at all times be and remain
under your control.
1.6 SOURCE OF FUNDS. You represent to the Obligors that no
part of the funds to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder constitutes assets allocated to any separate account
maintained by you in which any employee pension benefit plan (or its related
trust) has any interest. As used in this Section 1.6, the terms "employee
pension benefit plan" and "separate account" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
2. CONDITIONS OF CLOSING. Your obligation to purchase and pay
for the Notes to be purchased by you hereunder shall be subject to the
fulfillment to your satisfaction,
-3-
<PAGE> 8
prior to or at the Closing, of each of the conditions hereinafter set forth:
2.1. PROCEEDING SATISFACTORY. All proceedings taken in
connection with the issuance of the Notes and the consummation of the
transactions contemplated hereby and all documents and papers relating thereto
shall be reasonably satisfactory to you and your special counsel, and you and
your special counsel shall have received copies of such documents and papers,
all in form and substance reasonably satisfactory to you and your special
counsel, as you or they may reasonably request in connection therewith.
2.2. OPINIONS OF COUNSEL. You shall have received favorable
opinions, each dated the Closing Date, addressed to you and satisfactory in
form, scope and substance to you, from (A) special counsel(s) to the Obligors,
substantially in the form of Exhibit B and covering such other matters as you or
your special counsel may reasonably request, and (B) Greed, Abbott & Morgan,
your special counsel in connection with the transactions contemplated by this
Agreement, covering such matters as you may reasonably request.
2.3. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Obligors contained in this Agreement or otherwise made in
writing by or on behalf of any Obligor in connection with the transactions
contemplated hereby shall be true and correct when made and as of the time of
the Closing, except as affected by the consummation of such transactions.
2.4 PERFORMANCE; NO DEFAULT. Each Obligor shall have performed
all agreements and complied with all conditions contained herein required to be
performed or complied with by it prior to or at the Closing, and at the time of
the Closing (and after giving effect to the sale of the Notes to you and the
Other Purchaser and the application of the proceeds of such sales) no Default or
Event of Default shall have occurred and be occurring.
2.5. COMPLIANCE CERTIFICATE. Each Obligor shall have delivered
to you an Officers' Certificate, dated the Closing Date, certifying that the
conditions specified in Sections 2.3 and 2.4 applicable to it have been
fulfilled.
2.6. LEGAL INVESTMENT. On the Closing Date the Notes to be
purchased by you hereunder shall be a legal investment for you under the laws of
each jurisdiction to which you may be subject, without resort to any basket
provisions of said laws such as New York Insurance Law
-4-
<PAGE> 9
Section 1405(1)(8), and you shall have received such certificates or other
evidence as you may reasonably request demonstrating the legality of such
purchase under such laws.
2.7 ABSENCE OF CERTAIN EVENTS. There shall not have occurred
any material adverse change in the assets, liabilities, business, operations or
condition (financial or otherwise) of any Obligor from that reflected in the
most recent audited financial statements o Kroll, Kroll U.K. and H.K.
Environmental described in Section 7.4. Since the date of such financial
statements, no Obligor shall have consolidated with, merged into, or sold,
leased or otherwise disposed of its assets and properties as an entirety or
substantially as an entirety to any Person.
2.8. SALE TO OTHER PURCHASER. Contemporaneously with the
purchase of the Notes to be purchased by you at the Closing, the Other Purchaser
shall have purchased the Notes to be purchased by it pursuant to this Agreement
and the Obligors shall have received payment in full of the purchase price
thereof.
2.9. PRIVATE PLACEMENT NUMBER. The Obligors shall have
obtained from Standard and Poor's CUSIP Service Bureau a Private Placement
Number for the Notes and Kroll shall have delivered to you an Officers'
Certificate, dated the Closing Date, specifying such Private Placement Number
and certifying that all fees and expenses payable in connection with the
application therefor have been paid in full.
2.10. PAYMENT UNDER MARINE MIDLAND FACILITY. Contemporaneously
with the Closing, the Obligors shall have paid in full all amounts owed by it
under the agreements listed as Items 1 and 2 on Schedule II.
3. PAYMENT, PREPAYMENT AND PURCHASE OF NOTES.
3.1. REQUIRED ANNUAL PREPAYMENTS AND PAYMENT AT MATURITY OF
THE NOTES.
(a) On December 15, 1993 and on each December 15 thereafter to
and including December 15, 1998 (so long as any Notes shall remain outstanding),
the Obligors will prepay, and there shall become due and payable, $2,500,000 in
aggregate principal amount of the notes (or such lesser principal amount as
shall be outstanding), and on December 15, 1999, the obligors will pay, and
there shall become due and payable, the entire remaining unpaid principal
amount of the Notes together with all accrued and unpaid interest thereon.
Each such prepayment and the final payment made pursuant to
-5-
<PAGE> 10
this Section 3.1 shall be at 100% of the principal amount so to be
prepaid together with interest accrued thereon to the date of such prepayment,
without premium.
(b) No prepayment of less than the entire outstanding
principal amount of the Notes pursuant to Section 3.2(b) or 3.2(c) shall relieve
the Obligors of their obligation to make (nor shall it reduce the amount of) the
prepayments of principal on the Notes required by Section 3.1(a).
(c) If any Note or Notes (but less than all the Notes) shall
be purchased as contemplated by Section 3.3, then the aggregate principal amount
of the Notes required to be prepaid on any December 15 thereafter pursuant to
Section 3.1(a) shall be reduced to that amount which bears the same relation to
the amount of such prepayment specified in Section 3.1(a) to be made on such
December 15 (or such lower amount to which such prepayment shall have
theretofore been reduced in accordance with this Section 3.1(c)) as the
aggregate principal amount of the Notes outstanding immediately following said
purchase in accordance with Section 3.3 bears to the aggregate principal amount
of the Notes outstanding immediately prior to said purchase. The Obligors
covenant and agree that they will, in the event of any reduction pursuant to
this Section 3.1(c), promptly (and in any event within five Business Days
thereafter) after the prepayment of Notes giving rise to such reduction, give to
each holder of a Note or Notes written notice thereof, specifying in each such
case the amounts of the respective required prepayments due thereafter pursuant
to this Section 3.1(c) in respect of each Note held by such holder (giving
effect to such reduction) and containing calculations demonstrating the method
by which such reduction was effected.
3.2. OPTIONAL PREPAYMENTS. (a) The Notes shall not be subject to
prepayment at the option of the Obligors except pursuant to Section 3.2(b) or
3.2(c).
(b) On any December 15 on which a prepayment of the Notes is required
to be made pursuant to Section 3.1(a), the Obligors may, at their option, upon
notice as provided in Section 3.4, prepay an additional aggregate principal
amount of Notes in an amount not exceeding the principal amount of the Notes so
required to be prepaid pursuant to Section 3.1(a), each such additional
prepayment to be made at the principal amount so to be prepaid, plus interest
accrued thereon to the date of such prepayment but without premium; PROVIDED,
HOWEVER, that (I) the aggregate principal amount of
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<PAGE> 11
the Notes that the Obligors shall be permitted to prepay on any one or more
December 15's pursuant to this subsection (b) shall not in any event exceed
$4,000,000 and (II) the right of the Obligors to make prepayments pursuant to
this subsection (b) shall be non-cumulative, so that failure to exercise such
right in whole or in part on any December 15 on which such a prepayment would
otherwise be permitted hereunder shall not increase the aggregate principal
amount of Notes which the Obligors would otherwise be permitted to prepay on any
subsequent December 15 in accordance with he preceding provisions of this
subsection (b).
(c) In addition to those prepayments permitted under Section 3.2(b),
the Obligors may, at their option, upon notice as provided in Section 3.4,
prepay all or any part of the Notes (in integral multiples of $500,000), each
such prepayment to be made at the principal amount of the Notes so to be prepaid
together with interest accrued on such principal amount to the date of
prepayment, plus a prepayment premium equal to the applicable percentage of the
principal amount so to be prepaid, determined in accordance with the following
table:
<TABLE>
<CAPTION>
If prepaid
during the
12-month period
commencing
December 15 Premium
----------- -------
<S> <C>
1994 5.00%
1995 3.75%
1996 2.50%
1997 1.25%
1998 None
</TABLE>
3.3 SPECIAL PURCHASE OF NOTES. The Obligors shall be required to
purchase Notes from each holder thereof which shall have replied affirmatively
to an offer to purchase the same given as contemplated by section 6.13, such
purchase to be made at the price and on the date and otherwise as provided in
Section 6.13.
3.4 NOTICE OF OPTIONAL PREPAYMENTS. With respect to each optional
prepayment of Notes pursuant to Section 3.2, thereof, at least 30 and not more
than 60 days prior to the date fixed for such prepayment, specifying such date
of prepayment and the principal amount of Notes so to be prepaid and, if
applicable, the prepayment premium payable in respect of such prepayment.
-7-
<PAGE> 12
3.5 ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each prepayment
of Notes pursuant to Section 3.1 or 3.2, the principal amount of the Notes so to
be prepaid shall be allocated (in integral multiples of $1,000) among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective principal amounts thereof not theretofore prepaid, with adjustments,
to the extent practicable, to compensate for any prior prepayments not made
exactly in such proportion.
3.6. MATURITY, ETC. In the case of each prepayment of Notes, whether
required or option, the principal amount of each Note to be prepaid shall become
due and payable on the date fixed for such prepayment in this Agreement or, in
the case of any optional prepayment, in the notice of such prepayment delivered
pursuant to Section 3.4, together with interest accrued on such principal amount
to such date and the applicable prepayment premium, if any. From and after such
date, unless the Obligors shall have failed to pay such principal amount on such
date, together with the interest and premium, if any, payable thereon as
aforesaid, interest on such principal amount shall cease to accrue. No Note
shall be issued in lieu of any paid or prepaid principal amount of any Note.
3.7 ACQUISITION OF NOTES. No Obligor will, nor will any Obligor permit
any Subsidiary or Affiliate to, acquire, directly or indirectly, by purchase or
prepayment or otherwise, any of the outstanding Notes except by way of payment
or prepayment in accordance with the terms of this Agreement and the Notes
unless the Obligors have offered to purchase Notes, PRO RATA, from all holders
of Notes and upon the same terms. No Note acquired by any Obligor or any
Subsidiary or Affiliate of an Obligor pursuant to this Section 3.7 or otherwise
shall be reissued or transferred to any other Person.
4. FINANCIAL STATEMENTS; INFORMATION. The Obligors will furnish (in
duplicate) to you, so long as you or your nominee shall be obligated to purchase
or shall hold any of the Notes, and to each other institutional holder of the
Notes:
(a) as soon as practicable and in any event within 60 days
after the end of each quarterly fiscal period in each fiscal year of
the Obligors, (I) a combined balance sheet of the Obligors and their
respective consolidated Subsidiaries as of the end of such quarterly
period and the related combined statements of income, retained earnings
-8-
<PAGE> 13
and cash flows of the Obligors and their respective consolidated
Subsidiaries for such period and (in the case of the second and third
such quarterly periods) for the portion of the fiscal year ended with
the last day of such quarterly period, setting forth in comparative
form the figures for the corresponding periods of the previous fiscal
year, all in reasonable detail and certified as complete and correct in
all material respects (subject to changes resulting from year-end audit
adjustments) by the principal financial officer of each of the Obligors
and (II) unaudited supplementary information relating to the financial
statements delivered in accordance with the preceding subclause (i)
prepared by the chief financial officer of each of the Obligors;
(b) as soon as practicable and in any event within 120 days
after the end of each fiscal year of the Obligors, (I) a combined
balance sheet of the Obligors and their respective consolidated
Subsidiaries as of the end of such year and the related combined
statements of income, retained earnings and cash flows of the Obligors
and their respective consolidated Subsidiaries for such fiscal year,
setting forth in each case in comparative form the respective figures
for the previous fiscal year, all in reasonable detail and accompanied
by a report thereon of Peat Marwick Main & Co. or other independent
certified public accountants of recognized national standing selected
by the Obligors, which report shall state that such financial
statements present fairly the combined financial position of the
companies being reported upon as of the date indicated and the results
of their operations and their cash flows for the periods indicated and
the results of their operations and their cash flows for the periods
indicated in conformity with generally accepted accounting principles
at the time in effect applied on a basis consistent with prior years
(except for changes in application in which such accountants concur)
and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally
accepted auditing standards at the time in effect and accordingly
included such test of the accounting records and such other auditing
procedures as were considered necessary in the circumstances, and (II)
unaudited supplementary information relating to the financial
statements delivered in accordance with the
-9-
<PAGE> 14
preceding subclause (i) prepared by the accountants which reported on
such financial statements as required by such subclause (i);
(c) concurrently with each delivery of financial statements
pursuant to clause (a) or (b) of this Section 4, an Officers'
Certificate of each of the Obligors:
(i) stating that the signatories thereto have
reviewed the terms of this Agreement and of the Notes and have
made, or caused to be made under their supervision, a review
in reasonable detail of the transactions and conditions of the
Obligors and their respective Subsidiaries during the
accounting period covered by such financial statements, and
that such review has not disclosed the existence during or at
the end of such accounting period, and that such signatories
do not have knowledge of the existence as at the date of such
Officers' Certificate, of any condition or event which
constitutes a Default or an Event of Default, or, if any such
condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Obligors
have taken or are taking or purpose to take with respect
thereto;
(ii) setting forth, as of the date of such balance
sheet for such period, the respective amounts of Consolidated
Modified Working Capital, Consolidated Current Assets,
Consolidated Current Liabilities, Cash, Consolidated Earnings
Available for Consolidated Fixed Charges, Consolidated Fixed
Charges, Consolidated Net Income, Adjusted Consolidated Net
Income, Consolidated Total Funded Debt, Consolidated Operating
Cash Flow, Consolidated Senior Funded Debt, Consolidated
Curren Debt, Consolidated Tangible Net Worth and Total
Capitalization;
(iii) setting forth facts or computations in
reasonable detail demonstration compliance with the
restrictions contained in Sections 6.1, 6.2(d), 6.2(e),
6.3(k), 6.6(e), and 6.8(a); and
-10-
<PAGE> 15
(iv) setting forth in sufficient detail the
adjustments required in order to reconcile the results of the
calculations used in providing the information set forth in
clauses (ii) and (iii) of this paragraph (c) with the
corresponding results which would have been obtained if such
calculations (and the components thereof) had been
made in accordance with generally accepted accounting
principles at the time in effect;
(d) together with each delivery of annual financial statements
pursuant to clause (b) of this Section 4, a written statement by the
independent public accountants referred to in said clause (b):
(i) stating that (A) they have read the Officers'
Certificate delivered in connection with the annual financial
statements pursuant to clause (c) of this Section 4 for such
fiscal year, and (B) based upon their annual audit examination
of the consolidated financial statements delivered pursuant to
clause (b) of this Section 4 nothing has come to their
attention which causes them to believe that the matters set
forth in such Officers' Certificate pursuant to clauses (ii),
(iii) and (iv) of such clause (c) have not been properly
stated in accordance with the terms of this Agreement, and
(ii) stating whether, in the course of their audit
examination, there has been disclosed the existence of any
condition or event which constitutes a Default or an Event of
Default, and, if any such Default or Event of Default has been
disclosed, specifying such Defaults or Events of Default and
the nature and status thereof;
(e) promptly upon receipt thereof (and if any event within
five Business Days thereafter), copies of all reports submitted to any
Obligor or any of its Subsidiaries by independent public accountants in
connection with any annual, interim or special audit of such Obligor or
any of its Subsidiaries made by such accounts;
(f) subsequent to such time at which any Obligor or a
Subsidiary of an Obligor has become
-11-
<PAGE> 16
subject to the reporting requirements of the Exchange Act, promptly
upon their becoming available (and in any event within five Business
Days thereafter), copies of (i) all financial statements, reports,
notices, proxy statements and other information sent or made available
generally by such Obligor to any holders of a class of its securities
which are publicly traded or by such Subsidiary to any holders of a
class of its securities which are publicly traded, and (ii) all regular
and periodic reports (including reports on For 8-K) and any
registration statements and prospectuses filed by such Obligor or such
Subsidiary with any securities exchange or with the Commission;
(g) as soon as possible upon any officer of any Obligor
obtaining knowledge of any condition or event which constitutes a
Default or an Event of Default, or becoming aware that the holder of
any Note has given any notice or taken any other action with respect to
a claimed Default or Event of Default or that any Person has given any
notice to such Obligor or any of its Subsidiaries or taken any other
action with respect to a claimed default under or in respect of any
Debt referred to in Section 8.1(e) or with respect to the occurrence or
existence of any event or condition of the type referred to in Section
8.1(f) or 8.1(g), an Officers' Certificate of such Obligor specifying
the nature and periodic of existence thereof and what action such
Obligor has taken or is taking or proposes to take with respect
thereto;
(h) as soon as possible upon any officer of any obligor
becoming aware or receiving notice (i) of the occurrence of any
"reportable event" or "reportable events", as such term is defined in
Section 4043 of ERISA, with respect to any Employee Pension Benefit
Plan, which reportable event or reportable events could reasonably be
expected to give rise, in the aggregate, to any material liability of
any Obligor or any Commonly Controlled Entity, or any combination
thereof, (ii) that an accumulated funding deficiency has been incurred
or an application has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard or an extension
of any amortization period under Section 412 of the Code with respect
to any Employee Pension Benefit Plan,
-12-
<PAGE> 17
(iii) that any Plan or Plans, in the aggregate, have a material
Unfunded Current Liability, (iv) that any Obligor or any Commonly
Controlled Entity has incurred or is reasonably likely to incur any
liability pursuant to Section 4062, 4063, 4064, 4068(f), 4201 or 4204
or ERISA or (v) of the occurrence of any "prohibited transaction" or
"prohibited transactions", as such term is defined in Section 4975 of
the Code or Section 406 of ERISA, with respect to any Employee Pension
Benefit Plan, for which any Obligor or any Commonly Controlled Entity,
or any combination thereof, could reasonably be subject to any material
liability in the aggregate, a written notice specifying the nature
thereof, what action such Obligor has taken, is taking and proposes to
take with respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor or
the Pension Benefit Guaranty Corporation with respect thereto;
(i) the Obligors will cause to be delivered to
you a complete copy of the annual report (Form 5500), including
Schedule B thereto, of each Plan required to be filed with the Internal
Revenue Service by any Obligor or any Commonly Controlled Entity no
later than 20 days after the date such report has been filed with the
Internal Revenue Service;
(j) as soon as is practicable upon request therefor (and in
any event within thirty (30) Business Days thereafter), such other
information as to the business, properties, operations or condition
(financial or otherwise) of any Obligor or any of its Subsidiaries as
may from time to time be reasonably requested.
5. INSPECTION OF PROPERTIES AND BOOKS; CONFIDENTIALITY. (a) So long as
you, your nominee or any other institutional investor holds any Note, your or
such other institutional holder's representative or representatives may visit
and inspect any of the properties of the Obligors and their respective
Subsidiaries, including their respective books of account, records, reports and
other papers, make copies and extracts therefrom, and discuss their affairs,
finances and accounts with their respective officers and independent public
accountants (and each of the Obligors hereby authorizes and directs each such
officer and independent public accountant to engage in such discussion), all at
-13-
<PAGE> 18
such reasonable times during normal business hours upon reasonable prior notice
to the applicable Obligor and as often as may be reasonably requested.
(b) You agree that all non-public information inspected or obtained by
you pursuant to Section 5(a) and conspicuously designated in writing by the
Obligor or Subsidiary from which such information was obtained as "confidential"
shall be so treated by you; PROVIDED, HOWEVER, that you may disclose such
information, whether or not designated as confidential (i) as may be required or
appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
you or to your auditors or to the National Association of Insurance
Commissioners or similar organizations or their successors, (ii) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (iii) to the extent that you believe it necessary in order
to protect your investment in the Notes or in order to comply with any law,
order, regulation or rule applicable to you and (iv) to a prospective transferee
in connection with any contemplated permitted transfer of any of the Notes
purchased by you hereunder; and PROVIDED, FURTHER that you agree that, prior to
disclosure by you to any prospective transferee of the Notes of any information
which has been designated as "confidential" by any Obligor or Subsidiary, you
shall use your reasonable efforts to obtain from such prospective transferee its
agreement to be bound by the preceding provisions of this Section 5(b).
6. COVENANTS. The Obligors jointly and severally covenant and agree
that from the date of this Agreement through the Closing Date and thereafter so
long as any Note shall be outstanding, each of the Obligors will perform and
comply with each of the following covenants:
6.1. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS. The Obligors will not
permit:
(a) at the end of any fiscal month, Consolidated
Modified Working Capital as at such date to be less
than $8,000,000;
(b) the ratio of Consolidated Earnings Available for
Consolidated Fixed Charges for the most recently completed period of
twelve consecutive months to Consolidated Fixed Charges for such period
to be less than (i) at the end of any fiscal quarter ending on or prior
to December
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<PAGE> 19
31, 1991, 1.50 to 1.00, and (ii) at the end of any fiscal quarter
ending thereafter, 1.75 to 1.00.
6.2. DEBT. The Obligors will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, assume, incur, or otherwise
become or be directly or indirectly liable in respect of, by way of Guarantee or
otherwise, any Funded Debt or Current Debt, except that:
(a) the Obligors may become and remain liable in
respect of the Funded Debt evidenced by the Notes;
(b) the obligors may remain liable in respect of the Funded
Debt and Current Debt existing on the date hereof and described on
Schedule II, but may not extend, renew, refund or refinance any thereof
except (i) the obligors may extend, renew, refund or refinance any such
Funded Debt and/or Current Debt then outstanding under any revolving
credit facility in existence on the date hereof, PROVIDED that the
aggregate amount of outstanding Funded Debt and Current Debt under all
such extensions, renewals, refundings and refinancings shall not at any
time exceed $1,000,000, and (ii) in addition to those extensions,
renewals, refundings and refinancings permitted under the preceding
subclause (i), the Obligors may extend, renew, refund or refinance any
such (A) Funded Debt, to the extent otherwise permitted by clause (d)
of this Section 6.2, and (B) any such Current Debt, to the extent
otherwise permitted by clause (e) of this Section 6.2;
(c) any Obligor and any Restricted Subsidiary may become and
remain liable in respect of Debt of such Obligor or Restricted
Subsidiary, as the case may be, to another Obliger or a Restricted
Subsidiary;
(d) any Obliger and any Restricted Subsidiary may become and
may remain liable in respect of Funded Debt in addition to that
permitted by the foregoing provisions of this Section 6.2; PROVIDED,
HOWEVER, that on the date on which such Obligor or such Restricted
Subsidiary proposes to incur any such additional Funded Debt (the
"FUNDED DEBT INCURRENCE DATE"), and after giving effect to such
incurrence and the substantially concurrent
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incurrence or retirement of any other Funded Debt by the Obligors and
their Restricted Subsidiaries:
(i) the ratio of Consolidated Total Funded Debt then
outstanding to Consolidated Operating Cash Flow for the most
recently completed period of four fiscal quarters shall be
less than 4.0 to 1.0; and
(ii) the ratio of Consolidated Senior Funded Debt
then outstanding to Consolidated operating Cash Flow for the
most recently completed period of four fiscal quarters shall
be less than (a) if the Funded Debt Incurrence Date occurs on
or prior to December 31, 1990, 3.75 to 1.0, (b) if the Funded
Debt Incurrence Date occurs after December 31, 1990 and on or
prior to December 31, 1991, 3.50 to 1.0, and (c) if the Funded
Debt Incurrence Date occurs at any time after December 31,
1991, 3.25 to 1.0;
and PROVIDED FURTHER, that nothing in this Section 6.2(d) shall permit
any Restricted Subsidiary to incur any Funded Debt on any Funded Debt
Incurrence Date unless, after giving effect to such incurrence and to
the substantially concurrent incurrence or retirement of any other
Funded Debt by the Obligors and their Restricted Subsidiaries, the sum
(without duplication) of (A) that portion of Consolidated Total Funded
Debt consisting of Capital Leases,plus (B) the aggregate principal
amount outstanding of all unsecured Funded Debt of Restricted
Subsidiaries (other than Funded Debt permitted by clause (c) of this
Section 6.2), plus (C) the aggregate principal amount outstanding of
all Debt of the Obligors and their Restricted Subsidiaries secured as
permitted under clause (k) of Section 6.3, shall not exceed 15% of
Total Capitalization; and
(e) any Obligor and any Restricted Subsidiary may become and
remain liable in respect of Current Debt in addition to that permitted
by the foregoing provisions of this Section 6.2; PROVIDED, HOWEVER,
that no such additional Current Debt shall be permitted to be incurred
unless within the 12-month period immediately preceding the date on
which such Obligor or such Restricted Subsidiary proposes to incur any
such Current Debt (the "CURRENT DEBT INCURRENCE DATE") there shall have
been a period of at least 60 consecutive days on each of which days:
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(i) the ratio of (A) the sum of Consolidated Current
Debt then outstanding PLUS Consolidated Senior Funded Debt
then outstanding to (B) Consolidated Operating Cash Flow for
the most recently completed period of four fiscal quarters,
was less than (1) if the Current Debt Incurrence Date occurs
on or prior to December 31, 1990, 3.75 to 1.0, (2) if the
Current Debt Incurrence Date occurs after December 31, 1990
and on or prior to December 31, 1991, 3.50 to 1.0, and (3) if
the Current Debt Incurrence Date occurs at any time
thereafter, 3.25 to 1.0; and
(ii) the ratio of (A) the sum of consolidated Current
Debt then outstanding PLUS Consolidated Total Funded Debt then
outstanding to (B) Consolidated Operating Cash Flow for the
most recently completed period of four fiscal quarters
was less than 4 to 1.
For all purposes of this Section 6.2, (1) in the event any
Obligor or any Restricted Subsidiary shall extend, renew, refund or refinance
any Debt other than any Debt permitted to be renewed in accordance with
subclause (i) of Section 6.2(b), such Obligor or such Restricted Subsidiary
shall be deemed to have incurred such Debt at the time of such extension,
renewal, refunding or refinancing, and (2) any Person becoming a Restricted
subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Debt at the time it becomes such a Restricted
Subsidiary.
6.3. LIENS. (a) No obligor will, and no obligor will permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit to exist any Lien on or with respect to any asset of any
character of any Obligor or any Restricted Subsidiary (whether held on the date
hereof or hereafter acquired) or any interest therein or any income or profits
therefrom, except, subject to compliance with the proviso to this Section 6.3:
(a) Liens for taxes, assessments or govern-
mental charges or levies either not yet due or the
payment of which is not at the time required by
Section 6.11(b);
(b) Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar Persons incurred in
the ordinary course of business
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for sums either not yet due or the payment of which is not at
the time required by Section 6.11(b);
(c) Liens (other than any Lien created or imposed
under ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive in any case of obligations incurred in
connection with the borrowing of money or the obtaining of
advances or credit);
(d) any attachment, judgment or other similar Lien
arising in connection with court proceedings, PROVIDED that,
either (i) such Lien is discharged within 90 days of
attachment of such claims or (ii) (1) the execution or other
enforcement of such Lien is effectively stayed within 90 days
of attachment of such claims and the claims secured thereby
are being actively contested in good faith and by appropriate
proceedings diligently conducted, and (2) such reserve or
other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor;
(e) easements, licenses, rights-of-way and other
rights and privileges in the nature of easements and similar
Liens incidental to the ownership of property and not incurred
in connection with the borrowing of money or the obtaining of
advances or credit, and which do not, individually or in the
aggregate, materially interfere with the ordinary conduct of
the business of any obligor or any Restricted Subsidiary or
materially detract from the value of the properties subject to
any such Liens;
(f) Liens on property of any Obligor or any
Restricted Subsidiary securing Debt or other obligations of
such Obligor or such Restricted Subsidiary owing to any
Obligor or to a Restricted Subsidiary;
(g) Liens specified on Schedule II existing on the
date of this Agreement and securing the Debt listed as being
secured thereby on such Schedule
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II; PROVIDED that no such Lien shall be extended to any other
asset of any Obligor or any Restricted Subsidiary;
(h) any Lien (including a Capital Lease) created
solely to secure the deferred purchase price of property or
the cost of construction on or improvements of property
acquired, constructed or improved by any Obligor or any
Restricted Subsidiary after the date hereof, or any Lien
(including a Capital Lease) created to secure Debt incurred
solely for the purpose of financing the acquisition,
construction or improvement, as the case may be, of such
property (if such Debt is incurred at the time of or within
120 days after such acquisition or the completion of such
construction or improvement), PROVIDED that
(A) no such Lien shall at any time extend to
or cover any property of any Obligor or any
Restricted Subsidiary other than the acquired assets
on which it was originally imposed and improvements
thereto and proceeds thereof, and
(B) the principal amount of all Debt secured
by all such Liens on any such assets shall not at the
time of acquisition of such assets exceed an amount
equal to the lesser of (A) the cost to such Obligor
or such Restricted Subsidiary (including the
principal amount of any pre-existing Debt secured by
such Liens, whether or not such Obligor or such
Restricted Subsidiary has any personal liability with
respect thereto) of such assets and (B) the fair
market value of such asset (as determined in good
faith by the chief financial officer of such Obligor
or Restricted Subsidiary) at the time of acquisition
thereof;
(i) any Lien existing on any asset (I) of any Person
at the time such Person becomes a Restricted Subsidiary, (II)
of any Person existing at the time such Person is merged or
consolidated with or into any Obligor or a Restricted
Subsidiary, or (III) prior to the acquisition thereof by any
Obligor or any Restricted Subsidiary, PROVIDED that, in any
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such case, (A) such Lien (1) was not created in contemplation
of such event and (2) is not extended to other property, and
(B) the amount of Debt secured by any such Lien does not
exceed the lesser of (x) the cost to such Obligor or
Restricted Subsidiary (including the principal amount of any
pre-existing Debt secured by such Lien, whether or not such
Obligor or such Restricted Subsidiary has any personal
liability with respect thereto) of such asset and (y) the fair
market value of such asset (as determined in good faith by the
chief financial officer of such Obligor or Restricted
Subsidiary) at the time of acquisition thereof;
(j) Liens extending, renewing or replacing any Lien
permitted by clause (g), (h) or (i) of this Section 6.3,
PROVIDED that such Liens are not extended to other property;
and
(k) Liens in addition to those permitted by the
foregoing provisions of this Section 6.3, and any extension,
renewal or replacement thereof so long as such Liens are not
extended to other property, PROVIDED that no Lien shall be
created, incurred or assumed pursuant to this clause (k)
unless, immediately after giving effect thereto, the sum
(without duplication) of (A) the aggregate principal amount
outstanding of all Debt of the Obligors and their Restricted
Subsidiaries secured as permitted under this clause (k), PLUS
(B) that portion of Consolidated Total Funded Debt consisting
of Capital Leases, PLUS (C) the aggregate principal amount
outstanding of all unsecured Funded Debt of Restricted
Subsidiaries (other than Funded Debt permitted under clause
(c) of Section 6.2), shall not exceed 15% of Total
Capitalization;
PROVIDED, HOWEVER, that notwithstanding the foregoing provisions of this Section
6.3, in no event shall any Obligor or any Restricted Subsidiary create, incur or
permit to exist any Lien on any account receivable owing to any Obligor or any
Restricted Subsidiary.
6.4. TRANSACTIONS WITH AFFILIATES. No Obligor will, and no
Obligor will permit any of its Restricted Subsidiaries to, directly or
indirectly, engage in any transaction with any Affiliate of any Obligor or
Restricted Subsidiary, other than transactions entered into in the ordinary
course of business upon terms that are fair and
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<PAGE> 25
reasonable and not less favorable to such Obligor or such Restricted Subsidiary,
as the case may be, than those which might be obtained at the time on an
arm's-length basis from any Person which is not such an Affiliate.
6.5. SUBSIDIARY STOCK AND DEBT. No Obligor will:
(a) directly or indirectly, sell, assign, pledge or otherwise
dispose of any Debt of, or claim against, or any shares of stock or
similar interests or other securities (or warrants, rights or options
to acquire stock or similar interests) of any of its Restricted
Subsidiaries, except to an Obligor or any Restricted Subsidiary or
except as directors' qualifying shares if required by applicable law;
or
(b) permit any of its Restricted Subsidiaries to directly or
indirectly sell, assign, pledge or otherwise dispose of any Debt of, or
claim against, or any shares of stock or similar interests or other
securities (or warrants, rights or options to acquire stock or similar
interests) of any other of its Restricted Subsidiaries, except to an
Obligor or any Restricted Subsidiary or except as directors' qualifying
shares if required by applicable law:
(c) permit any of its Restricted Subsidiaries to directly or
indirectly issue or sell any shares of its stock or similar interests
or other securities (or warrants, rights or options to acquire any
stock or similar interests) of such Restricted Subsidiary except to an
Obligor or any Restricted Subsidiary or except as directors' qualifying
shares or to satisfy preemptive rights if required by applicable law;
or
(d) permit any of its Restricted Subsidiaries to have
outstanding any shares of preferred stock, except shares of preferred
stock owned by any Obligor or any Restricted Subsidiary;
PROVIDED, HOWEVER, that all Debt and shares of stock and similar interests of
any Restricted Subsidiary owned by any Obligor and its other Restricted
Subsidiaries may be sold as an entirety to any Person for a consideration at
least equal to the fair market value thereof (as determined in good faith by
such Obligor's Board of Directors), if (I) such Restricted Subsidiary being sold
does not at that time own, directly or
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<PAGE> 26
indirectly, (A) any Debt or stock or similar interests (or warrants, rights or
options to acquire stock or similar interests) in any other Restricted
Subsidiary which is not also being simultaneously sold as an entirety as
permitted by this proviso, or (B) any Debt of any Obligor, (ii) the assets of
such Restricted Subsidiary represented by the equity interest to be so
transferred are such that the sale of such assets would then be permitted by
Section 6.6 (in which case such amount of assets shall be considered and deemed
a disposition of assets for the purposes of Section 6.6) and (iii) at the time
of and immediately after the consummation of such transaction and after giving
effect thereto, (1) no Default or Event of Default shall have occurred and be
continuing and (2) the Obligors shall at such time be permitted to incur $1.00
of additional Funded Debt pursuant to Section 6.2(d).
6.6. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. No Obligor
will, nor will any Obligor permit any of its Restricted Subsidiaries to,
voluntarily liquidate or dissolve, or consolidate or merge with any other
Person, or permit any other Person to consolidate or merge with it, or sell,
lease, transfer or otherwise dispose of any of its assets to any other Person
(other than in the ordinary course of business), except that, subject in any
event to compliance with the last paragraph of this Section 6.6:
(a) any Obligor may consolidate or merge with any
other Obligor;
(b) any Restricted Subsidiary may consolidate or merge with
(i) any Obligor (if such Obligor shall be the continuing or surviving
corporation), (ii) any other Restricted Subsidiary and (iii) any other
corporation (if such Restricted Subsidiary shall be the continuing or
surviving corporation);
(c) any Obligor may consolidate or merge with any
other corporation if such Obligor shall be the
continuing or surviving corporation;
(d) any Obligor and any Restricted Subsidiary may
Sell, lease, transfer or otherwise dispose of its
assets to any Obligor or any Restricted Subsidiary;
(e) any Obligor and any Restricted Subsidiary, in addition to
making any gale, lease or other disposition permitted by the foregoing
provisions of this Section 6.6, may sell, lease or
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<PAGE> 27
otherwise dispose of any of its assets for a consideration at least
equal to the fair value of such assets (as determined in good faith by
the Board of Directors of such Obligor or Restricted Subsidiary) at the
time of such sale or other disposition, but only if the proceeds of
such proposed sale or other disposition, when added to the proceeds of
all other sales or other dispositions of assets made by the obligors
and their Restricted Subsidiaries as permitted by this clause (e)
(including all deemed dispositions of assets pursuant to Section 6.5)
during the period of twelve months ending on (and including) the date
of such proposed sale or other disposition, shall not exceed 10% of
Total Capitalization as at the end of the most recently completed
fiscal year of the Obligors.
No consolidation, merger, sale, lease or other disposition
shall be permitted under this Section 6.6 unless at the time of and immediately
after giving effect to any such consolidation, merger, sale, lease or other
disposition, (1) no Default or Event of Default shall have occurred and be
continuing and (2) the Obligors shall be permitted to incur $1.00 of additional
Funded Debt pursuant to Section 6.2(d).
6.7. INVESTMENTS, ETC. No Obligor will, and no Obligor will
permit any of its Restricted Subsidiaries to, directly, or indirectly through a
Restricted Subsidiary or otherwise, make or own any Investment, except:
(a) the Obligors and their Restricted Subsidiaries may make
and own Investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or by any
agency thereof which in the case of the latter are supported by the
full faith and credit of the United States of America ("GOVERNMENT
OBLIGATIONS"), in each case having a maturity not in excess of one year
from the date of acquisition thereof; (ii) commercial paper maturing
not later than one year from the date of creation thereof of Chemical
Bank or of corporations organized under the laws of the United States
of America and having the rating of at least P-1 or A-1 or such other
comparable rating by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); (iii) demand deposit accounts
with, or certificates of deposit or bankers' acceptances issued by,
Chemical Bank or any commercial bank or
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additional Investments shall not at any time exceed $500,000; and
(g) in addition to the Investments permitted by the foregoing
clauses (a) through (f) of this Section 6.7, the Obligors and their
Restricted Subsidiaries may make and own Investments which are made
pursuant to, and within the limitations specified in, Section 6.8 (any
such Investment so made being referred to as a "RESTRICTED
INVESTMENT").
For all purposes of this Section 6.7, Investments owned by any Person at the
time it becomes a Restricted Subsidiary shall be deemed to be made at such time.
6.8. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) The
Obligors will not directly, or indirectly through a Restricted Subsidiary or
otherwise, declare, order, pay, make or set apart any sum or property for any
Restricted Payment, and the Obligors will not and will not permit any Restricted
Subsidiary to make any Restricted Investment, in each case unless both at
the time of the proposed action and immediately after giving
effect thereto
(i) no condition or event shall exist which constitutes a
Default or an Event of Default,
(ii) the aggregate amount of (1) all sums and property
included in all Restricted Payments directly or indirectly declared,
ordered, paid, made or set aside by the Obligors, during the period
(taken as one accounting period) from and including the Closing Date to
and including the date of such proposed action (the "RESTRICTED PAYMENT
DATE"), PLUS (2) the aggregate unliquidated amount, computed in
accordance with GAAP, of all Restricted Investments of the Obligors and
their Restricted Subsidiaries made from the Closing Date through the
Restricted Payment Date and outstanding on the Restricted Payment Date
and all commitments for such Restricted Investments by any of the
Obligors and their Restricted Subsidiaries outstanding on the
Restricted Payment Date shall not exceed the sum of (x) $1,000,000,
plus (y) Adjusted Consolidated Net Income for the period beginning
after September 30, 1989 and ending on the Restricted Payment Date;
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<PAGE> 29
PROVIDED, HOWEVER, that notwithstanding the limitations set forth in the
foregoing provisions of this Section 6.8(a), so long as no Default or Event of
Default shall have occurred and be continuing:
(A) the Obligors may make Restricted Payments during the
fiscal years ending December 31, 1989 and December 31, 1990 consisting solely of
dividends not in excess of $12,500,000 in the aggregate paid to JBK as
contemplated by Section 1.4(a); and
(B) any Obligor may make Restricted Payments during (or within
288 days after the close of) any taxable year of such Obligor during which it is
an S Corporation to the holder or holders of shares of capita:. stock of such
Obligor in an aggregate amount not to exceed an amount equal to x where: (i) x =
A x B; (ii) A = the net aggregate amounts of income, Toss, deduction or credit
(after converting for computation purposes the amount of each such credit to a
deduction item by dividing such amount by B) of such Obligor for such taxable
year required to be taken into account by such holder or holders of shares for
federal income tax purposes under Section 1366(a) of the Code; and (iii) B m the
highest marginal federal individual income tax rate generally applicable to
individuals at the end of such taxable year (the "FEDERAL TAX RATE"), plus an
amount (stated as a percentage) equal to (1) the highest marginal state
individual income tax rate generally applicable to individuals in the Applicable
State multiplied by (2) 1 minus the Federal Tax Rate (any such Restricted
Payment described in this clause (B) being herein referred to as an "S
CORPORATION DISTRIBUTION"); PROVIDED that, the maximum amount of S Corporation
Distributions permitted to be made by any Obligor pursuant to this clause (B) in
respect of any taxable year of such Obligor shall not exceed the regular federal
corporate income tax (as opposed to the federal alternative minimum tax) and the
state income and franchise tax which would have been payable by such Obligor
with respect to its taxable income, if any, for such taxable year if such
Obligor had been a C Corporation for such taxable year and for all prior taxable
years (such amount of federal and state income and franchise tax so payable to
be computed by taking into account all applicable deductions and credits (other
than the minimum tax credit allowed under Section 53 of the Code) including,
without limitation, any net operating loss deduction). For purposes of this
Section 6.8, "Applicable State" shall mean the state amongst all
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states in which any shareholder resides at the end of the applicable taxable
year which maintains the highest maximum marginal state and individual income
tax rate generally applicable to individuals.
(b) For the purposes of this Section 6.8, the amount involved
in any Restricted Payment directly or indirectly declared, ordered, paid or made
or set apart in property, and the amount of any Restricted Investment made
through the transfer of property, shall be the greater of the fair market value
of such property (as determined in good faith by the Board of Directors of the
applicable Obligor or Restricted Subsidiary) and the net book value thereof on
the books of the applicable Obligor or Restricted Subsidiary, as the case may be
(determined in accordance with GAAP), on the date such Restricted Payment is
declared, ordered, paid, made or set apart or such Restricted Investment is made
or obligated to be made.
6.9. NATURE OF BUSINESS. No Obligor will and no Obligor will
permit any of its Restricted Subsidiaries to engage in any line of business in
which it is not currently engaged if as a result thereof the business of the
Obligors and their Restricted Subsidiaries taken as a whole would be
substantially different from what it was at the date of this Agreement, as
described in the Memorandum.
6.10. PAYMENT OF NOTES; MAINTENANCE OF BOOKS AND OFFICE;
FISCAL YEAR. The Obligors will duly and punctually pay the principal of, premium
(if any) and interest on the Notes in accordance with the terms of the Notes and
this Agreement. Each Obligor will, and will cause each of its Restricted
Subsidiaries to, maintain a system of accounting established and administered in
accordance with generally accepted accounting principles at the time in effect,
keep proper books of record and account in which, in all material respects,
full, true and correct entries are made of its business transactions, and set
aside appropriate reserves, all in accordance with generally accepted accounting
principles at the time in effect. Kroll will maintain its principal office and
primary data base and systems at a location in the United States of America
where notices, presentations and demands in respect of this Agreement and the
Notes may be made upon it, and will notify, in writing, each holder of a Note of
any change of location of such office; and such office shall be maintained at
900 Third Avenue, New York, New York
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10022 until such time as Kroll shall so notify the holders of the Notes of any
such change. Each Obligor will have the same fiscal year for accounting purposes
as the other Obligors at all times.
6.11. CORPORATE EXISTENCE; PAYMENT OF TAXES; MAINTENANCE OF
PROPERTIES; INSURANCE; COMPLIANCE WITH LAWS; MAINTENANCE OF PATENTS, ETC. Each
Obligor will, and will cause each of its Restricted Subsidiaries to:
(a) do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence (except as
otherwise permitted by Section 6.6) and its licenses, rights (charter
and statutory) and franchises, except that, subject to compliance with
Sections 6.5 and 6.6, the licenses, rights and franchises of any
Obligor or any Restricted Subsidiary may be abandoned, modified, or
terminated if in the good faith judgment of the Board of Directors of
such Obligor such abandonment, modification or termination is in the
best interest of such Obligors, does not impair the ability of the
Obligors to make payment on the Notes and is not otherwise materially
disadvantageous to the holders of the Notes;
(b) pay and discharge or cause to be paid and discharged when
due (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its
property (real, personal or mixed), or upon any part thereof, and (ii)
all lawful claims of landlords, carriers, warehousemen, mechanics,
materialmen and other similar Persons for labor, materials, supplies
and rentals which, if unpaid, might by law become a Lien upon any of
its property; PROVIDED, HOWEVER, that the failure of any Obligor or any
Restricted Subsidiary to pay any such tax, assessment, charge, levy or
claim shall not constitute a default hereunder if and for so long as
the amount, applicability or validity thereof shall concurrently be
contested in good faith by appropriate and timely actions or
proceedings diligently pursued, and if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made therefor and neither any such Obligor's nor any Restricted
Subsidiary's title to or right to the use of any property which is
material to the business of the Obligors and
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their Restricted Subsidiaries, taken as a whole, is impaired in any
material respect by reason of such contest;
(c) maintain and keep, or cause to be maintained and kept, in
good repair and working order (ordinary wear and tear excepted) all
material properties used or useful in the business of the Obligors and
their Restricted Subsidiaries, and from time to time make or cause to
be made all needful and proper repairs, renewals, replacements and
improvements thereof so that the business carried on in connection
therewith may continue to be conducted consistent with industry
standards;
(d) keep adequately insured, by financially sound and
reputable insurers, all of its property of a character usually insured
against by prudent corporations engaged in the same or a similar
business and similarly situated against loss or damage of the kinds and
in amounts customarily insured against by such corporations and with
deductibles or co-insurance no greater than is customary, and carry,
with such insurers in customary amounts and with deductibles or
coinsurance no greater than is customary, such other insurance,
including public liability insurance and liability insurance against
claims for any violation of applicable law, as is usually carried by
prudent corporations of established reputation engaged in the same or a
similar business and similarly situated;
(e) comply in all material respects with all applicable lawful
statutes, regulations and orders of, and all applicable lawful
restrictions imposed by, any court, arbitrator or Governmental Body, in
respect of the conduct of its business and the ownership of its
properties (including, without limitation, applicable statutes,
regulations and orders relating to equal employment opportunities or
environmental standards or controls), noncompliance with which could
reasonably be expected to have a material adverse effect on the
business, properties, operations or condition (financial or otherwise)
of the Obligors and their Restricted Subsidiaries, taken as a whole,
except such as are being contested in good faith by appropriate and
timely proceedings diligently conducted, and for which such reserve or
other appropriate provision,
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if any, as shall be required by applicable generally accepted
accounting principles at the time in effect shall have been made so
long as neither any Obligor's nor any Restricted Subsidiary's title to
or right to the use of any property which is material to the business
of the Obligors and their Restricted Subsidiaries, taken as a whole, is
impaired in any material respect by reason such contest; and
(f) maintain the validity of all patents, trademarks, service
marks, trade names, copyrights and the like necessary in any material
respect for the conduct of the business of the Obligors and their
Restricted Subsidiaries, taken as a whole, as now conducted and as
proposed to be conducted.
6.12 PHANTOM PLAN. The Obligors will not enter into or
otherwise permit any oral or written amendment of or supplement to the Phantom
Plan which would have the effect of materially accelerating the payment of a
material amount of cash to any participant in such Phantom Plan.
6.13 PURCHASE OF NOTES UPON CHANGE OF CONTROL. Upon the
occurrence of any Change of Control, the Obligors shall give written notice
thereof to each holder of an outstanding Note, which notice shall contain (a) an
offer by the Obligors to purchase, on a date (the "Purchase Date") occurring not
more than 60 days and not less than 45 days after the date of such notice, all
Notes held by each such holder at a price equal to 100% of the principal amount
thereof outstanding, together with interest accrued thereon to the Purchase Date
plus, if the Change of Control is of the type specified in clause (iii) of the
definition thereof, the Special Premium, and (b) a specific description of the
events constituting such Change of Control. Said offer shall be deemed to lapse
as to any such holder which has not replied affirmatively thereto in writing to
Kroll within 30 days of the receipt of such notice. In the event that the
Obligors shall purchase any Notes pursuant to this Section 6.13, the same shall
thereafter be cancelled and not reissued and shall not be deemed outstanding for
any purpose of this Agreement.
For the purposes of this Section 6.13, a "CHANGE OF CONTROL"
shall be deemed to occur if (i) JBK (or, subsequent to JBK's death, Lynn Kroll
and the immediate lineal descendants of JBK) and the Managing Directors shall
own or control (by virtue of a voting trust or similar arrangement) less than
51% of the Voting Stock of Kroll, or (ii) JBK (or, subsequent to JBK's death,
Lynn Kroll and the immediate
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lineal descendants of JBK) shall own or control (by virtue of a voting trust or
similar arrangement) less than 37% of the Voting Stock of Kroll, or (iii) more
than 49% of the Voting Stock of Kroll shall be subject to any Lien or (iv) any
shareholder of any Obligor shall pledge or otherwise create a Lien on any shares
of stock of any Obligor if the obligation of such shareholder secured by such
pledge or Lien shall be for the direct or indirect benefit of any Obligor, or
(v) at any time subsequent to JBK's death, less than a majority of the members
of any executive committee or any other group responsible for the direction of
the management policies of Kroll shall be composed of members of the Management
Team; "MANAGING DIRECTORS" shall mean Charles E. Bohlen, Jr., Ernest Brod, David
C. Cook, Robert S. Dines, Don Doll, Bruce Dollar, John C. Gibbons, Patrick
Grayson, Jerry Harrison, Thomas Helsby, John T. Horn, Brian Jenkins, Daniel
Karson, William Kish, Robert J. McGuire, Thomas McKeon, Jerome J. Pomerance,
Richard Post, David E. Rosenthal, Joseph Rosetti, Steven M. Rucker, Bart M.
Schwartz, Arish Turle, Stephen E. Vale, Paul Zona and any other individual who
shall be approved in writing by the holder or holders of at least 66-2/3 in
aggregate unpaid principal amount of all Notes at the time outstanding; and
"MANAGEMENT TEAM" shall mean Ernest Brod, John C. Gibbons, Patrick Grayson,
Jerry Harrison, Thomas Helsby, Daniel Karson, Robert J. McGuire, Thomas McKeon,
Jerome Pomerance, Richard Post, Joseph Rosetti, Bart M. Schwartz, Paul Zona and
any other individual who shall be approved in writing by the holder or holders
of at least 66-2/3 in aggregate unpaid principal amount of all Notes at the time
outstanding.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Each of the
Obligors jointly and severally represents and warrants to you that:
7.1. ORGANIZATION AND AUTHORITY OF THE OBLIGORS. Each Obligor
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own or hold under lease the property it purports to own or hold
under lease, to carry on its business as now conducted and as presently proposed
to be conducted, to enter into this Agreement, to issue and sell the Notes and
to perform its obligations under this Agreement and the Notes. Each Obligor has,
by all necessary corporate action (all action of shareholders, if any, required
therefor having been duly taken), duly authorized the execution and delivery of
this Agreement and the Notes and the performance of its obligations under this
Agreement (including, without limitation, the issuance, sale and delivery of the
Notes) and the Notes.
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7.2. SUBSIDIARIES. No Obligor has any Subsidiaries.
7.3. QUALIFICATION. Each Obligor is duly qualified or licensed
and in good standing as a foreign corporation duly authorized to do business in
each jurisdiction (other than the jurisdiction of its incorporation) in which
the nature of its respective activities or the character of the properties it
owns or leases makes such qualification or licensing necessary and where the
failure to maintain such qualification or license would have a material adverse
effect on the Obligors taken as a whole.
7.4. FINANCIAL STATEMENTS. There has been furnished to you a
true and complete copy of the confidential offering memorandum relating to the
Notes, dated September 1989 (the "MEMORANDUM"), prepared by Salomon Brothers Inc
in connection with the offering of the Notes on behalf of the Obligors by
Salomon Brothers Inc. The Memorandum correctly describes, as of its date, in all
material respects, the business and material properties of the Obligors and the
conduct of their operations. Included in the Memorandum are (i) summary
historical financial information for the fiscal years ended March 31 in each of
the years 1984 through 1988, the fiscal year ended December 31, 1988,
and the six month periods ended June 30, 1988 and June 30, 1989, and (ii) the
audited combined balance sheet, combined statement of income and retained
earnings and combined statement of cash flows, and the unaudited supplementary
information set forth in schedules 1 and 2 thereto, for Kroll, Kroll U.K. and
H/K Environmental for the fiscal year ended December 31, 1988, accompanied by
the reports thereon of Peat Marwick Main & Co. The Obligors have also provided
to you complete and correct copies of an unaudited combined statement of income
and equity and combined balance sheet for the Obligors for the six months ended
June 30, 1988 and June 30, 1989. All financial statements (other than pro forma
statements) included in the Memorandum or in the materials described in the
preceding sentence, and all related schedules and notes, have been prepared in
accordance with generally accepted accounting principles at the time in effect,
in each case applied on a consistent basis throughout the periods specified
(except for changes specifically noted therein), and present fairly the
financial position of the corporation or corporations to which they relate as at
the respective dates thereof and the results of operations of such corporation
or corporations for the respective periods specified. The pro forma financial
statements contained in the Memorandum were prepared based on assumptions which
were reasonable at the time of such preparation and made in good faith, and,
subject
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to certain variations from such assumptions which are not material, such
assumptions remain reasonable as of the date hereof. Except as specifically
described in the financial statements referred to in this Section 7.4 (or the
Notes thereto), no Obligor has any material liabilities, contingent or
otherwise.
7.5. CHANGES, ETC. Since December 31, 1988, there has been no
change in the assets, liabilities or financial condition of any Obligor which
has had, either in any one case or in the aggregate, a material adverse effect
on the business, properties, operations, or condition (financial or otherwise)
of any Obligor or of the Obligors taken as a whole.
7.6. TITLE TO PROPERTY. Each Obligor has good and marketable
title to its real properties and good title to the other properties it purports
to own, including those reflected in the most recent audited balance sheet
referred to in Section 7.4 or purported to have been acquired by any Obligor
after said date (other than properties disposed of in the ordinary course of
business), subject in the case of all such property to no Liens other than those
permitted by Section 6.3. Each Obligor enjoys peaceful and undisturbed
possession under all leases of all personal and all real property under which it
operates and which are required in any material respect in connection with the
conduct of its business; and all such leases are valid and subsisting and in
full force and effect and such Obligor is not in default in any material respect
in the performance and observance of its obligations under any provisions
thereof.
7.7. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. No Obligor is in
violation of any term or provision of its corporate charter or by-laws. No
Obligor is in violation of any term or provision of any agreement, indenture,
mortgage or instrument to which it is a party or by which it or any of its
properties may be bound or affected, nor is it in violation of any existing law,
governmental rule or regulation or any Order of any court, arbitrator or
Governmental Body applicable to it (including, without limitation, any law,
rule, regulation or Order relating to environmental protection, occupational
health and safety standards, consumer protection, and equal employment practice
requirements), the consequences of which violation, either in any one case or in
the aggregate, could reasonably be expected to have a material adverse effect on
the business, properties, operations or condition (financial or otherwise) of
the Obligors taken as a whole. Neither the execution and delivery of this
Agreement and the Notes nor the consummation
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of the transactions contemplated hereby or thereby nor the performance of the
terms and provisions hereof or thereof will result in any breach of, or
constitute a default under, or result in (or require) the creation of any Lien
in respect of any property of any Obligor under, any agreement, indenture,
mortgage, instrument, corporate charter or by-law to which such Obligor is a
party or by which such Obligor or any of its properties may be bound or affected
(other than the agreements listed as Items 1 and 2 on Schedule IX, evidencing
Debt of the Obligors to Marine Midland Bank N.A., which Debt will be paid in
full, and which agreement will be terminated, on the closing Date), or violate
any existing law, governmental rule or regulation or any Order of any court,
arbitrator or Governmental Body applicable to such Obligor. No Obligor is a
party to or bound by any instrument or agreement which contains any restriction
on the incurrence by such Obligor of any Debt other than (a) this Agreement and
(b) the agreements listed as Items 1 and 2 on Schedule XX, evidencing Debt of
the Obligors to Marine Midland Bank N.A., which Debt will be paid in full, and
which agreement will be terminated, on the closing Date.
7.8. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Body is required on the part of any obligor for the valid execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
including the offer, issuance, sale and delivery by the Obligors of the Notes,
or for the fulfillment of, or compliance by the Obligors with, the terms and
provisions of this Agreement and the Notes.
7.9. LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of any Obligor, threatened against or affecting any
Obligor or any of its properties (or any basis therefor known to any Obligor) in
any court or before any arbitrator of any kind or before or by any Governmental
Body, which question the validity of this Agreement or the Notes or any action
taken or to be taken pursuant thereto or which are reasonably likely to result,
either in any one case or in the aggregate, in an impairment of the ability of
any Obligor to perform its obligations under this Agreement or the Notes, or in
a material adverse change in the business, operations, properties or condition
(financial or otherwise) of any obligor or of the Obligors taken as a whole.
7.10. PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. The Obligors
own, possess or have the right to use (without any known conflict with the
rights of others) all franchises,
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patents, trademarks, service marks, trade names, copyrights, licenses and
authorizations which are necessary to the conduct of the business of the
obligors, taken as a whole. Each such franchise, patent, trademark, service
mark, trade name, copyright, license and authorization is in full force and
effect, and, in the case of each such franchise, patent, trademark, service
mark, trade name, copyright, license and authorization, the applicable Obligor
(whichever shall own, possess or have the right to use the same), has fulfilled
and performed all of its material obligations with respect thereto. No default
in the performance or observance by any obligor of its obligations thereunder
has occurred (and, so far as is known to the Obligors no other event has
occurred) which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any such franchise, patent, trademark, service
mark, trade name, copyright, license and authorization or which materially
adversely affects or in the future may (so far as any Obligor can now reasonably
foresee) materially adversely affect the rights of any Obligor in respect
thereof.
7.11. TAXES. Each Obligor has filed all tax returns which are
required by law to have been filed by it and has paid all taxes, assessments,
fees and charges of each Governmental Body shown to be due and payable on such
returns to the extent the same have become due and payable and before they have
become delinquent other than those presently payable without penalty or interest
and those being contested in good faith by appropriate proceedings with respect
to which adequate reserves have been established in accordance with GAAP. The
Federal income tax returns of the Obligors have been examined and reported on by
the taxing authorities or closed by applicable statute for all fiscal years
through the fiscal year ended March 31, 1995. No Obligor knows of any additional
assessment or proposed assessment for any such fiscal year which would be
material to any Obligor. In the opinion of the obligors all tax liabilities of
the Obligors are adequately provided for on the books of the Obligors in
accordance with GAAP.
7.12. COMPLIANCE WITH ERISA. No Employee Pension Benefit Plan
has had an accumulated funding deficiency (as such term is defined in Section
302 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
or Section 412 of the Internal Revenue Code of 1986, as amended from time to
time (the "CODE")) as of the last day of any of the five most recent fiscal
years of such Employee Pension Benefit Plan heretofore ended. No liabilities,
which are in the aggregate material and which have not heretofore been
satisfied, to the Pension Benefit Guaranty Corporation
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(other than required insurance premiums, all of which, to the extent due and
payable, have been paid) have been or are reasonably expected by the Obligors to
be incurred with respect to any Plan by any Obligor and there has not been any
reportable event within the meaning of ERISA, or any other event or condition,
which presents a material risk of termination of any Plan by the Pension Benefit
Guaranty Corporation. Neither any Obligor nor any Commonly Controlled Entity
(determined, for this purpose only, solely with respect to current Commonly
Controlled Entities, a "CURRENT COMMONLY CONTROLLED ENTITY") currently maintains
or contributes to any multiemployer plan (as such term is defined in Section
4001(a)(3) of ERISA) and neither any Obligor nor any Current Commonly Controlled
Entity has incurred, or reasonably expects to incur, any liability with respect
to any multiemployer plan. Neither the Department of Labor, the Internal Revenue
Service nor any other Governmental Body has determined that any Employee Pension
Benefit Plan or any trust created thereunder, or any trustee or administrator
thereof, has engaged in a prohibited transaction as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, that could subject any such
Employee Pension Benefit Plan, trust, trustee, administrator, any Obligor or any
Commonly Controlled Entity to any tax or penalty on prohibited transactions
imposed under said Section 4975 of the Code or Section 502(i) of ERISA, and no
Obligor is aware of any facts that would constitute one or more such prohibited
transactions which could reasonably be expected to result, in the aggregate, in
any material liability of the Obligors taken as a whole. Neither the execution,
delivery or performance by the Obligors of this Agreement nor the issuance and
sale by the Obligors and the purchase by you and the Other Purchaser of the
Notes as contemplated hereby will involve any prohibited transaction within the
meaning of Section 4975 of the Code or Section 406 of ERISA. The representation
by the Obligors in the immediately preceding sentence is made in reliance upon
and subject to the accuracy of the representation made by you and the Other
Purchaser in Section 1.6 of this Agreement and is expressly conditioned
thereupon.
7.13. PRIVATE OFFERING. Neither any Obligor nor Salomon
Brothers Inc (the only Person authorized or employed by the Obligors to act on
their behalf in connection with the offer and sale of the Notes or any similar
securities of the Obligors) has offered the Notes or any similar securities of
any Obligor for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than you, the Other Purchaser and 19 other institutional investors, each of
which
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was offered the Notes at private sale for investment. Neither any Obligor nor
anyone acting on its behalf has taken, or will take, any action which would
subject the issuance or sale of the Notes to Section 5 of the Securities Act or
to the registration or qualification requirements of any securities or blue sky
law of any applicable jurisdiction.
7.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Obligors will
apply the proceeds of the sale of the Notes hereunder as provided in Section
1.4. No part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR 207, as amended), or for the purpose of
purchasing or carrying or trading in any securities under such circumstances as
to involve any Obligor in a violation of Regulation X of said Board (12 CFR 224,
as amended) or to involve any broker or dealer in a violation of Regulation T of
said Board (12 CFR 220, as amended). No Debt being reduced or retired out of the
proceeds of the sale of the Notes was incurred for the purpose of purchasing or
carrying any margin stock within the meaning of such Regulation G or any
"security that is publicly held" within the meaning of such Regulation T, and no
Obligor owns or has any present intention of acquiring directly or indirectly
any such margin stock or any such security that is publicly held to the extent
of 25% or more of its assets. Not more than 25% of the assets of any Obligor
consists on the date hereof of any such margin stock. None of the transactions
contemplated by this Agreement (including, without limitation, the direct or
indirect use of the proceeds from the sale of the Notes hereunder) will violate
or result in a violation of Section 7 of the Exchange Act or any regulations
issued pursuant thereto, including, without limitation, said Regulation G,
Regulation T and Regulation X.
7.15. EXISTING DEBT; INVESTMENTS. Schedule II correctly lists
all Debt of the Obligors outstanding on the date hereof for or in respect of
borrowed money or the deferred purchase price of property and all Capital Lease
Obligations of the Obligors and shows, as to each item of Debt listed thereon,
the obligor and obligee, the aggregate principal amount outstanding on the date
of such Schedule, whether the same constitutes Funded Debt, whether the same
will be repaid on the Closing Date and a brief description of any security
therefor. No default or event of default or basis for acceleration exists or,
after giving effect to the issuance and sale of the Notes pursuant to this
Agreement,
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will exist under any instrument or agreement evidencing, providing for the
issuance or securing of, or otherwise relating to any such Debt. Schedule III
correctly lists all Investments of the Obligors (other than those permitted
under Section 6.7(a)) outstanding on the date hereof.
7.16. STATUS UNDER CERTAIN STATUTES. No Obligor is an
"investment company" or a Person directly or indirectly "controlled" by or
"acting on behalf of" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. No Obligor is a "holding company",
or a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
7.17. LABOR MATTERS. There are no labor disputes between any
Obligor and any of its employees or representatives of such employees which in
the aggregate might materially adversely affect the business, operations,
properties or condition (financial or otherwise) of such Obligor and each
Obligor is in compliance with all applicable laws respecting employment and
employment practice, terms and conditions of employment and wages and hours, and
is not engaged in any unfair labor practice.
7.18. DISCLOSURE. This Agreement, the Memorandum, the
financial statements referred to in Section 7.4 and the other documents,
certificates and instruments delivered to you by or on behalf of any Obligor in
connection with the transactions contemplated by this Agreement, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to any Obligor which would
reasonably be expected to have a material adverse effect on the business,
properties, operations or condition (financial or otherwise) of the Obligors
taken as a whole which has not been set forth or reflected in this Agreement,
the Memorandum, the financial statements referred to in Section 7.4, or in the
other documents, certificates and instruments referred to herein and delivered
to you by or on behalf of the Obligors in connection with the transactions
contemplated by this Agreement.
8. EVENTS OF DEFAULT; REMEDIES.
8.1. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY. If
any of the following conditions or events (each herein called an "EVENT OF
DEFAULT") shall occur and be con-
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tinuing (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or come about or be effected by operation of law or
judicial or governmental or administrative order, action or otherwise):
(a) default shall be made in the due and punctual payment of
all or any part of the principal of or premium (if any) on any Note
when and as the same shall become due and payable, whether on a date
fixed for prepayment, at stated maturity, by acceleration or
declaration, or otherwise; or
(b) default shall be made in the payment of any interest on
any Note when and as such interest shall become due and payable, and
such default shall have continued for a period of seven (7) days; or
(c) default shall be made in the performance or observance of
any covenant, agreement or condition contained in Section 4(g) or any
of Section 6.1, 6.2, 6.3, 6.6, 6.7, 6.8 or 6.13; or
(d) default shall be made in the performance or observance of
any other covenant, agreement or condition contained in this Agreement
and such default shall have continued for a period of 30 days after any
Obligor shall have obtained knowledge of such default; or
(e) default shall be made in the payment of any part of the
principal of, the premium (if any) or the interest on, or any other
payment of money due under, any Debt in respect of borrowed money
(including, without limitation, Capital Leases and Guarantees) of any
Obligor or any Restricted Subsidiary, beyond any period of grace
provided with respect thereto, or default shall be made in the
performance or observance of any other agreement, term or condition
contained in any documents evidencing or securing any such Debt or in
any agreement under which any such Debt was issued or created, in each
case, if either (i) the effect of such default is to cause or to permit
the holders of any such Debt (or a trustee on behalf of such holders)
to cause any payment or payments in respect of such Debt aggregating
more than $500,000 to become due prior to the scheduled due dates
thereof or (ii) the effect of such default is to cause or to permit the
holders of any such Debt (or
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a trustee on behalf of such holders) to elect a majority of the Board
of Directors of such Obligor or a majority of the board of directors of
such Restricted Subsidiary;
(f) any Obligor or any Restricted Subsidiary shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) generally fail or admit in
writing its inability to pay its debt as such debts become due, (iii)
make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) file a petition seeking to take advantage of
any bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting the enforcement of creditors' rights generally, (vi)
acquiesce in writing to, or fail to controvert in a timely or
appropriate manner, any petition filed against it in an involuntary
case under such Bankruptcy Code, or (vii) take any action under the
laws of any jurisdiction analogous to any of the foregoing; or
(g) a proceeding or case shall be commenced in respect of any
Obligor or Restricted Subsidiary, without its application or consent,
in any court of competent jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial
part of its assets, or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case
described in clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of 60 days; or
(h) final judgment or judgments for the payment of money shall
be rendered by a court of competent jurisdiction against any Obligor or
any Restricted Subsidiary which, when taken together with all other
final judgments against the Obligors and their Restricted Subsidiaries,
are in excess of $500,000 in the aggregate and the same shall not be
discharged, or a stay of execution thereof shall not be procured,
within 60 days from the date of
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entry thereof and such Obligor or such Restricted Subsidiary, as the
case may be, shall not, within said period of 60 days, or such longer
period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(i) any representation or warranty made by any Obligor in this
Agreement or in any certificate or other instrument delivered hereunder
or pursuant hereto or in connection with any provision hereof shall
prove to have been false or incorrect or breached in any material
respect on the date as of which made; or
(j) either (i) any Plan shall fail to maintain the minimum
funding standard required by Section 412 of the Code for any plan year
or a waiver of such standard is sought or granted under Section 412 of
the Code, and, in either case, the amount of any such funding
deficiency (determined without regard to any such waiver) shall exceed
$500,000, or (ii) any Plan shall become the subject of termination
proceedings under Section 4041(c) or 4042 of ERISA, or (iii) any
Obligor or any Commonly Controlled Entity shall withdraw from a
Multiemployer Plan or a multiple employer plan (within the meaning of
Section 4063(a) of ERISA) or any Multiemployer Plan or multiple
employer plan shall be terminated, in either case so as to present the
risk, considered in the aggregate for all such plans, of a liability of
any Obligor or Commonly Controlled Entity, or any combination thereof,
which, stated in its present value equivalent at the date of such
termination or withdrawal (using a discount rate which, at such time,
is reasonable), shall exceed $500,000; or
(k) JBK shall become the majority shareholder of any Person
which is in a line of business substantially similar to the business of
any Obligor and such Person does not, within 60 days of JBK's
acquisition of such ownership interest, become a party to' this
Agreement and an obligor under the Notes by (i) execution and delivery
of an agreement, in form and substance satisfactory to the holders of
the Notes, pursuant to which such Person agrees to be bound by all of
the terms and provisions of this Agreement and the Notes as though such
Person was an original party hereto and
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an original issuer thereof and was included in the definition of
"Obligor" as used herein and (ii) if requested by the holders of the
Notes, execution and delivery of replacement Notes including such
Person as an issuer thereof with the existing Obligors, to be
substituted for the existing Notes; or
(l) JBK shall not have established, prior to the one year
anniversary of the Closing Date, an estate plan which (i) ensures the
orderly transition of JBK's ownership interests in the Obligors to his
estate, (ii) addresses any significant liquidity issues arising
therefrom and (iii) has been approved in form and substance by the
Purchasers (which approval shall not be unreasonably withheld);
then (i) upon the occurrence on any date of any Event of Default described in
clause (f) or (g) of this Section 8.1 with respect to any Obligor, the unpaid
principal amount of all Notes, together with the interest accrued thereon (which
interest shall be deemed matured), shall automatically become immediately due
and payable, without presentment, demand, protest, notice of intention to
accelerate, notice of acceleration, or other requirements of any kind, all of
which are hereby expressly waived by the Obligors, or (ii) during the
continuance of any other Event of Default, the holder or holders of at least 66
2/3% of the unpaid principal amount of the Notes at the time outstanding may, by
written notice to the Agent, declare the unpaid principal amount of all Notes to
be, and the same shall forthwith become, due and payable, together with the
interest accrued thereon (which interest shall be deemed matured), without
presentment, demand, protest, notice or other requirements of any kind, all of
which are hereby expressly waived by the Obligors.
8.2. DEFAULT REMEDIES. If any Event of Default shall have
occurred and be continuing, the holder of any Note may proceed to protect and
enforce its rights, either by suit in equity or by action at law or both,
whether for specific performance of any covenant or agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement, or
the holder of any Note may proceed to enforce the payment of all sums due upon
such Note or under this Agreement or to enforce any other legal or equitable
right available to the holder of such Note. Each Obligor covenants that, if the
Obligor shall default in the making of any payment due under any Note or in the
performance or observance of any agreement contained in this Agreement, it
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will pay to the holder thereof such further amounts, to the extent lawful, as
shall be sufficient to pay the costs and expenses of collection or of otherwise
enforcing such holder's rights, including, without limitation, reasonable
counsel fees and disbursements. The obligations of each Obligor pursuant to the
immediately preceding sentence shall survive the payment in full of the Notes.
8.3. REMEDIES CUMULATIVE. No remedy herein conferred upon you
or the holder of any Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.
8.4. REMEDIES NOT WAIVED. No course of dealing between the
Obligors and you or the holder of any Note and no delay or failure in exercising
any rights hereunder or under any Note in respect thereof shall operate as a
waiver of any of your rights or the rights of any holder of any Note.
8.5. ANNULMENT OF ACCELERATION OF NOTES. If notice is
delivered pursuant to Section 8.1 by any holder or holders of the requisite
principal amount of the Notes, then and in every such case, the holders of at
least 75% in aggregate principal amount of the Notes then outstanding (exclusive
of Notes then owned by any Obligor, any Restricted Subsidiary and any Affiliates
thereof) may, by written instrument filed with Kroll, rescind and annul such
declaration and the consequences thereof; PROVIDED, HOWEVER, that at the time
such declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for
the payment of any monies due pursuant to the Notes or this
Agreement;
(b) all arrears of principal, premium, if any, and interest
upon all of the Notes and all other sums payable under the Notes and
under this Agreement (including costs and expenses of the holders
incurred in connection with such notice under Section 8.1 and the
exercise of remedies under Section 8.2, but excluding any principal,
interest or premium on the Notes which has become due and payable by
reason of such notice under Section 8.1) shall have been duly paid; and
(c) each and every other Default and Event of Default shall
have been waived pursuant to Section 12 or otherwise made good or
cured;
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and PROVIDED, FURTHER, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
9. DEFINITIONS AND CONSTRUCTION.
9.1. DEFINED TERMS. Except as otherwise specified or as the
context may otherwise require, the following terms have the respective meanings
met forth below whenever used in this Agreement:
ADJUSTED CONSOLIDATED NET INCOME: for any period, the sum of
(a) for each Obligor which, during one or more periods occurring within such
period of determination, was an S Corporation, 75% (or minus 100% in the case of
a deficit) of the Net Income of such Obligor and its Restricted Subsidiaries for
all such periods, PLUS (b) for each Obligor which, during one or more periods
occurring within such period of determination, was not an S Corporation, 50% (or
minus 100% in the case of a deficit) of the Net Income of such Obligor and its
Restricted Subsidiaries for all such periods.
AFFILIATE: with respect to any designated Person, any other
Person (a) directly or indirectly controlling or controlled by or under direct
or indirect common control with such designated Person, (b) which beneficially
owns or holds 5% or more of the shares of any class of Voting Stock of such
designated Person or (c) 5% or more of any class of the Voting Stock of which is
beneficially owned or held by such designated Person; PROVIDED, that, in no
event shall an Obligor or a Restricted Subsidiary be deemed to be an Affiliate
of any other Obligor or Restricted Subsidiary. For purposes of this definition,
"CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock or by contract or otherwise.
BOARD OF DIRECTORS: when used with reference to any Obligor or
Restricted Subsidiary, the Board of Directors of such Obligor or Restricted
Subsidiary or a duly authorized committee of directors lawfully exercising the
relevant powers of such Board.
BUSINESS DAY: any day other than a Saturday, Sunday or any
other day on which commercial banks are authorized by law to be closed in New
York, New York.
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CAPITAL LEASE: as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on the balance sheet or in the notes thereto of such Person, other
than, in the case of any Obligor or a Restricted Subsidiary, any such lease
under which such Obligor or such Restricted Subsidiary is the lessor.
CAPITAL LEASE OBLIGATION: with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder which would, in accordance
with GAAP, appear on a balance sheet of such lessee (or the notes thereto) in
respect of such Capital Lease.
CASH: with respect to any Obligor, as at any date, the sum of
all funds of such Obligor and its Restricted Subsidiaries held in demand deposit
accounts on such date, PLUS all Investments of such Person and its Restricted
Subsidiaries of the character described in Section 6.7(a).
CHANGE OF CONTROL: as defined in Section 6.13.
CLOSING: as defined in Section 1.3.
CLOSING DATE: as defined in Section 1.3.
CODE: as defined in Section 7.12.
COMMISSION: shall mean the Securities and Exchange Commission
and any other similar or successor agency of the Federal government
administering the Securities Act.
COMMONLY CONTROLLED ENTITY: a Person which is, or was at the
time of any event which gives rise to any potential liability of any Obligor
under ERISA or the Code, (i) under common control with any Obligor within the
meaning of Section 414(c) of the Code, (ii) in the same controlled group of
corporations as any Obligor within the meaning of Section 414(b) of the Code or
(iii) a member of the same affiliated service group as any Obligor within the
meaning of Sections 414(m) or (o) of the Code.
CONSOLIDATED CURRENT ASSETS: the current assets of the
Obligors and their Restricted Subsidiaries, determined in accordance with GAAP
on a combined and consolidated basis.
CONSOLIDATED CURRENT DEBT: as at any date of determination,
the aggregate principal amount of all Current Debt of the Obligors and their
Restricted Subsidiaries
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outstanding on such date, determined in accordance with GAAP on a combined and
consolidated basis, after eliminating all intercompany items.
CONSOLIDATED CURRENT LIABILITIES: the current liabilities of
the Obligors and their Restricted Subsidiaries, determined in accordance with
GAAP on a combined and consolidated basis, including, without duplication, Debt
incurred under revolving credit agreements with one or more commercial banks.
CONSOLIDATED EARNINGS AVAILABLE FOR CONSOLIDATED FIXED
CHARGES: for any period, Consolidated Net Income for such period plus the net
amount deducted in the determination thereof for Consolidated Fixed Charges,
taxes on income or profit and the non-cash portion of the Phantom Plane.
CONSOLIDATED FIXED CHARGES: for any period, the sum of (i) all
interest paid or payable by the Obligors and their Restricted Subsidiaries
during such period in respect of Debt (including, without limitation, imputed
interest on Capital Lease Obligations) outstanding during such period, using the
applicable interest rates in effect on the date of such determination and giving
effect to all applicable principal amortization schedules, PLUS (ii) all Rental
Obligations paid or payable by the Obligors and their Restricted Subsidiaries
during such period (in each case combined and consolidated in accordance with
GAAP).
CONSOLIDATED MODIFIED WORKING CAPITAL: at any date of
determination thereof, Consolidated Current Assets minus the aggregate amount of
Cash on hand of the Obligors and their Restricted Subsidiaries MINUS
Consolidated Current Liabilities.
CONSOLIDATED NET INCOME: for any period, the Net Income of all
of the Obligors for such period, combined and consolidated in accordance with
GAAP, after eliminating all intercompany items and making appropriate deductions
for outside minority interests.
CONSOLIDATED OPERATING CASH FLOW: for any period, Consolidated
Net Income for such period plus the net amount deducted in the determination
thereof for taxes on income or profit, all interest paid or payable by the
Obligors and their Restricted Subsidiaries during such period in respect of Debt
(including, without limitation, imputed interest on Capital Lease Obligations)
outstanding during such period, using the applicable interest rates in effect on
the date of such determination and giving effect to all applicable
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principal amortization schedules, and the non-cash portion of the Phantom Plan,
all combined and consolidated in accordance with GAAP.
CONSOLIDATED SENIOR FUNDED DEBT: as at any date of
determination, the aggregate principal amount of all Senior Funded Debt of the
Obligors and their Restricted Subsidiaries outstanding on such date, determined
in accordance with GAAP on a combined and consolidated basis, after eliminating
all intercompany items.
CONSOLIDATED TANGIBLE NET WORTH: as of any date of
determination of the amount thereof, the excess of
(a) the sum of the amounts which would, in accordance with
GAAP, appear on a combined balance sheet of the Obligors and their
Restricted Subsidiaries as of such date (after exclusion of outside
minority interests in such Restricted Subsidiaries), as (i) the par
value (or value stated on the books of the applicable Person) of the
capital stock of all classes, PLUS (or MINUS in the case of a deficit)
(ii) capital surplus and retained earnings,
OVER
(b) the sum of (A) the aggregate amount which would, in
accordance with GAAP, appear on such balance sheet in respect of all
treasury stock, unamortized debt discount and expense, goodwill,
trademarks, trade names, patents, deferred charges, noncompetition
agreements and all other assets which under GAAP are deemed intangible
(but in any event excluding the unallocated purchase price of any
business acquired) PLUS (B) 50% of the excess of the unallocated
purchase price over the underlying equity of any business acquired.
CONSOLIDATED TOTAL FUNDED DEBT: as at any date of
determination, the aggregate principal amount of all Funded Debt of the Obligors
and their Restricted Subsidiaries outstanding on such date, determined in
accordance with GAAP on a combined and consolidated basis, after eliminating all
intercompany items.
CURRENT DEBT: as to any Person, as at any date, all Debt of
such Person for borrowed money other than any such Debt which constitutes Funded
Debt as of such date, but excluding any fixed or contingent payments maturing or
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required to be made not more than one year after such date in respect of the
principal and premium, if any, on any Funded Debt.
CURRENT DEBT INCURRENCE DATE: as defined in Section 6.2(e).
DEBT: as applied to any Person shall mean, without
duplication, (a) all debt of such Person for borrowed money (and any notes
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money) or debt evidenced by bonds,
debentures, notes or similar instruments, (b) any obligation of such Person for
all or any part of the purchase price of property or other assets or services or
for the cost of property or other assets constructed or of improvements
(excluding, however, all trade accounts payable), (c) any obligation secured by
any Lien on the properties, assets or revenues of such Person, (d) any Capital
Lease Obligation of such Person, (e) any amount accrued as a liability on such
Person's balance sheet in respect of the Phantom Stock Plan or any other
longer-term compensation of management personnel, and (f) any Guaranty by such
Person of or with respect to Debt of another Person. In determining the Debt and
assets of any Person, no effect shall be given to deposits, trust arrangements
or similar defeasance arrangements which, in accordance with GAAP, extinguish
Debt for which such Person remains legally liable.
DEFAULT: any condition or event which, with notice or lapse of
time or both, would become an Event of Default.
ELIGIBLE PURCHASER: any of the following Persons: (a) any
bank, trust company or national banking association, or any affiliate thereof,
acting for its own account or in a fiduciary capacity, (b) any insurance
company, (c) any pension or retirement trust or fund for which any bank, trust
company or national banking association or investment advisor registered under
the Investment Advisors Act of 1940, as amended, is acting as trustee or agent,
or if self-managed, having funds of at least $50,000,000, (d) any investment
company, as defined in the Investment Company Act of 1940, as amended, (e) the
United States Federal or any state or local government, any public employees'
pension or retirement system, or any other governmental agency supervising the
investment of public funds, or (f) any commercial finance company which has (or
the corporate parent of which has) assets of at least $50,000,000 and which
regularly makes investments similar in character to the Notes; PROVIDED that, in
any such case, no more than 5% of the outstanding Voting
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Stock of such Person is owned directly or indirectly by any individual.
EMPLOYEE PENSION BENEFIT PLAN: each of the employee pension
benefit plans, other than Multiemployer Plans, maintained or contributed to at
any time by any Obligor or any Commonly Controlled Entity or any of their
respective predecessors. As used in this definition, the term "employee pension
benefit plan" shall have the meaning assigned to it in Section 3(2) of ERISA.
ERISA: as defined in Section 7.12.
EVENT OF DEFAULT: as defined in Section 8.1.
EXCHANGE ACT: the Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same may be in effect at the time.
FUNDED DEBT: of any Person as of the date of determination
thereof, all Debt of such Person which in accordance with GAAP would be
classified on a balance sheet of such Person as of such date as long-term debt,
and including in any event all Debt of such Person, whether secured or
unsecured, having a final maturity (or which, pursuant to the terms of a
revolving credit agreement or otherwise, is renewable or extendible at the
option of such Person for a period ending) more than one year after the date of
the creation thereof, but including, in the case of all such Debt, payments in
respect thereof (whether installment, serial maturity, or sinking fund payments
or otherwise, required to be made less than one year after the date of creation
thereof, and notwithstanding the fact that any or all of the amount thereof
shall on such date be included in current liabilities of such Person).
FUNDED DEBT INCURRENCE DATE: as defined in Section 6.2(d).
GAAP: subject in any event to Section 9.2, generally accepted
accounting principles as in effect on December 15, 1989 as set forth in the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board or in such opinions and statements of such other entities as
shall be approved by a significant segment of the accounting profession in the
United States on such date; PROVIDED, HOWEVER, that GAAP with respect to any
corporation organized under the laws of a
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jurisdiction outside of the United States shall mean generally accepted
accounting principles in effect on December 15, 1989 in the jurisdiction of
organization of such corporation.
GOVERNMENTAL BODY: any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
GOVERNMENT OBLIGATIONS: as defined in Section 6.7(a).
GUARANTY: as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such came if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guaranty shall be equal to the amount of the obligation guaranteed.
H/K ENVIRONMENTAL: as defined in the opening paragraph hereof.
INVESTMENT: as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of any
other Person, or any direct or indirect loan, advance or capital contribution by
such Person to any other Person, or any Guaranty by such Person with respect to
the Debt of any other Person, including all Debt and accounts receivable from
such other Person which are not current assets or did not arise from
transactions with
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such other Person in the ordinary course of business In computing the amount
involved in any Investment, (a) undistributed earnings of, and interest accrued
in respect of Debt owing by, such other Person accrued after the date of such
Investment shall not be included, (b) there shall not be deducted from the
amounts invested in such other Person any amounts received as earnings (in the
form of dividends, interest or otherwise) on such Investment or as loans from
such other Person and (c) unrealized increases or decreases in value, or
write-ups, write-downs or write-offs of Investments in such other Person shall
be disregarded.
JBK: Jules B. Kroll.
KROLL: as defined in the introductory paragraph hereof.
KROLL/U.K.: as defined in the introductory paragraph hereof.
LEASE: with respect to any Person, a lease of real property
having an unexpired term (including terms of renewal or extension at the option
of the lessee or lessor, whether or not such option has been exercised), other
than (a) any such lease under which such Person is the lessor and (b) a Capital
Lease.
LIEN: as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest or other encumbrance in or on, or any interest
or title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or Capital
Lease with respect to, any property or asset of such Person, or the signing or
filing of a financing statement which names such Person as debtor, or the
signing of any security agreement authorizing any other party as the secured
party thereunder to file any financing statement which names such Person as
debtor.
MEMORANDUM: as defined in Section 7.4.
MOODY'S: as defined in Section 6.7(a).
MULTIEMPLOYER PLAN: any employee pension benefit plan which
constitutes a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, to
which any Obligor or any Commonly Controlled Entity is making or accruing, or
has made or accrued, an obligation to make contributions.
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NET INCOME: for any period, for any Obligor, the net earnings
(or net deficit) of such Obligor and its Restricted Subsidiaries for such period
(taken as a cumulative whole) after deducting, without duplication, all
operating expenses, interest expenses, rentals, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP on a consolidated basis after
eliminating all intercompany items and deducting portions of income properly
attributable to outside minority interests, if any, in any Restricted
Subsidiary; PROVIDED, HOWEVER, that there shall be excluded:
(a) the proceeds of any life insurance policy;
(b) any gain arising from (i) the sale or other disposition
not in the ordinary course of business of any assets (other than
current assets) to the extent that the aggregate amount of the gain
exceeds the aggregate amount of losses from the sale, abandonment or
other disposition of assets (other than current assets), (ii) any
write-up of assets, (iii) the acquisition of any securities evidencing,
or the extinguishment under GAAP of, Debt of such Person or any
Subsidiary of such Person or (iv) the termination of an employee
benefit plan;
(c) any amount representing the interest of such Obligor or
any such Restricted Subsidiary in the undistributed earnings of, and,
for purposes of determining "CONSOLIDATED NET INCOME" as used in the
definition of "ADJUSTED CONSOLIDATED NET INCOME" only, the
undistributed losses of, any Person other than a Restricted Subsidiary
of such Obligor or Restricted Subsidiary, as the case may be;
(d) any income or deficit, prior to the date of acquisition,
of any Person acquired in any manner by such Obligor or any of its
Restricted Subsidiaries;
(e) in the case of a successor to such Obligor or any of its
Restricted Subsidiaries by consolidation or merger or a transferee of
its assets, any earnings of, and, for purposes of determining
"CONSOLIDATED NET INCOME" as used in the definition of "ADJUSTED
CONSOLIDATED NET
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INCOME" only, any losses of, the successor or transferee corporation
prior to the consolidation, merger or transfer of assets;
(f) any restoration to income of any contingency reserve,
except to the extent provision for such reserve was made out of income
accrued during such period; PROVIDED, HOWEVER, that any such
restoration to income shall be included in "CONSOLIDATED NET INCOME" as
used in the definition of for "Adjusted Consolidated Net Income" only;
(g) any net income of any Restricted Subsidiary of such
Obligor which for any reason is unavailable for the payment of
dividends to such Obligor; and
(h) any items properly classified as extraordinary in
accordance with GAAP.
NOTES: as defined in Section 1.1.
OBLIGOR AND OBLIGORS: as defined in the introductory paragraph
hereof, and any Person who shall hereafter become an "Obligor" hereunder in
accordance with the procedure set forth in Section 8.1(k).
OFFICERS' CERTIFICATE: when used with reference to any
Obligor, a certificate executed on behalf of such Obligor by the Chairman of the
Board of Directors (if an officer) of such Obligor or its President or one of
its Vice Presidents and its Chief Financial Officer or its Treasurer or its
Assistant Treasurer.
ORDER: any order, writ, injunction, decree, judgment, award,
determination, direction or demand.
OTHER PURCHASER: as defined in Section 1.2.
OUTSTANDING: when used with reference to the Notes as of a
particular time, all Notes theretofore issued as provided in this Agreement,
except (a) Notes theretofore reported as lost, stolen, damaged or destroyed, or
surrendered for transfer, exchange or replacement, in respect of which
replacement Notes have been issued, (b) Notes theretofore paid in full, and (c)
Notes theretofore cancelled by the Obligors; PROVIDED, HOWEVER, that, for the
purpose of determining whether holders of the requisite principal amount of the
Notes have made or concurred in any waiver, consent, approval, declarations,
notice or other communication under
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this Agreement, Notes owned by the Obligors or any Restricted Subsidiary or
Affiliate thereof shall not be deemed to be outstanding.
PERSON: a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
PHANTOM PLAN: that certain Executive Incentive Compensation
Plan of Kroll, adopted on December 15, 1989.
PLAN: an Employee Pension Benefit Plan which is or was at any
time subject to Title IV of ERISA and in respect of which any Obligor or a
Commonly Controlled Entity is or was an "employer" as such term is defined in
Section 3(5) of ERISA.
PUBLIC: as defined in the introductory paragraph hereof.
RENTAL OBLIGATIONS: the total amount (whether or not
designated as rentals or additional rentals) payable by a lessee under any Lease
during a specified period (exclusive of amounts so payable on account of
maintenance, repairs, insurance, taxes, assessments and other similar charges)
MINUS the net amounts received by such lessee under a sublease of all or any
portion of the property covered by such Lease.
RESTRICTED INVESTMENT: as defined in Section 6.7(g).
RESTRICTED PAYMENT: any payment or the incurrence of any
liability to make any payment, in cash, property or other assets (other than
shares of any class of capital stock (but not preferred stock) of any Obligor or
any Restricted Subsidiary) upon or in respect of any share of any class of
capital stock of such Obligor, including, without limiting the generality of the
foregoing, payments as dividends and payments (other than out of the net cash
proceeds from the substantially concurrent sale of common shares of any Obligor
and other than the repurchase by any Obligor of shares of its common stock) for
the purpose of purchasing, retiring or redeeming any such shares of stock (or
any warrants or options evidencing a right to purchase any such shares of stock)
or making any other distribution in respect of any such shares of stock (or any
warrants or options evidencing a right to purchase any such shares of stock).
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RESTRICTED PAYMENT DATE: as defined in Section 6.8(a).
RESTRICTED SUBSIDIARY: any Person more than 80% of the Voting
Stock of which is at the time owned by one or more Obligors and/or by one or
more Restricted Subsidiaries.
S CORPORATION: as defined in Section 1361(a) of the Code.
S&P: as defined in Section 6.7(a).
SECURITIES ACT: the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
SENIOR FUNDED DEBT: as to any Person, as at any date, all
Funded Debt of such Person that is not Subordinated Funded Debt as of such date.
SPECIAL PREMIUM: with respect to any purchase of any Note
pursuant to Section 6.13 upon the occurrence of a Change of Control of the type
referred to in clause (iii) of the definition thereof:
(a) if such Change of Control occurs on or before December 15,
1994 (the principal amount of any such Note so purchased being hereinafter
referred to as the "PREPAID PRINCIPAL"), a premium equal to, as at any date of
determination, the greater of (i) zero and (ii) the excess of:
(A) the sum of the respective present values as of the date
such Special Premium becomes due and payable of:
(1) each prepayment of principal (if any) required to
be made with respect to such Prepaid Principal pursuant to
Section 3.1 during the remaining term to maturity of the
Notes,
(2) the payment of principal balance required to be
made at final maturity with respect to such Prepaid Principal,
and
(3) each payment of interest which would be required
to be paid during the remaining term to maturity of the Notes
with respect to
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such Prepaid Principal from time to time outstanding,
determined, in the case of each such required prepayment, principal
payment at final maturity and interest payment, by discounting the
amount thereof (on a semiannual basis) from the date fixed therefor
back to the date such Special Premium becomes due and payable at the
Reference Rate (assuming for such purpose that all such payments and
prepayments of principal and payments of interest with respect to such
Prepaid Principal were made when due pursuant to the terms thereof and
hereof, and that no other payment or prepayment with respect to such
Prepaid Principal was made),
OVER
(B) the amount of such Prepaid Principal: and
(b) if such Change of Control occurs at any time on or after
December 15, 1994, a premium equal to the premium which would be payable in
respect of any optional prepayment of the Notes on the date of such Change of
Control pursuant to Section 3.2(c).
For purposes of the foregoing definition, "REFERENCE RATE" shall mean a per
annum rate equal to the sum of (x) 1.0%, plus (y) the Treasury Rate.
SUBORDINATED FUNDED DEBT: unsecured Funded Debt of any Obligor
or any Restricted Subsidiary which is validly and effectively made subordinate
and junior in right of payment to the Notes pursuant to subordination provisions
contained in the instrument evidencing such Funded Debt or under which the same
is outstanding, substantially in the form of Exhibit C, and to the terms of
which the obligee under such Debt is bound.
SUBSIDIARY: any corporation more than 50% of the Voting Stock
of which is at the time owned by any Obligor and/or by one or more Subsidiaries.
THIS AGREEMENT: this Note Purchase Agreement (together with
the Schedules and Exhibits hereto), as from time to time amended, modified or
supplemented in accordance with its terms.
TOTAL CAPITALIZATION: the sum of Consolidated Tangible
Net Worth and Consolidated Total Funded Debt.
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TREASURY RATE: for purposes of any determination of the
Special Premium applicable in respect of the purchase of any Note in accordance
with Section 6.13, the annual yield for United States Treasury securities having
a term to maturity equal to the remaining Weighted Average Life to Maturity of
the Notes, the annual yield as determined by reference to Federal Reserve
Statistical Release H.15 (519) ("RELEASE H.15") published most recently prior to
the third Business Day preceding the date such premium becomes due and payable,
or, if Release H.15 is no longer published, such annual yield as determined, at
the Obligors' expense, by an independent investment banking firm acceptable to
the Obligors and the holder of such Note, PROVIDED that, if there shall be no
actual United States Treasury security having a term to maturity equal to the
Weighted Average Life to Maturity of such Notes, the annual yield for a United
States Treasury security deemed to have such a term to maturity shall be
interpolated on a basis consistent with the annual yields of other United States
Treasury securities as determined by reference to Release H.15, or (if Release
H.15 is no longer published) as determined at the Obligors' expense by such an
independent investment banking firm.
UNFUNDED CURRENT LIABILITY of any Plan means the amount, if
any, by which the present value of the accrued benefits under the Plan as of the
close of its most recent plan year exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
VOTING STOCK: capital stock of a corporation the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or persons performing similar functions).
WEIGHTED AVERAGE LIFE TO MATURITY: as applied to any Debt at
any date, shall mean the number of years (or portions of years) obtained by
dividing (a) the then outstanding principal amount of such Debt into (b) the
total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the date on which such payment is to be made.
9.2. ACCOUNTING TERMS. Except as specifically provided herein,
all accounting terms used herein which are not expressly defined in this
Agreement have the meanings
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<PAGE> 61
respectively given to them in accordance with GAAP and all computations made
pursuant to this Agreement shall be made in accordance with GAAP. All balance
sheets and other financial statements delivered pursuant to Section 4 shall be
prepared in accordance with generally accepted accounting principles at the time
in effect.
10. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES.
10.1. REGISTRATION. Kroll will keep at its address for notices
under Section 15.4 a register in which, at its expense, it will provide for the
registration and transfer of the Notes. The Obligors and any agent of the
Obligors may treat the Person in whose name any Note is registered as the owner
and holder of such Note for the purpose of receiving payment of the principal of
and premium (if any) and interest on such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue.
10.2. SALE AND ASSIGNMENT. No holder of a Note shall sell,
transfer or assign any Note to any Person unless (i) such holder shall have
given Kroll 45 days' advance written notice of its intention to sell such Notes
and (ii) if such intended sale is to be to any Person other than an Eligible
Purchaser, such holder first offers in writing to sell such Notes to Kroll at
the price and on the terms that a bona fide prospective purchaser has offered to
the selling holder. Such offer shall contain the identity of the prospective
purchaser and the price, terms and conditions of the proposed sale. For sixty
(60) days following receipt of such offer, Kroll shall have the exclusive option
to purchase, or to designate a third party to purchase, all, but not less than
all, of such Note or Notes. If Kroll exercises its option, it or its designee
shall consummate the purchase pursuant to the terms of such offer within such
60-day period. In the event that Kroll fails to exercise its option within such
60-day period, such holder may sell such Note or Notes to such prospective
purchaser, but only at a price not less than the price specified in the
foregoing offer and otherwise upon at least as favorable terms as were specified
in the foregoing offer. If such sale is not consummated with such purchaser
pursuant to such price and terms, the holder shall again comply with the
foregoing provisions before selling the Note or Notes.
10.3. EXCHANGE OF NOTES. Whenever any Note or Notes shall be
surrendered at the office of Kroll referred to in Section 10.1 for transfer or
exchange, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder of such Note or such
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<PAGE> 62
holder's attorney duly authorized in writing, the Obligors will execute and
deliver in exchange therefor a new Note or Notes, in denominations of at least
$500,000 (except one Note may be issued in a lesser principal amount if the
unpaid principal amount of the surrendered Note is not evenly divisible by, or
is less than, $500,000), am may be requested by such holder, in the same
aggregate unpaid principal amount as the aggregate unpaid principal amount of
the Note or Notes so surrendered and made payable to and registered in the name
of the Person or Persons requested by such holder. Any Note issued in exchange
for any other Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange.
11. LOST, ETC. NOTES. Upon receipt by Kroll of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Note, and (in case of loss, theft or destruction) of indemnity in form
satisfactory to it, or (if mutilated) upon surrender of such Note for
cancellation, the Obligors will deliver in lieu of such Note a new Note in a
like unpaid principal amount, dated so that there will be no loss of interest on
such lost, stolen, destroyed or mutilated Note.
Notwithstanding the foregoing provisions of this Section, if
any Note of which you or any other institutional holder is the owner is lost,
stolen or destroyed, then your or such holder's written statement by an
affidavit of an authorized officer as to such loss, theft or destruction shall
be accepted as satisfactory evidence thereof, and no indemnity shall be required
as a condition to the execution and delivery by the Obligors of a new Note in
lieu of such Note (or as a condition to the payment thereof, if due and payable)
other than your or such institutional holder's unsecured written agreement to
indemnify the Obligors.
12. AMENDMENT AND WAIVER. (a) Any term, covenant, agreement or
condition of this Agreement or of the Notes may, with the consent of the
Obligors, be amended, or compliance therewith may be waived (either generally or
in a particular instance and either retroactively or prospectively), by one or
more substantially concurrent written instruments signed by the holder or
holders of at least 66-2/3% in aggregate unpaid principal amount of all Notes at
the time outstanding voting together; PROVIDED, HOWEVER, that
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<PAGE> 63
(i) no such amendment or waiver shall be effective
prior to the Closing without the consent of you and the
Other Purchaser,
(ii) no such amendment or waiver shall reduce the rate or
extend the time of payment of interest on any of the Notes, or modify
any of the provisions of this Agreement or of the Notes with respect to
the payment or prepayment or purchase thereof or reduce the percentage
of holders of Notes required to approve any such amendment or
effectuate any such waiver, without the consent of the holders of all
the Notes then outstanding, and
(iii) no such waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to clause (a) of this
Section shall apply equally to all the holders of the Notes and shall be binding
upon them, upon each future holder of any Note and upon the Obligors, in each
came whether or not a notation thereof shall have been placed on any Note.
Promptly after any amendment or waiver pursuant to clause (a) of this Section
has become effective, the Obligors shall deliver to each holder of a Note a true
and complete copy of the written instruments pursuant to which such amendment or
waiver was effected, signed by the holder or holders of Notes and setting forth
any such amendment or the terms of any such waiver. The Obligors will not, and
will not permit any of their Affiliates to, offer or pay any inducement of any
nature to any holder of Notes in order to obtain such holder's consent to any
such amendment or waiver.
13. HOME OFFICE PAYMENT. Notwithstanding anything to the
contrary in this Agreement or the Notes, so long as you or any nominee
designated by you shall be the holder of any Note, the Obligors shall punctually
pay all amounts which become due and payable on such Note to you at your address
and in the manner set forth in Schedule I, or at such other place within the
United States and in such other manner as you may designate for the purpose by
notice to the Obligors, without presentation or surrender of such Note or the
making of any notation thereon, except that any Note paid or prepaid in full
shall, following such payment or prepayment, be surrendered to Kroll for
cancellation, upon their request therefor, at its office maintained pursuant to
Section 6.10 or at the place of payment specified in the Notes. You agree that
prior to the sale, transfer or other disposition of any such Note, you will make
a notation thereon of the portion of the principal amount paid or prepaid and
the date to which
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<PAGE> 64
interest has been paid thereon, or surrender the same in exchange for a Note or
Notes aggregating the same principal amount as the unpaid principal amount of
the Note so surrendered. The Obligors shall enter into an agreement similar to
that contained in the first sentence of this Section with any other
institutional holder of outstanding Notes (or nominee thereof) who shall make
with the Obligors an agreement similar to that contained in the second sentence
of this Section.
14. LIABILITIES OF THE PURCHASER. Neither this Agreement nor
any disposition of any of the Notes shall be deemed to create any liability or
obligation on your part or that of any other holder of any Note to enforce any
provision hereof or of any of the Notes for the benefit or on behalf of any
other Person who may be the holder of any Note.
15. MISCELLANEOUS.
15.1. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, the Obligors shall: (a) pay the reasonable fees and
disbursements of your special counsel and of any local counsel for any services
rendered in connection with such transactions or in connection with any actual
or proposed amendment, waiver or consent (whether or not the same becomes
effective) with respect to this Agreement or the Notes, and all other reasonable
expenses in connection therewith (including, without limitation, document
production and reproduction expenses and the cost of obtaining private placement
numbers from the Standard and Poor's CUSIP Service Bureau); (b) reimburse you
for your reasonable out-of-pocket expenses in connection with such transactions
and the exercise of your rights hereunder, and each such actual or proposed
amendment, waiver or consent (whether or not the same becomes effective), and
any items of the character referred to in clause (a) which shall have been paid
by you and pay the cost of transmitting Notes (adequately insured) to your
principal office upon the issuance thereof; (c) pay, and save you and each
subsequent holder of any Note harmless from and against, any and all liability
and loss with respect to or resulting from the nonpayment or delayed payment of
any and all placement fees and other liability to pay any agent or finder in
connection with the sale of the Notes to you; and (d) pay all stamp or similar
taxes (including interest and penalties) which may be payable in respect of the
execution and delivery or issuance (but not the transfer) of any of the Notes or
of any amendment of, or waiver or consent under or with respect to, this
Agreement or of any of the Notes and save you and all subsequent holders of the
Notes harmless against any loss or
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<PAGE> 65
liability resulting from nonpayment or delay in payment of any such tax. The
obligations of the Obligors under this Section shall survive payment and
transfer of any Notes.
15.2. RELIANCE ON AND SURVIVAL OF REPRESENTATIONS. All
agreements, representations and warranties of the Obligors herein and in any
certificates or other instruments delivered pursuant to this Agreement shall:
(a) be deemed to be material and to have been relied upon by you,
notwithstanding any investigation heretofore or hereafter made by you or on your
behalf, and (b) survive the execution and delivery of this Agreement and the
delivery of the Notes to you and any investigation made at any time by you or on
your behalf or any disposition of any of the Notes.
15.3. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of the respective parties hereto shall bind and
inure to the benefit of their respective successors and assigns; PROVIDED,
HOWEVER, that you shall not be obligated to purchase any Notes on the Closing
Date from any Person other than the existing Kroll Associates, Inc., a Delaware
corporation, Kroll Associates U.K. Limited, a corporation organized under the
laws of England, Harrison/Kroll Environmental Services, Inc., a Louisiana
corporation, and Public Advisory Services, Inc., a Delaware corporation. The
provisions of this Agreement are intended to be for the benefit of all holders
from time to time of the Notes, and shall be enforceable by any such holder,
whether or not an express assignment to such holder of rights under this
Agreement has been made by you or your successor or assign.
15.4. NOTICES. All notices, opinions and other communications
provided for in this Agreement shall be in writing and delivered or mailed,
first class postage prepaid, addressed (a) if to the Obligors, to the address
set forth at the head of this Agreement (marked for the attention of the Chief
Financial Officer, or at such other address as the Agent may hereafter designate
by notice to you and to each other holder of any Note at the time outstanding),
or (b) if to you, at your address as set forth in Schedule I or at such other
address as you may hereafter designate by notice to the Obligors, or (c) if to
any other holder of any Note, at the address of such holder as it appears on the
Note register maintained by the Obligors.
15.5. APPOINTMENT OF AGENT FOR OBLIGORS. Each Obligor
irrevocably authorizes and appoints Kroll as agent to send and receive any
consents, notices, declarations or demands relating to this Agreement. All
notices, requests,
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<PAGE> 66
demands, consents or other communications hereunder or in connection herewith by
you shall be sufficient if given to Kroll; and you may conclusively rely on any
notice, consent or request given or made by Kroll in accordance with any
provision hereof as having been duly authorized by each of the Obligors.
15.6. LAW GOVERNING. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE
OF NEW YORK WITHOUT REFERENCE TO THE CONFLICTS OF LAW RULES THEREOF.
15.7. HEADINGS, ETC. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms hereof. Unless otherwise specified, any reference in this Agreement to a
particular section or other subdivision, or a particular schedule or exhibit,
shall be considered a reference to that section or other subdivision of, or to
that schedule or exhibit to, this Agreement.
15.8. SUBSTITUTION OF PURCHASER. Teachers Insurance and
Annuity Association of America ("TIAA") shall have the right to substitute a
subsidiary wholly-owned by it as a purchaser of any or all of the Notes to be
purchased by it on the Closing Date by written notice delivered to the Agent,
which notice shall be signed by both TIAA and such subsidiary and shall contain
such subsidiary's agreement to be bound by this Agreement; PROVIDED, HOWEVER,
that such agreement may contain a statement to the effect that such subsidiary
at all times has the right to sell the Notes being purchased by it to TIAA. The
Obligors and TIAA agree that, upon the Obligors' receipt of such notice and
except to the extent otherwise specified therein, wherever the word "you" is
used in this Agreement in reference to TIAA, such word shall be deemed to refer
to such subsidiary in lieu of TIAA. If any subsidiary has been substituted as a
purchaser of any Notes and shall subsequently transfer such Notes to TIAA, then
TIAA will thereafter be liable for all obligations and entitled to all the
rights and benefit of the purchaser of such Notes under this Agreement.
15.9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between you and the Obligors and supersedes all
prior agreements and understandings relating to the subject matter hereof.
15.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be
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<PAGE> 67
an original, but all of which together shall constitute one instrument.
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<PAGE> 68
If you are in agreement with the foregoing, please sign the
form of acceptance on the accompanying counterparts of this Agreement and return
one of the same to the Obligors, whereupon this Agreement shall become a binding
agreement between you and the Obligors.
Very truly yours,
KROLL ASSOCIATES, INC.
KROLL ASSOCIATES U.K. LIMITED
By /s/ Jules Kroll
----------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By /s/ Jules Kroll
----------------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By /s/ Jules Kroll
----------------------------
Title:
<PAGE> 69
The foregoing Agreement is hereby
agreed to as of the date hereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Christopher Schilling
----------------------------
Christopher Schilling
Title: Assistant Investment Officer
HERBERT KURZ
- ------------------------------
<PAGE> 70
The foregoing Agreement is hereby
agreed to as of the date hereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
------------------------------
Title:
HERBERT KURZ
/s/ Herbert Kurz
- ---------------------------------
<PAGE> 71
SCHEDULE I
<TABLE>
<CAPTION>
Name and address Principal Amount
of Purchaser To Be Purchased
------------ ---------------
<S> <C>
TEACHERS INSURANCE
AND ANNUITY ASSOCIATION OF AMERICA $19,000,000
(1) All payments on account of the
Notes shall be made by wire
transfer of immediately available
funds for credit, not later than
12:00 noon, Eastern time to its
Account No. 121-85-001 at:
Morgan Guaranty Trust Company of
New York
23 Wall Street
New York, New York 10015
with sufficient information to
identify the source and
application of such funds, and
with instructions to give
advice of payment by phone to:
Teachers Insurance and Annuity
Association of America
(212) 916-4000
Attention: Treasury Services
Department
(2) Address for all notices of
payment and all other
communications:
730 Third Avenue
New York, New York 10017
Attention: Securities Division
HERBERT KURZ $ 1,000,000
(1) All payments on account of the
Notes shall be made by wire
transfer of immediately available
funds for credit, not later than
12:00 noon
</TABLE>
<PAGE> 72
Eastern time to his Account No. ______ at:
[Bank]
(2) Address for all notices of payment
and all other communications:
[Address]
-2-
<PAGE> 73
Schedule II
Kroll Associates, Inc. and Affiliates
Schedule of Debt by Company
December 13, 1989
<TABLE>
<CAPTION>
Item
Number Payee Face Amount Due Date
- ------ ----- ----------- --------
<S> <C> <C> <C>
Kroll Associates, Inc.:
-----------------------
1. Marine Midland Bank- $4,300,000.00 01/31/90
Line of Credit
2. Term Loan 2,500,000.00 04/15/90
3. Ruann Dairy (1) 383,253.00* 02/28/95
-------------
Subtotal Kroll Associates $7,183.253.00
-------------
Kroll Associates U.K.:
---------------------
4. Jules B. Kroll $ 249,492.00 04/04/92
-------------
Harrison Environmental
Services, Inc.:
----------------------
5. Jules B. Kroll $ 735,000.00 12/31/90
6. " " 8,000.00 04/16/90
7. " " 4,000.00 04/17/90
8. " " 30,000.00 05/01/90
9. " " 12,000.00 05/03/90
10. " " 38,000.00 05/17/90
11. " " 36,000.00 05/29/90
12. " " 45,000.00 07/06/90
13. " " 24,000.00 07/13/90
14. " " 28,000.00 11/19/90
15. " " 103,000.00 11/30/90
16. " " 75,000.00 12/07/90
-------------
$1,138,500.00
-------------
$8,571,245.00
=============
</TABLE>
(1) As of December 31, 1988.
*Secured by lien on cattle having a net book value, as of December 31, 1988, of
$286,612.47.
<PAGE> 74
Schedule III
Kroll Associates, Inc. and Affiliates
Schedule of Investments
December 13, 1989
<TABLE>
<CAPTION>
Description Number of Shares
- ----------- ----------------
<S> <C> <C>
Equity Securities
- -----------------
American Home Products 100
American Trust For Bristol Myers
SHS - Primes Component 600
American Trust for Merck Shrs
Prime Component 300
Anheuser Busch Cos., Inc. 400
CBS, Inc. 100
Centel Corp. 450
First Interstate Bancorp 500
Loews Corp. 200
Marion Laboratories, Inc. 227
Penn Central Corp. 100
Perkin-Elmer Corp. 600
Philip Morris Cos., Inc. 200
Presidential Life 106,400
Primerica Corp. 700
SF Fed Corp. 1,000
Warner-Lambert Co. 100
Westinghouse Electric Corp. 100
Other
- -----
Investment in Kroll Associates Asia Ltd. 5,000 (50%)
</TABLE>
<PAGE> 75
EXHIBIT A
to
Note Purchase Agreement
KROLL ASSOCIATES, INC.
KROLL ASSOCIATES U.K. LIMITED
HARRISON/KROLL ENVIRONMENTAL SERVICES, INC.
PUBLIC ADVISORY SERVICES, INC.
10.55% Senior Notes
due December 15, 1999
No. R- [Date]
$ New York, New York
Private Placement No.
KROLL ASSOCIATES, INC., a Delaware corporation (herein,
together with its successors and assigns, "Kroll"), KROLL ASSOCIATES U.K.
LIMITED, a corporation organized under the laws of England (herein, together
with its successors and assigns, "KROLL U.K."), HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC., a Louisiana corporation (herein, together with its successors
and assigns, "H/K ENVIRONMENTAL"), and PUBLIC ADVISORY SERVICES, INC., a
Delaware corporation (herein, together with its successors and assigns, "Public"
and, together with Kroll, Kroll U.K. and H/K Environmental, referred to herein
collectively as the "Obligors"), for value received, hereby promise to pay to
or_________ registered assigns, the principal amount of_________________
($_____________ ) (or so much thereof as shall not have been
prepaid) on December 15, 1999, with interest (computed on the basis of a 360-
day year of twelve 30-day months) on the unpaid balance of such principal
amount at the rate of 10.55% per annum from the date hereof, payable
semiannually on June 15 and December 15 of each year, commencing June 15, 1990,
until such unpaid balance shall become due and payable (whether at maturity, at
a date fixed for prepayment or by declaration, acceleration or otherwise), and
to pay interest (so computed) on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable law) on any
overdue interest, at the rate of 11.55% per annum payable semi-annually as
aforesaid or, at the option of the registered holder hereof, on demand. Payments
of principal and interest on this Note shall be made in lawful money of
<PAGE> 76
the United States of America at the principal office of the Obligors at 900
Third Avenue, New York, New York 10022, or at such other place as may be
provided pursuant to the Note Purchase Agreement referred to below or, in
certain circumstances, to the holder of this Note as provided in Section 13 of
said Note Purchase Agreement.
This Note is one of the duly authorized 10.55% Senior Notes due
December 15, 1999 of the obligors (the "NOTES" and, individually, a "NOTE"),
which have been originally issued in an aggregate principal amount of
$20,000,000 pursuant to the Note Purchase Agreement, dated as of December 15,
1989, between the Obligors and each of Teachers Insurance and Annuity
Association of America and Herbert Kurz. The holder of this Note is entitled to
the benefits of such Note Purchase Agreement and may enforce the agreements of
the Obligors contained therein and exercise the remedies provided for thereby or
otherwise available in respect thereof. As provided in said Note Purchase
Agreement, this Note is subject to mandatory and optional prepayments, in whole
and in part, in certain cases with a premium, all as specified in said Note
Purchase Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or his attorney duly authorized in writing, a new
Note or Notes (in a denomination of at least $500,000) aggregating a like
outstanding principal amount will be issued to and registered in the name of the
transferee. The Obligors may treat the Person in whose name this Note is
registered as the holder and owner hereof for the purpose of receiving payments
and for all other purposes, and the Obligors shall not be affected by any notice
to the contrary.
In case an Event of Default (as defined in said Note Purchase
Agreement) shall occur and be continuing, the principal of this Note in certain
circumstances shall become due and payable and in other circumstances may be
declared and become due and payable in the manner and with the effect provided
in said Note Purchase Agreement.
A-2
<PAGE> 77
THIS NOTE IS MADE AND DELIVERED IN NEW YORK, NEW YORK, AND
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
KROLL ASSOCIATES, INC.
By
--------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By
--------------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By
--------------------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By
--------------------------------
Title:
A-3
<PAGE> 78
EXHIBIT B
to
Note Purchase Agreement
FORM OF OPINION OF OBLIGORS' COUNSEL
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
[Closing Date)
To Each Purchaser Named
in the Attached Annex A
Re: Kroll Associates, Inc./Kroll Associates U.K.
Limited/Harrison/Kroll Environmental
Services, Inc./Public Advisory Services,
Inc. - 10.55% Senior Notes due 1999
----------------------------------------------------
Dear Sirs:
We have acted as counsel to each of KROLL ASSOCIATES, INC., a
Delaware corporation (herein, together with its successors and assigns,
"KROLL"), KROLL ASSOCIATES U.K. LIMITED, a corporation organized under the laws
of England (herein, together with its successors and assigns, "KROLL U.K."),
HARRISON/KROLL ENVIRONMENTAL SERVICES, INC., a Delaware corporation (herein,
together with its successors and assigns, "H/K ENVIRONMENTAL"), and PUBLIC
ADVISORY SERVICES, INC., a Louisiana corporation (herein, together with its
successors and assigns, "PUBLIC" and, together with Kroll, Kroll U.K. and H/K
Environmental, referred to herein individually as an "OBLIGOR" and collectively
as the "Obligors"), in connection with the transactions contemplated by the Note
Purchase Agreement, dated as of December 15, 1989 (the "NOTE PURCHASE
AGREEMENT", between the Company and you and the other purchaser listed in
Schedule I to the Note Purchase Agreement (the "OTHER PURCHASER"), providing for
(a) the issuance and sale today by the obligors of their joint and several
10.55% Senior Notes due 1999 in the aggregate principal amount of $20,000,000
(the "Notes") and (b) the purchase by you and the Other Purchaser today of the
aggregate principal amount of Notes set forth opposite your and their names on
Schedule I to the Note Purchase Agreement. All capitalized terms used herein
without definition shall
<PAGE> 79
have the respective meanings specified in the Note Purchase Agreement.
In so acting, we have participated in the preparation of the
Note Purchase Agreement and the Notes being purchased by and delivered to you
today (hereinafter sometimes collectively referred to as the "TRANSACTION
DOCUMENTS"). We have also examined and relied upon the representations and
warranties as to factual matter, contained in and made pursuant to the
Transaction Documents and have relied upon the originals, or copies certified or
otherwise identified to our satisfaction, of such certificates, documents,
records and other instruments and agreements as we have deemed necessary or
appropriate to enable us to render the opinion expressed below.
We are of the opinion that:
(a) Each Obligor is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own or hold
under lease the property it purports to own or hold under lease, to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Note Purchase Agreement, to issue and sell the Notes being purchased by you
today and to perform its obligations under the Note Purchase Agreement and the
Notes.
(b) Each Obligor is duly qualified or licensed and is in good
standing as a foreign corporation duly authorized to do business in each
jurisdiction other than its jurisdiction of incorporation in which the nature of
the activities conducted by it or the character of the properties owned or held
under lease by it makes such qualification or licensing necessary and where
failure to so qualify or be licensed could, in any case, have a material adverse
effect on the Obligors, taken as a whole.
(c) The execution and delivery by each Obligor of the
Transaction Documents and the performance by such Obligor of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of such Obligor (including all necessary action on the part of such
Obligor's shareholders), and the Transaction Documents have been duly executed
and delivered by duly authorized officers of such Obligor and constitute the
legal, valid and binding obligations of such Obligor, enforceable against such
Obligor in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws
-2-
<PAGE> 80
affecting the enforcement of creditors' rights generally or general principles
of equity.
(d) There are no actions, suits or proceedings pending or, to
the best of our knowledge after due inquiry, threatened against or affecting any
Obligor or any of its properties in any court or before any arbitrator of any
kind or before or by any Governmental Body, which question the validity of any
of the Transaction Documents or any action taken or to be taken pursuant thereto
or which might result either in any one case or in the aggregate, in an
impairment of the ability of any Obligor to perform its obligations under any of
the Transaction Documents or a material adverse change in the business,
operations, properties or condition (financial or otherwise) of any Obligor or
of the Obligors taken as a whole.
(e) Neither the execution and delivery by any Obligor of any
of the Transaction Documents nor the consummation of the transactions
contemplated thereby nor the performance of the terms and provisions thereof,
will result in any breach of, or constitute a default under, or result in (or
require) the creation of any Lien in respect of any property of such Obligor
pursuant to, such Obligor's corporate charter or by-laws or any agreement,
indenture, mortgage or instrument known to us to which such obligor is a party
or by which such Obligor or any of its properties may be bound or affected, or
violate any existing law, governmental rule or regulation or any Order of any
court, arbitrator or Governmental Body applicable to such obligor.
(f) No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Body is required on the part of any
Obligor for the valid execution and delivery of the Note Purchase Agreement or
the consummation of the transactions contemplated thereby, including the offer,
issuance, sale and delivery by such Obligor of the Notes, or for fulfillment of,
or compliance by the Obligors with, the terms and provisions of the Note
Purchase Agreement and the Notes.
(g) No Obligor is an "investment company" or a Person directly
or indirectly "controlled" by or "acting on behalf of" an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. No Obligor
is a "holding company", or an affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
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(h) The offer, issue, sale and delivery of the Notes purchased
by and delivered to you and the Other Purchaser today, under the circumstances
contemplated by the Note Purchase Agreement, constitute exempted transactions
under the Securities Act, and neither the registration of such Notes thereunder
nor the qualification of an indenture under any of the Notes under the Trust
Indenture Act of 1939, as amended, is required in connection with such offer,
issue, sale and delivery of the Notes.
(i) The issuance, sale and purchase of the Notes being
purchased by you under the circumstances contemplated by the Note Purchase
Agreement, and any arranging thereof, do not violate Regulation G (12 CFR 207),
Regulation T (12 CFR 220) or Regulation X (12 CFR 224) of the Board of Governors
of the Federal Reserve, or Section 7 of the Exchange Act.
Very truly yours,
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<PAGE> 82
EXHIBIT C
To
Note Purchase Agreement
Form of Subordination Provisions
For any indebtedness to qualify as "SUBORDINATED FUNDED DEBT"
as defined in the Purchase Agreement referred to below, such indebtedness must
be evidenced by an instrument or instruments each containing, or referring to an
agreement governing the provisions of such instrument or instruments containing,
subordination provisions substantially similar to those set forth below.
SUBORDINATION
1. SUBORDINATION. Payment of principal, premium, if any, and
interest in respect of the indebtedness of (Name of Obligor or Restricted
Subsidiary], a ( ] corporation (the "COMPANY"), evidenced by [issued pursuant
to] this Note (Agreement] shall be junior and subordinate and subject in right
of payment to all Senior Funded Debt (as defined in the following section 12) of
Kroll Associates, Inc., a Delaware corporation (herein, together with its
successors and assigns, "KROLL"), Kroll Associates U.K. Limited, a corporation
organized under the laws of England (herein, together with its successors and
assigns, "KROLL U.K."), Harrison/Kroll Environmental Services, Inc., a Louisiana
corporation (herein, together with its successors and assigns, "H/K
ENVIRONMENTAL"), and Public Advisory Services, Inc., a Delaware corporation
(herein, together with its successors and assigns, "PUBLIC" and, together with
Kroll, Kroll U.K. and H/K Environmental, referred to herein individually as an
"OBLIGOR" and collectively as the "Obligors"), as provided in the following
sections 2 through 11, inclusive. The Company and each holder of Subordinated
Funded Debt will mark their respective books of account to show that the
Subordinated Funded Debt is subordinated to Senior Funded Debt in the manner and
to the extent set forth in the following sections 2 through 11, inclusive, and
will cause their respective financial statements prepared for delivery to any
Person to make specific reference to the provisions of such sections.
2. NO PAYMENTS ON ACCOUNT OF SUBORDINATED FUNDED DEBT IN
CERTAIN CIRCUMSTANCES. (a) In the event there shall occur (i) one or more Events
of Default, as defined in the
<PAGE> 83
Note Purchase Agreement, dated as of December 15, 1989 (the "PURCHASE
AGREEMENT"), between the Obligors, on the one hand, and Teachers Insurance and
Annuity Association of America and Herbert Kurz, on the other hand, relating to
the issuance by the Obligors of $20,000,000 in aggregate principal amount of
their joint and.several 10.55% Senior Notes due December 15, 1999 (the "Notes"),
which are of the type described in Section 8.1(a) or Section 8.1(b) of the
Purchase Agreement, or (ii) one or more events of default as defined in any
instrument evidencing any other Senior Funded Debt or under which any other
Senior Funded Debt is outstanding which are of the type described in Section
8.1(a) or Section 8.1(b) of the Purchase Agreement, then in any such case unless
and until all such Events of Default and/or events of default shall have been
cured or waived or shall cease to exist, the holders of Subordinated Funded Debt
will not be entitled to receive any direct or indirect payment or distribution
of any character, whether in cash, securities or other property, for or on
account of any Subordinated Funded Debt; and (b) in the event there shall occur
(i) one or more Events of Default (as defined in the Purchase Agreement) which
are of any type described in Section 8.1 of the Purchase Agreement other than
those of the type described in Section 8.1(a) or Section 8.1(b) thereof, or (ii)
one or more events of default as defined in any instrument evidencing any other
Senior Funded Debt or under which any other Senior Funded Debt is outstanding
which are of the type described in Section 8.1 of the Purchase Agreement other
than those of the type described in Section 8.1(a) or Section 8.1(b) thereof, in
each case under circumstances when Section 3 hereof shall not apply, then in any
such case unless and until all such Events of Default and/or events of default
shall have been cured or waived or shall cease to exist, the holders of
Subordinated Funded Debt will not be entitled to receive any direct or indirect
payment or distribution of any character, whether in cash, securities or other
property, for or on account of any Subordinated Funded Debt (i) for a period of
180 days (a "BLOCKAGE PERIOD") after notice of such Event of Default or event of
default shall have been delivered by the holders of any Senior Funded Debt to
the Company (notice of which shall promptly be given by the Company to the
holder or holders of Subordinated Funded Debt) or to the holder of holders of
Subordinated Funded Debt, stating that such Blockage Period shall apply, or (ii)
at any time after any Senior Funded Debt outstanding shall have become due prior
to its stated maturity or, in the case of the final stated maturity of any such
Senior Funded Debt, at any time after such final stated maturity if such Senior
Funded Debt shall not have been paid at such final stated maturity (notice of
any of which shall be promptly given by the Company to the holders of
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Subordinated Funded Debt) and until the irrevocable payment in full of such
Senior Funded Debt.
3. INSOLVENCY, ACCELERATION, ETC. In the event of (i) any
insolvency or bankruptcy proceeding, or any receivership, liquidation,
reorganization or other similar proceeding in connection therewith, relative to
any obligor or the Company or the property of any thereof, or (ii) any
proceeding for voluntary liquidation, dissolution or other winding up of any
Obligor or the Company, and whether or not involving insolvency or bankruptcy,
or (iii) any assignment for the benefit of creditors, or (iv) any distribution,
division, marshalling or application of any of the properties or assets of any
Obligor or the Company or the proceeds thereof, to creditors, voluntary or
involuntary, and whether or not involving legal proceedings, or (v) any
acceleration of the maturity of any Senior Funded Debt and as long as such
acceleration shall continue unrescinded and unannulled then and in any such
event:
A. all Senior Funded Debt (including any interest thereon
accruing after the commencement of any such proceedings or action)
shall first be paid in full before any payment or distribution of any
character, whether in cash, securities or other property, shall be made
by the Company in respect of any Subordinated Funded Debt;
B. all principal of, premium (if any) and interest on
Subordinated Funded Debt shall forthwith (notwithstanding the terms of
section 2) become due and payable, and any payment or distribution of
any character, whether in cash, securities or other property, which
would otherwise (but for the terms hereof) be payable or deliverable by
the Company in respect of any Subordinated Funded Debt (including any
payment or distribution in respect of any Subordinated Funded Debt by
reason of any other indebtedness of the Company being subordinated to
the Subordinated Funded Debt, and any distribution of cash, property,
stock or obligations which are issued pursuant to any order or decree
of any court, or pursuant to reorganization, dissolution or liquidation
proceedings, whether or not purporting to give effect to the
subordination of the Subordinated Funded Debt to the Senior Funded
Debt), shall be paid or delivered directly to the holders of Senior
Funded Debt at the time outstanding (or their respective
representatives), ratably according to the respective aggregate
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<PAGE> 85
amounts remaining unpaid thereon, until all Senior Funded Debt shall
have been paid in full, and the holders of the Subordinated Funded Debt
at the time outstanding irrevocably authorize, empower and direct all
receiver., trustees, liquidator., conservators and others having
authority in the premises to effect all such payments and deliveries;
C. the holders of the Subordinated Funded Debt at the time
outstanding irrevocably authorize and empower (without imposing any
obligation on) each holder of Senior Funded Debt at the time
outstanding and such holder's representatives to demand, sue for,
collect and receive such holder's ratable share of all such payments
and distributions and to receipt therefor, and to file and prove all
claims therefor and take all such other action (including the right to
vote such Senior Funded Debt holder's ratable share of the Subordinated
Funded Debt) in the name of the holders of the Subordinated Funded Debt
or otherwise, as such Senior Funded Debt holder or such holder's
representatives may determine to be necessary or appropriate for the
enforcement of this section 3; and
D. the holders of the Subordinated Funded Debt shall execute
and deliver to each holder of Senior Funded Debt and such holder's
representatives all such further instruments confirming the above
authorization, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and shall take all such
other action as may be reasonably requested by such holder or such
holder's representatives, in order to enable such holder to, enforce
all claims upon or in respect of such holder's ratable share of the
Subordinated Funded Debt.
4. NO ACCELERATION OF SUBORDINATED FUNDED DEBT IN CERTAIN
CIRCUMSTANCES. If an event of default with respect to any Subordinated Funded
Debt shall exist (under circumstances when Section 3 shall not be applicable),
the holders of such Subordinated Funded Debt may not take any action to
accelerate or to collect payment of such Subordinated Funded Debt or to purchase
or otherwise realize on any security given to secure or guarantee any such
Subordinated Funded Debt prior to the earlier of (i) any insolvency, bankruptcy,
receivership, assignment for the
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<PAGE> 86
benefit of creditors, reorganization or arrangement with creditors of the
Company, whether or not pursuant to bankruptcy laws, or any dissolution,
liquidation or other marshalling of the assets and liabilities of the Company
and (ii) the acceleration of the maturity of the Senior Funded Debt.
5. PAYMENTS AND DISTRIBUTIONS RECEIVED. If any payment or
distribution of any character (whether in cash, securities or other property) or
any security shall be received by any holder of any Subordinated Funded Debt in
contravention of any of the terms hereof and before all Senior Funded Debt shall
have been paid in full, such payment or distribution or security shall be held
in trust for the benefit of, and shall be paid over or delivered and transferred
to, the holders of the Senior Funded Debt at the time outstanding (or their
respective representatives) for application to the payment of all Senior Funded
Debt remaining unpaid, ratably according to the respective aggregate amounts
remaining unpaid thereon, to the extent necessary to pay all such Senior Funded
Debt in full. In the event of the failure of any holder of any of the
Subordinated Funded Debt to endorse or assign any such payment, distribution or
security, each holder of Senior Funded Debt and each such holder's
representative is hereby irrevocably authorized to endorse or assign the same.
6. EXCESS SENIOR FUNDED DEBT PAYMENT, SUBROGATION, ETC. If
cash, securities or other property otherwise payable or deliverable to the
holders of the Subordinated Funded Debt shall have been applied, pursuant to
section 3 or 4, to the payment of Senior Funded Debt in full, then and in such
case, the holders of the Subordinated Funded Debt (i) shall be entitled to
receive from the holders of the Senior Funded Debt at the time outstanding any
payments or distributions received by such Senior Funded Debt holders in excess
of the amount sufficient to pay all Senior Funded Debt in full and (ii) shall be
subrogated to any rights of the holders of Senior Funded Debt to receive all
further payments or distributions applicable to the Senior Funded Debt, until
all principal of, premium (if any) and interest on the Subordinated Funded Debt
shall have been paid in full. No such payments or distributions received by the
holders of the Subordinated Funded Debt, by reason of such subrogation, of cash,
securities or other property, which otherwise would be paid or distributed to
the holders of Senior Funded Debt, shall, as between the Company and its
creditors (other than the holders of the Senior Funded Debt), on the one hand,
and the holders of the Subordinated Funded Debt, on the other
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<PAGE> 87
hand, be deemed to be a payment by the Company on account of the Subordinated
Funded Debt.
7. NO SECURITY. So long as any of the Senior Funded Debt shall
not have been paid in full, the Company shall not, and shall not permit any of
its subsidiaries to, give, and the holders of the Subordinated Funded Debt shall
not demand, accept or receive, any security, direct or indirect, for any
Subordinated Funded Debt.
8. OBLIGATIONS NOT IMPAIRED. Except to the extent provided in
these sections 1 through 12, inclusive, Subordinated Funded Debt may not become
due and payable or be paid, PROVIDED that nothing contained in these sections 1
through 12, inclusive, shall impair, as between the company and the holder of
any Subordinated Funded Debt, the obligation of the Company, which is absolute
and unconditional, to pay to the holder thereof the principal thereof and the
premium, if any, and interest thereon as and when the same shall become due and
payable in accordance with the terms thereof, or shall prevent the holder of any
Subordinated Funded Debt, upon default with respect to any Subordinated Funded
Debt, from exercising all rights, powers and remedies otherwise provided thereon
or by applicable law, all subject to the rights, if any, of the holders of
Senior Funded Debt under these sections 1 through 12, inclusive, to receive
cash, securities or other property otherwise payable or deliverable to the
holders of the Subordinated Funded Debt.
9. SUBORDINATION NOT AFFECTED, ETC. The terms of these
sections 1 through 12, inclusive, the subordination effected thereby and the
rights of the holders of Senior Funded Debt shall not be affected by (i) any
amendment of or addition or supplement to any Senior Funded Debt or any
instrument or agreement relating thereto; (ii) any exercise or non-exercise of
any right, power or remedy under or in respect of any Senior Funded Debt or any
instrument or agreement relating thereto; (iii) any sale, exchange, release or
other transaction affecting all or any part of any property at any time pledged
or mortgaged to secure, or however securing, Senior Funded Debt: (iv) any
waiver, consent, release, indulgence, extension, renewal, modification, delay or
other action, inaction or omission, in respect of any Senior Funded Debt or any
instrument or agreement relating thereto; or (v) any application by any holder
or holders of Senior Funded Debt of any amount or sum (by whomsoever paid or
however realized) to Senior Funded Debt, whether or not any holder of any
Subordinated Funded Debt shall have had notice or knowledge of any of the
foregoing.
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<PAGE> 88
10. CHANGES, WAIVERS, ETC. Neither these sections 1 through
12, inclusive, nor any term thereof may be changed or waived except with the
prior written consent of the holders of all Senior Funded Debt at the time
outstanding.
11. SUBORDINATION A CONDITION TO CONSENT OF HOLDERS OF SENIOR
FUNDED DEBT TO ADDITIONAL DEBT. Each holder of the indebtedness evidenced by
[issued pursuant to this Note (Agreement], by its acceptance thereof, agrees
that the consent of each of the holders of the Senior Funded Debt referred to in
section 12 to the incurrence and/or maintenance outstanding by the Company of
much indebtedness has been given pursuant to the Purchase Agreement in reliance
upon the subordination of such indebtedness to the Senior Funded Debt as
provided in these sections 1 through 12, inclusive.
12. DEFINITIONS, ETC. As used in these sections 1 through 12,
inclusive, the following term shall have the following meaning:
"SENIOR FUNDED DEBT": all principal of and premium (if any)
and interest on (a) the joint and several Notes due 1999 originally
issued in the aggregate principal amount of $20,000,000 by the Obligors
pursuant to the Note Purchase Agreement, as from time to time amended,
and any modification, extension, renewal, refunding or refinancing of
any of the foregoing, (b) the joint and several revolving credit notes
evidencing obligations under the Credit Agreement, dated as of December
20, 1989, among the Obligors, the lenders named therein and Chemical
Bank, as Agent, as from time to time amended, and any modification,
extension, renewal, refunding or refinancing of any of the foregoing,
and (c) any other Indebtedness for borrowed money designated as Senior
Funded Debt in the instrument evidencing such Indebtedness or under
which such Indebtedness is outstanding. Each holder of Senior Funded
Debt shall be entitled to its pro-rata share of the benefits of these
subordination provisions.
For all purposes of these sections 1 through 12, inclusive, Senior Funded Debt
shall not be deemed to have been paid in full unless (i) the holders thereof (or
their duly authorized representatives) shall have received cash or readily
marketable securities, taken at their then market value, equal to the amount of
Senior Funded Debt at the time outstanding, or (ii) other equitable provisions
have been effected by action of a court of competent jurisdiction or agreement
among the holders of Senior Funded Debt.
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<PAGE> 89
CONSENT AND AMENDMENT NO. 1 (this "Amendment") dated November
4, 1991 to NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 15, 1989 made by and
among Teachers Insurance and Annuity Association of America ("Teachers") and
Herbert Kurz ("Kurz") on the one hand and Kroll Associates, Inc., Kroll
Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc. and Public
Advisory Services, Inc. on the other hand.
WHEREAS, the parties have entered in a Note Purchase Agreement
dated as of December 15, 1989 (the "Agreement"); and
WHEREAS, the parties wish to make certain amendments to the
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. (a) All capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Agreement.
(b) The following definition is hereby added to Section 9.1 of
the Agreement and shall have the meaning set forth below whenever used herein:
CONSOLIDATED PRO FORMA INTEREST EXPENSE: for any period, all
interest payable by the Obligors and their Restricted Subsidiaries during such
period in respect of Debt (including, without limitation, imputed interest on
Capital Lease Obligations) outstanding during such period after giving effect to
all Debt proposed to be created (but excluding any interest payable to JBK on
any loans or advances made by JBK to any of the Obligors or Restricted
Subsidiaries that such Obligor or Restricted Subsidiary incurred in reliance
solely on clause (d) of Section 6.2), using the applicable interest rates in
effect on the date of such determination and giving effect to all applicable
amortization schedules.
(c) Certain definitions contained in Section 9.1 of the
Agreement are hereby amended and restated in their entirety as follows:
CONSOLIDATED CURRENT ASSETS: the current assets of the
Obligors and their Restricted Subsidiaries, determined in accordance with GAAP
on a combined and consolidated basis, but excluding accounts receivable other
than accounts receivable (net of any collection reserves established with
respect thereto) not in excess of 360 days past the date of billing.
<PAGE> 90
CONSOLIDATED CURRENT LIABILITIES: the current liabilities of
the Obligors and their Restricted Subsidiaries, determined in accordance with
GAAP on a combined and consolidated basis, including, without duplication, Debt
incurred under revolving credit agreements with one or more commercial banks,
but excluding any interest payable to JBK on any loans or advances made by JBK
to any of the Obligors or Restricted Subsidiaries that such Obligor or
Restricted Subsidiary incurred in reliance solely on clause (d) of Section 6.2.
CONSOLIDATED FIXED CHARGES: for any period, the sum of (j) all
interest paid or payable by the Obligors and their Restricted Subsidiaries
during such period in respect of Debt (including, without limitation, imputed
interest on Capital Lease Obligations) outstanding during such period, using the
applicable interest rates in effect on the date of such determination and giving
effect to all applicable principal amortization schedules (but excluding any
interest payable to JBK on any loans or advances made by JBK to any of the
Obligors or Restricted Subsidiaries that such Obligor or Restricted Subsidiary
incurred in reliance solely on clause (d) of Section 6.2), PLUS (ii) all Rental
Obligations paid or payable by the Obligors and their Restricted Subsidiaries
during such period (in each case combined and consolidated in accordance with
GAAP).
CONSOLIDATED OPERATING CASH FLOW: for any period, Consolidated
Net Income for such period plus the net amount deducted in the determination
thereof for taxes on income or profit, all interest paid or payable by the
Obligors and their Subsidiaries during such period in respect of Debt
(including, without limitation, imputed interest on Capital Lease Obligations)
outstanding during such period, using the applicable interest rates in effect on
the date of such determination and giving effect to all applicable principal
amortization schedules (but excluding any interest payable to JBK on any loans
or advances made by JBK to any of the Obligors or Restricted Subsidiaries that
such Obligor or Restricted Subsidiary incurred in reliance solely on clause (d)
of Section 6.2), and the non-cash portion of the Phantom Plan, all combined and
consolidated in accordance with GAAP.
NET INCOME: for any period, for any Obligor, the net earnings
(or net deficit) of such Obligor and its Restricted Subsidiaries for such period
(taken as a cumulative whole) after deducting, without duplication, all
operating expenses, interest expenses (but excluding any interest payable to JBK
on any loans or advances made by JBK to any of the Obligors or Restricted
Subsidiaries that such Obligor or Restricted Subsidiary incurred in reliance
solely on clause (d) of Section 6.2), rentals, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP on a consolidated basis after
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<PAGE> 91
eliminating all intercompany items and deducting portions of income properly
attributable to outside minority interests, if any, in any Restricted
Subsidiary; PROVIDED, HOWEVER, that there shall be excluded:
(a) the proceeds of any life insurance policy;
(b) any gain arising from (I) the sale or other disposition
not in the ordinary course of business of any assets (other than current assets)
to the extent that the aggregate amount of the gain exceeds the aggregate amount
of losses from the sale, abandonment or other disposition of assets (other than
current assets), (II) any write-up of assets, (III) the acquisition of any
securities evidencing, or the extinguishment under GAAP of, Debt of such Person
or any Subsidiary of such Person or (IV) the termination of an employee benefit
plan;
(c) any amount representing the interest of such Obligor or
any such Restricted Subsidiary in the undistributed earnings of, and, for
purposes of determining "CONSOLIDATED NET INCOME" as used in the definition of
"ADJUSTED CONSOLIDATED NET INCOME" only, the undistributed losses of, any Person
other than a Restricted Subsidiary of such Obligor or Restricted Subsidiary, as
the case may be;
(d) any income or deficit, prior to the date of acquisition,
of any Person acquired in any manner by such Obligor or any of its Restricted
Subsidiaries;
(e) in the case of a successor to such Obligor or any of its
Restricted Subsidiaries by consolidation or merger or a transferee of its
assets, any earnings of, and, for purposes of determining "CONSOLIDATED NET
INCOME" as used in the definition of "ADJUSTED CONSOLIDATED NET INCOME ONLY" any
losses of, the successor or transferee corporation prior to the consolidation,
merger or transfer of assets;
(f) any restoration to income of any contingency reserve,
except to the extent provision for such reserve was made out of income accrued
during such period; PROVIDED, HOWEVER, that any such restoration to income shall
be included in "CONSOLIDATED NET INCOME" as used in the definition of "ADJUSTED
CONSOLIDATED NET INCOME" only;
(g) any net income of any Restricted Subsidiary of such
Obligor which for any reason is unavailable for the payment of dividends to such
Obligor; and
(h) any items properly classified as extraordinary in
accordance with GAAP.
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<PAGE> 92
RESTRICTED PAYMENT: (a) any payment or the incurrence of any
liability to make any payment, in cash, property or other assets (other than
shares of any class of capital stock (but not preferred stock) of any Obligor or
any Restricted Subsidiary) upon or in respect of any share of any class of
capital stock of such obligor, including, without limiting the generality of the
foregoing, payments as dividends and payments (other than out of the net cash
proceeds from the substantially concurrent sale of common shares of any Obligor
and other than the repurchase by any Obligor of shares of its common stock) for
the purpose of purchasing, retiring or redeeming any such shares of stock (or
any warrants or options evidencing a right to purchase any such shares of stock)
or making any other distribution in respect of any such shares of stock (or any
warrants or options evidencing a right to purchase any such shares of stock) and
(b) any interest payable to JBK on any loans or advances made by JBK to any of
the Obligors or Restricted Subsidiaries that such Obligor or Restricted
Subsidiary incurred in reliance solely on clause (d) of Section 6.2.
2. FIXED CHARGE COVERAGE. (a) Section 6.1(b) of the shall be
amended in its entirety to read as follows:
the ratio of Consolidated Earnings Available for Consolidated
Fixed Charges to Consolidated Fixed Charges to be less than
the following ratios at the end of the following periods:
<TABLE>
<CAPTION>
Minimum Time
Ratio Period
----- ------
<S> <C>
0.72 9 months ending 9/30/91
0.86 12 months ending 12/31/91
1.00 12 months ending 3/31/92
1.11 12 months ending 6/30/92
1.10 12 months ending 9/30/92
1.04 12 months ending 12/31/92
1.09 12 months ending 3/31/93
1.13 12 months ending 6/30/93
1.18 12 months ending 9/30/93
1.50 12 months ending 12/31/93
1.75 12 months ending on each fiscal
quarter after 12/31/93
</TABLE>
To the extent Kroll enters into a sublease arrangement with
regard to the space leased by it on the Eighth Floor at 900
Third Avenue, the parties shall negotiate in good faith to
modify the minimum ratios set forth above to reflect the
change to Kroll's Fixed Charges and to projected Consolidated
Earnings Available for Consolidated Fixed Charges resulting
therefrom.
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<PAGE> 93
(b) Teachers and Kurz waive compliance by the Obligors with
Section 6;1(b) as such section was in effect prior to this Amendment for the
fiscal quarters ending on December 31, 1990, March 31, 1991 and June 30, 1991.
3. DEBT. (a) Section 6.2(d) and Section 6.2(e) of the
Agreement are amended by moving the word "and" from the end of clause (i) of
each such section to the end of clause (ii) of each such section and by
inserting after clause (ii) of each such section an additional clause to read as
follows:
(iii) the ratio of Consolidated operating Cash Flow for the
most recently completed period of four fiscal quarters to
Consolidated Pro Forma Interest Expense for the following
twelve consecutive calendar months shall
not be less than 2.0 to 1.0.
(b) Section 6.2 of the Agreement is amended by adding the
following new clause (d) after clause (c) thereof:
(d) any Obligor and any Restricted Subsidiary may become and
remain liable in respect of Debt to JBK on account of loans or
advances made by JBK to such Obligor or Restricted Subsidiary;
and
and by redesignating current clauses (d) and (e) thereof as clauses (e) and (f),
respectively.
(c) The references to "6.2(d)" contained in Sections 4(c)(ii),
6.2(b), 6.5 and in the definition of "Funded Debt Incurrence Date" in Section
9.1 of the Agreement shall be replaced in each case by "6.2(e)".
(d) The references to "6.2(e)" contained in Sections 4(c)
(iii) and 6.2(b) of the Agreement shall be replaced in each case by "6.2(f)".
4. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) Section
6.8(a) of the Agreement is amended by adding the word "and" at the end of clause
(ii) thereof and adding an additional clause to read as follows:
(iii) the Obligors would be permitted to incur an
additional $1.00 of Senior Funded Debt under Section
6.2(e) hereof.
(b) Notwithstanding anything to the contrary contained in the
Agreement, Teachers and Kurz hereby consent to the advance made by Kroll during
the 1990 Fiscal Year of $2,700,000 to JBK in lieu of an equivalent dividend
PROVIDED that, notwithstanding Section 6.8(a) (A), the maximum Restricted
Payment that the Obligors shall be permitted to make during the fiscal years
5
<PAGE> 94
ending December 31, 1989 and December 31, 1990 pursuant to Section 6.8(a) shall
be $9,800,000 in the aggregate.
5. DEFINITIONS OF "MANAGING DIRECTORS AND MANAGEMENT TEAM".
The definitions of "Managing Directors" and "Management Team" contained in the
second paragraph of Section 6.13 are hereby amended to read as follows:
"MANAGING DIRECTORS" shall mean Charles E. Bohlen, Jr.,
Ernest Brod, David C. Cook, Robert S. Dines, Don Doll,
Bruce Dollar, John C. Gibbons, Patrick Grayson, Jerry
Harrison, Thomas Helsby, John T. Horn, Brian Jenkins,
Daniel Karson, William Kish, Robert J. McGuire, Thomas McKeon,
Richard Post, David E. Rosenthal, Joseph Rosetti, Steven M.
Rucker, Arish Turle, Stephen E. Vale, Frederick Schmidt and
any other individual who shall be approved in writing by the
holder or holders of at least 66-2/3 in aggregate unpaid
principal amount of all Notes at the time outstanding; and
"MANAGEMENT TEAM" shall mean Ernest Brod, John C. Gibbons,
Patrick Grayson, Jerry Harrison, Thomas Helsby, Daniel Karson,
Robert J. McGuire, Thomas McKeon, Richard Post, Joseph
Rosetti, Frederick Schmidt and any other individual who shall
be approved in writing by the holder or holders of at least
66-2/3 in aggregate unpaid principal amount of all Notes at
the time outstanding.
6. CASH REQUIREMENTS. (a) Article 6 of the Agreement amended
by the addition of a new Section 6.14 to read as follows:
6.14 CASH REQUIREMENTS (a) The obligors will not permit the
aggregate amount of Cash of the Obligors and their Restricted
Subsidiaries (i) at any time while the aggregate principal
amount outstanding under the Notes exceeds $18,000,000, to be
less than $2,000,000 and (ii) at all other times, to be less
than $1,500,000. For the purposes of this Section 6.14, "Cash"
shall be deemed to include Investments of the character
permitted by Section 6.7(a) hereof which are owned by JBK and
are deposited into an account under the control of one or more
of the obligors such that such Investments shall be available
to such Obligor or Obligors for the payment of its or their
obligations.
(b) Provided that no Event of Default has occurred and is
continuing, prior to the utilization of any Investments owned
by JBK that have been deposited in an account under the
control of one or more Obligors to satisfy obligations of such
obligor or Obligors, any income accruing on any such
Investments shall be
6
<PAGE> 95
payable to JBK, and such payments shall not be deemed to be
Restricted Payments.
(b) Any loans or advances made to any Obligor by JBK may be
repaid by such Obligor to JBK in the form of dividends, advances or otherwise,
without restriction by Section 6.4, Section 6.7 or Section 6.8 of the Agreement,
PROVIDED that immediately after giving effect to any such repayment no condition
or event shall exist which would otherwise constitute a Default or an Event of
Default, including without limitation, a failure to comply with Section 6.14.
7. INTEREST RATE. (a) Interest payable on the Notes shall be
increased as follows. Commencing May 1, 1991, the interest rate on the Notes
shall be increased by an additional .40% per annum (computed on the basis of a
360-day year of twelve 30-day months) from 10.55% per annum to 10.95% per annum.
Such additional interest shall be compounded semiannually, commencing June 15,
1991, until December 15, 1993, on which date all such additional interest which
shall have accrued shall become payable. Thereafter, the Notes shall continue to
bear interest at the rate of 10.95% per annum, all of which interest shall be
payable semiannually on June 15 and December 15 of each year, beginning with
June 15, 1994.
(b) At the request of any holder of Notes, the Obligors will
deliver new Notes, in form acceptable to such holder, reflecting the foregoing
modifications to the interest rate.
(c) There shall be included in each Officers' Certificate
required to be delivered pursuant to Section 4(c) the amount of additional
interest, if any, that shall have accrued and compounded during the period
covered by the financial statements to which such Officers' Certificate relates
and the aggregate amount of all such accrued and compounded interest remaining
unpaid.
8. INTERPRETATION. In the event of any inconsistency between
any provision of the Agreement and the express provisions of this Amendment, the
express provisions of this Amendment shall govern. As amended hereby, the
Agreement shall remain in full force and effect.
9. NO EVENT OF DEFAULT. Each Obligor hereby represents and
warrants that as of the date hereof there exists no Event of Default under the
Agreement.
10. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument. This Amendment shall
7
<PAGE> 96
become effective, as of the date hereof, when counterparts hereof have been
signed by all of the parties hereto.
IN WITNESS WHEREOF, this Amendment has been executed and
delivered as of the date first written above.
KROLL ASSOCIATES, INC.
By
----------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By
----------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By
----------------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By
----------------------------
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Mary Ann R. Mattoon
----------------------------
Mary Ann R. Mattoon
Title: Assoc. Director Private Placements
HERBERT KURZ
/s/ Herbert Kurz
------------------------------
8
<PAGE> 97
SECOND AMENDMENT AND ASSUMPTION
AGREEMENT TO NOTE PURCHASE AGREEMENT
Second Amendment and Assumption Agreement dated as of October
16, 1992 (this "Amendment") made by and among Teachers Insurance and Annuity
Association of America ("Teachers") and Herbert Kurz ("Kurz") on the one hand,
and Kroll Inc., Kroll Associates, Inc., Kroll Associates U.K. Limited,
Harrison/Kroll Environmental Services, Inc. and Public Advisory Services, Inc.
on the other hand, amending that certain Note Purchase Agreement dated as of
December 15, 1989, as amended.
WHEREAS, Teachers and Kurz on the one hand, and Kroll
Associates, Inc., Kroll Associates U.K. Limited, Harrison/Kroll Environmental
Services, Inc. and Public Advisory Services, Inc. on the other hand, are parties
to that certain Note Purchase Agreement dated as of December 15, 1989, which
agreement was amended by the parties thereto pursuant to a Consent and Amendment
No. 1 to Note Purchase Agreement dated as of November 4, 1991 (as amended, the
"Agreement"); and
WHEREAS, Section 8.1(k) of the Agreement provides that it
shall constitute an Event of Default if Jules B. Kroll shall became the majority
shareholder of any Person which is in a line of business substantially similar
to the business of any Obligor and such Person fails to become a party to the
Agreement within 60 days of Jules B. Kroll's acquisition of such ownership
interest; and
WHEREAS, on July 6, 1992 Jules B. Kroll became the owner of
all of the outstanding share capital of Kroll, Inc., a Delaware corporation; and
WHEREAS, Kroll, Inc., upon acquiring on August 21, 1992,
substantially all of the assets and the business of Palumbo Partners, Inc., a
Florida corporation, pursuant to an asset purchase agreement dated as of August
4, 1992, became a Person in a line of business substantially similar to the
businesses of certain other Obligors under the Agreement; and
WHEREAS, the parties wish to enter into this Amendment to the
Agreement and cause Kroll, Inc. hereby to become a party to the Agreement and an
Obligor of the Notes issued thereunder;
NOW, THEREFORE, for good consideration and pursuant to the
mutual covenants provided for herein, the parties hereto hereby agree as
follows:
<PAGE> 98
1. DEFINITIONS. All capitalized terms shall have the
respective meanings ascribed to them in the Agreement unless otherwise defined
herein.
2. ASSUMPTION OF OBLIGATIONS BY KROLL INC. From the date
hereof, upon the execution and delivery of this Amendment, Kroll, Inc. shall be
a party to the Agreement and an obligor of the Notes issued thereunder and shall
assume all duties and obligations of the Obligors under the Agreement and the
Notes issued thereunder.
3. AMENDMENT TO RECITAL OF THE AGREEMENT. The recital to the
Agreement is amended by deleting it in its entirety and replacing it with the
following paragraph:
"KROLL ASSOCIATES, INC., a Delaware corporation (herein,
together with its successors and assigns, ("KROLL"), KROLL
ASSOCIATES U.K. LIMITED, a corporation organized under the
laws of England (herein, together with its successors and
assigns, ("Kroll U.K."), HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC, a Louisiana corporation (herein, together with
its successors and assigns, "H/K ENVIRONMENTAL"), PUBLIC
ADVISORY SERVICES, INC., a Delaware corporation, (herein,
together with its successors and assigns, "PUBLIC"), and
KROLL, INC., a Delaware corporation (herein, together with its
successors and assigns, "KROLL, INC." and together with Kroll,
Kroll U.K., H/K Environmental and Public, referred to herein
individually as an "OBLIGOR" and collectively as the
"OBLIGORS"), hereby agree with you as follows:"
4. COMPLIANCE WITH SECTION 8.1(K). This Amendment has been
executed and delivered by Kroll, Inc. in accordance with and pursuant to Section
8.1(k) of the Agreement, and each of Teachers and Kurz hereby agree (i) that
Kroll, Inc. has complied in a timely manner with the requirements of Section
8.1(k) and (ii) that the acquisition of all the outstanding stock of Kroll, Inc.
by Jules B. Kroll shall not be deemed to have resulted in an occurrence or
continuation of an Event of Default under the Agreement.
5. INTERPRETATION. In the event of any inconsistency between
any provision of the Agreement and the express provisions of this Amendment, the
express provisions of this Amendment shall govern.
6. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument. This Amendment shall
2
<PAGE> 99
become effective, as of the date hereof, when counterparts hereof have been
signed by all of the parties hereto.
IN WITNESS WHEREOF, this Amendment has been executed and
delivered as of the date first written above.
KROLL, INC.
By /s/ Jules Kroll
-------------------------
Title:
KROLL ASSOCIATES, INC.
By /s/ Jules Kroll
-------------------------
Title:
3
<PAGE> 100
KROLL ASSOCIATES U.K. LIMITED
By /s/ Jules Kroll
-------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By /s/ Jules Kroll
-------------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By /s/ Jules Kroll
---------------------------
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
-------------------------
Title:
HERBERT KURZ
By
-------------------------
Title:
4
<PAGE> 101
CERTIFICATE OF KROLL, INC.
--------------------------
The undersigned, being the Treasurer of Kroll, Inc. ("Kroll"),
hereby certifies to each of Teachers Insurance and Annuity Association of
America ("Teachers") and Herbert Kurz ("Kurz"), that the execution and delivery
by Kroll of the Second Amendment and Assumption Agreement dated as of October
16, 1992, made by and among Teachers and Kurz on the one hand, and Kroll, Inc.,
Kroll Associates, Inc., Kroll Associates U.K. Limited, Harrison/Kroll
Environmental Services, Inc. and Public Advisory Services, Inc. on the other
hand, amending that certain Note Purchase Agreement dated as of December 15,
1989, as amended by the parties thereto pursuant to a Consent and Amendment No.
1 dated as of November 4, 1991 (as amended, the "Agreement"), shall not result
in the occurrence or continuance of an Event of Default (as defined in the
Agreement) under the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this
certificate as of the date set forth below.
New York, New York By: /s/ Nazzareno Paciotti
October 16, 1992 -----------------------------
Nazzareno Paciotti
5
<PAGE> 102
THIRD AMENDMENT, ASSUMPTION AND WAIVER
AGREEMENT TO NOTE PURCHASE AGREEMENT
Third Amendment, Assumption and Waiver Agreement dated as of September
30, 1993 (this "Amendment") made among Teachers Insurance and Annuity
Association of America ("Teachers") and Kroll Associates, Inc., Palumbo
Partners, Inc. (formerly known as Kroll, Inc.), Kroll Associates U.K limited,
Kroll Environmental Enterprises, Inc. ("Kroll Enterprises"), Harrison/Kroll
Environmental Services, Inc. and Public Advisory Services, Inc.
WHEREAS, Teachers and Herbert Kurz ("Kurz" together with Teachers, are
referred to as the "Purchasers") on the one hand, and Kroll Associates, Inc.,
Palumbo Partners, Inc. (formerly Kroll, Inc.), Kroll Associates U.K limited,
Harrison/Kroll Environmental Services, Inc. ("H/K Environmental"), and Public
Advisory Services, Inc. on the other hand, have entered into a Note Agreement
dated as of December 15, 1989, which agreement was amended by the parties
thereto pursuant to a Consent and Amendment No.1 to Note Purchase Agreement
dated as of November 4, 1991 and a Second Amendment and Assumption Agreement to
Note Purchase Agreement dated as of October 16, 1992 (as amended, the
"Agreement");
WHEREAS, Public Advisory Services, Inc. ("Public Advisory"), a Delaware
corporation and an Obligor under the Agreement, has ceased to conduct business
and has no assets and the Obligors wish to obtain the consent of Teachers to
dissolve Public Advisory;
WHEREAS, the Obligors wish to obtain the consent of Teachers to change
the domicile of H/K Environmental from Louisiana to Delaware through a merger
(the "Merger") of H/K Environmental into Kroll Enterprises, a newly-formed
Delaware company; and
WHEREAS, the parties wish to enter into this Amendment to the
Agreement;
NOW, THEREFORE, for good consideration and pursuant to the mutual
covenants provided for herein, the parties hereby agree as follows:
1. DEFINITIONS. All capitalized terms shall have the respective
meanings ascribed to them in the Agreement unless otherwise defined herein.
2. REPRESENTATIONS BY THE OBLIGORS. Each Obligor hereby represents and
warrants
-5-
<PAGE> 103
that:
(a) Public Advisory has ceased to conduct business and has no assets,
and
(b) At the time of and immediately after giving effect to the Merger,
(1) no Default or Event of Default has occurred or is continuing and (2) the
Obligors shall be permitted to incur $1.00 of additional Funded Debt pursuant to
Section 6.2(e).
3. WAIVER OF CERTAIN TERMS. For the sole purpose of permitting the
dissolution of Public Advisory, Teachers hereby agrees to waive Sections 6.6 and
6.11(a) of the Agreement.
4. ASSUMPTION OF OBLIGATIONS BY KROLL ENTERPRISES. From the date
hereof; upon the execution and delivery of this Amendment, Kroll Enterprises
shall be a party to the Agreement and an Obligor of the Notes issued thereunder
and shall assume all duties and obligations under the Note Agreement and the
Notes issued thereunder.
5. THE MERGER. Pursuant to Section 6.6 of the Agreement, but subsequent
to the effective date of this Amendment, H/K Environmental will merge into Kroll
Enterprises.
6. AMENDMENT TO RECITAL OF THE AGREEMENT. The recital to the Agreement
is amended by deleting it in its entirety and replacing it with the following
paragraph:
KROLL ASSOCIATES, INC., a Delaware corporation (herein,
together with its successors and assigns, "Kroll"), KROLL
ASSOCIATES U.K LIMITED, a corporation organized under the laws
of England (herein, together with its successors and assigns,
"Kroll U.K"), KROLL ENVIRONMENTAL ENTERPRISES, INC., a
Delaware corporation (herein, together with its successors and
assigns, "KROLL ENTERPRISES"), Harrison/Kroll Environmental
Services, Inc., a Louisiana corporation (herein together with
its successors and assigns, "H/K ENVIRONMENTAL"), and PALUMBO
PARTNERS, INC., a Delaware corporation (formerly known as
Kroll, Inc., together with its successors and assigns,
"Palumbo Partners," and together with Kroll, Kroll U.K, Kroll
Enterprises, and H/K Environmental referred to herein
individually as an "Obligor" and collectively as the
"Obligors"), hereby agree with you as follows:
7. INTERPRETATION. In the event of any inconsistency between any
provision of the Agreement and the express provisions of the Amendment, the
express provisions of this Amendment shall govern.
<PAGE> 104
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and which together shall
constitute one and the same instrument. This Amendment shall become effective,
as of the date hereof, when counterparts hereof have been signed by all of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
KROLL ASSOCIATES, INC.
By: /s/ Jules Kroll
---------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules Kroll
---------------------------
Title:
PALUMBO PARTNERS, INC.
By: /s/ Jules Kroll
---------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By: /s/ Jules Kroll
---------------------------
Title:
<PAGE> 105
KROLL ENVIRONMENTAL ENTERPRISES,
INC.
By: /s/ Jules Kroll
---------------------------
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATIONS OF AMERICA
By: /s/ Mary Ann R. Mattoon
---------------------------
Mary Ann R. Mattoon
Title: Director-Private Placements
<PAGE> 106
FOURTH AMENDMENT AND WAIVER AGREEMENT
TO NOTE PURCHASE AGREEMENT
Fourth Amendment and Waiver Agreement dated as of September 30, 1994
(this "Amendment") made among Teachers Insurance and Annuity Association of
America ("Teachers") and Herbert Kurz ("Kurz" together with Teachers, the
"Purchasers") on the one hand and Kroll Associates, Inc., Kroll Information
Services, Inc. (formerly known as Palumbo Partners, Inc.) Kroll Associates U.K
Limited and Kroll Environmental Enterprises, Inc. (collectively "Kroll").
WHEREAS, the Purchasers and Kroll have entered into a Note Purchase
Agreement dated as of December 15, 1989 which agreement was amended by the
parties thereto pursuant to a Consent and Amendment No. 1 to Note Purchase
Agreement dated as of November 4, 1991, a Second Amendment and Assumption
Agreement to Note Purchase Agreement dated as of October 16, 1992 and a Third
Amendment, Assumption and Waiver Agreement to Note Purchase Agreement dated as
of September 30, 1993 (as amended, the "Agreement"); and
WHEREAS, the parties wish to make certain amendments to the Agreement
and waive certain other provisions of the Agreement.
NOW, THEREFORE, for good consideration and pursuant to the mutual
covenants provided for herein, the parties hereby agree as follows:
1. DEFINITIONS (a) All capitalized terms shall have the respective
meanings ascribed to them in the Agreement unless otherwise defined herein.
2. REQUIRED ANNUAL PREPAYMENTS AND PAYMENT AT MATURITY OF THE NOTES.
Section 3.1 (a) of the Agreement shall be amended in its entirety to read as
follows:
(a) There shall become due and payable, and the Obligors will
pay on the respective required payment dates (the "Required
Payment Date"), the principal amount of the Notes, (or such
lesser principal amount as shall then be outstanding), as
specified in the table below:
<TABLE>
<CAPTION>
Required Payment Date Required Payment
--------------------- ----------------
<S> <C>
September 30, 1994 $1,000,000
December 31, 1994 $2,500,000
June 30, 1995 $1,000,000
December 31, 1995 $2,500,000
December 15, 1996 $2,500,000
December 15, 1997 $2,500,000
December 15, 1998 $2,500,000
December 15, 1999 $3,000,000
</TABLE>
<PAGE> 107
-2-
PROVIDED, HOWEVER, the last such payment shall not be less
than the unpaid principal amount of the Notes then
outstanding. Each such payment and the final payment pursuant
to this Section 3.1 shall be at 100% of the principal amount
to be prepaid, together with interest accrued thereon to the
date of such prepayment without premium.
(b) Section 3.1 of the Agreement is amended by adding the following new
clause (b) after Clause (a) thereof:
(b) If the aggregate principal amount of the Notes shall
exceed $10,000,000 prior to January 1, 1996, then within 35
days of each Required Payment Date, the Obligors will pay and
there shall become due and payable to the Purchasers a payment
of Excess Cash, (the "Excess Cash Payment"), PROVIDED,
HOWEVER, that the Excess Cash Payment shall not reduce the
aggregate principal amount of the Notes to less than
$10,000,000. All such Excess Cash Payments shall be
immediately applied to reduce the outstanding aggregate
principal amount of the Notes in inverse order of maturity.
Notwithstanding any other provision herein, no Excess Cash
Payment will be due on or after January 1, 1996. On each
Required Payment Date, the Obligor shall give each holder an
Officer's Certificate specifying the calculation of Excess
Cash and the date, if any, of the Excess Cash Payment. For the
purpose of this Section 3.1, Excess Cash shall mean for the
fiscal years ended December 31, 1994 and 1995, the result
obtained, rounded to the nearest $100,000, by subtracting (a)
the Obligors' projected Cash balance (as stated in the
attached Schedule I) plus $250,000 from (b) the Obligors'
Cash.
and by redesignating clauses (b) and (c) thereof as clauses (c) and (d),
respectively.
3. FIXED CHARGE COVERAGE. (a) Section 6.1 (b) of the Agreement shall be
amended in its entirety to read as follows:
(b) the ratio of Consolidated Earnings Available for Consolidated Fixed
Charges for the most recently completed period of twelve consecutive
months to Consolidated Fixed Charges for such period to be less than
(I) at the end of the fiscal quarter ending on September 30, 1994, 1.29
to 1.00, (II) at the end of the fiscal quarter ending on December 31,
1994, 1.65 to 1.00 and (III) at the end of any fiscal quarter ending
thereafter 1.75 to 1.00.
<PAGE> 108
-3-
(b) The Purchasers hereby waive compliance by the Obligors with Section
6.1 (b) as such section was in effect prior to this Agreement for the fiscal
quarter ending June 30, 1994.
4. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a) Section 6.8 (a)
of the Agreement is hereby amended by adding the phrase "or business
acquisition" immediately after the term "Restricted Investment" in the seventh
line thereof.
(b) Section 6.8 (a) of the Agreement is hereby amended by moving the
word "and" from the end of clause (ii) to the end of clause (iii) and adding an
additional clause (iv) to read as follows:
(iv) the aggregate principal amount of the Notes shall not exceed
$10,000,000 PROVIDED, HOWEVER, that this provision shall not preclude
the Obligors from making Restricted Payments to JBK after September 30,
1994, not to exceed $1,000,000 in the aggregate, if such Restricted
Payments were made after consultation with the Purchasers.
5. MISCELLANEOUS. (a) In the event of any inconsistency between any
provision of the Agreement and the express provisions of this Amendment, the
express provisions of this Amendment shall govern.
(b) Except as expressly amended and waived herein all provisions of the
Agreement shall remain in full force and effect.
(c) This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument.
<PAGE> 109
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized person, as of the day and year
first written above.
KROLL, INC.
By: /s/ Jules Kroll
---------------------------
Title:
KROLL INFORMATION SERVICES,
INC.
By: /s/ Jules Kroll
---------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules Kroll
---------------------------
Title:
KROLL ENVIRONMENTAL
ENTERPRISES, INC.
By: /s/ Jules Kroll
---------------------------
Title:
THE PURCHASERS:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Glenn S. Brausa
---------------------------
Glenn S. Brausa
Title: ?
HERBERT KURZ
By /s/ Herbert Kurz
---------------------------
<PAGE> 110
KROLL ASSOCIATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUMMARY BALANCE SHEET: 1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS (81) (293) 814 3,667 5,762
ACCOUNTS RECEIVABLE* 26,323 28,005 25,701 25,009 25,118
OTHER CURRENT ASSETS 2,627 2,743 2,744 2,743 2,742
OTHER 10,500 10,500 10,500 10,500 10,500
------- ------- ------- ------- -------
TOTAL ASSETS 39,369 40,956 39,758 41,919 44,121
======= ======= ======= ======= =======
ACCOUNTS PAYABLE AND ACCRUED EXP 6,601 8,729 9,374 10,311 11,342
OTHER CURRENT LIABILITIES 8,350 8,350 8,350 8,350 7,950
LONG TERM DEBT 11,600 8,100 4,600 2,100 0
OTHER 8,615 7,606 6,406 5,206 4,006
------- ------- ------- ------- -------
TOTAL LIABILITIES 35,168 32,785 28,730 25,967 23,298
SHAREHOLDERS EQUITY 4,203 8,170 11,029 15,951 20,823
------- ------- ------- ------- -------
TOTAL LIABILITIES AND 39,369 40,956 39,758 41,918 44,121
SHAREHOLDERS EQUITY ======= ======= ======= ======= =======
</TABLE>
*Includes Unbilled Accounts Receivable
<PAGE> 111
FIFTH AMENDMENT AND WAIVER AGREEMENT
TO NOTE PURCHASE AGREEMENT
Fifth Amendment and Waiver Agreement dated as of November 20, 1995
(this "Amendment") made among Teachers Insurance and Annuity Association of
America ("Teachers") and Herbert Kurz ("Kurz", together with Teachers, the
"Purchasers") on the one hand and Kroll Associates, Inc., Kroll Information
Services, Inc. (formerly known as Palumbo Partners, Inc.) Kroll Associates U.K
Limited and Kroll Environmental Enterprises, Inc. (collectively "Kroll")
WHEREAS, the Purchasers and Kroll have entered into a Note Purchase
Agreement dated as of December 15, 1989 which agreement was amended by the
parties thereto pursuant to a Consent and Amendment No. 1 to Note Purchase
Agreement dated as of November 4, 1991, a Second Amendment and Assumption
Agreement to Note Purchase Agreement dated as of October 16, 1992, a Third
Amendment, Assumption and Waiver Agreement to Note Purchase Agreement dated as
of September 30, 1993 (as amended, the "Agreement") and a Fourth Amendment and
Waiver Agreement dated as of September 30, 1994; and
WHEREAS, the parties wish to make certain amendments to the Agreement
and waive certain other provisions of the Agreement.
NOW, THEREFORE, for good consideration and pursuant to the mutual
covenants provided for herein, the parties hereby agree as follows:
1. DEFINITIONS. All capitalized terms shall have the respective
meanings ascribed to them in the Agreement unless otherwise defined herein.
2. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS. The Purchasers hereby
waive compliance by the Obligors with Sections 6.1 (a) and 6.1 (b) of the
Agreement for the respective fiscal periods through January 1, 1996.
3. EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY. Section 8.1 (b)
of the Agreement is hereby amended in its entirety to read as follows:
(b) default shall be made in the payment of any interest on any Note
when and as such interest shall become due and payable;
4. MISCELLANEOUS (a) In the event of any inconsistency between any
provision of the Agreement and the express provisions of this Amendment, the
express provisions of this Amendment shall govern.
<PAGE> 112
(b) Except as expressly amended and waived herein all provisions of the
Agreement shall remain in full force and effect.
(c) This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized person, as of the day and year
first written above.
KROLL ASSOCIATES, INC.
By: /s/ Jules Kroll
------------------------------
Title:
KROLL INFORMATION SERVICES, INC.
By: /s/ Jules Kroll
------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By: /s/ Jules Kroll
------------------------------
Title:
KROLL ENVIRONMENTAL ENTERPRISES,
INC.
By: /s/ Jules Kroll
------------------------------
Title:
THE PURCHASERS:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Glenn S. Brausa
-----------------------------
Title:?
HERBERT KURZ
By: /s/ Herbert Kurz
------------------------------
<PAGE> 113
SIXTH AMENDMENT AND WAIVER AGREEMENT
TO NOTE PURCHASE AGREEMENT
Sixth Amendment and Waiver Agreement dated as of January 29, 1996 (this
"Amendment") in and among Teachers Insurance and Annuity Association of America
("Teachers") and Herbert Kurz ("Kurz", together with Teachers, the "Purchasers"
or "Noteholders") on the one hand and Kroll Associates, Inc., Kroll Information
Services, Inc. (formerly known as Palumbo Partners, Inc.) Kroll Associates U.K.
Limited and Kroll Environmental Enterprises, Inc. (collectively "Kroll").
WHEREAS, the Purchasers and Kroll have entered into a Note Purchase
Agreement dated as of December 15, 1989 which agreement was amended by the
parties thereto pursuant to a Consent and Amendment No. 1 to Note Purchase
Agreement dated as of November 4, 1991, a Second Amendment and Assumption
Agreement to Note Purchase Agreement dated as of October 16, 1992, a Third
Amendment, Assumption and Waiver Agreement to Note Purchase Agreement dated as
of September 30, 1993, a Fourth Amendment and Waiver Agreement dated as of
September 30, 1994, and a Fifth Amendment and Waiver Agreement dated as of
November 20, 1995 (as amended, the "Agreement"); and
WHEREAS, the parties wish to make certain amendments to the Agreement.
NOW, THEREFORE, for good consideration and pursuant to the mutual
covenants provided for herein, the parties hereby agree as follows:
1. Definitions. All capitalized terms shall have the respective
meanings ascribed to them in the Agreement unless otherwise defined herein.
2. Section 1.1. of the Agreement is hereby amended in its entirety to
read as follows:
1.1. AUTHORIZATION OF NOTES. Each of the Obligors has duly
authorized the issuance and sale of $20,000,000 in aggregate
principal amount of their joint and several 10.55% Senior
Notes due December 15, 1999 (together with all notes issued in
substitution or exchange therefor in accordance with the terms
of this Agreement, the "Notes"). Pursuant to the Sixth
Amendment and Waiver Agreement dated as of January 29, 1996,
between the Obligors and the holders of the Notes, the Notes
have been amended, effective as of the Effective Date (as
defined in Section 11 of the Amendment) to provide that (i)
the Notes shall bear
<PAGE> 114
interest on the unpaid principal amount thereof at the rate of
10.95% per annum (computed on the basis of a 360-day year of
twelve 30-day months) payable quarterly on March 15, June 15,
September 15 and December 15 of each year commencing on March
15, 1996 (the "Quarterly Payment Date"), and with interest on
any overdue principal (including any overdue prepayment of
principal) and (to the extent permitted by applicable law) on
any overdue premium and any overdue interest, at the rate of
11.95% per annum until paid, and (ii) the Notes will mature
and be payable as to the entire remaining principal amount
thereof on December 15, 1999. The Notes shall be substantially
in the form of Exhibit A. Capitalized terms used and not
otherwise defined herein shall have the respective meanings
assigned thereto in Section 9.
3. (a) Section 3.1. (a) of the Agreement shall be amended in its
entirety to read as follows
3.1. REQUIRED ANNUAL PREPAYMENTS AND PAYMENT AT MATURITY OF
THE NOTES. (a) On December 15, 1996 and on each December 15
thereafter to and including December 15, 1998 (so long as any
Notes shall remain outstanding), the Obligors will prepay and
there shall become due and payable, $2,500,000 in aggregate
principal amount of the Notes (or such lesser principal amount
as shall then be outstanding) , and on December 15, 1999, the
Obligors will pay, and there shall become due and payable, the
entire remaining unpaid principal amount of the Notes together
with all accrued and unpaid interest thereon. Each such
prepayment and the final payment made pursuant to this Section
3.1 shall be at 100% of the principal amount so to be prepaid
together with interest accrued thereon to the date of such
prepayment, without premium.
(b) Section 3.1. (b) of the Agreement shall be amended in its entirety
to read as follows:
(b) As long as any Note shall remain outstanding, the Obligors
will pay and there shall become due and payable to the
Purchasers, a payment of Excess Cash (the "Excess Cash
Payment"). The Excess Cash Payment shall be paid within 15
days after a Quarterly Payment Date. The Excess Cash Payment
shall be applied to reduce the aggregate principal amount of
the Notes without premium. The aggregate amount of Excess Cash
Payments made in any year shall be applied to the required
principal payment due for that particular year; provided,
however, that the Obligors shall not be required, in any given
year, to make aggregate
2
<PAGE> 115
principal payments, whether in the form of Excess Cash
Payments or otherwise, in excess of the required principal
amount due in such year. On each Quarterly Payment Date, the
Obligors shall give each holder an Officer's Certificate
specifying the calculation of Excess Cash and the date, if
any, of the Excess Cash Payment. For the purposes of this
Section 3.1, Excess Cash shall mean the result obtained by
subtracting (i) cash disbursements (including all payments on
the Notes and scheduled interest payments on the JBK Debt)
plus $1,200,000 from (b) cash from operations generated by the
Obligors. For the purposes of calculating Excess Cash, cash
from operations generated by the Obligors shall include cash
available (cash receipts less cash disbursements) at Kroll
Associates (Asia) Limited, a Hong Kong corporation, in excess
of $100,000.
4. Section 6.1 of the Agreement is hereby amended in its entirety to
read as follows:
6.1. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS. The Obligors will not
permit:
(a) at the end of any fiscal month, Consolidated Modified
Working Capital as at such date to be less than $8,000,000;
(b) the ratio of Consolidated Earnings Available for
Consolidated Fixed Charges for the most recently completed
period of twelve consecutive months to Consolidated Fixed
Charges for such period to be less than (I) at the end of the
fiscal quarter ending on March 31, 1996, .32 to 1.00, (II) at
the end of the fiscal quarter ending on June 30, 1996, .75 to
1.00, (III) at the end of the fiscal quarter ending on
September 30, 1996, 1.00 to 1.00, (IV) at the end of the
fiscal quarter ending on December 31, 1996, 1.2 to 1.00, (x)
at the end of the fiscal quarter ending on March 31, 1997,
1.35 to 1.001 (VI) at the end of the fiscal quarter ending
June 30, 1997, 1.55 to 1.00, (VII) at the end of the fiscal
quarter ending September 30, 1997, 1.65 to 1.00 and (VIII) at
the end of any fiscal quarter ending thereafter, 1.75 to 1.00.
5. Section 6.2 of the Agreement is hereby amended in its entirety to
read as follows:
6.2. DEBT. The Obligors will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create,
assume, incur, or otherwise become or be
3
<PAGE> 116
directly or indirectly liable in respect of 1 by way of
Guarantee or otherwise, any Funded Debt or Current Debt,
except that:
(a) the Obligors may become and remain liable in respect of
the Funded Debt evidenced by the Notes;
(b) the Obligors may become and remain liable with respect to
the "BK Debt; and
(c) the Obligors may become and remain liable with respect to
non-interest bearing Debt owing to Kroll Asia, incurred to fund any
Excess Cash Payment.
6. Section 6.6 of the Agreement is hereby amended by deleting clause
(2) in the last paragraph of said Section.
7. Section 6.7 of the Agreement is hereby amended in its entirety to
read as follows:
6.7. INVESTMENTS, ETC. No Obligor will, and no Obligor will
permit any of its Restricted Subsidiaries to, directly or indirectly
through a Restricted Subsidiary or otherwise, make or own any
Investment, except:
(a) the Obligors and their Restricted Subsidiaries may make
and own Investments in (I) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or by any
agency thereof which in the case of the latter are supported by the
full faith and credit of the United States of America ("GOVERNMENT
OBLIGATIONS"), in each case having a maturity not in excess of 30 days
from the date of acquisition thereof; (II) commercial paper maturing
not later than 30 days from the date of creation thereof of Chemical
Bank or of corporations organized under the laws of the United States
of America and having the rating of at least P-i or A-i or such other
comparable rating by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); (III) demand deposit accounts
with, or certificates of deposit or bankers' acceptances issued by,
Chemical Bank or any commercial bank or trust company organized under
the laws of the United States of America or any state thereof having
capital, surplus and undivided profits of at least $200,000,000 and
rated at least A by Moody's or S&P; and (IV) repurchase agreements
issued by registered government securities broker-dealers, primary
dealers, or commercial bank or trust company meeting the requirements
of subclause (III) above, having terms of less than 30 days.
4
<PAGE> 117
(b) the Obligors and their Restricted Subsidiaries may make
and own Investments in any Obligor or any Restricted Subsidiary or any
Person which is or simultaneously therewith becomes a Restricted
Subsidiary;
(c) the Obligors may continue to own the Investments existing
on the date hereof and described in Schedule III, PROVIDED that if any
such Investments are sold after the date hereof, the proceeds thereof
may not be reinvested unless otherwise permitted by some clause of this
Section 6.7; and
(d) the Obligors and their Restricted Subsidiaries may make
and own Investments in property to be used in the ordinary course of
business of the Obligor.
For all purposes of this Section 6.7, Investments owned by any Person at the
time it becomes a Restricted Subsidiary shall be deemed to be made at such time.
8. Section 6.8 of the Agreement is hereby amended in its entirety to
read as follows:
6.8. RESTRICTED PAYMENTS. The Obligors will not directly, or
indirectly through a Restricted Subsidiary or otherwise,
declare, pay, make or set apart any sum or property for any
Restricted Payment; provided, however, as long as no Default
or Event of Default exists, if, on any Quarterly Payment Date,
the Obligors have made the full interest payment and principal
and premium payments, if any, on the Notes, the Obligors may
make the interest payment accrued or currently due on the "BK
Debt; and further provided that this provision shall not
preclude the Obligors from making principal payments on the
"BK Debt after December 15, 1997, if such payments are made
after consultation with and approval by the Purchasers.
9. Section 9.1 of the Agreement shall be amended by:
(a) amending the definition of CONSOLIDATED MODIFIED WORKING
CAPITAL in its entirety to read as follows:
CONSOLIDATED MODIFIED WORKING CAPITAL: at any date of determination
thereof, Consolidated Current Assets MINUS the aggregate amount of Cash
on hand of the Obligors and their Restricted Subsidiaries MINUS
Consolidated Current Liabilities but excluding current maturities
thereon.
(b) amending the definition of RESTRICTED PAYMENT in
5
<PAGE> 118
its entirety to read as follows:
RESTRICTED PAYMENT: shall mean (a) any payment or the incurrence of any
liability to make any payment, in cash, property or other assets (other
than shares of any class of capital stock (but not preferred stock) of
any Obligor or any Restricted Subsidiary) upon or in respect of any
share of any class of capital stock of such Obligor, (b) any purchase,
redemption, retirement or other acquisition of any shares of capital
stock of, or any partnership interest of, the Obligors or any
Restricted Subsidiary, now or hereafter outstanding, and (c) any
payment of principal on the "BK Debt.
(c) inserting therein the following new definition: BK DEBT:
the loan from Jules B. Kroll to the Obligors in the original principal
amount of $2,000,000 dated January 29, 1996.
(d) deleting the definition of RESTRICTED INVESTMENT.
10. The Noteholders hereby waive compliance by the Obligors with
Sections 3.1. (a), 3.1.(b), and 6.1, through the Effective Date (as hereinafter
defined).
11. This Amendment shall be effective on the date the following shall
occur (the "Effective Date"):
(a) The Noteholders shall have received a certificate from the
Chief Financial Officer of Kroll certifying, that after giving
effect to the amendments contemplated hereby, no Default or
Event of Default under the Note Agreement exists or will be
continuing; and
(b) The Noteholders shall have received the principal payment
originally due December 31, 1995 in the amount of $2,500,000
plus the accrued penalty interest.
12. (a) In the event of any inconsistency between any provision of the
Agreement and the express provisions of this Amendment, the express provisions
of this Amendment shall govern.
(b) Except as expressly amended and waived herein all provisions of the
Agreement shall remain in full force and effect.
(c) This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument.
6
<PAGE> 119
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized person, as of the day and year
first written above.
KROLL ASSOCIATES, INC.
By /s/ ?
-------------------------
Title:
KROLL INFORMATION SERVICES, INC.
By /s/ ?
-------------------------
KROLL ASSOCIATES U.K. LIMITED
By
Title:
KROLL ENVIRONMENTAL
ENTERPRISES, INC.
By /s/ ?
-------------------------
THE PURCHASERS:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Glenn S. Brausa
-------------------------
Glenn S. Brausa
Managing Director
Private Placements
HERBERT KURZ
By /s/ Herbert Kurz
-------------------------
7
<PAGE> 120
WAIVER
This Waiver dated as of June 14, 1993 (the "Waiver") made between the
Purchasers set forth on the signature pages hereto (the "Purchasers") and Kroll
Associates, Inc., Palumbo Partners, Inc. (formerly known as Kroll, Inc.), Kroll
Associates U.K. Limited, Harrison/Kroll Environmental Services, Inc. and Public
Advisory Services, Inc. (collectively "Kroll")
WHEREAS, Kroll and the Purchasers have entered into a Note Agreement
dated as of December 15, 1989, as amended (the "Note Agreement") pursuant to
which Kroll issued and sold to the Purchasers its $20,000,000 principal amount
10.95% Senior Notes due December 15, 1999;
WHEREAS, the stockholders of Kroll and American International Group,
Inc. ("AIG") desire to provide for a reorganization of Kroll, pursuant to which
the stockholders will contribute the stock of Kroll, and AIG will contribute
cash and notes, to a new holding company in exchange for shares of the new
holding company (the "Reorganization"); and
WHEREAS, prior to the Reorganization, Kroll Associates, Inc. plans to
sell $5 million of its receivables to AIG in return for cash;
NOW THEREFORE, the Purchasers hereby agree to waive certain sections of
the Note Agreement as follows:
1. To the extent required for the consummation of the Reorganization and
the sale of receivables described above, Sections 6.4, 6.6(e) and 6.7
of the Note Agreement are hereby waived. This waiver is expressly
conditioned on the consummation of the Reorganization and the sale of
receivables by Kroll Associates, Inc. to AIG upon the terms stated
above.
2. To the extent required for the consummation of the Reorganization,
Section 6.13 of the Note Agreement is hereby waived. This waiver is
expressly conditioned on the consummation of the Reorganization upon
the terms stated above.
3. Except for the waivers granted hereby, the Note Agreement
shall remain in full force and effect.
4. This Waiver may be executed in any number of counterparts, each of
which shall be deemed an original and which together shall constitute
one and the same instrument.
<PAGE> 121
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed on their behalf by a duly authorized officer, as of the day and year
first written above.
KROLL ASSOCIATES, INC.
By /s/ Jules Kroll
------------------------------
Title:
PALUMBO PARTNERS, INC.
By /s/ Jules Kroll
------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By /s/ Jules Kroll
------------------------------
Title:
HARRISON/KROLL ENVIRONMENTAL
SERVICES, INC.
By /s/ Jules Kroll
------------------------------
Title:
PUBLIC ADVISORY SERVICES, INC.
By /s/ Jules Kroll
------------------------------
Title:
THE PURCHASERS:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Mary Ann R. Mattoon
------------------------------
Director - Private Placements
HERBERT KURZ
By /s/ Herbert Kurz
------------------------------
Title:
<PAGE> 122
WAIVER
This Waiver dated as of May 3, 1994 (the "Waiver") made between the
Purchaser set forth on the signature page hereto (the "Purchaser") and Kroll
Associates, Inc., Kroll Information Services, Inc. (formerly known as Palumbo
Partners, Inc.) Kroll Associates U.K. Limited, and Kroll Environmental
Enterprises, Inc. (collectively "Kroll"). All capitalized terms used herein
without definition shall have the respective meanings ascribed to them in the
Note Agreement (as defined below).
WHEREAS, Kroll, the Purchaser and Herbert Kurz have entered into a Note
Agreement, dated as of December 15, 1989, as amended (the "Note Agreement")
pursuant to which Kroll issued and sold to the Purchasers its $20,000,000
principal amount 10.95% Senior Notes due December 15, 1999;
WHEREAS, in the fiscal year ending December 31, 1993, Kroll paid
dividends and/or distributions to JBK as a distribution against his cash basis S
corporation income allocable to JBK for Kroll's S corporation tax year ending
June 15, 1993 in the amount of $3,700,000 (the "JBK Dividend");
WHEREAS, in the fiscal year ending December 31, 1993, Kroll paid
distributions to shareholders (other than JBK) of Kroll in the aggregate amount
of $52,632 as S Corporation Distribution pursuant to Section 6.8 (a) (ii) (13)
of the Note Agreement; and
WHEREAS, the JBK Dividend consisted of (i) the payment to JBK of cash
in the amount of $1,000,000 as S Corporation Distribution pursuant to Section
6.8 (a)(ii)(13) of the Note Agreement and (ii) the distribution to JBK of a loan
in the amount of $2,700,000 held by Kroll from JBK in respect of an advance of
such amount made to JBK during Kroll's fiscal year ending December 31, 1990.
NOW THEREFORE, the parties hereto hereby agree as follows:
The Purchaser hereby agrees to waive Section 6.8 of the Note
Agreement to the extent required to permit the JBK Dividend.
<PAGE> 123
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed on their behalf by a duly authorized officer, as of the day and year
first written above.
KROLL ASSOCIATES, INC.
By /s/ Jules Kroll
---------------------------------
Title:
KROLL INFORMATION SERVICES, INC,
By /s/ Jules Kroll
---------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By /s/ Jules Kroll
---------------------------------
Title:
KROLL ENVIRONMENTAL
ENTERPRISES, INC
By /s/ Jules Kroll
---------------------------------
Title:
THE PURCHASER:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Glenn S. Brausa
---------------------------------
Title Managing Director - Private Placements
<PAGE> 124
[TIAA LOGO]
[TEACHERS INSURANCE AND ANNUITY ASSOCIATION
COLLEGE RETIREMENT EQUITIES FUND Letterhead]
December 21, 1995
Kroll Associates, Inc.
900 Third Avenue
New York, NY 10022
Attention: Mr. Nazzareno E. Paciotti
Managing Director
Chief Financial Officer
Re: Note Purchase Agreement dated December 15, 1989 of Kroll
Associates, Inc., Kroll Information Services, Inc., Kroll
Associates U.K. Limited and Kroll Environmental Enterprises,
Inc. (collectively "Kroll") as amended (the "Agreement")
---------------------------------------------------------
Gentlemen:
Teachers Insurance and Annuity Association of America ("TIAA") hereby agrees to
waive the necessary provisions of the Agreement to permit Kroll to borrow
$2,500,000 from American International Group, Inc. on commercially reasonable
terms for the sole purpose of making the required prepayment of $2,500,000
pursuant to the Agreement. This Waiver is expressly conditioned upon receipt by
TIAA of the required prepayment. Except as otherwise stated herein, the
Agreement remains in full force and effect.
Teachers Insurance and Annuity
Association of America
By /s/ Glenn S. Brausa
----------------------
Glenn S. Brausa
Managing Director
Private Placements
Accepted and Agreed to:
Kroll Associates, Inc.
Kroll Information Services, Inc.
Kroll Associates U.K. Limited
Kroll Environmental Enterprises, Inc.
By
-------------------------------
<PAGE> 125
[TIAA LOGO]
[TEACHERS INSURANCE AND ANNUITY ASSOCIATION
COLLEGE RETIREMENT EQUITIES FUND Letterhead]
May 8, 1997
Kroll Associates
900 Third Avenue
New York, New York 10022
Attention: Mr. Nazzareno E. Paciotti
Managing Director
Chief Financial Officer
Re: Note Purchase Agreement dated December 15, 1989 of
Kroll Associates, Inc., Kroll Information
Services, Inc., Kroll Associates U.K. Limited and
Kroll Environmental Enterprises, Inc., as amended
(the "Agreement")
-------------------------------------------------
Gentlemen:
Teachers Insurance and Annuity Association of America hereby agrees to waive
Section 4 of the Agreement to extend the applicable period for delivery of the
audited financial statements and required compliance information for the year
ended December 31, 1996 to August 1, 1997. Except as expressly stated herein,
the Agreement remains in full force and effect.
TEACHERS INSURANCE AND ANNUITY OF
AMERICA
By: /s/ Glenn S. Brausa
-----------------------
Glenn S. Brausa
Managing Director-
Private Placements
<PAGE> 126
WAIVER AGREEMENT
Waiver Agreement dated as of August 7, 1997 (this "Agreement") made
among Teachers Insurance and Annuity Association of America ("TIAA") and Herbert
Kurz ("Kurz", together with TIAA, the "Purchasers" or "Noteholders") on the one
hand and Kroll Associates, Inc., Kroll Information Services, Inc. (formerly
known as Palumbo Partners, Inc.) Kroll Associates U.K. Limited and Kroll
Environmental Enterprises, Inc. (collectively "Kroll").
WHEREAS, the Noteholders and Kroll have entered into a Note Purchase
Agreement dated as of December 15, 1989 as amended (the "Agreement");
WHEREAS, Kroll is now in violation of several covenants in the
Agreement;
WHEREAS, Kroll desires to enter into a merger with VDE Inc. a
wholly-owned subsidiary of The O'Gara Company, whereby Kroll Holdings will be
the surviving company (the "Merger"); an
WHEREAS, the Noteholders' consent is necessary for the Merger to be
effective and the Noteholders and Kroll wish to waive certain provisions of the
Agreement to permit the Merger;
NOW, THEREFORE, for good consideration and pursuant to the mutual
covenants provided for herein, the parties hereby agree as follows;
1. All capitalized terms shall have the respective meanings ascribed to
them in the Agreement unless otherwise defined herein.
2. Section 4 of the Agreement is hereby waived to extend the applicable
period for the delivery of the audited financial statements and required
compliance information for the year ended December 31, 1996 to August 31, 1997.
3. Sections 6.1(a) and (b) are hereby waived for the respective fiscal
periods through December 1, 1997.
4. Kroll agrees that simultaneously with the Merger, Kroll will prepay
the entire outstanding principal amount of the Notes together with accrued
interest to the date of prepayment and the prepayment premium as described in
Section 3.2(c) of the Agreement. The Noteholders hereby waive Section 6.6 of the
Agreement to the extent necessary to permit the Merger to occur.
5. (a) In the event of any inconsistency between any provision of the
Agreement and the express provisions of this Amendment, the express provisions
of this Amendment shall govern,
<PAGE> 127
(b) Except as expressly amended and waived herein all provisions of the
Agreement shall remain in full force and effect.
(c) This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized person, as of the day and year
first written above.
KROLL ASSOCIATES, INC.
By
------------------------------
Title:
KROLL INFORMATION SERVICES, INC.
By
------------------------------
Title:
KROLL ASSOCIATES U.K. LIMITED
By
------------------------------
Title:
KROLL ENVIRONMENTAL
ENTERPRISES, INC.
By
------------------------------
Title:
THE PURCHASERS:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Glenn S. Brausa
------------------------------
Glenn S. Brausa
Managing Director
Private Placements
HERBERT KURZ
By
------------------------------
2
<PAGE> 1
Exhibit 10.37
DEMAND
PROMISSORY NOTE
---------------
$1,000,000.00 New York, New York
June 29, 1995
For valuable consideration, receipt of which is hereby acknowledged,
Kroll Associates, Inc., a Delaware corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of American International Group,
Inc., a Delaware corporation (the "Lender"), at the office of the Lender at 70
Pine Street, New York, New York 10270, or at such other place as Lender may
designate to Borrower in writing from time to time, in legal currency of the
United States of America and in immediately available funds, the principal sum
of One Million ($1,000,000.00) Dollars, payable in one or more installments as
the Lender shall from time to time demand from the Borrower. Borrower further
agrees to pay interest in like manner on the unpaid principal amount hereof at a
rate per annum equal to 2% per annum above the Base Rate. For purposes of this
Note, the term "Base Rate" shall mean a fluctuating rate per annum equal to the
rate of interest announced publicly in New York, New York from time to time as
Citibank, N.A.'s base rate. Daily interest shall be computed on the basis actual
days elapsed in a 360-day year. If any payment on this Note becomes due and
payable on a Saturday, Sunday or legal or bank holiday in the State of New York,
interest thereon shall be due and payable on the day next succeeding the
Interest Payment Date which is not a Saturday, Sunday or legal or bank holiday
in the State of New York ("Business Day") and no interest shall be due and
payable on such day for the period which are not Business Days.
This Note may be prepaid in whole or in part at any time or from time
to time without penalty or premium, provided that all such prepayments of
principal shall be accompanied by all interest accrued and unpaid to the date of
prepayment.
Except as may be specifically provided herein, Borrower waives
presentment of payment, demand, notice of prepayment, notice of protest and
protest of this Note, and agrees to pay, as soon as incurred, all costs and
expenses, including reasonable counsel fees, incidental to the collection of
this Note or in any way relating to the rights of holder hereunder. The holder
hereof may release, renew or extend any of the liabilities of Borrower and may
make additional advances or extensions of credit to it or grant other
indulgences or extend the time for any payment of principal or interest
hereunder, all from time to time, without further notice to or assent from any
other party or any endorser hereof. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
<PAGE> 2
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of New York. Any legal
proceedings relating to the enforcement or construction of this Note shall be
brought in the United States District Court for the Southern District of New
York located in New York, NY; provided that, if the United States District Court
shall not have jurisdiction over such proceeding after application thereto, then
such legal proceedings shall be brought in any court of the State of New York
located in New York, NY. No other court shall have any jurisdiction of any claim
arising under or based upon this Agreement. In connection with the foregoing,
each of the parties hereby submits to the exclusive jurisdiction of and venue in
the courts of the United States of America, County of New York, State of New
York.
This Note shall be binding upon the successors and assigns of the
Borrower and inure to the benefit of the Lender and its successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its
obligations, rights, or interests in or to this Note without the prior written
consent of the Lender and its successors or assigns. If any term or provision of
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
under its corporate seal as of the date first above written.
KROLL ASSOCIATES, INC.
By: N.E. Paciotti
----------------------
<PAGE> 1
Exhibit 10.38
DEMAND
PROMISSORY NOTE
---------------
$1,000,000.00 New York, New York
July 28, 1995
For valuable consideration, receipt of which is hereby acknowledged,
Kroll Associates, Inc., a Delaware corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of American International Group,
Inc., a Delaware corporation (the "Lender"), at the office of the Lender at 70
Pine Street, New York, New York 10270, or at such other place as Lender may
designate to Borrower in writing from time to time, in legal currency of the
United States of America and in immediately available funds, the principal sum
of One Million ($1,000,000.00) Dollars, payable in one or more installments as
the Lender shall from time to time demand from the Borrower. Borrower further
agrees to pay interest in like manner on the unpaid principal amount hereof at a
rate per annum equal to 2% per annum above the Base Rate. For purposes of this
Note, the term "Base Rate" shall mean a fluctuating rate per annum equal to the
rate of interest announced publicly in New York, New York from time to time as
Citibank, N.A.'s base rate. Daily interest shall be computed on the basis actual
days elapsed in a 360-day year. If any payment on this Note becomes due and
payable on a Saturday, Sunday or legal or bank holiday in the State of New York,
interest thereon shall be due and payable on the day next succeeding the
Interest Payment Date which is not a Saturday, Sunday or legal or bank holiday
in the State of New York ("Business Day") and no interest shall be due and
payable on such day for the period which are not Business Days.
This Note may be prepaid in whole or in part at any time or from time
to time without penalty or premium, provided that all such prepayments of
principal shall be accompanied by all interest accrued and unpaid to the date of
prepayment.
Except as may be specifically provided herein, Borrower waives
presentment of payment, demand, notice of prepayment, notice of protest and
protest of this Note, and agrees to pay, as soon as incurred, all costs and
expenses, including reasonable counsel fees, incidental to the collection of
this Note or in any way relating to the rights of holder hereunder. The holder
hereof may release, renew or extend any of the liabilities of Borrower and may
make additional advances or extensions of credit to it or grant other
indulgences or extend the time for any payment of principal or interest
hereunder, all from time to time, without further notice to or assent from any
other party or any endorser hereof. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
<PAGE> 2
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of New York. Any legal
proceedings relating to the enforcement or construction of this Note shall be
brought in the United States District Court for the Southern District of New
York located in New York, NY; provided that, if the United States District Court
shall not have jurisdiction over such proceeding after application thereto, then
such legal proceedings shall be brought in any court of the State of New York
located in New York, NY. No other court shall have any jurisdiction of any claim
arising under or based upon this Agreement. In connection with the foregoing,
each of the parties hereby submits to the exclusive jurisdiction of and venue in
the courts of the United States of America, County of New York, State of New
York.
This Note shall be binding upon the successors and assigns of the
Borrower and inure to the benefit of the Lender and its successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its
obligations, rights, or interests in or to this Note without the prior written
consent of the Lender and its successors or assigns. If any term or provision of
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
under its corporate seal as of the date first above written.
KROLL ASSOCIATES, INC.
By /s/ N.E. Paciotti
---------------------------
<PAGE> 1
EXHIBIT 10.39
[NEUBERGER & BERMAN LETTERHEAD]
DISCRETIONARY INVESTMENT ADVISORY AGREEMENT
RE: KROLL ASSOCIATES MONEY PURCHASE PENSION PLAN & TRUST,
----------------------------------------------------------------------------
EFFECTIVE 1/1/91
----------------------------------------------------------------------------
(ACCOUNT NO. 255-31921 )
----------------------------------- ----------------------------
Neuberger & Berman ("N&B"), a New York limited partnership, and the
undersigned ("Client") agree that N&B shall act as sole investment manager with
respect to the Client's above-captioned account ("Account") on the following
terms and conditions:
1. The Account shall consist of such cash, stocks, bonds, options
(where permissible) and other securities which Client places in the Account or
which shall become part of the Account as a result of transactions or otherwise.
Client may make additions to and withdrawals from the Account provided N&B gives
advance approval to additions and receives at least seven business days prior
written notice of withdrawals.
2. N&B shall have full discretion and authority to manage the Account
in accordance with client's investment policy statement.
A partner or employee of N&B who is acceptable to Client shall be
available for periodic meetings with Client regarding the Account.
N&B as Client's agent and attorney in fact and at Client's expense, is
duly authorized without further approval, except as otherwise required by law
(a) to make all investment decisions; (b) to buy, sell and otherwise trade in
securities; and (c) in furtherance of the foregoing, to do that which N&B deems
appropriate, including the submission of instructions to the custodian of the
Account, if any, and the selection of such brokers or dealers as N&B shall
determine.
3. N&B may be used as broker if the use of N&B for that particular
transaction is in accordance with applicable law.
Whether using N&B or others as broker, N&B will seek to obtain the best
results for Client. N&B's selection of a broker will take into account such
relevant facts as (a) price, (b) the broker's facilities, reliability and
financial responsibility, (c) the ability of the broker to effect securities
transactions, particularly with regard to such aspects as timing, order size,
and execution of orders, and (d) the research and other services provided by
such brokers to N&B which are expected to enhance general portfolio management
capabilities, notwithstanding that Client may not be the direct or exclusive
beneficiary of such services. Commission rates,
1
<PAGE> 2
being a component of price, is one factor considered together with such other
factors. N&B is authorized to execute Over-the-Counter transactions through
market makers although N&B will charge its posted commissions on such
transactions. Other investment advisers may enter such orders with market
makers in their investment advisory capacity and not generate a
commission for such transactions. Certain institutional accounts and
professional trading accounts do not pay N&B commissions on Over-the-Counter
transactions.
4. For N&B's services as investment adviser to the Account, Client
shall pay N&B an advisory fee based on the rate in Schedule A*. For N&B's
services as broker to the Account, Client shall pay N&B brokerage commissions in
accordance with N&B's applicable posted commission rate, which is summarized in
Schedule B, or based on such higher rate as N&B may subsequently declare to be
its commission rate. *Client written approval will be required prior to any fee
change.
Client acknowledges receipt of Part II of Form ADV, which is filed with
the Securities and Exchange Commission, and which contains information
concerning N&B's full range of services and fees.
5. N&B will promptly send to Client and its Trustee confirmations or
other records confirming all purchases and sales and monthly statements of the
Account valued at market. Upon the written request of Client, copies will be
sent to other persons.
6. N&B and its affiliates manage accounts and perform investment
advisory and brokerage services for others. Particular facts unique to
particular accounts, such as investment objectives and cash availability affect
investment decisions. To the maximum extent permissible, purchases and sales and
investment advice are based upon the judgment of the portfolio manager
supervising the particular account and each portfolio manager is encouraged to
use those investment techniques and methods with which he has been most
successful. N&B, its partners, affiliates, officers and employees may have an
interest in an issue of a security whose purchase or sale is recommended or
which is purchased, sold or otherwise traded for the Account. As a result, N&B
or its affiliates or particular portfolio managers may sell or recommend the
sale of a particular security for certain accounts (including accounts in which
they have an interest) and they or others at N&B or its affiliates may buy or
recommend the purchase of such security for other accounts (including accounts
in which they may have an interest) and accordingly, transactions in a
particular account may not be consistent with transactions in other accounts or
investment recommendations.
2
<PAGE> 3
When there is a limited supply of a security, N&B will use its best
efforts to allocate or rotate investment opportunities, but N&B cannot assure
equality among all accounts.
7. With respect to Section 11(a) or the Securities Exchange Act of 1934
and Securities Commission Rule 240.11(a) 2-2T ("Rule"), when N&8 uses itself as
broker to effect a transaction (as defined in the Rule) for the Account on an
exchange of N&B is a member, N&B will transmit the order for such transaction
from off the exchange floor to an independent member of that exchange whom N&B
shall select but who shall execute such order without participation by N&B. N&B
shall obtain all commissions paid by Client to N&B for effecting such
transactions. Out of those commissions, N&B shall pay to all others their
charges for their participation in effecting such transactions.
8. Client and each person signing this agreement on behalf of Client
warrant and represent that:
(a) The Account consists of an employee benefit plan (the
"Plan") covered by Part 4 of Title I of the Employee
Retirement Income Security Act of 1974 (the "Act");
(b) Client has duly authorized the execution and
implementation of this Agreement;
(c) This agreement executed on behalf of Client by persons who
are authorized to transact business on behalf of Client;
(d) The Plan is the owner of all the securities which Client
places in the Account and that there are and will be no
restrictions on the public sale, distribution or ownership of
such securities;
(e) N&B has been duly appointed pursuant to Section 402(c)(3)
of the Act, to manage the assets of the Plan which from time
to time are contained in the Account;
(f) Client will deliver to N&B following:
(i) Instrument of appointment of N&B as investment
adviser by a named fiduciary of Client in the event
this document shall not be sufficient to constitute
same under the terms of the Plan,
(ii) Statement of investment objective of the
Account * attached hereto as an exhibit.
3
<PAGE> 4
(iii) Statement of the Plan's income requirement
if it is a factor affecting management of the
Account, and
(iv) If the Account contains less than all of the
assets of the Plan and the other assets may affect
management of the Account, then a statement as to the
effect of the other assets on the management
of the Account with regard to diversification and
other requirements of the Act;
(g) Client shall promptly deliver such information, papers and
documents required or reasonably requested by N&B in
connection with the performance of its duties under the Act
and this Agreement; and
(h) Client shall promptly notify N&B of any change which may
affect the management of the Account.
9. N&B acknowledges (a) its appointment in accordance with the previous
Paragraph, (b) that it is a fiduciary with respect to the Account and (c) that
it is a registered investment adviser under the Investment Advisers Act of 1940.
10. In the absence of instructions from Client, dividends and interest
received will be retained in the Account. If payment of such dividends or
interest is requested, then unless Client otherwise requests, payment shall be
made at the close of the month after such dividends or interest have been
credited to the Account.
11. The term of this agreement shall terminate upon N&B or Client
receiving from the other written notice of termination. If such termination
occurs other than at the end of a quarter, N&B is entitled to receive its
investment advisory fee for the portion of the quarter elapsed prior to
termination.
12. This Agreement may not be assigned by either party without the
written consent of the other. No assignment of this Agreement shall be deemed to
result from changes in the membership of N&B, except as defined in the
Investment Advisor Act of 1940. N&B shall notify the Client in writing of any
changes in its membership within a reasonable time after such change.
13. To the extent federal law does not apply, this Agreement shall be
construed in accordance with and governed by the laws of the State of New York.
14. If the assets of the Account shall be held in the custody of a
bank, trust company or other entity, such custodian shall be selected by the
Client. N&B shall have no responsibility or liability with respect to
4
<PAGE> 5
custody arrangements or the acts, omissions or other conduct of the custodian.
15. This Agreement may not be amended or modified in any respect unless
in a writing signed by both parties. If any provision of this Agreement is
declared to be invalid such declaration shall not be deemed to affect the
validity of any of the other provisions.
As set forth above, this Agreement is to be executed on behalf of
Client by persons authorized to transact business on behalf of Client.
Agreed to as of February 18, 1993
------------------------------------------------- ---
CLIENT: KROLL ASSOCIATES MONEY PURCHASE PENSION PLAN AND TRUST
----------------------------------------------------------------
By: /s/ Robert J. McGuire (Please sign above line and print
--------------------------------- name and title below line. Use
Robert J. McGuire additional signature lines if
Trustee necessary.)
By:
---------------------------------
By:
---------------------------------
NEUBERGER & BERMAN
By: /s/ Jack M. Ferraro
---------------------------------
General Partner
5
<PAGE> 6
SCHEDULE A
COMPUTATION OF THE FULL INVESTMENT ADVISORY FEE
The market value of each of the securities in the account shall be computed as
of the close of trading on the last business day of March, June, September and
December. The Investment Advisory fee for the account for the following quarter
shall be computed on the valuation as of the close of the previous quarter as
follows:
1. For common stocks, convertible bonds, convertible preferred
shares, and all other assets of the account not treated as
permanent fixed income securities, the fee shall be one
quarter of
1 1/2% of the first $500,000 of market value, and
1 1/4% of the next $2,000,000 of market value, and
1% of the next $2,500,000 of market value, and
3/4 of 1% of the balance of the market value.
2. For permanent fixed income securities the fee shall be one
quarter of
1/4 of 1% of the market value of the permanent fixed income securities.
The Investment Advisory fee for each quarter is due at the beginning of
that quarter and Neuberger & Berman shall receive same by debiting
clients account the appropriate amount computed in accordance with the
foregoing.
<PAGE> 7
SCHEDULE B
POSTED DISCOUNTED COMMISSION RATE SCHEDULE
(To be charged when full investment advisory fee is elected)
EQUITIES (IN CENTS PER SHARE)
<TABLE>
<CAPTION>
NUMBER
$/SHARE OF SHARES 100 300 500 1,000 1,500 2,000 2,500 5,000 10,000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.00 0.12 0.12 0.11 0.09 0.08 0.08 0.08 0.07 0.06
10.00 0.18 0.16 0.14 0.14 0.13 0.12 0.11 0.09 0.08
15.00 0.22 0.19 0.19 0.17 0.16 0.14 0.13 0.11 0.09
20.00 0.27 0.25 0.23 0.21 0.18 0.16 0.15 0.12 0.11
25.00 0.31 0.29 0.26 0.23 0.20 0.18 0.16 0.14 0.12
30.00 0.35 0.32 0.30 0.26 0.21 0.19 0.18 0.15 0.14
35.00 0.38 0.36 0.33 0.27 0.23 0.21 0.20 0.17 0.15
40.00 0.41 0.39 0.37 0.29 0.25 0.22 0.21 0.19 0.15
45.00 0.44 0.43 0.39 0.30 0.26 0.24 0.23 0.20 0.16
50.00 0.46 0.46 0.42 0.32 0.28 0.26 0.24 0.22 0.17
60.00 0.52 0.52 0.47 0.35 0.31 0.29 0.27 0.25 0.19
70.00 0.52 0.52 0.50 0.38 0.34 0.32 0.31 0.26 0.20
80.00 0.52 0.52 0.52 0.42 0.37 0.35 0.34 0.28 0.22
90.00 0.52 0.52 0.52 0.45 0.41 0.38 0.37 0.30 0.24
100.00 0.52 0.52 0.52 0.48 0.41 0.42 0.40 0.32 0.26
</TABLE>
All comparable accounts electing to pay a full investment advisory fee shall pay
commissions on securities transactions which shall be 40% below Neuberger &
Berman's full commission rate. (The full commission rate is 7% above the minimum
New York Stock Exchange rate in effect immediately prior to May 1, 1975).
However, the rate may vary depending upon the nature and size of the
transaction, special services provided, and other unique factors. The above
table indicates the charge in cents per share of typical equity transactions
based on this rate rounded to the nearest penny per share (actual charges will
not be rounded).
DEBT SECURITIES (PER $1,000 PRINCIPAL AMOUNT)
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
MATURITY RATE MINIMUM CHARGE MAXIMUM CHARGE
<S> <C> <C> <C>
under 1 year $0.25 $15.00 $100.00
1 to 5 years 2.50 on first $50,000 25.00 Negotiated
0.75 over $50,000
5 years & over 3.75 on first $50,000 25.00 Negotiated
1.00 over $50,000
Treasury Bill Auction.....$15.00 per ticket
</TABLE>
<TABLE>
<CAPTION>
OTHER DEBT SECURITIES
MATURITY RATE MINIMUM CHARGE MAXIMUM CHARGE
<S> <C> <C> <C>
under 1 year $0.25 $15.00 $100.00
1 to 5 years 2.50 25.00 Negotiated
5 years & over 3.75 25.00 Negotiated
</TABLE>
CONVERTIBLE BONDS-ON TRANSACTIONS IN CONVERTIBLE BONDS, THE COMMISSION CHARGE
WILL BE $5.00 PER THOUSAND
These commission rates may be changed at any time by either providing actual
notice of such change to customer or by sending customer a notice of such change
by first class mail, 10 days in advance of the effective date of such change.
<PAGE> 8
INVESTMENT POLICY STATEMENT
REGARDING THE MANAGEMENT OF PENSION FUNDS
KROLL ASSOCIATES, INC.
I. PERFORMANCE OBJECTIVES
A. The primary objective shall be capital appreciation consistent
with preservation of the funds' capital.
B. On an average annualized basis, it will be our objective that
the equity portion of the pension fund outperform the
benchmark S&P 500 index. On an average annualized basis the
fixed income portion of the pension funds should outperform
the benchmark Shearson Lehman Government bond index.
II. DIVERSIFICATION
A. Based on existing and ongoing economic conditions, as of the
date of this statement, approximately 65% of the total value
of the funds assets will be invested in equities and
approximately 35% in fixed income. This percentage can be
adjusted in accordance with changing economic conditions. The
trustee shall direct the company's contribution in such a
manner as to maintain the established ratio. Neuberger &
Berman, through Jack Ferraro, must receive prior approval from
the trustee and the Chairman of the PIC if the percentages on
both the equity and fixed income portion of the portfolio
exceed the given parameters by 10%. For example if Neuberger &
Berman through Jack Ferraro decides to invest more than 75% of
the funds in equities, the trustee and the Chairman of the PlC
at Kroll Associates must be notified and approval must be
received. The same holds true if Neuberger & Berman through
Jack Ferraro decides to invest more than 45% of the portfolio
in fixed income instruments.
B. The number of issues held in the fund will be sufficient to
maintain a reasonably broad base, but not so excessive as to
preclude good management for an enhanced return.
C. No more than 15% of the total cost value of the fund shall be
invested in a four digit coded single industry classification
as delineated in the Standard Industrial Classification
("SIC") standard. The Trustee and Chairman of the PlC must
approve any exceptions.
<PAGE> 9
D. No more than 5% of the total value of the fund is to be
invested in any one security. The trustee and the Chairman of
the PlC at Kroll Associates must approve any exception.
III. RESTRICTIONS
A. The following types of transactions are prohibited:
1. Short sales, puts, calls or straddles except for such
investments which constitute "covered" puts or calls
or bona fide hedging.
2. Purchase of letter stock or pink sheet stock. All
securities shall be fully negotiable and marketable.
3. Margin purchases or other uses of borrowed funds.
B. No more than 15% of the total cost value of the funds will be
invested in securities traded solely on a stock exchange not
based in the United States. Manager must receive the
written consent of the trustee and the Chairman of the PlC at
Kroll Associates prior to going over this limit.
C. If considering the purchase of the stock or debt of the
investment manager 5 organization the money manager must
obtain the written consent of the trustee and the Chairman of
the PlC at Kroll Associates.
IV. REPORTING AND ACCOUNT
A. On a semiannual basis the investment manager will be asked to
meet with the PlC and the trustee to review the investment
policy in connection with:
1. the world economy and.related economic events. These
include but are not limited to monetary policy and
international political change.
2. the current and potential future performance of the
equity market.
3. the current plans for investment as well as
disposition of securities as to industry and type of
companies within the industry.
-2-
<PAGE> 10
4. the reasons for any changes in the portfolio since
the last meeting.
5. the performance results of the portfolio since the
last period, the last twelve months and since
inception, compared to the benchmark S&P 500 and
Shearson Government Bond Index.
B. Neuberger & Berman through Jack Ferraro, in addition to the
usual advices to the trustees will furnish the PlC with copies
of all transactions and confirmation slips.
C. A detailed quarterly report listing the securities held, the
cost of the securities and the market value at date of the
report will be made to the PlC within fifteen days after the
close of the quarter.
-3-
<PAGE> 11
TRUST AGREEMENT
under the
KROLL ASSOCIATES MONEY PURCHASE PENSION PLAN
--------------------------------------------
(name of Plan)
This TRUST AGREEMENT is between KROLL ASSOCIATES, INC., a Delaware corporation
with its principal office at 900 3rd Ave, New York, New York 10022 (the
"employer") and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association with an office at Chase Square, Rochester, New York 14643,
as Trustee, to amend and restate the Trust maintained under the Kroll Associates
Money Purchase Pension (the Plan), effective as of August 1, 1994. This Trust is
intended to be a qualified trust exempt from tax under Section 501(a) of the
Internal Revenue Code of 1986, as amended.
NOW , THEREFORE, the parties agree as follows:
<PAGE> 12
ARTICLE I
---------
GENERAL DUTIES OF THE PARTIES
SECTION 1.1. GENERAL DUTIES OF EMPLOYER.
The Employer shall provide the Trustee with a certified copy of the
Plan and with copies of all amendments promptly upon their adoption and shall
certify to the Trustee the names and specimen signatures of those individuals
responsible for the administration of the Plan (individually and collectively
referred to in this Agreement as the "Administrator"). Each person so certified
to the Trustee as the Administrator shall have full authority to act as the
Administrator for purposes of this Agreement. The Employer shall make its
contributions as the same may be appropriated by due corporate action.
Contributions may be in cash or in other property acceptable to the Trustee. The
Employer shall keep accurate books and records with respect to its employees and
their compensation.
SECTION 1.2. FUNDING POLICY.
From time to time the Administrator shall communicate in writing to the
Trustee, and to any Investment Manager who may have been appointed, the current
funding policy and method that have been established to carry out the objectives
of the Plan.
SECTION 1.3. GENERAL DUTIES OF TRUSTEE.
The Trustee shall hold all property received by it under this Agreement, which,
together with any income, gains and additions, shall constitute the Trust Fund.
The Trustee shall manage, invest and reinvest the Trust Fund (except as
otherwise provided in this Agreement), collect the income, and make payments as
provided in this Agreement. The Trustee shall be responsible only for the
property actually received by it under this Agreement. It shall have no duty or
<PAGE> 13
-2-
authority to compute any amount to be paid to it by the Employer or to bring any
action or proceeding to enforce the collection from the Employer of any
contribution to the Trust Fund.
ARTICLE II
----------
INVESTMENT, ADMINISTRATION AND DISBURSEMENT
OF THE TRUST FUND
SECTION 2.1. ELIGIBLE INVESTMENTS FOR THE TRUST FUND.
The Trust Fund may be invested in any real, personal, or mixed
property, regardless of where it is situated and whether or not it is productive
of income or consists of wasting assets. Eligible investments include, without
limitation, common and preferred stocks, bonds, notes, debentures, financial
futures and options, swaps and other derivatives, convertible securities,
mortgages (including, without limitation, any collective or part interest in any
bond and mortgage or note and mortgage), certificates of deposit, demand or time
deposits (including any deposit with the Trustee or an affiliate of the
Trustee), shares of investment companies and mutual funds, interests in
partnerships and trusts, insurance policies and contracts, and oil, mineral or
gas properties, royalties, interests or rights (including related equipment).
Investments shall not be limited to the classes of property in which trustees
are authorized to invest trust funds by any law or rule of any court or state.
Nevertheless, the Trust Fund shall not be invested in any stock or securities of
the Employer or the Company except as permitted by law. Investments may be made
without regard to the proportion any property may bear to the entire amount of
the Trust Fund, provided, however, that, except as otherwise provided in this
Agreement, investments shall be so diversified as to minimize the risk of large
losses unless it is clearly prudent not to do so under the circumstances in the
sole judgment of the Trustee or Investment Manager, as the case may be. Any
property received at any time by the Trustee may be retained in the Trust Fund.
<PAGE> 14
-3-
SECTION 2.2. INVESTMENT MANAGEMENT RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee shall manage invest, and reinvest the Trust Fund in its
discretion, except to the extent otherwise provided in Sections 2.3 or 2.4.
(b) The Trustee may invest and reinvest any assets under its management
collectively with funds of other pension and profit-sharing trusts exempt from
tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the
"Code") by reason of qualifying under Section 401(a) of the Code either in short
term obligations selected by the Trustee or by investment collectively with
other funds through the medium of one or more collective investment funds which
have been or may be established and maintained by it or any bank affiliated with
it. Any investment in a collective investment fund shall be subject to the terms
of the instrument or instruments governing the fund.
(c) Any Investment Manager appointed under Section 2.3 may delegate to
the Trustee authority by written authorization to invest any specified portion
of the assets managed by the Investment Manager in the Trustee's sole
discretion, in short term obligations or in one or more mutual funds which
invests primarily in short-term obligations. The Trustee may make these
investments collectively with other funds, including without limitation through
the medium of one or more collective investment funds. Any such collective
investment fund shall be managed by the Trustee or any bank affiliated with it
in its sole discretion.
(d) The Trustee shall have all the investment powers given to trustees
by applicable law. Without limiting this grant of authority, the Trustee shall
have the power:
(i) To sell or exchange any property at public or private
sale for cash or on credit and to grant options for the purchase or exchange of
that property;
(ii) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan relating
to any property held in the Trust Fund, and
<PAGE> 15
-4-
to consent to or oppose such a plan or any action under such a plan, or any
contract, lease, mortgage, purchase, sale or other action by any person or
corporation.
(iii) To exercise conversion and subscription rights
pertaining to any property held in the Trust Fund;
(iv) To extend the time of payment of any obligation held in
the Trust Fund.
(v) To enter into stand-by agreements for future investment,
either with or without a stand-by fee; and
(vi) To hold uninvested, without liability for interest
thereon, any moneys received by the Trustee until the same shall be reinvested
or disbursed.
Nevertheless, the Trustee shall exercise these powers only with respect
to assets of the Trust Fund which are under its management or, with respect to
assets which are not under its management, in accordance with the direction of
an Investment Manager, the Administrator, or a Participant, as the case may be.
(e) THE TRUSTEE IS AUTHORIZED TO INVEST ASSETS UNDER ITS MANAGEMENT
FROM TIME TO TIME IN REGISTERED INVESTMENT COMPANIES TO WHICH IT OR AN AFFILIATE
ACTS AS INVESTMENT ADVISER OR PROVIDES OTHER SERVICES. FROM TIME TO TIME THE
TRUSTEE SHALL DETERMINE THE TRUST'S PRO RATA SHARE OF ANY FEES RECEIVED BY THE
TRUSTEE OR ITS AFFILIATES FROM THE INVESTMENT COMPANY FOR SERVICES RENDERED
(WHETHER OR NOT FOR INVESTMENT ADVISORY SERVICES). THE TRUSTEE THEN SHALL REDUCE
THE COMPENSATION PAYABLE TO THE TRUSTEE UNDER THIS AGREEMENT BY AN AMOUNT EQUAL
TO THE TRUST'S PRO RATA SHARE OF THOSE FEES. ALTERNATIVELY, IF THE TRUSTEE AND
THE
<PAGE> 16
-5-
ADMINISTRATOR SO AGREE, THE TRUSTEE SHALL WAIVE ITS COMPENSATION UNDER THIS
AGREEMENT FOR THAT PORTION OF THE TRUST FUND WHICH IS INVESTED IN ANY SUCH
INVESTMENT COMPANY FOR THE DURATION OF THE INVESTMENT. NEVERTHELESS, NOTHING IN
THIS SUBSECTION SHALL REQUIRE ANY OFFSET OF THE TRUSTEE'S COMPENSATION OR
REIMBURSEMENT FOR ANY FEE WHICH THE TRUSTEE RECEIVES FROM AN INVESTMENT COMPANY
WITH RESPECT TO AN INVESTMENT MADE BY AN INVESTMENT MANAGER OR THE ADMINISTRATOR
UNDER SECTION 2.3 OR AT THE DIRECTION OF A PARTICIPANT UNDER SECTION 2.4.
(f) Except as provided in the next sentence, the Trustee shall have the
power in its discretion to exercise all voting rights with respect to any
investment held in the Trust Fund and to grant proxies, discretionary or
otherwise. The Trustee shall not exercise its discretion, however, with respect
to voting any securities which are under the management of an Investment
Manager. In that case; the Trustee shall send the Investment Manager all proxies
and proxy materials relating to the applicable securities, signed by the Trustee
without indication of voting preference, and the Investment Manager shall
exercise all voting rights with respect to them. Additionally, except as
otherwise required by law, the Trustee shall not exercise its discretion with
respect to the voting of securities issued by the Employer or any of its
affiliates which are held subject to the direction of Participants (the
"Employer Securities"). The Trustee shall send all proxies and proxy materials
relating to the Employer Securities to the appropriate Participants. Moreover,
unless the Plan provides otherwise, the Trustee shall allocate the votes for any
Employer Securities for which a Participant fails to complete a proxy in
proportion to the Participants' vote of the remaining Employer Securities.
SECTION 2.3. MANAGEMENT BY INVESTMENT MANAGERS OR THE ADMINISTRATOR.
(a) IN GENERAL. From time to time the Administrator shall specify by
written notice to the Trustee whether the investment of the Trust Fund shall be
managed in whole or in part by the Trustee, one or more investment managers
appointed by the Board of Directors of the
<PAGE> 17
-6-
Employer (each an "Investment Manager"), or the Administrator. If the investment
management of the Trust Fund is to be shared, the notice shall specify how the
investment responsibility is to be divided with respect to assets, classes of
assets or separate investment funds. Each Investment Manager shall either (i) be
registered as an investment adviser under the Investment Advisers Act of 1940,
(ii) be a bank as defined in that Act, or (iii) be an insurance Employer
qualified to perform investment management services under the laws of more than
one state.
(b) MANAGEMENT BY INVESTMENT MANAGERS.
(i) If investment of the Trust Fund is to be managed in whole
or in part by one or more Investment Managers, the Trustee shall be given copies
of the instruments appointing the Investment Manager, evidencing its acceptance
of the appointment and acknowledging that it is a fiduciary of the Plan, and a
certificate evidencing the Investment Manager's registration under the
Investment Advisers Act. The Trustee may continue to rely upon these instruments
and that certificate until otherwise notified in writing by the Administrator.
(ii) The Trustee shall follow the directions of the Investment
Manager regarding the investment and reinvestment of the Trust Fund, or that
portion of the Trust Fund as shall be under management by the Investment
Manager. The Trustee shall be under no duty or obligation to review any
investment to be acquired, held or disposed of in accordance with those
directions or to make any recommendations with respect to the disposition or
continued retention of any investment under the Investment Manager management.
The Trustee shall have no liability or responsibility for acting without
question on the direction of, or failing to act in the absence of any direction
from, the Investment Manager, unless the Trustee knows that, as a result, it
will be participating in a breach of fiduciary duty by the Investment Manager.
(iii) The Investment Manager at any time and from time to time
may issue orders directly to a broker for the purchase or sale of securities. In
order to facilitate those transactions, the Trustee shall execute and deliver
appropriate trading authorizations upon request. Written or electronic
notification of the issuance of each order given directly to a broker shall
<PAGE> 18
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be given promptly to the Trustee by the Investment Manager. The execution of
each order shall be confirmed to the Trustee by the broker. The notification
shall be authority for the Trustee to pay for securities purchased against
receipt and to deliver securities sold against payment, as the case may be.
(iv) If an Investment Manager should resign or be removed by
the Employer, the Employer shall give the Trustee written notice of the
resignation or removal. Upon receipt of the notice, the Trustee shall manage the
investment of the Trust Fund unless and until it shall be notified of the
appointment of another Investment Manager.
(c) MANAGEMENT BY THE ADMINISTRATOR
(i) If the Plan so provides, the Administrator may direct any
or all investments of the Trust Fund, and the Trustee generally shall follow the
directions of the Administrator the investment and reinvestment of any part of
the Trust Fund. Investments made at the direction of the Administrator may
consist to the extent authorized by the plan of investments in group annuity
contracts containing terms and conditions acceptable to the Administrator,
investment companies, collective pension and profit sharing trusts sponsored by
financial institutions not affiliated with the Trustee, real estate investment
trusts, guarantied investment contracts, deposits at banks and other depositor
institutions, and any other investment, provided that, for any investment
directed by the Administrator, the investment is reasonably satisfactory' to the
Trustee from a systems and operations standpoint. The terms and conditions of
the declaration of trust for any such collective pension and profit sharing
trust are incorporated herein by reference. If the Administrator and the
Trustees agree in writing, the Administrator may transmit the funds directly to
third parties such as insurance companies, investment companies, or dealers to
settle any investment transaction directed by the Administrator.
(ii) The Trustee shall be under no duty or obligation to
review any investment to be acquired, held, or disposed of in accordance with
the Administrator's directions or to make any recommendations with respect to
the acquisition, disposition, or continued retention of any
<PAGE> 19
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investment directed by the Administrator. Nevertheless, the Trustee may refuse
to comply with any direction of the Administrator, or dispose of any investment
held at the direction of the Administrator and reinvest the proceeds, if it
reasonably determines that it may be required to take such an action under the
Employee Retirement Income Security Act of 1974, as amended ("ERlSA").
(d) NOTWITHSTANDING SECTION 2.2(c), THE TRUSTEE MAY RETAIN, WITHOUT
OFFSET AGAINST ANY FEE OWED TO IT UNDER THIS AGREEMENT, ANY REASONABLE FEES PAID
TO IT, OR TO ANY OF ITS AFFILIATES, BY ANY PERSON FOR THE PROVISION OF
INVESTMENT ADVISORY, SHAREHOLDER SERVICING ADMINISTRATIVE, CUSTODIAL,
SPONSORSHIP, DISTRIBUTION, OR SIMILAR SERVICES TO ANY REGISTERED INVESTMENT
COMPANY, OR TO ANY COLLECTIVE PENSION AND PROFIT-SHARING TRUST WHICH IS EXEMPT
FROM TAX BY REASON OF SECTION 501(a) OF THE CODE, IN WHICH ANY INVESTMENT
MANAGER (OR THE ADMINISTRATOR) MAY INVEST ASSETS OF THE TRUST FUND.
SECTION 2.4. DIRECTION OF INVESTMENTS BY PARTICIPANTS.
(a) If the Plan so provides, Participants may direct the investment of
assets held in their respective individual account or accounts in investment
alternatives selected by the Administrator or set forth in the Plan document or
Plan adoption agreement, as the case may be (each an "Investment Alternative").
The Administrator may select as Investment Alternatives collective investment
funds managed by the Trustee, portfolios of assets managed by the Trustee or an
Investment Manager as the case may be, or other Investment Alternatives
(including registered investment companies) acceptable to the Trustee from an
administration and operations standpoint.
(b) The Trustee may establish rules and procedures from time to time
for the direction of investments by Participants. Instructions provided to the
Trustee in accordance with this
<PAGE> 20
-9-
subsection 2.4(b) for the direction of investments shall be deemed a
certification by the Administrator and the Employer that the investment is (i)
in accordance with the terms of the Plan, (ii) in accordance with the investment
instructions of the Participant if provided by the Administrator or some other
person designated by the Administrator on the Participant's behalf and (iii)
complies with applicable law and is otherwise proper. The Trustee shall be fully
protected in relying on the truth of any instruction or representation which
purports to be given in accordance with this subsection and shall have no duty
to investigate the accuracy or authenticity of such an instruction or
representation.
(c) Participants directing their investments shall be solely
responsible for the designation of investments for their individual accounts,
and neither the Trustee nor any Investment Manager shall be responsible or have
any authority with respect to any such designation except for complying with
ERISA and with investment directions provided by the Participants in accordance
with this Agreement and any procedures established by the Trustee. Further,
neither the Trustee nor any Investment Manager shall be obligated to review
investments held in any of these Participants' accounts or be responsible for
the failure of any Participant to diversify investments. Nevertheless, the
Trustee or an Investment Manager, as the case may be, shall remain responsible
under this Agreement for the management of any collective investment fund or
other portfolio of assets selected as an Investment Alternative (other than a
registered investment company) which it manages.
(d) NOTWITHSTANDING SECTION 2.2(e), THE TRUSTEE MAY RETAIN, WITHOUT
OFFSET AGAINST ANY FEE OWED TO IT UNDER THIS AGREEMENT, ANY REASONABLE FEES PAID
TO IT, OR TO ANY OF THE AFFILIATES, BY ANY PERSON FOR THE PROVISION OF
INVESTMENT ADVISORY, SHAREHOLDER SERVICING, ADMINISTRATIVE, CUSTODIAL,
SPONSORSHIP, DISTRIBUTION, OR SIMILAR SERVICES TO ANY REGISTERED INVESTMENT
COMPANY OR TO ANY COLLECTIVE PENSION AND PROFIT-SHARING TRUST WHICH IS EXEMPT
FROM TAX BY REASON OF SECTION 501(a) OF THE CODE WHICH THE ADMINISTRATOR SELECTS
AS AN INVESTMENT ALTERNATIVE.
<PAGE> 21
-10-
(e) If the Administrator selects one or more investments managed by the
Trustee as Investment Alternatives, the Trustee shall invest in its discretion
in accordance with Section 2.2, those Trust Fund assets which Participants may
direct from time to time to the alternatives managed by the Trustee.
Nevertheless, the Trustee's investments shall be in accordance with investment
objectives selected by the Administrator and shall be made without regard to the
Trust Fund's other investments on behalf of those Participants. Further, the
Trustee's investments may be made without regard to the proportion any property
may bear to the entire amount of the Trust Fund, provided, however, that
investments within an Investment Alternative managed by the Trustee shall be so
diversified as to minimize the risk of large losses within that Investment
Alternative unless it is clearly prudent not to do so under the circumstances in
the sole judgment of the Trustee.
(f) Investment Alternatives consisting of registered investment
companies for which the Trustee or any of its affiliates acts as investment
adviser shall not be considered to be investment Alternatives managed by the
Trustee for purposes of this Agreement. Neither the Trustee nor any of its
affiliates assumes any fiduciary responsibility to the Trust or the participants
with respect to the management of such a registered investment company except as
may otherwise be provided in the investment advisory agreement with the
investment company or the Investment Company Act of 1940.
(g) If the Employer intends that, with respect to any portion of the
Trust which is invested in accordance with this Section 2.4, the Plan shall
qualify as an o ERISA Section 404(c) Plan,N as that term is defined in
Regulation Section 2550.404c-l of the United States Department of Labor or any
successor to that regulation. The Employer and the Administrator shall be solely
responsible for the Plan satisfying the various criteria set forth in that
regulation for qualification as an ERISA Section 404(c) Plan. Thus, among other
things, the Employer and the Administrator shall be solely responsible for
satisfying the regulation's criteria with respect to selecting a broad range of
investment alternatives among which Participants may designate investments of
their accounts, providing Participants with adequate information concerning the
designated investment alternatives, and restricting the frequency with which
<PAGE> 22
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Participants may issue investment instructions.
SECTION 2.5. ADMINISTRATIVE POWERS OF TRUSTEE.
The Trustee shall have power in its discretion:
(a) To cause any investment to be registered and held in the
name of one or more of its nominees, or one or more nominees of any
system for the central handling of securities without increase or
decrease of liability;
(b) To collect and receive any and all money and other
property due to the Trust Fund and to give full discharge for the money
or property;
(c) To settle, compromise or submit to arbitration any claims,
debts or damages due or owing to or from the Trust; to commence or
defend suits or legal proceedings to protect any interest of the Trust;
and to represent the Trust in all suits or legal proceedings in any
court or before any other body or tribunal;
(d) To organize under the laws of any state a corporation for
the purpose of acquiring and holding title to any property which it is
authorized to acquire under this Agreement and exercise with respect to
that corporation any or all of the powers set forth in this Agreement:
(e) To manage, operate, repair, improve, develop, preserve,
mortgage or lease for any period any real property or any oil, mineral
or gas properties, royalties, interests or rights held by it directly
or through any corporation, either alone or by joining with others,
using other Trust assets for any of such purposes; to modify, extend,
renew, waive or otherwise adjust any or all of the provisions of any
such mortgage or lease; and to make provision for amortization of the
investment in or depreciation of the value of such property; and
<PAGE> 23
-12-
(f) To borrow money from others, to issue its promissory note
or notes, and to secure repayment by pledging any property in its
possession. Nevertheless, no loan or advance shall be made by the
Trustee other than temporary advances to the Trust Funds, on a cash or
overdraft basis, on which no interest is payable.
(g) To employ accountants, actuaries, brokers, appraisers,
counsel and others deemed necessary by the Trustee in its
administration of the Trust, and to pay from the Trust Fund the
reasonable compensation and expenses for such services;
(h) To pay from the Trust fund all expenses of the Plan and
Trust, including all taxes and all reasonable fees and expenses of the
Trust; and
(i) Generally to do all acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable for the
protection of the Trust Fund.
SECTION 2.6 TRUSTEE'S AUTHORITY.
Persons dealing with the Trustee shall be under no obligation to see to
the proper application of any money paid or property delivered to the Trustee or
to inquire into the Trustee's authority as to any transaction.
SECTION 2.7 PAYMENTS AND DISTRIBUTIONS FROM TRUST FUND.
(a) The Trustee shall make payments, transfers, and distributions from
the Trust Fund in accordance with any written directions of the Administrator.
The Trustee shall not be responsible for the application of any payment,
transfer, or distribution made to a paying agent at such time or times and to
such person or person, including, for example, a paying agent or agents
designated by the Administrator or the Administrator as paying agent. (Any cash
or property so paid or delivered to any paying agent shall be held in trust by
the payee until it is disbursed in accordance with the Plan.) The Trustee shall
comply with directions to transfer and
<PAGE> 24
-13-
deliver any part of the Trust Fund to any other trust established for the
purpose of funding benefits under the Plan or under any other plan qualifying
under Section 401 of the Code established for the benefit of Participants in the
Plan or their beneficiaries by the Employer or any successor or transferee of
the Employer, but only if the transfer conforms with the requirements of Federal
law. Neither during the existence nor upon the discontinuance of the Plan shall
any part of the Trust Fund be used for or diverted to purposes other than for
the exclusive benefit of the employees of the Employer or their beneficiaries,
except as provided by law or in Section 7.2. Any written direction of the
Administrator shall constitute a certification that the distribution or payment
so directed is one which the Administrator is authorized to direct.
(b) The Trustee may make any distribution or payment required to be
mailing its check for the specified amount, or delivering the specified
property, to the person to whom such distribution or payment is to be made, at
the address which may have been last furnished to the Trustee. If no such
address shall have been so furnished, the Trustee may make the distribution or
payment to that person in care of the Employer or the Administrator, or (if so
directed by the Administrator) by crediting the account of that person or by
transferring funds to such person's account by bank wire or transfer.
SECTION 2.8. LOANS TO PARTICIPANTS.
If specified in the Plan, the Trustee (or, if loans are treated as
Directed Investments under the Plan, the Administrator) may, in the Trustee's
(or, if applicable, the Administrator's) sole discretion, make loans to
Participants or Beneficiaries as provided in the Plan.
ARTICLE ILL
-----------
ADDITIONAL PROVISIONS RELATING TO THE TRUSTEE
SECTION 3.1. AUTHORITY OF INDIVIDUALS DESIGNATED AS THE ADMINISTRATOR.
<PAGE> 25
-14-
(a) The Trustee may continue to rely on the authority of each person
designated by the Employer as the Administrator until notified in accordance
with Section 1.1 that that person has ceased to act in that capacity. If at any
time no Administrator has been appointed, the Board of Directors of the Employer
(or, if the Employer is a partnership, its management committee) shall be deemed
to be the Administrator.
(b) The Administrator may appoint employees of the Employer to act on
its behalf on matters relating to the Trust Fund and this Agreement, and, from
time to time, it shall certify to the Trustee the name or names of any person or
persons so authorized to act. The Trustee may continue to rely on the
authority of a person to act for the Administrator until the Administrator
notifies the Trustee that that person is no longer authorized to act for the
Administrator.
SECTION 3.2. ACTION BY THE EMPLOYER, THE ADMINISTRATOR OR ITS DESIGNATE;
NOTICES.
(a) The Trustee may rely upon any certificate, notice or direction
purporting to have been signed by or on behalf of the Administrator which the
Trustee believes to have been signed by the Administrator or the person or
persons authorized to act for the Administrator. The Trustee also may rely upon
any certificate, notice, or direction of the Employer which the Trustee believes
to have been signed by a duly authorized officer or agent of the Employer.
(b) Communications to the Trustee shall be sent to the Trustee's office
or to any such other address as the Trustee may specify. No communication shall
be binding upon the Trust Fund or the Trustee until it is received by the
Trustee. Communications to the Administrator or to the Employer shall be sent to
the Employer's principal office or to any other address as the Employer may
specify.
SECTION 3.3. ADVICE OF COUNSEL OR ADMINISTRATOR.
The Trustee may consult with any legal counsel, including its internal
legal staff and counsel to the Employer or the Administrator, with respect to
the construction of this Agreement,
<PAGE> 26
-15-
its duties, or any act which it proposes to take or omit and shall be protected
fully with respect to any action or omission taken in reasonable reliance on the
advice received. The Trustee may pay the reasonable fees and expenses of any
such counsel (including the allocated cost of internal counsel) from the Trust
Fund.
SECTION 3.4. Responsibility of the Trustee.
(a) The Trustee shall discharge its duties under this Agreement with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with similar matters
would use in the conduct of an enterprise of a like character and with like
aims. The Trustee shall not be liable for any loss sustained by the Trust Fund
by reason of the purchase, retention, sale or exchange of any investment in good
faith and in accordance with the provisions of this Agreement and of any
applicable Federal law.
(b) The Trustee's duties and obligations shall be limited to those
expressly imposed upon it by this Agreement, notwithstanding any reference to
the Plan.
Section 3.5. INDEMNIFICATION OF THE TRUSTEE.
(a) The Employer shall indemnify, hold harmless, and defend the
Trustee, its affiliates, and their officers, agents and employees from and
against all damages, claims, losses, liabilities, demands, penalties,
obligations, costs, disbursements, and expenses (including, for example,
attorneys' and experts' fees, expenses, and disbursements) which it or they may
receive, suffer or incur, arising out of or resulting from the performance of
the Trustee's responsibilities with respect to the Trust, except to the extent
that the same is determined to be the result of the negligence or wilful
misconduct of the Trustee or its affiliates or their officers, agents, or
employees.
(b) Additionally, the Employer and the Trust, jointly and separately,
shall indemnify, hold harmless, and defend the Trustee, its affiliates, and
their officers, agents and employees from
<PAGE> 27
-16-
and against all damages, claims, losses, liabilities, demands, penalties,
obligations, costs, disbursements, and expenses ~including, for example,
attorneys' and experts' fees, expenses, and disbursements) which it or they may
receive, suffer or incur, arising out of or resulting from the performance of
the Trustee's responsibilities with respect to the Trust, except to the extent
that the same is determined to be the result of the negligence or willful
misconduct of the Trustee or its affiliates or their officers, agents, or
employees.
SECTION 3.6. DELEGATION.
The Trustee may delegate its authority (other than the management and
control of the Trust Fund) to one or more persons or entities provided its
delegation is prudent. The Trustee shall not be liable for any error or omission
by any such delegee provided that the delegation was prudent and the Trustee
monitored the performance of the delegee from time to time in a prudent manner.
SECTION 3.7. RETENTION OF THE TRUSTEE AS AGENT.
The Employer, the Administrator or both at any time may employ the
Trustee as agent to perform any act, keep any records or accounts, or make any
computations required of the Employer or the Administrator by this Agreement or
the Plan. Nothing done by the Trustee as agent shall affect its responsibility
or liability as Trustee.
SECTION 3.8. EXPENSES AND COMPENSATION.
The Trustee shall pay from the Trust Fund its reasonable expenses of
management and administration of the Trust including, for example, reasonable
compensation of counsel and of any agents engaged by the Trustee to assist it in
the management and administration of the Trust Fund, to the extent they are not
paid by the Employer. When directed by the Administrator to do so, the Trustee
shall also pay from the Trust Fund any specified expenses of administration of
the Plan. The Trustee shall be entitled to reasonable compensation for its
services as Trustee,
<PAGE> 28
-17-
to be paid from the Trust Fund from time to time unless first paid by the
Employer.
ARTICLE IV
----------
RECORDS - SETTLEMENT OF ACCOUNTS
SECTION 4.1. RECORDS.
The Trustee shall keep accurate and detailed accounts of all receipts,
disbursements, investments, and other transactions of the Trust and all
accounts, books and records relating thereto. The Trustee shall not be required
to keep records as to the contributions or earnings or losses of the Trust Fund
credited or debited to individual Participants, or to the benefits to which
individual participants are entitled, except to the extent provided in a
separate written agreement between the Employer and the Trustee. Financial
statements, books and records with respect to the Trust Fund shall be open to
inspection by the Employer or the Administrator or their representatives upon
reasonable notice at all reasonable times during business hours of the Trustee
and may be audited not more frequently than once in each fiscal year by an
independent certified public accountant engaged by the Administrator.
SECTION 4.2. SETTLEMENT OF ACCOUNTS OF TRUSTEE AND ADMINISTRATOR.
(a) Within 90 days after the close of each year, or any termination of
the duties of the Trustee, the Trustee shall prepare, sign and mail to the
Employer an account of its acts and transactions as Trustee. If the Employer
finds the account to be correct, the Employer shall so inform the Trustee in
writing, and the account shall then become an account stated as between the
Trustee and the Employer. If within 90 days after receipt of the account or any
amended account the Employer has neither indicated its acceptance in writing to
the Trustee, nor given the Trustee written notice of any objection to any act or
transaction of the Trustee, the account or amended account shall then become an
account stated as between the Trustee and the Employer.
<PAGE> 29
-18-
If any written notice of objection has been sent to the Trustee, and if the
Employer is satisfied that it should be withdrawn or if the account is adjusted
to its satisfaction, the Employer shall so inform the Trustee and it shall
become an account stated as between the Trustee and the Employer.
(b) When an account becomes an account stated, it shall be considered
to be finally settled, and the Trustee shall be completely discharged and
released, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction in an action or proceeding in which
the Trustee and the Employer were parties.
(c) The Trustee, the Administrator or the Employer shall have the right
to apply at any time to a court of competent jurisdiction for judicial
settlement of any account of the Trustee which has not become an account stated.
It shall be necessary to join as parties only the Trustee, the Administrator and
the Employer (although the Trustee may also join such other parties as it may
deem appropriate). Any judgment or decree entered in such an action or
proceeding shall be conclusive.
(d) The Administrator may also render supplementary or separate
accounts of its proceedings to the Employer. All provisions of this Section
respecting settlement of the accounts of the Trustee shall prevail with respect
to accounts of the Administrator with the same force and effect as if the
Administrator were named wherever the Trustee is named in this Section.
SECTION 4.3. DETERMINATION OF INTERESTS UNDER PLAN OR IN TRUST FUND--ENFORCEMENT
OF TRUST--LEGAL PROCEEDINGS.
The Administrator shall have authority to determine the interests of
all persons in the Trust Fund or under the Plan, and the Trustee shall have no
duty to question any direction given by the Administrator to the Trustee. The
Employer and the Administrator shall have authority, either jointly or
severally, to enforce this Agreement on behalf of all persons claiming any
interest in the Trust Fund or under the Plan.
<PAGE> 30
-19-
ARTICLE V
---------
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 5.1. RESIGNATION OF TRUSTEE.
The Trustee may resign at any time by notifying the Employer in
writing. The resignation shall take effect upon the earlier of the appointment
of a successor under Section 5.3 or 60 days from the date the notice is given.
SECTION 5.2. REMOVAL OF TRUSTEE.
The Board of Directors of the Employer may remove the Trustee at any
time by delivering to the Trustee a written notice of its removal and an
appointment of a successor under Section 5.3. No removal shall take effect prior
to 60 days after the delivery of the notice unless the Trustee agrees to an
earlier effective date.
SECTION 5.3. APPOINTMENT OF SUCCESSOR TRUSTEE.
The appointment of a successor to the Trustee shall take effect upon
deliver' to the Trustee of (a) an instrument in writing appointing the
successor, executed by the Employer, and (b) an acceptance in writing, executed
by such successor, both acknowledged in the same form as this Agreement. The
Employer shall send notice of such appointment to the Administrator. If a
successor is not appointed within 60 days after the Trustee gives notice of its
resignation pursuant to Section 5.1, the Trustee or the Administrator may apply
to any court of competent jurisdiction for appointment of a successor. All of
the provisions set forth in this Agreement with respect to the Trustee shall
relate to each successor with the same force and effect as if the successor had
been originally named as Trustee.
<PAGE> 31
-20-
SECTION 5.4. TRANSFER OF FUND TO SUCCESSOR.
Upon the resignation or removal of the Trustee and appointment of a
successor, and after the final account of the Trustee has been settled as
provided in Article IV, the Trustee shall transfer and deliver the Trust Fund to
the successor.
ARTICLE VI
DURATION AND TERMINATION OF TRUST--AMENDMENT
SECTION 6.1. DURATION AND TERMINATION.
This Trust shall continue for as long as may be necessary to accomplish
the purpose for which it was created, but it may be terminated at any time by
the Employer by action of its Board of Directors. Notice of the termination
shall be given to the Trustee by an acknowledged instrument in writing executed
by the Employer, together with a certified copy of the resolution of the Board
of Directors of the Employer authorizing the termination.
SECTION 6.2. DISTRIBUTION UPON TERMINATION.
If this Trust is terminated, the Trustee shall liquidate the Trust Fund
to the extent required for distribution upon the written direction of the
Administrator. After the Trustee's final account has been settled as provided in
Article IV, the Trustee shall distribute the net balance of the Trust Fund in
accordance with the directions of the Administrator, or in the absence of the
Administrator's direction, as may be directed by a judgment or decree of a court
of competent jurisdiction. Upon making the distributions, the Trustee shall be
relieved from all further liability. The powers of the Trustee under this
Agreement shall continue so long as any assets of the Trust Fund remain in its
hands.
<PAGE> 32
-21-
SECTION 6.3. AMENDMENT.
The Employer shall have the right at any time and from time to time to
amend this Agreement in whole or in part by an acknowledged written instrument
delivered to the Trustee executed in accordance with the order of the Employer's
Board of Directors. No amendment shall affect the rights and responsibilities of
the Trustee without its written consent. Further, no amendment to this Agreement
shall divert any part of the Trust Fund to purposes other than the exclusive
benefit of the employees of the Employer or their beneficiaries. Any amendment
shall become effective upon (i) delivery to the Trustee of the written
instrument of amendment, together with a certified copy of the resolution of the
Board of Directors of the Employer authorizing the amendment, and (ii)
endorsement of receipt by the Trustee on the instrument, together with its
consent, if that consent is required.
ARTICLE VII
-----------
MISCELLANEOUS
SECTION 7.1. GOVERNING LAW.
This Agreement and the Trust hereby created shall be construed and
regulated by the laws of the State of New York, except as those laws are
superseded by ERISA or other Federal law.
SECTION 7.2. REORGANIZATION OF TRUSTEE.
Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger,
reorganization or consolidation to which the Trustee may be a party, or any
corporation to which all or substantially all the pension trust business of the
Trustee's Regional Banking line of business may be transferred, shall be the
successor of the Trustee under this Agreement, without the execution of any
instrument or the performance of any further act.
<PAGE> 33
-22-
SECTION 7.3. HEADINGS
Section names and other headings are included only for purposes of easy
reference and shall not affect the meaning of any provision of this Agreement.
SECTION 7.4. COUNTERPARTS
The parties may execute separate counterparts of this Agreement which,
when taken together, shall constitute one Agreement.
IN WITNESS WHEREOF, The Company and The Chase Manhattan Bank, N.A. have
caused this Agreement to be executed by their duly authorized officers on the
dates set by their respective signatures.
THE TRUSTEE THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
BY: /s/ Kathleen Lewis
------------------------------
ATTEST: /s/ Peggy Nicols ITS: Assistant Treasurer
------------------ -----------------------------
DATED: 8/18/94
---------------------------
THE EMPLOYER
BY: /s/ Robert J. McGuire
------------------------------
ATTEST: /s/ Barbara A. Saccente ITS: Robert J. McGuire, President
------------------------ -----------------------------
DATED: 8/9/94
----------------------------
<PAGE> 34
[KROLL ASSOCIATES, INC. LETTERHEAD]
July 15, 1997
Aaron Taylor
Implementation Project Manager
Fidelity Investments
200 Magellan Way
Covington, KY 41015
Dear Aaron:
Attached please fin the Addendum to Articles I, II, III and IV of the Corporate
Plan Service Agreement relating to payment of expenses.
Please call me if you have any questions at (212)833-3372.
Sincerely,
/s/ Mary Ellen Lynch
Mary Ellen Lynch
Director, Employee Benefits
<PAGE> 35
KROLL ASSOCIATES 401(k) SAVINGS PLAN
ADDENDUM TO ARTICLES I, II, III AND IV OF
THE CORPORATEplan (sm) SERVICE AGREEMENT
EXPENSES OF THE PLAN WILL BE:
<TABLE>
<CAPTION>
TYPE OF FEE PAID BY CHARGED TO
----------- EMPLOYER PARTICIPANT
(on a flat $ basis)
<S> <C> <C>
1. SET-UP X
2. CONVERSION X
3. ADMIN. SERVICE - Base X
4. ADMIN. SERVICE - Per
Participant X
5. ADDITIONAL INVESTMENT FUND X
6. RETURN OF EXCESS CONTRIBUTION X *
7. EMPLOYEE COMMUNICATIONS X
8. PARTICIPANT LOAN SET-UP X *
9. PARTICIPANT LOAN - ANNUAL X *
10. TRUSTEE FEE X
</TABLE>
* Charged only to affected participants
- --------------------------------------------------------------------------
NOTE: The Employer shall consult with their attorney to determine if the above
expenses are reasonable expenses of the Plan under Sections 403(c)(1) AND
404(a)(1)(A) of the Employee Retirement Income Security Act of 1974. This form
will serve as notification to Fidelity of the party responsible for paying the
Fidelity fees of the Employer's Plan.
ACCEPTED BY: FIDELITY MANAGEMENT TRUST COMPANY,
AS TRUSTEE:
BY: /s/ N.E. Paciotti BY:
---------------------------------- --------------------------------
TITLE: Chief Financial Officer TITLE:
------------------------------- -----------------------------
DATE: 7/15/97 DATE:
-------------------------------- -------------------------------
<PAGE> 36
SERVICE AGREEMENT
PROFIT SHARING/401(k) PLAN
This Agreement is between Fidelity Management Trust Company ("Fidelity") and
Kroll Associates, Inc.
- --------------------------------------------------------------------------------
(the "Employer"), who maintains the Plan designated below.
PLAN NAME: Kroll Associates 401(k) Savings Plan & Trust
------------------------------------------------
------------------------------------------------
IMPLEMENTATION DATE:
------------------------------------------------
NUMBER OF ELIGIBLE EMPLOYEES: 188
------------------------------------------------
SELECT ONE: [ ] Start Up Plan
[x] Conversion Plan or Start Up plan with
assets transferred from another plan
- - ARTICLE I. IMPLEMENTATION SERVICE FEES:
SET UP FEE:
Includes:
- Camera-ready copy of all relevant Administrative Forms
- Employee Communication Materials
- Fidelity Retirement Services Workbench software and Reference
Manuals
- Implementation Conference Call - Issues covered include
electronic data transmission, contribution processing cycles,
ordering communication materials, plan administrative needs,
plan profile, project timetables, and resource coordination.
- One Administrative Manual
- One original Summary Plan Description
- Prototype plan document (updated as required to ensure
compliance with the Internal Revenue Code)
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 1
<PAGE> 37
<TABLE>
<S> <C>
CONVERSION FEE: $ 0 *
(For Conversion Plans or Start-up Plans with Assets Transferred
From Another Plan)
Includes:
- Establishment of historical data on the Fidelity Participant
Recordkeeping System (FPRS)
- Implementation Meeting, if necessary - Issues covered include
data transmission, contribution processing cycles, plan
administrative needs, plan profile, project timetables, and
resource coordination
- Preparation of Participant and plan records for FPRS
- Reconciliation of all conversion data
- Transfer of assets from current Trustee
*To be completed and initialed by a Fidelity-Representative.
- - ARTICLE II. ADMINISTRATIVE SERVICE FEES:
ANNUAL FEES (SUM OF (1) THROUGH (4)):
(1) BASE FEE $2,000
(2) PER PARTICIPANT FEE:
Contributions will be remitted to Fidelity via wire transfer
on a (select one):
--
x Monthly (or less frequent) Cycle $28 per Participant
--
--
Biweekly or Semimonthly Cycle $35 per Participant
--
--
Weekly Cycle $40 per Participant
--
The minimum fee under Sections (1) and (2) is $4,500 except if
the Employer elected a biweekly, semimonthly or weekly
contribution cycle. If a biweekly or semimonthly cycle is
selected then the minimum fee is $4,500 plus an additional $7
per participant. If a weekly cycle is selected then the
minimum fee is $4,500 plus an additional $12 per participant.
Includes:
- Contribution processing on the designated cycle
- Daily valuation
</TABLE>
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 2
<PAGE> 38
- Investment exchanges of existing Participant account
balances
- Investment direction of future contributions
- Monthly Trial Balance Report
- Monthly withdrawals
- Quarterly Administrative Report*
- Quarterly Statements mailed directly to Participants'
homes*
- Twenty-four hour Participant telephone access to
account balance and fund price information
* The Quarterly Administrative Report and Quarterly Statements will be generated
on an off calendar quarter cycle.
(3) (OPTIONAL)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PARTICIPANTS AMOUNT PER FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADDITIONAL FEE FOR EACH FIDELITY FUND 1-1,000 $ 500
OFFERED FOR THE PLAN IN EXCESS OF SEVEN. 1,001-2,000 $1,000
MORE THAN 2,000 $1,500
- ----------------------------------------------------------------------------------------------------------
INDICATE THE NUMBER OF FUNDS OFFERED UNDER THE PLAN IN EXCESS OF SEVEN: THREE .
-----------
(4)(OPTIONAL)
ADDITIONAL PER-PARTICIPANT FEE FOR FROZEN EMPLOYEE
VOLUNTARY AFTER-TAX CONTRIBUTION (FROZEN OR ACTIVE) ACCOUNT: $ 10
(Only for those Participants with active or inactive after-tax balances.)
</TABLE>
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 3
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C>
- - ARTICLE III. TRUSTEE SERVICE FEES:
ANNUAL FEE: $ 2,800
Includes:
- Annual Plan-Year-End Summary Reporting Package on a cash basis
- Custody of plan assets held in trust at Fidelity
- Distribution checks and annual IRS Form 1099-R Tax reporting
- Plan assets invested at the direction of Participants, or the
Employer if Employer direction is elected
- Service for Exiting Employees (SEE) Kit for IRA Rollovers
- - ARTICLE IV. ADDITIONAL FEES:
(1) EMPLOYEE COMMUNICATION
- Initial Employee enrollment No charge for one day-one city meetings**
meeting presentations
- Meetings for additional $500 per day for same city**
consecutive days of $750 per day for additional sites**
initial Employee enrollment
meetings
** Limit of four meetings per day
(2) PARTICIPANT LOANS
- Participant loan application fee processed via batched hardcopy $75 setup
- Participant loan maintenance $25 per year
(Loan fees must be paid by the Employer unless paid by the Participant.)
(3) RECORDKEEPING GUARANTEED INSURANCE CONTRACT (GIC)
- Annual Fee $_________
(Based upon Fidelity's review of the GIC.
To be completed and initiated by a Fidelity Representative.)
</TABLE>
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 4
<PAGE> 40
<TABLE>
<S> <C> <C>
Three percent of the GIC assets will be maintained as a
Reserve Fund by Fidelity in a money market portfolio for
Participant redemptions. The annual GIC recordkeeping fee will
not apply to this Reserve Fund. Instead, an investment
management fee of up to 18 basis points will be charged and
deducted from the Reserve Fund's interest income.
(4) MISCELLANEOUS DISTRIBUTIONS
- Refund of Participant 401(k) excess deferrals, $25 per Participant
contributions, or annual additions. This fee will be (Only for those
charged to the Employer Participants who receive
refunds.)
(5) NON-DISCRIMINATION TESTING (SELECT ONE): / x/ YES / / NO
By indicating "yes" in the above box, the Employer authorizes Fidelity to perform the Core
and/or Additional Tests listed below. PLEASE CHOOSE EITHER PACKAGE TESTING SERVICES
(OPTION "a") OR ONE OR MORE OF THE TESTS OFFERED UNDER THE INDIVIDUAL TESTING SERVICES
(OPTION "b"). (Note: The services included under option "a" include all of the individual
tests listed under option "b.") The Employer understands that the non-discrimination tests'
results are based upon the information provided to Fidelity by the Employer. Fidelity
cannot be responsible for invalid test results that are based upon incorrect or incomplete
information provided to Fidelity. Fidelity has no obligation to solicit data, nor does t have
an obligation to ascertain the accuracy or completeness of the data received. The
Employer must complete a Fidelity non-discrimination testing questionnaire before the initial
test can be performed.
(a) [X] PACKAGE TESTING
(Effective for plan years beginning on or after january 1, 1994)
If the Package Testing Service is elected, Fidelity will
perform SEMI-ANNUAL Actual Deferral Percentage, Actual
Contribution Percentage, Annual Addition and Deferral
Contribution Limitation tests (as outlined in the Core Testing
Services section below) and, as necessary, the ANNUAL Top
Heavy, Minimum Coverage, and Minimum Participation tests (as
outlined in the Additional
</TABLE>
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 5
<PAGE> 41
<TABLE>
Testing section below) for the Employer's Plan. The fees for
these services are as follows:
Initial test date for semi-annual test: June 30, 1997 (Please specify.)
-------------
=============================================================================================================
PLAN SIZE PACKAGE TESTS
(BASED ON NUMBER OF ELIGIBLE EMPLOYEES)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
1 - 500 $2,250
501 - 1,000 $3,300
1,001 - 2,000 $4,350
=============================================================================================================
</TABLE>
(b) [ ] INDIVIDUAL TESTING SERVICES
(1) SEMI-ANNUAL OR ANNUAL CORE TESTING SERVICES
If elected, Fidelity will perform the non-discrimination test
required by Internal Revenue Code (IRC) Section 401(k)(3)
(Actual Deferral Percentage Test (ADP)) and, if applicable, by
IRC Section 401(m)(2) (Actual Contribution Percentage Test
(ACP)). The annual fee for performing the tests is listed
below. Fidelity must receive complete and accurate data in the
required format thirty days prior to the anticipated
distribution date of Participant refunds due to the Plan's
failure of the non-discrimination tests under IRC Section
401(k)(3) and/or 401(m)(2). Fidelity must receive proper
written authorization from the Employer before making any such
distributions.
There are two CORE TESTING SERVICE Options, Semi-Annual or
Annual Testing. You may elect one of the following options.
Semi-Annual ADP, ACP, IRC Section 415(c)(1) and IRC
Section 402(g) Limit Testing Annual ADP, ACP, IRC
Section 415(c)(1) and IRC Section 402(g) Limit
Testing
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 6
<PAGE> 42
Initial test date for semi-annual test: (Please specify.)
---------------
<TABLE>
<CAPTION>
============================================================================================================================
PLAN SIZE ANNUAL SEMI-ANNUAL
(BASED ON NUMBER OF (ONE TEST) (TWO TEST)
ELIGIBLE EMPLOYEES) CYCLE* CYCLES*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 - 500 $1,300 $1,500
501 - 1,000 $1,800 $2,200
1,001 - 2,000 $2,000 $2,900
============================================================================================================================
</TABLE>
*Each CORE TESTING SERVICES CYCLE includes an ADP Test, an ACP Test,
IRC Section 402(g) Deferral Limitation Monitoring (for calendar year
plans only), and IRC Section 415(c)(1) Limitation Monitoring (for
Defined Contribution Plans only). A quarterly testing cycle is
available, and the fee will be quoted upon request.
(2) ADDITIONAL TESTING SERVICES
[ ] IRC Section 416(c)(2) Top-Heavy Test (Annual Top-Heavy Test
for Defined Contribution Plan(s)). Fidelity will perform the
top-heavy test for an Employer that also has a defined benefit
plan that is aggregated with the defined contribution plan.
However, the Employer must timely provide Fidelity with the
relevant defined benefit plan information.
[ ] IRC Section 410(b)(1) Minimum Coverage Test (Annual Ratio
Percentage Test only) and IRC Section 401(a)(26) Minimum
Participation Test.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 7
<PAGE> 43
The fees for the Additional Testing Services, if they are elected individually,
are as follows:
<TABLE>
<CAPTION>
===================================================================================================================================
PLAN SIZE IRC MINIMUM COVERAGE
(BASED ON NUMBER OF SECTION 416(C)(2) (RATIO PERCENTAGE TEST ONLY)
ELIGIBLE EMPLOYEES) TOP-HEAVY TEST AND MINIMUM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 - 500 $750 $750
501 - 1,000 $1,100 $1,100
1,001 - 2,000 $1,450 $1,450
===================================================================================================================================
</TABLE>
** This fee includes the Minimum Coverage Test and the Minimum Participation
Test.
Any annual IRC tests not elected in options "a" or "b" are the responsibility of
the Employer. The data for the Core and/or Additional Testing Services must be
transmitted to Fidelity on magnetic tape or via Fidelity Retirement Service
Workbench Software.
The Employer will be billed a pro-rata portion of the entire annual
Non-Discrimination Testing Service fee at the end of each quarter based upon the
number of tests elected in the Employer's Authorization for Non-discrimination
Tests. If testing is required for more than one plan of the Employer, a fee will
be charged for each plan based upon the number of Employees eligible to
participate in that plan. If extraordinary consulting regarding the results of
the non-discrimination tests is provided by Fidelity personnel to the Employer,
then such consulting will be provided at the rate of $100 per hour. In addition,
any correction or manipulation of Plan data by Fidelity personnel at the request
of the Employer will be charge at the rate of $100 per hour.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 8
<PAGE> 44
- - ARTICLE V. BILLING INFORMATION
Fidelity's quarterly invoice for services rendered will be sent to the
following address:
<TABLE>
<S> <C>
Contact Name: Mary Ellen Lynch
-----------------------------------
Telephone Number: (212) 833-3372
-----------------------------------
Title: Director, Employee Benefits
-----------------------------------
Address: Kroll Associates, Inc.
-----------------------------------
City/State/Zip Code: 900 3rd Ave., New York, NY 10022
-----------------------------------
- - ARTICLE VI. CONTACTS:
PRIOR RECORDKEEPER: Buck Consultants
-----------------------------------
Contact Name: Richard Semper, Martin Shapiro
-----------------------------------
Telephone Number: (201) 902-2674, (212) 330-1185
-----------------------------------
Title: Manager, Consulting Actuary
-----------------------------------
Address: 500 Plaza Drive
-----------------------------------
City/State/Zip Code: Secaucus, NJ 07096-1533
-----------------------------------
PRIOR TRUSTEE: Chase Manhattan Bank, N.A.
-----------------------------------
Contact Name: Kathleen Lewis
-----------------------------------
Telephone Number: (716) 258-5255
-----------------------------------
Title: Assistant Treasurer
-----------------------------------
Address: Institutional Trust Services, One Chase Square
-----------------------------------
City/State/Zip Code: Rochester, NY 14643
-----------------------------------
</TABLE>
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 9
<PAGE> 45
PRIOR CUSTODIAN:
(if not Trustee) -----------------------------------
Contact Name:
-----------------------------------
Telephone Number:
-----------------------------------
Title:
-----------------------------------
Address:
-----------------------------------
City/State/Zip Code:
EXTERNAL PAYROLL VENDOR: Ceridian
-----------------------------------
Contact Name: Level One Services
-----------------------------------
Telephone Number: 1-800-608-5555
-----------------------------------
Title: Account #s M641,2,3
-----------------------------------
Address: 142 West 57th Street
-----------------------------------
City/State/Zip Code: New York, NY 10019
-----------------------------------
INTERNAL PAYROLL CONTACT: Kroll Associates
-----------------------------------
Contact Name: Darren Rosemond
-----------------------------------
Telephone Number: (212) 833-3365
-----------------------------------
Title: Payroll Manager
-----------------------------------
Address: 900 Third Ave., 7th Fl
-----------------------------------
City/State/Zip Code: New York, NY 10022
-----------------------------------
Payroll Frequency/Dates: 15th & 31st of each month
-----------------------------------
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 10
<PAGE> 46
- - ARTICLE VII. TERMS OF AGREEMENT:
The Implementation, Administrative, Trustee Services, and Additional
Fees specified on pages one through eight are contingent upon both
parties fulfilling their respective responsibilities in the following
sections:
1. DATA SUBMISSION:
The Employer or Plan Administrator will provide Fidelity with accurate
and complete data via electronic data transmission, magnetic tape, or
the Fidelity Retirement Services Workbench Software on a timely basis.
As of the Implementation Date, the Employer or Plan Administrator must
send Fidelity the following required data for each new or existing
Participant: name, Social Security Number, address, employment dates,
employment status, and initial investment elections. After the
Implementation Date, the Employer or Plan Administrator may only send
Fidelity the aforementioned information for a new Participant or
changes to the name, address, employment dates, or employment status
for an existing Participant. Investment election changes may only be
made as provided in this Article VII, Section Four. Fidelity will not
be responsible for any losses and/or expenses that arise due to the
submission of incorrect or incomplete data, or data transmitted to
Fidelity in an improper format.
2. SERVICES:
Fidelity will have the responsibility to perform only the services set
forth in Articles I, II, III, and IV of this Agreement, effective as of
the Implementation Date. All other regulatory and administrative
matters relating to the Plan shall be the responsibility of the
Employer and the Plan Administrator. If so elected, the Employer may
engage Fidelity to perform the required annual Internal Revenue Code
tests offered by its Non-discrimination Testing Services Group.
3. INITIAL INVESTMENT ELECTION:
If Participant direction is elected by the Employer, each Participant
in the Plan shall submit his/her initial investment elections to the
Employer or Plan Administrator. These elections will then be submitted
to Fidelity by the Employer or Plan Administrator in accordance with
the terms set forth in Section One. All subsequent investment elections
for existing Participants must be made in accordance with Section Four
using the Fidelity telephone exchange system. Existing Participants
must use the Fidelity telephone exchange in Section Four to make
investment changes.
4. TELEPHONE DIRECTIONS BY PARTICIPANTS:
If Participant direction is chosen by the Employer each Participant in
the Plan shall be permitted to direct the investment of his/her
individual account balance and investment of future
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 11
<PAGE> 47
contributions among available investment options through the use of
Fidelity's telephone exchange system. The Employer hereby directs
Fidelity to act upon such telephone instructions without questioning
the authenticity of such direction other than as provided in the third
paragraph of this section. Fidelity will not be responsible for any
losses and/or expenses that arise for clients who provide changes for
existing Participant investment elections via the Fidelity Retirement
Services Workbench Application electronic data transmission or magnetic
tape.
This service allows Participants to telephone Fidelity between the
hours of 8:30 AM and 8:00 PM Eastern Time on any business day. the
number of exchanges from a Participant's existing account balance will
be governed by the mutual fund prospectus unless otherwise limited by
the Employer in accordance with Section 6.03 of The CORPORATEplan for
Retirement(SM) Prototype Basic Plan Document. Fidelity reserves the
right to modify or withdraw the exchange privilege in the future. All
telephone conversations will be recorded for the protection of
Fidelity and the Participants. Fidelity will not be responsible for
determining he authenticity of Participant and his/her telephone
instructions. A confirmation of the exchange of existing account
balances and/or a change in investment of future contributions will be
mailed to the Participant within seven business days of the call. If
the telephone call is received prior to 4:00 PM Eastern Time, the
requested exchange will be effective with that day's mutual fund
closing prices. If the telephone call is received after 4:00 PM
Eastern Time, the exchange will be effective with the next
business day's closing prices.
A Participant will be required to provide the Fidelity telephone
exchange system representative with his/her Employer's plan number,
Social Security Number and personal identification number. For security
purposes, upon proper notice to Fidelity, the Employer shall have the
right to require a Participant to respond to additional questions
(i.e., date of birth, date of hire, etc.) before being able to access
his/her accounts. Only authorized Plan contact(s) and the Participant
shall have access to a Participant's account. A Participant's ex-spouse
who has a segregated account in the Plan under a Qualified Domestic
Relations Order (QDRO) shall have access only to this account. A
Participant's spouse or any other third party may not have access to
the Participant's account or make exchanges of existing account
balances and/or changes in the investment of future contributions. Upon
proper documentation and notice of the Employer, an individual who
becomes an active Beneficiary in accordance with Section 2.01(a)(3) of
the Basic Plan Document due to the death of the Participant shall have
the right to access the deceased Participant's account. Fidelity
reserves the right to establish a separate account for the Beneficiary
based upon his/her entitlement to the deceased Participant's account.
A Participant may not change his/her address through the telephone
exchange system. All such changes must be submitted to the Employer in
writing. The Employer shall then send such changes to Fidelity in the
required format.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 12
<PAGE> 48
5. EMPLOYER INVESTMENT DIRECTION:
If Employer investment direction is chosen by the Employer, then all
Participant accounts must be invested in Fidelity Fund(s) elected in
Section 1.14(b) of the Adoption Agreement. A Participant will not be
allowed to make any telephone exchanges of his/her account balance.
Fidelity will provide the Employer with procedures for exchanging
Participant account balances between/among Fidelity Fund(s) offered
under the Plan. Exchanges requested by an authorized Plan
representative will be executed within the time period specified in the
procedures. Fidelity reserves the right to modify the procedures upon
notice to the Employer.
6. CONTRIBUTIONS:
The Employer will be responsible for computing Employer contributions
for eligible Participants unless Fidelity provides such a service.
Contribution information must be received by Fidelity in an acceptable
media: diskette, electronic data transmission, Fidelity Retirement
Services Workbench Software or magnetic tape in the required Fidelity
format. The Employer must consolidate the contribution information for
multiple payrolls and/or multiple payroll sites onto one diskette,
electronic data transmission. Fidelity Retirement Services Workbench
Software or magnetic tape before sending it to Fidelity. The Employer
will remit contributions by wire transfer to Fidelity after receiving
notification and approval from Fidelity to wire the funds. Employer
contributions may be sent on a quarterly or a less frequent cycle. The
trade date of the transaction will be the day the funds are received by
Fidelity. Unsolicited or unidentified wire transfers of contributions
will not be invested until they can be properly identified and
reconciled by Fidelity.
7. WITHDRAWALS:
Withdrawal requests, including loans, will be processed monthly based
upon a mutually acceptable date determined immediately after the
implementation period by Fidelity and the Plan Administrator except no
withdrawal will be processed between December 15 and January 1.
Fidelity will process all withdrawals and mail the checks to the
Participants within ten business days of the monthly processing date.
Withdrawals will only be processed if there is complete, accurate and
properly authorized data received by Fidelity in the required media.
All withdrawal requests received after the monthly cutoff date will be
processed the following month. The monthly withdrawal date may be
changed once each Plan Year based upon the written consent of Fidelity
and the Employer. Fidelity reserves the right to process withdrawals on
a more frequent basis.
8. IRS DETERMINATION LETTER FILING:
The Employer must use the Fidelity CORPORATEplan for Retirement(sm)
Prototype Basic Plan Document and corresponding Adoption Agreement. The
Employer can not add, delete, or modify
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 13
<PAGE> 49
them in any way. The Employer will be responsible for completing and
executing the Adoption Agreement Standardized or Non-Standardized.
Fidelity as the Prototype Plan is responsible for updating and amending
the Prototype Plan Documents. If the Nonstandardized Adoption Agreement
is used, or if the Standardized Adoption Agreement is used and the
Employer maintains, or has ever maintained, another plan, the Employer
may not rely on the opinion letter issued by the national Office of the
Internal Revenue Service as evidence that this Plan is qualified under
section 401 of the Internal Revenue Code. The Employer is responsible
for filing a request with the appropriate Internal Revenue Service
office to obtain an individual determination letter for its Plan.
9. INITIAL EMPLOYEE COMMUNICATION MEETINGS:
The initial day of Employee enrollment meetings will be limited to four
meetings. Additional fees will be incurred if meetings are held on
additional consecutive days or at multiple sites. Initial meetings
represent those meetings conducted by Fidelity before or immediately
after the Implementation Date of the Plan. Additional fees will be
charged for all re-enrollment meeting or meetings conducted sixty days
after the Implementation Date.
10. TRANSITION PERIOD:
An existing Employer Plan converting to Fidelity's CORPORATEplan for
Retirement(sm) will be subject to a transition period to facilitate the
movement of Participant records and Plan assets from the prior
recordkeeper and/or trustee to Fidelity. The Employer will be
responsible for ensuring the prior recordkeeper provides Fidelity with
all of the required Participant account balance history and related
information. The Plan assets must be converted to cash and wired to
Fidelity on the Implementation Date unless the assets are already
invested in a Fidelity mutual fund offered under The CORPORATEplan for
Retirement(sm) (Fidelity reserves the right, upon sufficient written
notice, to require the Employer to liquidate all holdings in Fidelity
mutual funds as of the Implementation Date). The assets will be
invested in a money market fund until the transition period is
completed. The transition period will be from the Effective Date in
Section 1.01(g) of the Adoption Agreement through the date the
conversion process is completed and approved by the Employer.
Participants will not be able to make withdrawals, exchanges, or
redirect future contributions during the transition period. Fidelity
will provide the Employer with information about the conversion process
and the transition period.
The duration of the transition period is dependent upon the cooperation
of the prior recordkeeper, prior trustee, the Employer and the Plan
Administrator. Fidelity can not guarantee that the transition period
will end as of a specified date, or the length of time required to
complete the implementation period.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 14
<PAGE> 50
11. FEES:
As consideration for its services under this Agreement, Fidelity shall
be entitled to the fees computed in accordance with Articles I, II, III
and IV of this Agreement and any additional fees described in this
Section. A reasonable additional fee will be charged if Fidelity has to
reprocess any contribution data transmission due to excessive errors of
the Employer or payroll vendor. Additional services and special reports
or statements may be provided if Fidelity and Employer enter into a
separate written agreement identifying such services and the associated
fees. Fidelity shall be entitled to reasonable compensation for its
costs and expenses incurred in the event of termination of this
Agreement. Fidelity reserves the right to charge a termination fee
equal to a full year of fees identified under Articles I, II, III and
IV in the event the Employer terminates its relationship with Fidelity
within one year after the Implementation Date.
Fidelity will charge an additional Conversion Fee under Article I if
either the Employer acquires another Company and merges the acquired
Company's plan with its Plan or the Employer receives additional assets
to be added to its existing Plan. The Conversion Fee will be determined
after the relevant information has been received by Fidelity. This fee
will be communicated to the Employer prior to the conversion of
additional assets into the Employer's Plan.
The implementation service fee in Article I will be billed during the
implementation process. The annual base fees in Article II will become
effective as of the earlier of the date the telephone exchange service
becomes available to Participants and/or the Employer, or the date
Fidelity processes withdrawals. These fees will be prorated through the
end of the initial quarter. All Fidelity fees in Articles II, III and
IV will be billed in arrears to the Employer on a quarterly basis. An
Employee is treated as a Participant for purposes of the annual
per-participant fee if he/she has an account balance on any day of the
quarter or any previous quarter in the twelve-month annual billing
cycle. Therefore a Participant receiving a distribution will be
considered a Participant in each quarter in which he/she had an account
and each quarter thereafter in the billing cycle. The trustee fees in
Article III will become effective as of the later of the Plan's
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Date.
If payment of the aforementioned fees is not received by Fidelity
within sixty days of receipt of Fidelity's quarterly invoice, or the
fees are to be paid by the Participants, then the fees shall be paid
from the Trust fund. Unless allocable to the accounts of particular
Participants, such fees shall be charge against the respective accounts
of all Participants in such reasonable manner as the Trustee may
determine.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 15
<PAGE> 51
12. DURATION AND AMENDMENT:
This Agreement shall remain in effect for the remainder of the current
calendar year and shall thereafter be automatically extended for
successive one-year terms. Either party, however, by sixty days prior
written notice to the other, may terminate this Agreement unless the
receiving party agrees to a shorter notice period. This Agreement may
be amended or modified at any time and from time to time by an
instrument executed by the parties. Notwithstanding the foregoing,
Fidelity reserves the right to amend unilaterally the fee schedule upon
sixty days prior written notice to the Employer.
13. PARTICIPANT LOANS:
The Employer or Plan Administrator shall act as the Trustee's agent for
the purpose of holding Participant loans and the related documentation
and as such shall (1) hold physical custody of and keep safe the
promissory notes and other loan documents, (2) collect and remit all
principal and interest payments to the Trustee, (3) advise the Trustee
of the date, amount and payee of the checks to be drawn representing
loans, and (4) cancel and surrender the promissory note and other loan
documentation to the Participant when a loan has been paid in full.
14. BENEFICIARY DESIGNATION FORMS:
The Employer or Plan Administrator will be responsible for physical
custody of all Participant beneficiary designation forms.
15. RECORDKEEPING GUARANTEED INVESTMENT CONTRACTS:
Fidelity may provide recordkeeping services for an additional fee for a
guaranteed investment contract ("GIC") held in an existing plan that
converts to The CORPORATEplan for Retirement(sm). The Employer's Plan
must meet all of the criteria established by Fidelity before the GIC
can be recordkept. Fidelity will review the GIC to determine any
required changes. Fidelity will then notify the Employer of the
required changes. The Employer will be responsible for negotiating
directly with the Insurance Company for any changes that will be
required to the GIC for Fidelity to recordkeep it. Fidelity will not
conduct any Employee communication meetings until after all of the
required changes have been agreed to by the Employer and the Insurance
Company.
Upon maturity of the GIC all proceeds must be invested into Fidelity
Funds. Fidelity will not trustee the GIC assets and the Employer will
be responsible for the establishment of a separate trust or fund under
The CORPORATEplan for Retirement(sm) Prototype Basic Plan Document. The
Employer will be required to sign a Consent to a Separate Trust/Fund
and GIC Operating Agreement with Fidelity prior to the Effective Date
listed in Section 1.01(g) of the Adoption Agreement. the former
Agreement will identify the procedures and conditions for Fidelity to
recordkeep the GIC.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 16
<PAGE> 52
16. USE OF SERVICE AGREEMENT:
The use of this Service Agreement is contingent upon the use of The
CORPORATEplan for Retirement(SM) Prototype Basic Plan Document and
Corresponding Adoption Agreement. Fidelity shall have no responsibility
whatsoever if the Employer attempts to use a plan document other than
The CORPORATEplan for Retirement(SM) Document.
17. INVESTMENTS:
Fidelity shall have no discretion or authority with respect to the
investment of the Plan assets but shall act solely as a directed
trustee of the contributed funds. All Plan assets must be invested in
allowable Fidelity Funds under The CORPORATEplan for Retirement(SM) as
selected by the Employer unless a separate trust or fund is
established under the Prototype Basic Plan Document with the written
consent of Fidelity. The Employer may add, delete or replace any
Fidelity Fund with another by providing Fidelity with proper written
direction at least thiry days prior to the effective date of the
change. Fidelity may charge the Employer a reasonable fee to facilitate
the replacement of mutual fund(s).
18. SERVICE PROVIDERS:
Fidelity Management Trust Company is the Trustee of the Employer's Plan
under The CORPORATEplan for Retirement(SM). Fidelity may use its
affiliates in providing the services described in this Agreement.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 17
<PAGE> 53
- - SPECIMEN SIGNATURES:
At least one person is required to be authorized to provide
instructions to Fidelity Management Trust Company regarding The
CORPORATEplan for Retirement(SM) Account. Only the following person(s)
designed below is/are authorized to advise Fidelity on all plan
administrative matters:
NAME & TITLE SPECIMEN SIGNATURE
Mary Ellen Lynch /s/ Mary Ellen Lynch
- -------------------------------- ----------------------------------
Director, Employee Benefits
- --------------------------------
N.E. Paciotti /s/ N.E. Paciotti
- -------------------------------- ----------------------------------
Chief Financial Officer
- --------------------------------
Robert J. McGuire /s/ Robert J. McGuire
- -------------------------------- ----------------------------------
President
- --------------------------------
- -------------------------------- ----------------------------------
- --------------------------------
PROCEDURE FOR CHANGING SPECIMEN SIGNATURES
The specimen signatures can be changed by the Employer at any time. To add new
authorized signer, the Employer must send a letter of instruction signed by an
authorized individual to the Account Manager, with an original specimen
signature of the new authorized signer. To delete or replace a signer, the
Employer should identify the name(s) of the individual(s) who is/are no longer
authorized signer(s). The Employer must provide any change at least ten business
days prior to the date the change will become effective.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 18
<PAGE> 54
EXECUTION PAGE
(FIDELITY'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Plan.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED OFFICERS.
<TABLE>
<CAPTION>
EMPLOYER: EMPLOYER:
<S> <C>
Print Name: N.E. Paciotti Print Name:
---------------------------- ---------------------------
Signature: /s/ N.E. Paciotti Signature:
---------------------------- ---------------------------
Title: Chief Financial Officer Title:
--------------------------------- --------------------------------
Date: 12-19-96 Date:
--------------------------------- --------------------------------
</TABLE>
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
FIDELITY MANAGEMENT TRUST COMPANY
Print Name: Eric L. Wichmann
----------------------------
Signature: /s/ Eric L. Wichmann
Authorized Signatory
----------------------------
Title:
---------------------------------
Date: 2/14/97
----------------------------------
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 19
<PAGE> 55
EXECUTION PAGE
(EMPLOYER'S COPY)
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts except to the extent such laws are superseded by Section 514 of
ERISA. This Agreement shall be effective for the Plan as of the later of the
Effective Date in Section 1.01(g) of the Adoption Agreement or the
Implementation Plan.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED OFFICERS.
<TABLE>
<CAPTION>
EMPLOYER: EMPLOYER:
<S> <C>
Print Name: N.E. Paciotti Print Name:
---------------------------- ---------------------------
Signature: /s/ N.E. Paciotti Signature:
---------------------------- ---------------------------
Title: Chief Financial Officer Title:
--------------------------------- --------------------------------
Date: 12-19-96 Date:
--------------------------------- --------------------------------
</TABLE>
Note: Only one authorized signature is required to execute this Agreement unless
the Employer's corporate policy mandates two authorized signatures.
FIDELITY MANAGEMENT TRUST COMPANY
Print Name: Eric L. Wichmann
----------------------------
Signature: /s/ Eric L. Wichmann
Authorized Signatory
----------------------------
Title:
---------------------------------
Date: 2/14/97
----------------------------------
Note: This page should be signed by both the Employer and fidelity. The Employer
should forward this page to Fidelity after signing it. Fidelity will return it
to the Employer after it is executed by an authorized Fidelity representative.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 20
<PAGE> 56
ADDENDUM TO ARTICLES I, II, III AND IV
OF THE CORPORATEplan for Retirement(sm)
SERVICE AGREEMENT
PLEASE INDICATE BY CHECKING THE APPROPRIATE BOX WHETHER EACH APPLICABLE FEE
SHOULD BE BILLED TO THE EMPLOYER OR CHARGED TO THE EMPLOYEE.
<TABLE>
<CAPTION>
PAID BY CHARGED TO
TYPE OF FEE EMPLOYER PARTICIPANT
(ON A FLAT $ BASIS)
<S> <C> <C>
1. Set up x
2. Conversion N/A
3. Admin. Service - Base x
4. Admin. Service - Per Participant x
5. Additional Investment Fund x
6. Return of Excess Contribution x *
7. Employee Communications x
8. Non-Discrimination Testing x
9. Recordkeeping GIC (Guaranteed Insurance Contract) *
10. Trustee Fee x
</TABLE>
*Charged only to affected participants.
NOTE: The employer shall consult with their attorney to determine if the above
expenses are reasonable expenses of the Plan under Sections 403(c)(1) and
404(a)(1)(A) of the Employee Retirement Income Security Act of 1974. This form
will serve as notification to Fidelity of the party responsible for paying the
Fidelity fees of the Employer's Plan.
SERVICE AGREEMENT - PROFIT SHARING/401(k) PLAN - FORM SIDE 21
<PAGE> 57
1/28/97
KROLL ASSOCIATES 401(K) PLAN
PRIOR PLAN PROVISIONS
VS.
PROVISIONS UNDER FIDELITY'S CORPORATE PLAN FOR RETIREMENT (CPR)
<TABLE>
<CAPTION>
Provision Categories Prior Provisions (Effective 1/l/94) CPR Provisions (Effective 4/l/97)
if different than prior
<S> <C> <C>
1. Plan Year End 12/31 --
2. Age Requirement 21 --
3. Service Requirmnt 6 months-- --
4. Excluded Class(es) None----------- Leased/Union/Non-resident Aliens
/Temps-----
5. Entry Dates First day of plan year & 7th month ----
6. Comp Exclusions Overtime------------ None-----
7. Deferral Limits 1-15% of compensation-- ----
8. Other 401(k) Contr QNEC/Recharacterization---- QNEC/Bonus/Catch-up----
9. Match 25% of deferrals up to 5% of comp/ ----
Maximum match=$500
1O. Match Eligibility None----- ------
11. Employer Contr Discretionary, non-integrated --
12. Er Contrib Eligblty Last day of year & 1000 hours Last day of year & 1000 hours----
(or death, disability, or retirement)
13. AfterTax Withdrwl 1x/year--if any contributions --
14. Rollover Withdrwl 1x/year* --
15. Hardship Withdrwl Deferrals (& Rollovers) --
/Profit sharing & Match*
16. Hardship Test Safe Harbor-- --
17. Inservice Withdrwl All accounts @ age 59.5-- ----
18. Loans 1 at a time/all sources/for hardship ------
19. Er Contr. Vesting 2 years=50%/3=100 --
20. Match Vesting 2 years=50%/3=100 --
21. Top Heavy Vesting 2 years=50%/3=100 --
22. Vest Computation Completed hours from hire date Elapsed-time from hire date
23. Normal Retirement Age 65 & 5 years of participation-- ------
24. Early Retirement None---- ------
25. Disability Per doctor selected by employer-------- ----------
26. Payment Methods Lump Sum/Installments--------- ------------
27. Investment Types Not specified-------- Mutual funds
28. Exch Restrictions 1x/quarter Unrestricted by plan--
29. 404(c) Not specified Yes
30. Load Waiver Not specified Yes
*Protected Benefit ----------------------------------------------------
</TABLE>
<PAGE> 58
The CORPORATE plan
FOR RETIREMENT
REQUEST FOR WAIVER OF SALES CHARGE
An Employee Benefits Plan will qualify for net asset value purchase of shares
of certain Fidelity funds which impose a sales change if such a Plan covers at
least 200 eligible employees or has $3,000,000 in plan assets invested in
Fidelity Investments mutual funds (as provided in the fund prospectus). To
obtain such an exemption from the sales charge for your Plan, an authorized
person at your company must complete this form and forward it to your Fidelity
Institutional Retirement Services Company Representative. The waiver of sales
charges is not retroactive. The sales load waiver becomes effective when the
form is signed by an authorized Fidelity Representative. Approval can take up
to 30 days.
Name of Plan KROLL ASSOCIATES 401(k) SAVINGS PLAN & TRUST
--------------------------------------------------------------
Address 900 THIRD AVENUE, NEW YORK, NEW YORK 10022
--------------------------------------------------------------------
Name of Fund(s) SEE ATTACHED LIST OF TEN FUNDS
--------------------------------------------------------------
Account Number(s)
----------------------------------------------------------
(if available)
On behalf of the above-referenced Plan, I hereby attest that the Plan covers
200 or more eligible employees or has $3,000,000 in plan assets invested in
Fidelity Investments mutual funds, making the Plan eligible for investments in
the above-referenced Fidelity fund accounts(s) at net asset value.
I understand that Fidelity Institutional Retirement Services Company reserves
the right to make a determination as to the accuracy and status of this Request
for Waiver of Sales Charge as it deems necessary.
Signed /s/ N. E. Paciotti
------------------------------------------------------------------------
Please Print Name N. E. Paciotti
--------------------------------------------------------------
Title Chief Financial Officer Date 01/16/97
-------------------------------------------------------------------------
Please return this completed form to your Fidelity Institutional Retirement
Services Company Representative.
Eric L. Wichmann
Authorized Signatory
TO BE COMPLETED BY FIDELITY INVESTMENTS
Authorized Representative /s/ Eric L. Wichmann 2/14/97
----------------------------------------------------
Effective Date 4/1/97
----------------------------------------------------------------
Comments
----------------------------------------------------------------------
[Fidelity Investments Logo]
<PAGE> 59
The CORPORATE plan
FOR RETIREMENT
ERISA SECTION 404(c)
ELECTION FORM
Employer: Kroll Associates, Inc. ("Employer")
---------------------------------------------------
Plan Name: Kroll Associates 401(k) Savings Plan and Trust ("Plan")
--------------------------------------------------
The Employer should use this form to notify Fidelity of its intention to
designate the above-referenced plan as an ERISA Section 404(c) plan. The
Employer should refer to the ERISA Section 404(c) Information Guide
before making an election below. Check one:
X The Employer designates the Plan as an ERISA Section 404(c)
--- plan. Fidelity will include the Notice of Limited Liability in
the Plan Highlights brochure and Summary Plan Description.
The Employer does not designate the Plan as a 404(c) plan.
---
"EMPLOYER"
By: /s/ N. E. Paciotti Date: 12-19-96
-------------------------------------------------------------------
Title: N. E. Paciotti, Chief Financial Officer
-----------------------------------------------------------------
Please return to Fidelity with executed Adoption Agreement.
[Fidelity Investments Logo]
<PAGE> 60
KROLL ASSOCIATES
MONEY PURCHASE PENSION PLAN
Amended and Restated
Effective January 1, 1994
<PAGE> 61
WHEREAS, Kroll Associates, Inc. (the "Company") has adopted the Kroll
Associates Money Purchase Pension Plan ("Plan") effective January 1, 1991; and
WHEREAS, the Plan is intended to qualify as a money purchase plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"); and
WHEREAS, the Company wishes to amend and restate the Plan to comply
with various legislation subsequent to the Tax Reform Act of 1986 and to
incorporate other miscellaneous amendments adopted prior to January 1, 1994; and
WHEREAS, the Company wishes to amend the contribution formula with
respect to a certain group of employees; and
NOW, THEREFORE, the Plan shall be amended and restated effective
January 1, 1994 except for Section 12.12 which shall be effective as of January
1, 1993.
<PAGE> 62
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE ONE
Definitions
-----------
1.01 Account Value
1.02 Administrative Committee
1.03 Beneficiary
1.04 Code
1.05 Company
1.06 Company Contribution Account
1.07 Compensation
1.08 Eligible Spouse
1.09 Employee
1.10 Employer
1.11 Entry Date
1.12 ERISA
1.13 ERISA Affiliate
1.14 Highly Compensated Employee
1.15 Hour of Service
1.16 Investment Manager
1.17 Limitation Year
1.18 Normal Retirement Date
1.19 One-Year Break in Service
1.20 Participant
1.21 Plan
1.22 Plan Year
1.23 Termination of Employment
1.24 Total and Permanent Disability
1.25 Transfer Account
1.26 Trust, Trust Fund or Fund
1.27 Trustee or Trustees
1.28 Valuation Date
1.29 Year of Service
<PAGE> 63
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE TWO
Participation And Service
-------------------------
2.01 Participation
2.02 Transfers and Automatic Suspension of Participation
2.03 Re-employment
2.04 Special Rules
ARTICLE THREE
Participant's Contributions
---------------------------
3.01 General Rule
ARTICLE FOUR
Contributions
-------------
4.01 Employer Contributions
4.02 Employer Contributions Irrevocable
4.03 Treatment of Certain Family Members
ARTICLE FIVE
Allocation to Participant's Accounts
------------------------------------
5.01 Method of Allocating Contributions
5.02 Limitation on Annual Additions
5.03 Multiple Plan Reduction
5.04 Cessation of Participant Status
<PAGE> 64
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE SIX
Investment of Plan Assets
-------------------------
6.01 Funding Policy
6.02 Investment of Trust Fund
ARTICLE SEVEN
Participant's Accounts
----------------------
7.01 Separate Accounts
7.02 Allocation
7.03 Valuation
ARTICLE EIGHT
Administration
--------------
8.01 Appointments of the Committee
8.02 Responsibility for Administration
of the Plan
8.03 Responsibility for Administration of the Trust Fund
8.04 Delegation of Power
8.05 Records
8.06 General Administrative Powers
8.07 Appointment of Professional
Assistants and Investment Manager
8.08 Actions by the Committee
8.09 Directives of the Committee
8.10 Discretionary Acts
8.11 Indemnity by Company
8.12 Responsibilities of Fiduciaries
8.13 Indemnity by Company
<PAGE> 65
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE EIGHT (Continued)
Administration
--------------
8.14 Plan Administrator
8.15 Allocation and Delegation of Committee Responsibilities
8.16 Appointment of Trustees
ARTICLE NINE
Retirement and Death Benefits
-----------------------------
9.01 Retirement Benefits
9.02 Death Benefits
ARTICLE TEN
Disability Benefits
-------------------
10.01 Disability Benefits
10.02 Determination of Disability
ARTICLE ELEVEN
Termination Benefits
--------------------
11.01 Vested Benefits
11.02 Non-Includable Service
11.03 Forfeitures
11.04 Distribution and Re-Employment
Before a Break in Service
<PAGE> 66
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE TWELVE
Payment of Benefits
-------------------
12.01 Retirement Benefits
12.02 Distribution Upon Termination of Employment or
Total and Permanent Disability
12.03 Methods of Payment of Benefits
12.04 Optional Forms of Benefit Payment
12.05 Time of Payment
12.06 Required Beginning Date
12.07 Beneficiary Designation by Participant
12.08 Failure of Participant to Designate
12.09 Beneficiary's Rights
12.10 Unclaimed Account Procedure
12.11 Distribution of Accounts
12.12 Direct Rollover Provisions
ARTICLE THIRTEEN
Claims Procedure
----------------
13.01 Claims Procedure
ARTICLE FOURTEEN
Inalienability of Benefits
--------------------------
14.01 Inalienability of Benefits
<PAGE> 67
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE FIFTEEN
Permanency of the Plan
----------------------
15.01 Right to Terminate Plan
15.02 Merger or Consolidation of Plan and Trust
15.03 Amendment of the Plan
ARTICLE SIXTEEN
Discontinuance of Contributions And Termination
-----------------------------------------------
16.01 Discontinuance of Contributions
16.02 Termination of Plan
16.02 Rights to Benefits Upon Termination of Plan or
Complete Discontinuance of Contributions
ARTICLE SEVENTEEN
Exclusive Benefit of Trust Fund
-------------------------------
17.01 Limitation Upon Reversions
17.02 Failure of Qualification of Plan
ARTICLE EIGHTEEN
Applicable Law
--------------
18.01 Applicable Law
<PAGE> 68
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE NINETEEN
Withdrawals
-----------
19.01 Withdrawals
ARTICLE TWENTY
Loans
-----
20.01 Loans
ARTICLE TWENTY-ONE
Top Heavy Provisions
--------------------
21.01 Special Definitions
21.02 Determination of Top Heavy Status
21.03 Top Heavy Plan Requirements
21.04 Minimum Allocations and Benefits
21.05 Multiple Plan Reduction for Top
Heavy Plan Years
21.06 Minimum Vesting
ARTICLE TWENTY-TWO
Miscellaneous
-------------
22.01 Interpretation of the Plan and Trust
22.02 Gender and Number
<PAGE> 69
TABLE OF CONTENTS
APPENDIX I
Adopting Employers
------------------
APPENDIX II
Transfer Contributions
----------------------
<PAGE> 70
ARTICLE ONE
Definitions
-----------
For the purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless a different meaning is plainly required
by the context:
1.01. "Account Value" means the fair market value of each of the accounts
determined in accordance with Article Seven as determined on any date which the
assets therein are required to be valued. "Accounts" means a Participant's
Company Contribution Account and Transfer Account.
1.02. "Administrative Committee" or "Committee" means the Committee appointed by
the Board of Directors of the Company to administer the Plan in accordance with
Article Eight.
1.03. "Beneficiary" means any person entitled to receive any amount payable
under the Plan upon the death of a Participant.
1.04. "Code" means the Internal Revenue Code of 1986, as amended.
1.05. "Company" means Kroll Associates, Inc., and any predecessors or successors
thereto.
1.06. "Company Contribution Account" means the separate account maintained for
each Participant reflecting Employer contributions allocated on behalf of such
Participant in accordance with the provisions or Section 5.01 of the Plan.
1.07. "Compensation" means the aggregate remuneration for services paid by an
Employer to an Employee during the Plan Year; however, Compensation shall not
include bonuses, commissions, overtime pay, relocation pay or imputed income
from fringe benefits, and shall be determined without giving effect to any
salary reduction agreement entered into by the Employee under the Kroll
Associates 401(k) Savings Plan and Trust or under any Plan
I-1
<PAGE> 71
described in Section 125 of the Code that is maintained by the Company or an
ERISA Affiliate.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding anything herein 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 S 150,000, as adjusted by the
Commissioner for increases in the cost-of-living in accordance with section
401(a)(17) of the Code. The cost-of-living adjustment 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 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 alter 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 as set forth above.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefit 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 January 1, 1994, the
OBRA '93 annual Compensation limit is $150,000.
If a Participant is either the spouse or a lineal descendant under age
nineteen (19) of another Participant who is (A) a five- percent (5%) owner or
(B) a highly compensated employee who is among the ten (10) most highly
compensated employees, then for purposes of determining such Participant's
Compensation, such Participant shall not be considered a
I-2
<PAGE> 72
separate individual and any Compensation paid to such Participant shall be
treated as paid to the five-percent (5%) owner or highly compensated employee to
whom such Participant is related as per the provisions of this paragraph. If the
limit described in the preceding paragraph is exceeded by a family unit as
described in this paragraph, then the Compensation of such family unit, as so
limited by such preceding paragraph, shall be allocated among the referenced
members of the family unit in proportion to their compensation as determined
prior to the application of this and the preceding paragraph.
For purposes of Section 5.02 and Article Twenty-One, Compensation shall
include:
I) The participant's wages, salaries, fees for professional
service and other amounts received for personal services actually rendered in
the course of employment with the Employer maintaining the Plan (including, but
not limited to, commissions paid to salesmen, compensation for services on the
basis of a percentage of profits, commissions or insurance premiums, tips and
bonuses)
II) In the case of a Participant who is Employee within the
meaning of Section 401(c)(1) of the Code and the regulations thereunder, the
Participant's earned income (as described in Section 401(c)(2) of the Code and
the regulations thereunder).
III) For purposes of subdivisions (I) and (II) of this
subparagraph, earned income from sources outside the United States (as defined
in Section 911(b) of the Code), whether or not excludable from gross income
under Section 911 of the Code or deductible under Section 913 of the Code.
IV) Amounts described in Sections 104(a)(3), 105(a) and 105(h)
of the Code, but only to the extent that these amounts are includable in the
gross income of the Employee.
V) Amounts described in Section 105(d) of the Code, whether or
not these amounts are excludable from the gross income of the Employee under
that Section.
I-3
<PAGE> 73
VI) Amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent that these amountS are
not deductible by the Employee under Section 217 of the Code.
VII) The value of a non-qualified stock option granted to an
Employee by the Employer, but only to the extent that the value of the option is
includable in the gross income of the Employee for the taxable year in which
granted.
VIII) The amount includable in the gross income of an Employee
upon making the election described in Section 83(b) of the Code, but shall not
include
i) Contributions made by an Employer to a plan of deferred
compensation to the extent that, before the application of Code 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 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 funded plan of deferred
compensation are not considered as compensation for Code Section 415 purposes,
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 Code
Section 415 purposes in the 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 of is no longer subject to a substantial risk of
forfeiture (see Section 83 and the regulations thereunder).
I-4
<PAGE> 74
iii) Amounts realized from the sale, exchange, or other
disposition of stock 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 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) or under a Section 401(k) Plan (whether or not the contributions are
excludable from the gross income of the Employee).
If for a Plan Year the average of the ratios of the Compensation for
each Employee who is not a highly compensated employee to his compensation as
determined under Section 5.02 for such year is less than the corresponding
average of the ratios during such Plan Year for Employees who are highly
compensated employees, the Compensation of each Employee who is not a highly
compensated employee shall be his Compensation (including amounts deferred under
a Section 401(k) plan or Section 125 plan maintained by an Employer) plus 10%
of any bonus which is paid during such year.
If for a Plan Year the average of the ratios of the Compensation for
each Employee who is not a highly compensated employee as adjusted pursuant to
the preceding paragraph to his compensation as determined under Section 5.02 for
such year is less than the average of the ratios for such Plan Year of the
Compensation for each Employee which is a highly compensated employee to his
compensation as determined under Section 5.02 for such year, the Compensation of
each Employee who is not a highly compensated employee shall be his compensation
as determined under Section 5.02 for such year (including amounts deferred under
a Section 401(k) plan or Section 125 plan maintained by an Employer) but after
application of the second and third paragraphs of this Section 1.07).
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1.08. "Eligible Spouse" shall mean a Participant's spouse if the Participant and
such spouse had been legally married (as determined in accordance with the laws
of the jurisdiction in which the Participant resides) throughout the one-year
period ending on the earlier of the date upon which payment of a Participant's
benefit commences whether by reason of retirement, disability or other
termination of employment with the Employer, or the date of the Participant's
death; provided, however, that if the Participant marries within one year before
his benefit starting date and the Participant and his spouse in such marriage
have been married for at least the one-year period ending on or before the date
of the Participant's death, the Participant and his spouse shall be treated as
having been married throughout the one-year period ending on the Participant's
benefit starting date.
1.09. "Employee" means any person who is employed by an Employer.
1.10. "Employer" means the Company. or any ERISA Affiliate that, with the
consent of the Company, hereafter adopts the Plan.
1.11. "Entry Date" means the first day of January in each year.
1.12. "ERISA" means the Employee Retirement Income Security Act of 1974, as
1.13. "ERISA Affiliate" means any organization (whether or not incorporated)
which, together with the Company, is a member of a controlled group of
corporations, is under "common control" or is a member of an "affiliated service
group" within the meaning of Sections 414(b), 414(c) and 414(m) of the Code,
respectively.
1.14. "Highly Compensated Employee" is an employee who during the Plan Year of
the preceding Plan Year satisfied on the following criteria: He is (was)
i) A five-percent owner;
ii) Earned more than $75,000;
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iii) Earned more than $50,000 and was a member of the top
paid group (top twenty percent (20%)); or
iv) An officer with earnings greater than 50 percent of the
defined benefit annual dollar limit under Section 415(b)(1)(A) of the Code as
adjusted in accordance with regulations issued by the Secretary of the Treasury
or his delegates pursuant to Section 415(d) of the Code.
- The maximum number to be considered officers is the
lesser of (i) 50 employees, or (ii) the greater of three employees or ten
percent (10%) of all employees.
For purposes of the above, an employee is considered to meet one of the
last three criteria for the current year only if the employee met such criteria
for the preceding year or is one of the 100 highest paid employees for the
current year. The dollar amounts referred to in subparagraphs (ii) and (iii)
above shall be adjusted in accordance with regulations issued by the Secretary
of the Treasury or his delegate pursuant to Section 415(d) of the Code, such
adjustment to be effective for the Plan Year beginning in the calendar year for
which such adjustment is announced.
For this purpose, a former employee shall be treated as a
highly compensated employee if
A) such former employee was a highly compensated employee
when he terminated his employment, or
B) such former employee was a highly compensated employee
at any time after attaining age 55.
1.15. "Hour of Service" means:
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a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for an Employer. These hours shall be
credited to the Employee for the computation period or periods in which duties
are performed; and
b) Each hour for which an Employee is paid, or entitled to
payment, by an 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. For purposes
of this paragraph (b) a payment shall be deemed to be made by or due from an
Employer regardless of whether such payment is made by or due from an Employer
directly, or indirectly through, among others, a trust fund or insurer to which
an Employer contributes or pays premiums, and regardless of whether
contributions made or due to the trust fund, insurer or other entity are for the
benefit of particular Employees or are on behalf of a group of Employees in the
aggregate.
c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer. The same Hours of
Service shall not be credited under both paragraph (a) or paragraph (b), as the
case may be, 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 or periods in which the award,
agreement or payment is made. Crediting of Hours of Service for back pay or
agreed to with respect to periods described in paragraph (b) above shall be
subject to the limitations set forth in that paragraph.
d) No more than 501 Hours of Service shall be credited under
paragraphs (b) and (c) for the non-performance of duties for any single
continuous period (whether or not such period occurs in a single computation
period). Hours of Service hereunder shall be calculated and credited pursuant to
Section 2530.200b-2(b) and (c) of the Department of
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Labor regulations which are incorporated herein by this reference. In crediting
Hours of Service hereunder, each Employee for whom the Employer does not
maintain hourly work records and who completes at least one Hour of Service
pursuant to paragraphs (a) (b) or (c) above) during any week shall be credited
with 45 Hours of Service for such week. For each other Employee, Hours of
Service shall be credited based on the number of hours actually worked. For the
purposes of this Section 1.15, the term Employee shall include all persons
employed by an Employer including employees covered by a collective bargaining
agreement and the term Employer shall include all ERISA Affiliates whether or
not they have adopted the Plan.
1.16. "Investment Manager" means any party that (i) is either (a) registered as
an investment adviser under the Investor adviser under the Investment Advisers
Act of 1940, or (b) a bank (as defined in the Investment Advisers Act of 1940),
or (c) an insurance company qualified to manager, acquire and dispose of Plan
assets under the laws of more than one state, (ii) acknowledges in writing that
it is fiduciary with respect to the Plan, and (iii) is granted the power to
manager, acquire or dispose of any asset of the Plan pursuant to Section 8.06 of
the Plan.
1.17. "Limitation Year" means the Plan Year.
1.18. "Normal Retirement Date" means the a Participant's 65th birthday and the
fifth anniversary of commencement of participation in the Plan.
1.19. "One-Year Break in Service" occurs during an eligibility or vesting
computation period in which an Employee has not completed more than 500 Hours of
Service. Solely for the purpose of determining whether an Employee has incurred
a One- year Break in Service, Hours of Service shall be counted for a temporary
leave of absence or a maternity or paternity absence.
"Temporary leave of absence" means an unpaid temporary cessation from
active employment pursuant to a temporary layoff, illness, disability, military
service or leave of
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absence granted under a nondiscriminatory leave policy, whether occasioned by
illness, military service, or any other reason.
A "maternity or paternity absence" shall mean an absence from work for
any period by reason of the Employee's pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with the adoption of such
child, or any absence for the purpose of caring for such child for a period
immediately following such birth or placement. Hours of Service shall be
credited for the Plan Year in which the Trustees are unable to determine such
hours normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a maternity or paternity absence shall not
exceed 501.
1.20. "Participant" means an Employee who becomes eligible to participate in
the Plan in accordance with the provisions of Article Two.
1.21. "Plan" means Kroll Associates Money Purchase Pension as set forth in this
document, and any amendments thereto.
1.22. "Plan Year" means the twelve (12) consecutive month period beginning on
January 1 and ending on the following December 31.
1.23. "Termination of Employment" means termination of employment with an
Employer, whether voluntarily or involuntarily, other than by reason of a
Participant's retirement after attaining his Normal Retirement Date, sustaining
Total and Permanent Disability, or his death.
1.24. "Total and Permanent Disability" means physical and/or mental incapacity
of such a nature that it is expected to prevent a Participant from engaging in
or performing the
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principal duties of his customary employment or occupation on a continuing or
sustained basis.
1.25. "Transfer Account" means the separate account maintained for each
Participant reflecting contributions made pursuant to Appendix II of the Plan.
1.26. "Trust," "Trust Fund" or "Fund" means all monies received by the Trustees
from the Employer or Participants and held by them for investment purposes,
adjusted for any income, gain, losses or expenses in accordance with the Trust
Agreement.
1.27. "Trustee" or "Trustees" means the person or persons named as Trustees in
the Trust Agreement, or any additional or successor trustees as may be appointed
by the Company pursuant to Article Eight, and his, their, or its successors.
1.28. "Valuation Date" means the last business day of December and any such
additional date or dates as the Trustees, shall, from time to time, select.
1.29. "Year of Service" means a twelve (12) consecutive month period during
which an Employee is credited with at least one thousand (1,000) Hours of
Service, including periods prior to the effective date of the Plan. For purposes
of determining an Employee's eligibility for participation in the Plan and
vesting, the initial twelve (12) consecutive month period shall a) begin on the
first day on which such Employee is credited with an Hour of Service; and b)
subsequent twelve (12) consecutive month periods shall begin on anniversaries
thereof.
If prior to becoming and Participant, an Employee incurs a One-Year
Break in Service and if his number of One-Year Breaks in Service exceeds the
greater of the number of Years of Service he was credited with for eligibility
purposes prior to such Breaks in Service, or five (5), then if he again becomes
an Employee, his prior service shall be disregarded for eligibility purposes,
and the initial completion period for determining his eligibility for
participation following such One-Year Breaks in Service begin on the date such
Employee first completes an Hour of Service following such One-year Breaks in
Service.
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Years of Service include (i) Years of Service prior to the effective
date of the Plan, (ii) Years of Service worked for the Company or an ERISA
Affiliate located outside the United States, and (iii) Years of Service credited
under the special provisions of Appendix I of the Plan, if applicable.
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ARTICLE TWO
-----------
Participation And Service
-------------------------
2.01. PARTICIPATION. An Employee shall become a Participant on the January 1
coinciding with or next following his completion of six (6) continuous Months of
Service and attainment of age 21. For purposes of this section 2.01, a Month of
Service is any month in which an Employee is credited with at least one Hour of
Service.
Notwithstanding the foregoing, in no event shall an Employee become a
Participant in the Plan later than the January 1 nearest his completion of one
Year of Service.
2.02. TRANSFERS AND AUTOMATIC SUSPENSION OF PARTICIPATION. Each Employee who
becomes a Participant and subsequently is transferred to employment with an
ERISA Affiliate that has not adopted this Plan shall have his participation in
the Plan suspended for as long as he continues to be an Employee of such ERISA
Affiliate, subject to the following:
a) During any period of suspension, his service shall
accumulate as if employed by an Employer.
b) Except as provided in paragraph (c) below, the suspended
Participant's eligibility for distributions pursuant to Article Eleven and his
vested interest in his Accounts shall be determined when he ceases to be an
Employee of the Company and all ERISA Affiliates.
c) If a suspended Participant returns to employment as
an Employee, he shall be eligible to recommence participation in the Plan
immediately as of the date he returns to employment as an Employee.
2.03. RE-EMPLOYMENT. If an Employee who terminates service prior to becoming a
Participant again becomes an Employee, then if his prior eligibility service is
not disregarded under Section 1.29 and the Employee had previously completed on
Year of Service for
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eligibility purposes he shall become a Participant in this Plan on his date of
re-employment, or, if later, on the date he would have otherwise become a
Participant had his employment not terminated.
If such Employee had not previously completed at least one Year of
Service for eligibility purposes, he shall become a Participant in this Plan in
accordance with Section 2.01 taking into account his prior service for
eligibility purposes.
If a former Participant should again become an Employee then he shall
reparticipate in the Plan immediately upon his rehire.
2.04. SPECIAL RULES. Notwithstanding the provisions of Sections 2.01 or 2.02
above, an Employee shall not be eligible to participate in this Plan if (A) he
is included in a unit of employees covered by an agreement which the Secretary
of Labor finds to be a collective bargaining agreement between employee
representatives and one or more employers, if there is evidence that retirement
benefits were the subject of good faith bargaining between such employee
representatives and such employer or employers, or (B) he is an Employee who is
a non-resident alien who receives no earned income (within the meaning of
Section 911(d)(2) of the Code) which constitutes income from sources within the
United States (within the meaning of Section 801(a)(3) of the Code), or (C) he
is employed as an outside contractor.
For purposes of this Section 2.04, in determining whether there is a
collective bargaining agreement between employee representatives and one or more
employers, the term "employee representative" shall not include any organization
more than one-half of the members of which are employees who are owners,
officers or executives of the employer.
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ARTICLE THREE
-------------
Participant's Contributions
---------------------------
3.01. GENERAL RULE. Participants shall neither be required nor permitted to make
contributions to this Plan.
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ARTICLE FOUR
------------
Contributions
-------------
4.01. EMPLOYER CONTRIBUTIONS.
a) For each Plan Year, the Employer shall contribute to the
Trust Fund on behalf of each Participant eligible to share in such contribution
pursuant to Section 5.01 an amount equal to (i) 5% of such Participant's
Compensation plus (ii) an amount equal to 4% of such Participant's Compensation
in excess of the OASDI contribution wage base as in effect at the beginning of
the Plan Year.
For purposes of this paragraph 4.01(a), the term "OASDI" means the
system of old-age, survivors and disability insurance established under Title II
of the Social Security Act and the Federal Insurance Contributions Act.
b) If greater than the amount produced by the formula in
Section 4.01(a) above for a Plan Year, then in lieu of the amount determined
under Section 4.01(a) above the Employer shall contribute with respect to such
year on behalf of each Participant eligible to share in such contribution
pursuant to Section 5.01 who is not considered a Highly Compensated Employee
within the meaning of Section 414(q) of the Internal Revenue Code and who earns
less than the compensation limit under Section 414(q)(1)(c) of the Internal
Revenue Code, an amount which shall be determined under the following schedule:
Contribution Percentage
Years of Service of Compensation
---------------- ---------------
0 to 5 years 5%
6 or 7 years 10%
8 to 14 years 12%
15 or more years 15%
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For purposes of this paragraph, a Participant's Years of Service with
respect to a Plan Year shall be such Participant's Years of Service for vesting
purposes determined as of the close of the Participant's vesting computation
period that ends coincident with or immediately before the end of such Plan
Year.
c) If greater than the amount produced by the formula in
Section 4.01(a) above for a Plan Year, then in lieu of the amount determined
under Section 401(a) above, the Employer shall contribute with respect to such
year on behalf of each Participant who is classified as a managing director of
the Company and who is eligible to share in such contribution pursuant to
Section 5.01, an amount which shall be determined under the following schedule:
Contribution Percentage
Managing Director Level of Compensation
----------------------- -----------------------
Level I 12.5
Level II 12.0
Level III 11.0
Level IV 10.0
Level V 9.
Level VI 8.
Level VII 0.
For purposes of this paragraph a Participant's "Level" shall be
determined by the Company on an annual basis pursuant to objective criteria
established by the Company which is used to compensate the managing director
group.
d) (i) In the event that contributions made to the Plan
pursuant to paragraphs 4.01(a), 4.01(b) and 4.01(c) above, and allocated
pursuant to paragraph 5.01 of the Plan, shall be deemed discriminatory under
section 401(a)(4) of the Internal Revenue Code, a contribution equal to .5% of
Compensation shall be made on behalf of those Participants who are not
considered Highly Compensated Employees within the meaning of
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Section 414(q) of the Internal Revenue Code and who earn less than the
Compensation limit under Section 414(q)(1)(c) of the Internal Revenue Code.
(ii) If after the contribution described in 4.01(d)(i)
above is allocated to Participants in accordance with Section 5.01(a) the Plan
does not satisfy the nondiscrimination requirements of Section 401(a)(4) of the
Internal Revenue Code, additional contributions shall be made to Participants
eligible to share in contributions pursuant to Section 5.01(a) of the Plan in
increments of .1% of Compensation until the Plan meets the requirements of such
Code Section.
4.02. EMPLOYER CONTRIBUTIONS IRREVOCABLE. Except as otherwise provided in this
Section 4.02 all contributions made by the Employer to the Fund shall be
irrevocable. Contributions made by the Employer are hereby conditioned upon
their deductibility under the Code for the taxable year of the Employer with
respect to which such contribution is made without the need for explicit action
by the Employer and, to the extent any deduction is disallowed for such taxable
year, the amount of such disallowance shall be returned to the Employer within
one (1) year after such disallowance. In the event a contribution is made by
reason of a mistake of fact, so much of the contribution as is attributable to
the mistake of fact shall be returned to the Employer within on e(1) year after
the payment of the contribution. The amount by which any contribution may be
returned pursuant to this Section 4.02 shall be reduced for any losses or
expenses of the Trust Fund attributable thereto.
If an Employer Contribution is made to the Plan which does not
initially qualify under Section 401(a) of the Code or any successor provision
thereto, then the contribution shall be returned to the Employer within one (1)
year after the date of denial of qualification of the Plan.
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4.03. TREATMENT OF CERTAIN FAMILY MEMBERS.
a) In General - If any individual is a member of the family of
a 5-percent owner of a Highly Compensated Employee in the group consisting of
the 10 Highly Compensated Employees paid the greatest compensation during the
Plan Year, then -- except as provided in Section 414(q)(6)(C)(ii) of the Code.
(i) such individual shall not be considered a separate
employee, and
(ii) any Compensation paid to such individual (and any
applicable contribution or benefit on behalf of such individual) shall be
treated as if it were paid to (or on behalf of) the 5-percent owner or Highly
Compensated Employee, as the case may be.
b) Family - For purposes of paragraph (a) above, the term
"family" means, with respect to any individual, such individual's spouse and
lineal ascendants or descendants and the spouses of such lineal ascendants or
descendants.
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ARTICLE FIVE
Allocation to Participant's Accounts
------------------------------------
5.01. METHOD OF ALLOCATING CONTRIBUTIONS. Contributions, if any, made by an
Employer, on behalf of a Participant pursuant to Section 4.01 for any Plan Year
shall be allocated to the Company Contribution Account of each such Participant
eligible to share in such contributions.
For purposes of this Section 5.01, a Participant shall be eligible to
share in contributions for a Plan Year if he has (A) completed at least 1,000
Hours of Service during such year and is employed on the last day of such year
or (B) died, retired on or after his Normal Retirement Date, or suffered a Total
and Permanent Disability during such year.
5.02. LIMITATION ON ANNUAL ADDITIONS.
a) Notwithstanding any other provision of the Plan, the sum of
the annual additions to a Participant's Account(s) for any Limitation Year shall
not exceed the lesser of (i) $30,000, or such other amount as may be permitted
by regulations prescribed by the Secretary of the Treasury or his delegate
pursuant to Section 415(d) of the Code, such adjustment to take effect in the
Limitation Year which ends in the calendar year in which such adjustment is
effective, or (ii) twenty-five percent (25%) of such Participant's Limitation
Year Compensation (including for this purpose Compensation earned during that
portion of the Limitation Year prior to the date an employee became a
Participant in the Plan). The term "annual additions to a Participant's
Account." for any Limitation Year, means the sum of (A) all Employer
contributions allocated pursuant to Section 5.01 to such Accounts, (B) all
forfeitures allocated pursuant to Section 11.03 to such Account(s), (C) all
suspense account amounts, if any, allocated pursuant to Section 5.02(c) to such
Account(s), and (D) any voluntary (post-tax) contributions allocated to such
Account(s). For purposes of applying
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the dollar limitation of clause (i) above, annual additions shall also include
any amount credited to an individual medical account (as defined in Section
415(l) of the Code) or on behalf of a Participant, or to a Key Employee's
post-retirement medical benefit account (as referred to in Section 419A of the
Code) maintained by an Employer. In the case of a Limitation Year of less than
twelve (12) months' duration, the dollar limit of clause (i) above, as adjusted,
shall be proportionately reduced.
b) In the event it is determined the annual additions to a
Participant's Accounts for any Limitation Year would be in excess of the
limitations described in Section 5.02(a), such annual additions shall be reduced
as described in (c) below, to bring such annual additions within the limitations
contained in subsections 5.02(a).
c) To the extent necessary, amounts allocated to a
Participant's Accounts for such Limitation Year shall be held in a suspense
account (which shall share in earnings, losses, and expenses of the Trust Fund)
and shall be allocated in the following Limitation Year to the Accounts of
Participants as part of the Employer contributions for such Limitation Year.
d) All qualified defined contribution plans, terminated or
not, maintained by any Employer shall, for purposes of these limitations, be
considered as one plan, and all references in this Section 5.02 to a
Participant's Accounts shall include any accounts maintained for the Participant
under any other qualified defined contribution plan of any Employer. To the
extent necessary, "annual additions" to the Participant's account under other
defined contribution plans maintained by an Employer shall be reduced in
accordance with the terms of such Plans.
5.03. MULTIPLE PLAN REDUCTION.
a) If an Employee is a Participant in one or more qualified
defined benefit plans and one or more qualified defined contribution plans
maintained by any Employer, the
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<PAGE> 91
sum of the defined benefit plan fraction and the defined contribution plan
fraction for any Limitation Year may not exceed 1.0. The defined benefit plan
fraction for any Limitation Year is a fraction (I) the numerator of which is the
projected "annual benefit" (or, if greater, the "current accrued benefit" as
defined in Section 1106(i)(3) of the Tax Reform Act of 1986) of a Participant
under all defined benefit plan(s), determined as of the close of the Limitation
Year, and (II) the denominator of which is the lesser of: (1) the product of
1.25 multiplied by the maximum dollar limitation in effect under Section
415(b)(1)(A) of the Code for such Limitation Year, or (2) the product of 1.4
multiplied by the amount which may be taken into account under Section
415(b)(1)(B) of the Code for such Limitation Year. The defined contribution plan
fraction for any Limitation Year is a fraction (I) the numerator of which is the
sum of the "annual additions" to the Participant's combined accounts under all
defined contribution plan(s), determined as of the close of the Limitation Year,
and (II) the denominator of which is the sum of the lesser of the following
amounts determined for such Limitation Year and each prior year of service with
any Employer (including years prior to the effective date of this Plan): (1) the
product of 1.25 multiplied by the dollar limitation in effect under Section
415(c)(1)(A) of the Code for such Limitation Year (determined without regard to
Section 415(c)(6) of the Code), or (2) the product of 1.4 multiplied by the
amount which may be taken into account under Section 415(c)(1)(B) of the Code
for such Limitation Year.
b) Special Rule for defined contribution fraction: In applying
the provisions of Section 5.03(a) with respect to the defined contribution plan
fraction for any Plan Year ending after December 31, 1982, the amount taken into
account for the denominator for each Participant for all Plan Years ending
before January 1, 1983 shall be an amount equal to the product of the amount of
the denominator determined under Section 5.03(a) (as in effect for the Plan Year
ending in 1982) for Plan Years ending in 1982,
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multiplied by the "transition fraction." This paragraph shall apply only if the
Plan was in existence on or before July 1, 1982.
For the purposes of the preceding paragraph, the term "transition
fraction" means a fraction (I) the numerator of which is the lesser of (1)
$51,875, or (2) 1.4 multiplied by twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year ending in 1981, and, (II) the denominator
of which is the lesser of (1) $41,500, or (2) twenty-five percent (25%) of the
Participant's Compensation for the Limitation Year ending in 1981.
Notwithstanding the foregoing, for any Top Heavy Plan Year, $41,500
shall be substituted for $51,875 in determining the "transition fraction."
c) Excessive Benefit: If the sum of the defined benefit plan
fraction and the defined contribution plan fraction exceeds 1.0 in any
Limitation Year for any Participant, the Company shall adjust the numerator of
the defined contribution plan fraction so that the sum of both fractions shall
not exceed 1.0 in any Limitation Year for such Participant. The adjustment shall
be made as provided in Sections 5.02(b).
The Company may also modify the defined contribution fraction in
accordance with Section 1106(i)(4) of the Tax Reform Act of 1986 with respect to
any Participant.
d) For the purpose of Section 5.02 and this Section 5.03, the
term Employer shall include all ERISA Affiliates (as defined in Section 1.13 of
the Plan, as modified, as required by Section 415(h) of the Code as it applies
to Sections 414(b) and (c) thereof) whether or not they have adopted the Plan.
5.04. CESSATION OF PARTICIPANT STATUS. If any Participant ceases to be eligible
to participate in the Plan by reason of becoming included in a unit of
employees covered by a collective bargaining agreement described in Section
2.04 of the Plan, then unless the applicable collective bargaining agreement
otherwise provides, during the period of such coverage (i) the Accounts of such
Participant shall not receive further allocations of any contributions, or
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suspense amounts under the Plan, and (ii) the Accounts of such Participant
shall, however, continue to share in the earnings or losses of the Trust Fund.
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ARTICLE SIX
-----------
Investment of Plan Assets
-------------------------
6.01. FUNDING POLICY. The Committee shall establish a funding policy and method
consistent with the objectives of the Plan and the requirements of Title I of
ERISA. The Committee shall meet at least annually to review such funding policy
and method. All actions of the Committee, and the reasons therefor, taken
pursuant to this Section 6.01 shall be recorded in the minutes of the meeting of
the Committee.
6.02. INVESTMENT OF TRUST FUND. The Committee or Investment Manager shall have
the sole and complete discretion with respect to the management and control of
the Trust Fund. The Committee may reserve from investment such amounts of cash
as they, from time to time, deem necessary or advisable in the administration of
the Trust Fund.
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ARTICLE SEVEN
-------------
Participant's Accounts
----------------------
7.01. SEPARATE ACCOUNTS. There shall be maintained for each Participant separate
Accounts reflecting amounts allocated only on behalf of such Participant. All
payments to a Participant or his Beneficiaries shall be charged against the
Accounts of such Participant. These Accounts will consist of the Participant's
Company Contribution Account and Transfer Account, if any.
7.02. ALLOCATION. All interest and dividend income, gains, and losses, with
respect to a Participant's Accounts, shall be allocated to each such
Participant's Accounts as soon as practicable after they accrue or arise in
proportion to the account values of such Accounts which are invested in the
accumulation facilities from which such interest, dividend income, gains, and
losses accrue or arise. Any expenses of the Plan or of the Trust Fund, to the
extent that they are not otherwise paid by an Employer shall be paid by the
Trust Fund and charged against the Accounts of Participants in proportion to
Account balances at the beginning of the month in which such charges arise.
7.03. VALUATION. The account value of a Participant's Accounts shall be
determined for each allocation, distribution, or withdrawal, at each Valuation
Date, or at any other time as may be deemed necessary by the Committee. The
assets of the Trust Fund shall be valued at their fair market value.
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ARTICLE EIGHT
-------------
Administration
--------------
8.01. APPOINTMENT OF THE COMMITTEE. The Company shall appoint a
Committee. The Committee shall be responsible for the management, operation and
administration of the Plan. Any member of the Committee may resign upon (10)
days prior written notice to the Board of Directors of the Company. The Company
shall be authorized to remove any member of the Committee at any time and in its
sole discretion to appoint a successor whenever a vacancy on the Committee
occurs. In the event that the Company does not appoint a Committee, the Company
shall act as the Committee and perform all duties of the Committee as described
herein.
8.02. RESPONSIBILITY FOR ADMINISTRATION OF THE PLAN. The Committee
shall be responsible for the management, operation and administration of the
Plan. The Company shall be the "named fiduciary" as provided in Section 402(a)
of ERISA.
8.03. RESPONSIBILITY FOR ADMINISTRATION OF THE TRUST FUND. The
Committee shall be responsible for the management and control of the assets of
the Trust Fund.
8.04. DELEGATION OF POWERS. The Committee may appoint such assistants
or representatives as it deems necessary for the effective exercise of its
duties in accordance with the Plan and Trust. The Committee may delegate to such
assistants and representatives any power and duties, both ministerial and
discretionary, as they deem expedient or appropriate.
8.05. RECORDS. All acts and determinations with respect to the
administration of the Plan made by the Committee, and any of its appointed
assistants or representatives, shall be duly recorded by the Committee or by the
assistants or representatives appointed to keep such records. All records,
together with such other documents as may be necessary for the
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administration of the Plan, shall be preserved in the custody of the Committee
or the assistants or representatives appointed by it.
8.06. GENERAL ADMINISTRATIVE POWERS. The Committee shall have all
powers necessary to administer the Plan in accordance with its provisions,
including the power to construe the Plan and its provisions and determine all
questions that may arise thereunder.
8.07. APPOINTMENT OF PROFESSIONAL ASSISTANTS AND INVESTMENT MANAGER.
The Committee may engage accountants, recordkeepers, attorneys, physicians and
such other personnel as it deems necessary or advisable. The Committee may, in
their sole discretion, appoint one or more Investment Manager(s) to manage
(including the power to acquire or dispose of) all or any of the assets of the
Trust. The functions of any such persons engaged by the Committee shall be
limited to the specific services and duties for which they are engaged, and such
persons shall have no other duties, obligations or responsibilities under the
Plan or Trust. Such persons shall exercise no discretionary authority or
discretionary control with respect to the administration of the Plan. The fees
and costs of such services are an administrative expense of the Plan to be paid
out of the Trust Fund, except to the extent such fees and costs are paid by the
Company.
8.08. ACTIONS BY THE COMMITTEE. All actions of the Committee shall be
taken pursuant to the decision of the majority of the then members of the
Committee. Such action may be taken at a meeting of the Committee duly called
and held, or by written consent in lieu of a meeting.
8.09. DIRECTIVES OF THE COMMITTEE. Directives of the Committee shall be
in writing and signed by an appropriate member of the Committee.
8.10. DISCRETIONARY ACTS. Any discretionary actions of the Committee or
the Company with respect to the administration of the Plan and Trust shall be
made in a manner which does not discriminate in favor of stockholders, officers
or highly compensated
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employees. In the event the Committee exercises any discretionary authority
under the Plan and Trust with respect to a Participant who is a member of the
Committee, such discretionary authority shall be exercised solely and
exclusively by those Participants of the Committee other than such Participant,
or, if such Participant is the sole member of the Committee, such discretionary
authority shall be exercised solely and exclusively by the Board of Directors of
the Company.
8.11. RESPONSIBILITY OF FIDUCIARIES. The members of the Committee, and
their assistants and representatives (other than any Investment Manager), shall
be free from all liability for their acts and conduct in the administration of
the Plan and Trust except for acts of willful misconduct; provided, however,
that the foregoing shall not relieve any of them from any liability for any
responsibility, obligation or duty they may have pursuant to ERISA or the Code.
8.12. INDEMNITY BY COMPANY. In the event of and to the extent not
insured against by any insurance company pursuant to provisions of any
applicable insurance policy, the Company shall indemnify and hold harmless, to
the extent permitted by law, the members of the Committee and their assistants
and representatives (other than assistants and Investment Managers appointed
under 8.07) from any and all claims, demands, suits, proceedings, costs, losses
or damage which may in connection with the Plan or Trust be brought by the
Employers, Employees, Participants or their Beneficiaries or legal
representatives, or by any other person, corporation entity, government or
agency thereof; provided, however, that such indemnification shall not apply to
any such person for such person's acts of willful misconduct in connection with
the Plan or Trust.
8.13. PAYMENT OF FEES AND EXPENSES. The members of the Committee and
their assistants and representative shall be entitled to payment from the Trust
Fund for all reasonable costs, charges and expenses incurred in the
administration of the Plan and Trust,
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including, but not limited to, reasonable fees for accounting, legal and other
services rendered, as may be incurred by the members of the Committee or their
assistants and representatives in the course of performance of their duties
under the Plan and the Trust, except to the extent that such fees and costs are
paid by the Company. Notwithstanding any other provision of the Plan or Trust,
no person who is a fiduciary of the Plan, within the meaning of Section 3(21) of
ERISA, and who receives full-time pay from an Employer or ERISA Affiliate shall
receive compensation from the Trust Fund, except for reimbursement of expenses
properly and actually incurred.
8.14. PLAN ADMINISTRATOR. The Company shall be the "administrator" (as
defined in Section 3(16)(A) of ERISA) of the Plan, and shall be responsible for
the performance of all reporting and disclosure obligations under ERISA and all
other obligations required or permitted under ERISA to be performed by the Plan
administrator. The Plan administrator shall be the designated agent for service
of legal process.
8.15. ALLOCATION AND DELEGATION OF COMMITTEE RESPONSIBILITIES. The
Committee may upon approval of a majority of the members of the Committee, (i)
allocate among the members of the Committee any of the responsibilities of the
Committee under the Plan or (ii) designate any person, Company or corporation
that is not a member of the Committee to carry out any of the responsibilities
of the Committee under the Plan and Trust. Any such allocation of designation
shall be made pursuant to a written instrument executed by a majority of the
members of the Committee.
8.16. APPOINTMENT OF COMMITTEE. The Company shall appoint the Trustee
or Committee of this Plan. Any such appointment may be revoked or modified by
the Company at any time, and a new appointment of successor and additional
Committee may be made hereunder.
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Notwithstanding the foregoing, appointment of Committee shall not be
required to the extent that all the assets of the plan are invested in insurance
contracts or policies insured by an insurance company qualified to do business
in a State. For this purpose the term State shall be defined in accordance with
Section 3(10) of ERISA.
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ARTICLE NINE
------------
Retirement and Death Benefits
-----------------------------
9.01. RETIREMENT BENEFITS. A Participant's Company Contribution Account shall
fully (100%) vest upon the attainment of his Normal Retirement Date (A) while
employed by the Company or an ERISA Affiliate or (B) during a maternity or
paternity absence. If the Participant continues in the employ of an Employer
after his Normal Retirement Date, he shall continue to be a Participant in the
Plan until his actual retirement. Each such Participant shall be entitled to
receive benefits equal to the total amount in his Accounts upon his retirement
after his attainment of his Normal Retirement Date.
9.02. DEATH BENEFITS. (a) Upon the death of a Participant while in the employ of
an Employer or any ERISA Affiliates, or during a maternity or paternity absence,
his Beneficiary shall be entitled to receive benefits equal to the total amount
in the deceased Participant's Accounts, plus the proceeds of any life insurance
maintained under the Plan on the life of the Participant. Upon the death of a
Participant after terminating employment with his Employer and all ERISA
Affiliates, but not during a maternity or paternity absence and before his
annuity starting date, his Beneficiary shall be entitled to receive a benefit
equal to the vested portion of the Participant's Accounts. Payment of the
foregoing death benefits shall be made in a single lump sum to the deceased
Participant's Beneficiary or Beneficiaries as soon as possible, provided,
however, that if the value of such death benefit exceeds $3,500, then a
Beneficiary may elect to defer such distribution to a date not later than the
end of the calendar year in which the fifth anniversary of the Participant's
death occurs; and further provided, however that if upon his death the
Participant was married to an Eligible Spouse, then 50% of such death benefit
(including the proceeds of any insurance policies maintained under the Plan on
the life of the Participant) shall be paid in the form of a Qualified Pre-
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Retirement Survivor Annuity to such Eligible Spouse unless the Participant
waives the Qualified Pre-Retirement Survivor Annuity and such waiver is
consented to by his Eligible Spouse. If the value of the Eligible Spouse's death
benefit exceeds $3,500, then the Qualified Pre-Retirement Survivor Annuity shall
commence within a reasonable time after the Participant's death, unless the
Eligible Spouse elects to defer commencement of the distribution of such benefit
until a date not later than the date that the Participant would have attained
age 70-1/2. Alternatively, an Eligible Spouse may elect that the Qualified
Pre-Retirement Survivor Annuity to which she is entitled be paid to her as a
lump sum as of any Valuation Date following the Participant's death and prior to
the date the Participant would have attained age 70-1/2. If the value of the
Qualified Pre-Retirement Survivor Annuity is $3,500 or less, then such benefit
shall be paid to the Participant's Eligible Spouse in a single lump sum as soon
as is practicable following the Participant's death, but in no event later than
the end of the calendar year in which the first anniversary of the Participant's
death occurs. The waiver by the Participant of the Qualified Pre-Retirement
Survivor Annuity, and such spouse's consent to such waiver, shall be obtained in
the manner described in Section 12.03(c). If a Participant's Eligible Spouse
dies before payment of the Qualified Pre-Retirement Survivor commences, such
benefit shall be paid to the Participant's Beneficiary as aforesaid.
(b) Upon the death of a Participant after his annuity starting
date, his Beneficiary shall be entitled to the benefits, if any, provided under
any contingent annuity provision then in effect or, if the Participant was being
paid in installments, the Beneficiary shall be entitled to receive the remaining
undistributed installments of the Participant's benefit, or if the Beneficiary
elects, such remaining installments shall be paid to the Beneficiary in a single
lump sum as soon as is practicable after the date of the Participant's death but
in all
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events at least as rapidly as under the installment payment method that
was in effect to the Participant while he was alive.
For the purposes of this Plan, the term Qualified Pre-Retirement
Survivor Annuity shall mean an annuity payable monthly to a Participant's
Eligible Spouse for her life, the actuarial value of which is not less than 50%
of the value of the non-forfeitable portion (as determined on the date of a
Participant's death) of the Participant's Accounts (including the proceeds of
any insurance policies maintained under the Plan on the life of the
Participant).
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ARTICLE ELEVEN
--------------
Termination Benefits
--------------------
11.01. VESTED BENEFITS. A Participant shall have a non-forfeitable right to a
percentage of his Company Contribution Account under the following schedule:
Non-forfeitable
Years of Service Percentage
---------------- ---------------
0 but less than 2 yrs. 0%
2 but less than 3 yrs. 20%
3 but less than 4 yrs. 40%
4 but less than 5 yrs. 60%
5 but less than 6 yrs. 80%
6 yrs. or more 100%
A Participant's Company Contribution Account shall be one hundred percent (100%)
non-forfeitable upon his death, Total and Permanent Disability, or attainment of
Normal Retirement Date while (A) employed by the Company or an ERISA Affiliate,
or (B) while on a maternity or paternity leave of absence. A Participant's
Transfer Account will be 100% fully vested at all times.
11.02. NON-INCLUDABLE SERVICE. The following rules shall apply to the
determination of a Participant's non-forfeitable percentage:
a) Years of Service before any series of One-Year Breaks in
Service shall be disregarded if a Participant terminates employment, has no
non-forfeitable interest in his benefits, and incurs a consecutive series of
One-Year Breaks in Service that equals or exceeds the greater of:
i) his Year of Service prior to such consecutive One-year
Breaks in Service; or
ii) five (5).
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b) Years of Service after any five (5) consecutive year
One-Year Breaks in Service shall not increase the non-forfeitable percentage of
the Participant's Company Contribution Account which accrued before such
One-Year Breaks in Service.
11.03. FORFEITURES. The non-forfeitable portion of a Participant's Company
Contribution Account shall be forfeited at the time the Participant incurs a
consecutive series of One-Year Breaks in Service of five (5) years, or if
earlier, at the time the Participant receives a lump sum distribution of the
non- forfeitable portion of his benefit on account of his termination of
participation in the Plan. A distribution shall be deemed to be made on account
of his termination of participation in this Plan if such distribution is made
prior to the close of the second Plan Year following the Plan Year in which such
termination occurs. A Participant who incurs a Termination of Employment without
a vested interest in his Accounts shall be deemed to receive a lump sum
distribution of the vested portion of his Accounts on the date of such
Termination of Employment.
Forfeitures arising under this Section 11.03 shall be used to reduce
Employer contributions under Section 4.01 in the year in which such forfeitures
arise.
11.04 DISTRIBUTION AND RE-EMPLOYMENT BEFORE A BREAK IN SERVICE. In the
event that a former Participant who was not one hundred (100%) vested in his
Company Contribution Account, and who received a lump-sum distribution upon his
Termination of Employment prior to the time he incurred consecutive One-Year
Breaks in Service of five (5) years and who forfeited a portion of his Company
Contribution Account upon such distribution, is reemployed by the Company or an
ERISA Affiliate prior to the time he incurs a consecutive series of One-Year
Breaks in Service of five (5) years, such Participant may elect on a form
prescribed by the Committee to repay to the Plan in cash, on any Valuation Date
prior to the earlier of (A) the fifth anniversary date of re-employment or (B)
his incurring a consecutive series of One-Year Breaks in Service of five (5)
years, the full amount distributed
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to him upon his prior Termination of Employment. In such event, the amount
repaid plus the amount forfeited by such Participant upon his prior Termination
of Employment will be restored and credited to his Company Contribution Account
as of such Valuation Date. Any forfeited amounts so restored shall be derived,
to the extent necessary and in the following order, from:
a) The amount, if any, of Participant forfeitures that would
otherwise be allocated under Section 11.03;
b) The amount, if any, of the Trust Fund net income or gain
for the Plan Year.
To the extent the amount(s) available for restoration for a particular
Plan Year is insufficient to enable the Administrative Committee to make the
required restoration, the Employer shall contribute, without regard to any
requirement or condition of Article Four, such additional amount as is necessary
to enable the Administrative Committee to make the required restoration. If, for
a particular Plan Year, the Administrative Committee must restore the Company
Contribution Account of more than one (1) reemployed Participant, then the
Administrative Committee shall make the restoration allocation(s) to each such
Participant's Company Contribution Account in the same proportion that a
Participant's restored amount for the Plan Year bears to the aggregate restored
amount for the Plan Year of all re-employed Participants. The Administrative
Committee shall not take into account the allocation(s) under this Section 11.04
in applying the limitations set forth in Sections 5.02 and 5.03.
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ARTICLE TWELVE
--------------
Payment of Benefits
-------------------
12.01. RETIREMENT BENEFITS. The Administrative Committee shall direct that the
distribution of the benefits payable to a Participant upon his retirement after
attaining his Normal Retirement Date, or to his Beneficiary upon his death,
commence as soon as practicable after the Valuation Date coincident with or next
following such event based upon the balance in such Participants Accounts as of
such Valuation Date. A Participant who retires after his Normal Retirement Date
and whose benefit exceeds $3,500 may elect to postpone commencement of the
distribution of his benefit until the date prescribed in Section 12.06.
12.02. DISTRIBUTION UPON TERMINATION OF EMPLOYMENT OR TOTAL AND PERMANENT
DISABILITY. When a Participant incurs a Termination of Employment or a Total and
Permanent Disability, his benefits shall be held by the Administrative Committee
until the earlier of (A) the later of his Normal Retirement Date or 62nd
birthday, or (B) his death. In such case, the Participant's benefits shall be
paid in accordance with Section 12.03 or 12.04 as soon as is practicable after
the Valuation Date coincident with or next following such event, based upon the
balance in such Participant's Accounts as of such Valuation Date.
Notwithstanding any other provision of this Plan to the contrary, the
Administrative Committee shall begin to distribute a former Participant's
benefit as of any Valuation Date coincident with or following his Termination
of Employment or Total and Permanent Disability, as the case may be, but prior
to the date otherwise determined in accordance with the preceding paragraph as
the Participant selects, provided, however, that if a Participant's benefit is
greater than $3,500 then distribution of such benefit may not commence prior to
the date the Participant would have reached his Normal Retirement Date, or his
62nd birthday, if
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later, unless the Participant consents and, in the case of a Participant who
has an Eligible Spouse and whose benefit is not being paid in the form of a
Qualified Joint and Survivor Annuity, the Participant's Eligible Spouse also
consents. Such consent shall be obtained in the manner described in Section
12.03(c).
A Participant who incurs a Termination of Employment or a Total and
Permanent Disability and whose benefits exceed $3,500 may elect to postpone the
commencement of his benefit until the date prescribed in Section 12.06.
Notwithstanding the above, if the value of a Participant's benefit
is not more than $3,500, his benefit shall be distributed in a single lump sum
as soon as practicable following his Termination of Employment or Total and
Permanent Disability, as the case may be.
12.03. METHODS OF PAYMENT OF BENEFITS
a) Unless otherwise waived as provided below, (i) a
Participant who has an Eligible Spouse on the annuity starting date shall
receive the value of his benefit in the form of a Qualified Joint and Survivor
Annuity, and (ii) a Participant who does not have an Eligible Spouse on the
annuity starting date shall receive the value of his benefit in the form of an
annuity for his life only ("Life Annuity").
b) Such Qualified Joint and Survivor Annuity shall be an
annuity payable for the life of the Participant, with a survivor annuity payable
to his Eligible Spouse for her lifetime following the Participant's death at a
rate equal to 50% of the amount payable to the Participant while he lived.
c) A waiver of the Qualified Joint and Survivor Annuity or
Life Annuity, or a waiver of the Qualified Pre-Retirement Survivor Annuity must
be made by the Participant in writing during the applicable election period and,
in the case of a waiver of the Qualified Joint and Survivor Annuity or Qualified
Pre-Retirement Survivor Annuity, must be consented to by the Participant's
Eligible Spouse. Any waiver by a Participant who has an Eligible Spouse of
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a Qualified Joint and Survivor Annuity or a Qualified Pre-Retirement Survivor
Annuity, as the case may be, must designate a specific alternative beneficiary
and/or form of benefit payment with respect to the benefit that would otherwise
be payable to such Eligible Spouse. Such alternative beneficiary and/or form of
benefit payment may not be changed by the Participant without the further
consent of the Participant's Eligible Spouse unless her original consent
expressly permits the Participant to select at any time a new alternative
beneficiary and/or form of benefit payment without the need of such Eligible
Spouse's further consent. Any such waiver may be revoked by the Participant
during the applicable election period (as defined below) without the consent of
his Eligible Spouse. Any new waiver thereafter must comply with the waiver and
consent requirements of this paragraph. Any consent referred to in this
paragraph by a Participant's Eligible Spouse shall be irrevocable. The consent
of a Participant's Eligible Spouse shall acknowledge the effect thereof, and
shall be witnessed by a Plan representative or notary public. A consent by a
Participant's Eligible Spouse shall not be required if it is established to the
satisfaction of the Committee that the required consent cannot be obtained
because there is no Eligible Spouse, or the Eligible Spouse cannot be located,
or in other circumstances that may be prescribed by the Secretary of the
Treasury.
d) The applicable period to waive the Qualified Joint and
Survivor Annuity or Life Annuity shall be the 90 day period ending on the
"annuity starting date." The applicable period to waive the Qualified
Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in
which the Participant attains age 35 and shall end on the date of the
Participant's death, provided, however, that in the case of a Participant who
has separated from service, such applicable period with respect to benefits
accrued before such separation shall begin not later than the date upon which
separation from service occurs.
e) For purposes of this Plan, the "annuity starting date"
means the first day of the first period for which an amount is payable as an
annuity (whether by reason of
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<PAGE> 110
retirement, termination of employment, or disability), or, in the case of a
benefit not payable in the form of an annuity, the first date on which all
events have occurred which entitle a Participant to such benefit.
f) With regard to the waiver described in paragraph (a) above,
the Administrative Committee shall provide the Participant within a reasonable
period of time before the annuity starting date (and consistent with Treasury
regulations), a written explanation of:
i) the terms and conditions of the Life Annuity or
Qualified Joint and Survivor Annuity.
ii) the Participant's right to waive the Life Annuity or
Qualified Joint and Survivor Annuity,
iii) the right of the Participant's Eligible Spouse to
consent to any waiver of the Qualified Joint and Survivor Annuity, and
iv) the right of the Participant to revoke such waiver, and
the effect of such revocation.
g) Notwithstanding the foregoing, if the lump sum value of the
Participant's benefit is not more than $3.500, then prior to the Participant's
annuity starting date the Administrative Committee shall direct the immediate
distribution of such benefit in a single lump sum to the Participant. If the
value of the Participant's benefit exceeds $3,500 then an immediate lump sum
distribution may not be made unless the Participant consents and if the
Participant has an Eligible Spouse, such Eligible Spouse consents, to such
distribution in the same manner as set forth in Section 12.03(c).
12.04. OPTIONAL FORMS OF BENEFIT PAYMENT. If a waiver of the Qualified Joint and
Survivor Annuity is in effect with regard to a Participant who has an Eligible
Spouse, or a waiver of the Life Annuity is in effect with regard to a
Participant who does not have an Eligible
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Spouse, or if such Participant does not have an Eligible Spouse, the
Participant may direct the Administrative Committee to distribute the value of
his benefit in one or more of the following forms:
a) Benefits payable on account of a Participant's retirement
on or after his Normal Retirement Date, or on account of Total and Permanent
Disability, or Termination of Employment may be in the form of a lump sum.
b) Benefits payable on account of a Participant's retirement
on or after his Normal Retirement Date, or on accounts of Total and Permanent
Disability or Termination of Employment may be paid in the form of installments
(payable at least annually) over a period not to exceed the lesser of ten years
(or the life expectancy of the Participant and his Beneficiary if applicable).
Benefits payable in accordance with 12.04 a) or b) above may
be distributed, as permitted by regulation, in accordance with
Section 12.11 of the Plan.
In all events the present value of the portion of the benefit payable
to the Participant shall be greater than fifty percent (50%) of the total
benefit payable to the Participant and his Beneficiary unless the Participant's
Beneficiary is his Eligible Spouse, and the distribution of a Participant's
benefit (or the distribution of any benefit payable upon the death of a
Participant) shall comply with the provisions of Section 401(a)(9) of the Code
and regulations published thereunder. This paragraph shall be administered in
accordance with the Minimum Distribution Incidental Benefit Requirements of Reg.
Section 1-401(a)(9)-2, and shall apply notwithstanding any other contrary
provisions in this Plan.
12.05. TIME OF PAYMENT. All benefits payable under the Plan shall be paid or
provided for solely by the Fund. Neither the Company nor any other Employer
assumes any liability or responsibility therefor. Notwithstanding any provision
hereof, and unless the Participant
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otherwise elects, in no event shall the payment of benefits commence later than
sixty (60) days after the close of the Plan Year in which occurs the latest of:
a) the Participant reaching his Normal Retirement Date;
b) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or,
c) the Participant's termination of employment.
12.06. REQUIRED BEGINNING DATE. Notwithstanding any other provision of this Plan
to the contrary, other than paragraph (B) below, (A) in the case of a
Participant who attains age seventy and one-half (70-1/2) after December 31,
1987, his benefits shall commence no later than April 1 of the calendar year
following the calendar year in which he attains age seventy and one-half
(70-1/2)), and (B) in the case of a Participant who attains age seventy and
one-half (70-1/2) before January 1, 1988, his benefits shall commence no later
than April 1 of the calendar year following the later of (i) the calendar year
in which he attains age seventy and one-half (70-1/2), or (ii) the earlier
of (I) the calendar year with or within which ends the Plan Year in which he
becomes a "5% percent owner" or (II) the calendar year in which he retires. For
purposes of this Section 12.06, a Participant shall be considered to be a "5%
owner" if during the Plan Year in which such Participant attains age sixty-six
and one-half (66-1/2) or any subsequent Plan Year the Participant is a 5% owner
within the meaning of Section 416 of the Code, ignoring for this purpose Plan
Years beginning before January 1, 1980. The amount to be distributed pursuant
to this Section 12.06(a) shall be the minimum amount required with respect to
such Participant for each year under Section 401(a)(9) of the Code, and
regulations issued thereunder by the Secretary of the Treasury or his delegate.
This paragraph shall be administered in accordance with Section 401(a)(9) of
the Code and regulations issued thereunder by the Secretary of the Treasury or
his delegate. For purposes of this paragraph (a), if a Participant who is not a
"5% owner" and who has not retired prior
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to January 1, 1989, attains age 70-1/2 during 1988, he shall be deemed to have
retired on January 1, 1989 so that his benefits shall commence by April 15,
1990.
12.07. DESIGNATION BY PARTICIPANT. Each Participant may designate one or more
Beneficiaries and contingent Beneficiaries by delivering a written designation
thereof to the Administrative Committee. Upon the death of a Participant, his
Beneficiaries shall be entitled to payment of benefits in an amount and in the
manner provided in the Plan. A Participant may change his Beneficiary
designation at any time by delivering a new written designation to the
Administrative Committee. The most recent designation received by the
Administrative Committee shall Supersede all prior designations. A designation
of Beneficiary shall be effective only if the designated Beneficiary survives
the Participant.
12.08. FAILURE OF PARTICIPANT TO DESIGNATE. If a Participant fails to designate
a Beneficiary, in accordance with Section 12.07, or if no designated Beneficiary
survives the Participant, the Participants spouse, if he is married at the date
of his death, shall be deemed to be his designated Beneficiary. If, under such
circumstances, the Participant is not married at the date of his death, his
designated Beneficiary shall be deemed to be his estate.
12.09. BENEFICIARY'S RIGHTS. Whenever the rights of a Participant are stated or
limited in the Plan, his Beneficiary or Beneficiaries shall be bound thereby.
12.10. UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require the Administrative
Committee to search for, or ascertain the whereabouts of, any Participant or
Beneficiary. The Employer, by certified or registered mail addressed to his last
known address of record with the Administrative Committee, shall notify any
Participant or Beneficiary that he is entitled to a distribution under the Plan.
If the Participant or Beneficiary fails to claim his Accounts or make his
whereabouts known in writing to the Administrative Committee within twelve (12)
months of the date of mailing of the notice, or before the termination or
discontinuance of the Plan, whichever should first occur, the Administrative
Committee shall
XII-7
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treat the Participant's or Beneficiary's unclaimed Accounts as forfeited and
shall apply such Accounts as provided in Section 11.03 for the Plan Year in
which such forfeiture occurs. If a Participant or Beneficiary who has incurred a
forfeiture of his Accounts under the provisions of this Section 12.10 makes a
claim, at any time, for its forfeited Accounts, the Administrative Committee
shall direct the Employer to restore the Participant's or Beneficiary's
forfeited Accounts to the same dollar amount as the dollar amount of the
Accounts so forfeited, unadjusted for any gains or losses occurring subsequent
to the date of forfeiture. The Employer shall make the restoration within sixty
(60) days after the close of the Plan Year in which the Participant or
Beneficiary makes such claim.
12.11. DISTRIBUTION OF ACCOUNTS.
Notwithstanding any other provisions of the Plan to the contrary,
amounts held in a Participant's Accounts may not be distributed to the
Participant or his Beneficiary earlier than upon the Participant's retirement,
death, Total and Permanent Disability, or Termination of Employment.
12.12. DIRECT ROLLOVER PROVISIONS.
This Section applies to distributions made on or after January 1, 1993.
Notwithstanding any provisions of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a distributee 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 distributee in a direct rollover.
(a) Definitions
(i) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or
XII-8
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life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period often years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(ii) 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 individual retirement annuity.
(iii) Distributee: A distributee includes an employee or
former employee. In addition. the employee's or former employee's surviving
spouse and the employee's or former employee's 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.
(iv) Direct rollover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
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ARTICLE THIRTEEN
----------------
Claims Procedure
----------------
13.01. CLAIMS PROCEDURE. The Board of Directors of the Company shall establish a
procedure for the resolution of disputes and dispositions of claims arising
under the Plan. Until modified by the Board of Directors of the Company, this
procedure is as follows:
Any of the Employees, former Employees, or any Beneficiaries of such
Employees or former Employees may, if they so desire, file with the
Administrative Committee a written claim for benefits under the Plan. Within
ninety (90) days after the filing of such a claim, the Administrative Committee
shall notify the claimant whether his claim is upheld or denied. The
Administrative Committee may, under special circumstances, extend the period of
time for processing a claim by an additional ninety (90) days. If such an
extension of time is required, written notice shall be furnished to the claimant
or his duly authorized representative prior to the termination of the initial
ninety (90) day period. Such notice will indicate the special circumstance
requiring an extension. In the event the claim is denied, the Administrative
Committee shall state in writing:
a) the specific reasons for the denial;
b) specific references to pertinent Plan provisions on
which the denial is based;
c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
d) an explanation of the claim review procedure set forth
in this Section 13.01.
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Within sixty (60) days after receipt of notice that his claim has been
denied, the claimant or his duly authorized representative may file with the
Administrative Committee a written request for a review hearing and may, in
conjunction therewith, submit written issues and comments. The Administrative
Committee shall then schedule, within sixty (60) days after the filing of such
request, a full and fair hearing of the claim. The Administrative Committee may,
under special circumstances, extend such period of time by an additional sixty
(60) days. Prior to said hearing, the claimant or his representative shall have
a reasonable opportunity to review a copy of the Plan, the Trust agreement, and
other pertinent documents in the possession of the Administrative Committee. The
Administrative Committee shall communicate their decision in writing to the
claimant within thirty (30) days after the hearing. Any claim for benefits and
any request for a review hearing hereunder must be filed on forms to be
furnished by the Administrative Committee upon a Participant's request.
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ARTICLE FOURTEEN
----------------
Inalienability of Benefits
--------------------------
14.01. INALIENABILITY OF BENEFITS.
a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a Participant or
his Beneficiary) (i) shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void, or (ii) shall be subject to the debts, contracts,
liabilities, engagements or torts of any such person, or shall be subject to
attachment or legal process for or against such person, and the same shall not
be recognized by the Administrative Committee.
b) This provision shall not apply to a "qualified domestic
relations order" which meets the requirements of Code Section 414(p), nor to
those other domestic relations orders permitted to be so treated by the
Committee under the provisions of Section 206(d)(3)l of ERISA. The
Administrative Committee shall establish a written procedure to determine the
status of qualified domestic relations orders.
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ARTICLE FIFTEEN
---------------
Permanency of the Plan
----------------------
15.01. RIGHT TO TERMINATE PLAN. The Company contemplates that the Plan shall be
permanent and the Employer shall be able to Continue to make contributions under
the Plan. Nevertheless, the Company reserves the right, at any time or times, by
action of the Board of Directors of the Company, to terminate the Plan, in whole
or in part.
15.02. MERGER OR CONSOLIDATION OF PLAN AND TRUST. The Plan may not be merged or
consolidated with, nor may its assets or liabilities be transferred to, any
other plan or trust, unless each Participant would (if the Plan then terminated)
receive a benefit which, immediately after the merger, consolidation, or
transfer, is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation or transfer if the Plan had
then terminated.
15.03. AMENDMENT OF THE PLAN.
a) The Board of Directors of the Company (or its designee), by
its action, shall have the right at any time and from time to time to amend, in
whole or in part, any or all of the provisions of this Plan. Further, the
Administrative Committee shall have the right at any time and from time to time
to amend the Plan to comply with changes in applicable law and to make other
changes as they deem appropriate but which would not result in any increase in
contributions by Employers or Participants, or in any increase in benefits. No
amendment (i) shall authorize or permit any part of the Fund (other than such
part as is required to pay taxes and administrative expenses) to be used for or
diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates; (ii) shall cause any reduction in the
Account balance of any Participant accumulated theretofore, or cause or permit
any portion of the Fund to revert to or become the property of the
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<PAGE> 120
Employer; (iii) shall affect the method of determining a Participant's vested
interest in his Plan benefits unless such amendment complies with the
requirements of Section 411(a)(10) of the Code; or (iv) shall affect the rights,
duties or responsibilities of the Administrative Committee without the
Administrative Committee' written consent.
b) A Plan amendment shall not reduce the non-forfeitable
percentage of a Participants Accounts derived from Employer contributions
determined as of the later of the date that such amendment is adopted, or the
date that such amendment becomes effective. If an amendment changes the vesting
schedule under the Plan, then if a Participant's non-forfeitable interest in his
Accounts under the Plan as amended can at any time be less than such percentage
under the Plan without regard to such amendment and if such Participant has
completed at least three (3) or more Years of Service (determined without regard
to Section 11.02(a) of the Plan), he shall be permitted to elect, within a
"reasonable period" (as defined below) after the adoption of such amendment, to
have the non-forfeitable percentage of his Accounts computed under the Plan
without regard to such amendment. Such election shall be in writing on a form
prescribed by the Administrative Committee and shall be irrevocable. For
purposes of this Section 15.03(b), a "reasonable period" shall begin no later
than the date upon which a Plan amendment changing the vesting schedule is
adopted, and shall end no earlier than the latest of (i) the sixtieth day after
the adoption of such amendment, (ii) the sixtieth day after such amendment
becomes effective, or (iii) the sixtieth day after the Participant is issued
written notice of such amendment by his Employer or the Administrative
Committee.
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ARTICLE SIXTEEN
---------------
Discontinuance of Contributions and Termination
-----------------------------------------------
16.01. DISCONTINUANCE OF CONTRIBUTIONS. Whenever an Employer, or the Company
acting with respect to an Employer, determines that it is impossible or
inadvisable for such Employer to make further contributions as provided in the
Plan, the Board of Directors of the Employer or the Company, as the case may be,
may adopt an appropriate resolution permanently discontinuing all further
contributions by the Employer. In such event, the Administrative Committee
force, other than the provisions relating to contributions by the affected
Employer.
16.02. TERMINATION OF PLAN. Upon a complete termination of the Plan, in
accordance with Section 15.01, after payment of all expenses and proportional
adjustment of Accounts of Participants to reflect such expenses. Trust Fund
profits or losses, and allocations of any previously unallocated funds to the
date of termination, the Participants shall be entitled to receive the amount
then credited to their respective Accounts in the Trust Fund.
16.03. RIGHTS TO BENEFITS UPON TERMINATION OF PLAN OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS. Upon the termination or partial termination of the Plan or the
complete discontinuance of contributions by an Employer, the rights of each of
the Participants affected by such termination or partial termination or
discontinuance of contributions to the amount credited to their Accounts at such
time shall be non-forfeitable without reference to any formal action on the part
of the Company or the Administrative Committee.
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ARTICLE SEVENTEEN
-----------------
Exclusive Benefit of Trust Fund
-------------------------------
17.01. LIMITATION UPON REVERSIONS. Except as provided in Sections 4.02, the
assets of the Plan shall not inure to the benefit of any Employer and shall be
held for the exclusive purposes of providing benefits to Participants and their
Beneficiaries and defraying reasonable expenses of administering the Plan.
XVII-1
<PAGE> 123
ARTICLE EIGHTEEN
----------------
Applicable Law
--------------
18.01. APPLICABLE LAW. Except as otherwise required under the laws of the United
States, the Plan shall be construed, regulated, interpreted and administered
under and in accordance with the laws of the State of New York, except to the
extent that such laws have been preempted by ERISA.
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ARTICLE NINETEEN
----------------
Withdrawals
-----------
19.01. WITHDRAWALS.
No withdrawals of benefits are permitted while a Participant is still
employed.
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ARTICLE TWENTY
--------------
Loans
-----
20.01. LOANS.
No loans are permitted.
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ARTICLE TWENTY-ONE
------------------
Top Heavy Provisions
--------------------
21.01. SPECIAL DEFINITIONS. For the purposes of this Article Twenty-One, the
following words and phrases shall have the meanings set forth below:
a) "Aggregate Account" means, as of the Determination Date,
the sum of:
i) a Participant's account balance as of the most recent
Valuation Date occurring within a twelve (12) consecutive month period ending on
the Determination Date, including, in the case of a plan subject to the minimum
funding standards of Section 412 of the Code, amounts that would be allocated to
such account as of a date not later than the Determination Date even though such
amounts are not yet required to be contributed to the plan by such Determination
Date;
ii) an adjustment for any contribution due as of the
Determination Date. In the case of a plan not subject to the minimum funding
standards of Section 412 of the Code, such adjustment shall be the amount of any
contributions actually made after the Valuation Date but on or before the
Determination Date. In the case of a plan that is subject to the minimum funding
standards of Section 412 of the Code, such adjustment shall include any
contribution made, or due to be made, after the Valuation Date but before the
expiration of the extended payment period described in Section 412(c)(10) of the
Code. In the first P]an Year, such adjustment shall also reflect the amount of
any contributions made after the Determination Date that are allocated as of a
date in the first Plan Year;
iii) any plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding Plan Years.
However, in the case of distributions made after the Valuation Date and prior to
the Determination Date, such distributions are not included as distributions for
the purposes of this Article Twenty-One to
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the extent that such distributions are already included in the Participant's
Aggregate Account balance as of the Valuation Date. Notwithstanding anything
herein to the contrary, all distributions, including distributions made prior to
January 1, 1984, will be counted;
iv) any Employee contributions, whether voluntary or
mandatory; provided, however, that amounts attributable to "deductible employee
contributions," as defined in Section 72(o)(5)(A) of the Code, if any, shall not
be considered to be a part of the Participant's Aggregate Account balance;
v) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another Employer that is not
an ERISA Affiliate), the Plan making the distribution or transfer shall consider
such distribution or transfer as a distribution for the purposes of this Article
Twenty-One.
If the plan is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider any such rollovers or plan-to-plan transfers
accepted after December 31, 1983 as part of the Participant's Aggregate Account
balance. However, such unrelated rollovers or plan-to-plan transfers accepted
prior to January 1, 1984 shall be considered as part of the Participant's
Aggregate Account balance;
vi) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made to a plan
maintained by an ERISA Affiliate), the plan making the distribution or transfer
shall not count such distribution or transfer as a distribution for purposes of
this Article Twenty- One. If the Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer
as part of the Participant's Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-plan transfer is accepted.
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b) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group, as hereinafter determined.
i) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which a Key Employee
is a Participant, or has been a Participant during the Plan Year containing the
Determination Date, or in any of the four (4) preceding Plan Years (whether or
not such plan has been terminated), and each other plan of the Employer which
enables any plan in which a Key Employee participates to meet the requirements
of Section 401(a)(4) or 410 of the Code during such period, will be required to
be aggregated. Such group shall be known as a Required Aggregation Group. In the
case of a Required Aggregation Group, each plan in the group will be considered
a Top Heavy Plan or Super Top Heavy Plan, as the case may be, if the Required
Aggregation Group is a Top Heavy Group, or Super Top Heavy Group, as the case
may be. No plan in the Required Aggregation Group will be considered a Top Heavy
Plan or Super Top Heavy Plan, as the case may be, if the Aggregation Group is
not a Top Heavy Group;
ii) Permissive Aggregation Group: the Employer may also
include any other plan which provides comparable benefits but is not required to
be included in the Required Aggregation Group, provided the resulting group,
taken as a whole, would satisfy the provisions of Sections 401(a)(4) and 410 of
the Code. Such group shall be known as a Permissive Aggregation Group. In the
case of a Permissive Aggregation Group, only a plan that is part of the Required
Aggregation Group will be considered a Top Heavy Plan, or Super Top Heavy Plan,
as the case may be, if the Permissive Aggregation Group is a Top Heavy Group, or
Super Top Heavy Group, as the case may be. No plan in the Permissive Aggregation
Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is
not a Top Heavy Group.
XXI-3
<PAGE> 129
iii) Only those plans of the employer in which the
Determination Dates fall within the same calendar year, shall be aggregated in
order to determine whether such plans are Top Heavy or Super Top Heavy Plans.
c) "Determination Date" means (1) the last day of the
preceding Plan Year, or (2) in the case of the first Plan Year of a Plan, the
last day of such Plan Year.
d) "Key Employee" means any Employee, former Employee, or the
Beneficiary of such Employee who, at any time during the Plan Year containing
the Determination Date or any of the preceding four (4) Plan Years, is or was:
i) an "officer" (as defined within the meaning of the
regulations issued under Section 416 of the Code) of the employer having annual
compensation that, for a plan year, exceeds fifty percent (50%) of the amount
referred to in Section 415(b)(1)(A) of the Code as in effect for the calendar
year in which the Plan Year ends. For this purpose, no more than fifty Employees
(or, if lesser, the greater of three (3) or ten percent (10%) of the Employees)
shall be treated as officers;
ii) one of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the largest percentage
ownership interest in value in the Employer or in any organization required to
be aggregated with the Employer under Sections 414(b), (c) or (m) of the Code,
if: (A) such ownership interest exceeds one-half percent (1/2%) and, (B) such
Employee's annual Compensation during the Plan Year of such ownership exceeds
the amount referred to in Section 415(c)(1)(A) of the Code as in effect for the
calendar year in which such plan year ends;
iii) a "5-percent owner" of the employer. "5-percent owner"
means any Employee who owns (or is considered as owning within the meaning of
Section 318 of the Code) more than five percent (5%) of the value of the
outstanding stock of the
XXI-4
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employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the employer.
iv) a "1-percent owner" of the employer having an annual
compensation from the employer of more than $150,000. "1-percent owner" means
any Employee who owns (or is considered as owning within the meaning of Section
318 of the Code) more than one percent (1%) of the value of the outstanding
stock of the Employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the Employer;
v) For the purposes of determining percentage ownership in
accordance with the provisions of this Article Twenty-One, Employers that would
otherwise be aggregated under Section 4 14(b), (c) or (m) of the Code shall be
treated as separate Employers. However, in determining whether an Employee has
Compensation of more than $150,000 or Compensation that exceeds the threshold
amounts described in this Section 21.0(d)(i) and (ii), compensation from all
Employers required to be aggregated under Section 414(b), (c) or (m) of the Code
shall be taken into account.
e) "Non-Key Employee" means any Employee who is not a Key
Employee.
f) "Top Heavy Plan Year" means that, for a particular Plan
Year commencing after December 31, 1983, the Plan is a Top Heavy Plan.
21.02. DETERMINATION OF TOP HEAVY STATUS:
a) An Aggregation Group shall be a "Top Heavy Group" for any
Plan Year commencing after December 31, 1983 in which, as of the Determination
Date, the sum of the Present Value of Accrued Benefits of Key Employees and the
Aggregate Account balances of Key Employees under all plans of an Aggregation
Group exceeds sixty percent (60%) of the sum of the Present Value of Accrued
Benefits and the Aggregate Account balances of all Employees under the Plan and
all plans of the Aggregation Group.
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b) An Aggregation Group shall be a "Super Top Heavy Group" for
any Plan Year commencing after December 31, 1983 in which, at the Determination
Date, the sum of the Present Value of Accrued Benefits of Key Employees and the
Aggregate Account balances of Key Employees and all plans in an Aggregation
Group exceeds ninety percent (90%) of the sum of the Present Value of Accrued
Benefits and the Aggregate Account balances of all Employees under all plans of
the Aggregation Group.
c) "Present Value of Accrued Benefit" means, in the case of a
defined benefit plan, the present value of an accrued benefit, as determined
under the provisions of the applicable defined benefit plan and in compliance
with Treasury Regulations Section 1.416-1(T-25 and T-26). For this purpose the
accrued benefit of any Employee (other than a Key Employee) shall be
determined--
i) under the method which is used for accrual purposes for
all plans of the employer, or
ii) if there is no method described in clause (I), as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under Section 411(b)(1)(C) of the Code.
d) In determining Top Heavy Status, the accrued benefit of (I)
an individual who is not a Key Employee with respect to any plan in an
Aggregation Group for a Plan Year but who was a Key Employee with respect to a
Plan in an Aggregation Group for a prior Plan Year and (II) an individual who
performed no services for the Company of an ERISA Affiliate during the five-year
period ending on the Determination Date, shall be disregarded.
21.03. TOP HEAVY PLAN REQUIREMENTS. For any Top Heavy Plan Year, the Plan shall
provide the following:
a) Special minimum benefit and contribution requirements of
Section 416(c) of the Code pursuant to Section 21.04 of the Plan.
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<PAGE> 132
b) Special vesting requirements of Section 416(b) of the Code,
pursuant to Section 21.07 of the Plan.
c) Special Compensation requirements of Section 416(d) of the
Code, pursuant to Section 21.06 of the Plan.
d) Special benefit limitations of Section 416(h) of the Code,
pursuant to Section 21.05 of the Plan.
21.04. MINIMUM ALLOCATIONS AND BENEFITS.
a) In the case of a defined contribution plan, for any Top
Heavy Plan Year, the sum of Employer contributions and forfeitures allocated to
the account of each Non-Key Employee who is a Participant and who has not
terminated employment by the end of such Plan Year (including (A) Participants
who fail to complete at least 1,000 Hours of Service during the Plan Year, (B)
Employees who are excluded from the Plan or accrue no benefit because their
Compensation is less than a stated amount, and (C) Employees who are excluded
from the Plan or accrue no benefit because they fail to make mandatory
contributions, or, in the case of a plan intended to qualify under Section
401(k) of the Code, elective contributions) shall be equal to at least three
percent (3%) of such Non-Key Employee's Compensation. However, should the sum of
the employer's contributions and forfeitures allocated to the account of each
Key Employee for such Top Heavy Plan Year be less than three percent (3%) of
each such Key Employee's Compensation, the sum of the Employer's contributions
and forfeitures allocated to the account of each Non-Key Employee who is a
Participant (including the employees referred to in the preceding sentence)
shall be equal to the highest percentage allocated to the account of a Key
Employee. The preceding sentence shall not apply to any plan required to be
included in an Aggregation Group if such plan enables a defined benefit plan
required to be included in an Aggregation Group to meet
XXI-7
<PAGE> 133
the requirements of Section 401(a)(4) or Section 410 of the Code. For purposes
of satisfying the minimum contribution requirements of this subparagraph, an
Employee's elective deferrals under a cash or deferred arrangement (as defined
in Section 401(k) of the Code) and any contributions made by an Employer that
are treated as matching contributions for purposes of either Section 401(k) or
Section 401(m) of the Code shall not be treated as an Employer contribution.
b) In the case of a defined benefit plan, for any Top Heavy
Plan Year) the accrued benefit, when expressed as an Annual Retirement Benefit
(as defined below), of a Participant who is a Non-Key Employee and who has
completed at least one thousand (1,000) Hours of Service during the plan year
(including Employees who are excluded from the Plan or accrue no benefit because
their Compensation is less than a stated amount and Employees who are excluded
from the Plan or accrue no benefit because they fail to make mandatory
contributions) shall not be less than the product of (A) the number of years of
Top Heavy Service (as defined below), and (B) two percent (2%) of the
Participant's average Compensation during the period of the five (5) consecutive
years of Top Heavy Service during which the Participant had the greatest
aggregate Compensation. However, under no circumstances will such product exceed
twenty percent (20%) of the average Compensation.
i) The foregoing defined benefit minimum shall be
determined without regard to any Social Security contribution or benefit.
ii) "Annual Retirement Benefit" means a benefit which
commences at age 65 and is payable annually in the form of a single life
annuity.
iii) A "Year of Top Heavy Service" shall be a Year of
Service which is credited for benefit accrual purposes during a Top Heavy Plan
Year.
c) Notwithstanding anything herein to the contrary, in any
Plan Year in which a Non-Key Employee participates in both a defined benefit
plan and a defined
XXI-8
<PAGE> 134
contribution plan, and both such plans are Top Heavy Plans, the Employer shall
not be required to provide a Non-Key Employee with both the defined benefit
minimum and the defined contribution minimum. Therefore, for such Non-Key
Employee who is participating in a Top Heavy defined benefit plan maintained by
the Employer, the defined benefit minimum, as provided under Section 21.04(b)
above, shall accrue and the defined contribution minimum shall not be
applicable.
21.05. MULTIPLE PLAN REDUCTION FOR TOP HEAVY PLAN YEARS.
a) For any Top Heavy Plan Year, 1.0 shall be substituted for
1.25 in Section 5.03, wherever it shall apply, unless (1) the defined
contribution minimum is made pursuant to Section 21.04(a) with "four percent
(4%)" substituted for "three percent (3%)," or (2) the defined benefit minimum
accrues pursuant to Section 21.04(b) with "three percent (3%)" substituted for
"two percent (2%)," and "thirty percent (30%)" substituted for "twenty percent
(20%)." However, for any Plan Year in which the Plan is a Super Top Heavy Plan,
1.0 shall be substituted for 1.25 without exception.
b) For any Top Heavy Plan Year, $41,500 shall be substituted
for $51,875 in determining the "transition fraction" defined in Section 5.04,
unless the extra minimum benefit accrual is made pursuant to Section 21.05(a).
However, for any Limitation Year in which the Plan is a Super Top Heavy Plan,
$41,500 shall be substituted for $51,875 without exception.
21.06. MINIMUM VESTING.
For any Top Heavy Plan Year, the vested interest of each Participant
who has been credited with at least one (1) Hour of Service during such Top
Heavy Plan Year in his accrued benefit (including benefits accrued before the
effective date of Section 416 of the Code and before the Plan became a Top Heavy
Plan, but not including benefits that were forfeited before the Plan became a
Top Heavy Plan) shall not be less than the vested
XXI-9
<PAGE> 135
percentage specified in Article Eleven of the Plan, nor less than the applicable
percentage indicated by the following minimum vesting schedule:
YEARS OF SERVICE MINIMUM VESTING PERCENTAGE
---------------- --------------------------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
Should the Plan cease to be a Top Heavy Plan, this minimum vesting
schedule shall no longer apply; provided, however, that: (a) a Participant's
vested percentage shall not be less than his vested percentage determined
pursuant to the above minimum vesting schedule as of the end of the last Top
Heavy Plan Year, and (b) such reversion to the original vesting schedule of the
Plan shall be treated as a change in the Plan's vesting schedule so that the
provisions of Section 15.03(b) of this Plan shall apply.
For purposes of this Section 21.06. Years of Service during which
neither the Company nor any ERISA Affiliate maintained the Plan, Years of
Service completed by an Employee before he attained age eighteen (IS), and Years
of Service that are disregarded under Section 11.02. shall be disregarded.
XXI-10
<PAGE> 136
ARTICLE TWENTY-TWO
------------------
Miscellaneous
-------------
22.01. INTERPRETATION OF THE PLAN AND TRUST. It is the intention of the Company
that the Plan, and the Trust established to implement the Plan, shall comply
with the provisions of Sections 401 and 501 of the Code and the requirements of
ERISA, and the corresponding provisions of any subsequent laws, and the
provisions of the Plan shall be construed to effectuate such intention.
22.02. GENDER AND NUMBER. Wherever appropriate, words used in the Plan in the
singular may mean the plural, the plural may mean the singular and the masculine
may mean the feminine.
XXII-1
<PAGE> 137
IN WITNESS WHEREOF, this Plan has been executed this 22nd day
of December, 1994.
KROLL ASSOCIATES, INC.
By: /s/ Robert J. McGuire
-----------------------------
Robert J. McGuire,
President and
Chief Executive Officer
ATTEST:
/s/ Robert Connolly
- ----------------------
Robert Connolly,
Secretary
XXII-2
<PAGE> 138
APPENDIX I
----------
Adopting Employers
------------------
The following employers have adopted the Kroll Associates Money Purchase Pension
Plan for their employees.
- KROLL INFORMATION SERVICES, INC.
- KROLL ENVIRONMENTAL ENTERPRISES, INC. - An Employee's
Years of Service shall be measured from the earlier of
(i) his most recent date of hire with Harrison
Environmental Services, Inc., or (ii) his date of hire
with Harrison/Kroll Environmental Services Inc. or
(iii) Kroll Environmental Services.
- KROLL ASSOCIATES U.K. LIMITED
- KROLL ASSOCIATES (ASIA) LIMITED
- KROLL ASSOCIATES FRANCE S.A.R.L.
- KROLL ELECTRONIC RECOVERY, INC.
XXII-3
<PAGE> 139
APPENDIX II
-----------
Transfer Contributions
----------------------
A Participant's Transfer Account, if any, shall consist of amounts transferred
from the Kroll Pension Plan Trust, which was terminated effective July 15, 1991.
Such Transfer Account shall be at all times fully 100% vested and shall be
subject to the same rules upon distribution as are all other Accounts under the
Plan.
XXII-4
<PAGE> 140
AMENDMENT NO. 1 TO THE
KROLL ASSOCIATES MONEY PURCHASE
PENSION PLAN
WHEREAS, Kroll Associates, Inc. (the "Company") has adopted the Kroll
Associates Money Purchase Pension Plan (the "Plan") effective January 1. 1991;
and
WHEREAS, the Internal Revenue Service has requested clarifying
amendments; and
WHEREAS, in accordance with Section 15.03, the Company may amend the
Plan at any time.
NOW, THEREFORE, the Plan is amended, effective January 1, 1994, as
follows:
1. Section 4.01(c) is amended in its entirety to read as follows:
"If greater than the amount produced by the formula in Section 4.01(a)
above for a Plan Year, then in lieu of the amount determined under Section
4.01(a) above, the Employer shall contribute with respect to such year on behalf
of each Participant who is classified as a managing director of the Company and
who is eligible to share in such contribution pursuant to Section 5.01, an
amount which shall be determined under the following schedule
CONTRIBUTION PERCENTAGE
MANAGING DIRECTOR LEVEL OF COMPENSATION
- ----------------------- -----------------------
Level I (Compensation in excess of $235,000) 12.5
Level II (Compensation between $225,000 and 12.0
$235,000)
Level III (Compensation between $200,001 and 11.0
$224,999)
Level VI (Compensation between $190,000 and 10.0
$200,000)
Level V (Compensation between $165,001 and 9.0
$189,999)
Level VI (Compensation between $150,001 and 8.0
$165,000)
Level VII (Compensation of $150,000 and less) 0
<PAGE> 141
PAGE 2
The levels described above will be adjusted annually by 5% to reflect cost of
living adjustments. However, the Employer is not required to contribute more
than the maximum amount allowable as a current deduction under Section 404 of
the Code, except to the extent necessary to restore forfeited accounts and
satisfy top heavy minimum allocations to Non-Key Employees as required in
Section 21.04. If the amount of Employer contribution calculated above would
exceed this amount, then the regular allocation amounts shall be reduced
proportionately to eliminate the excess.
For each Plan Year, the Employer's contribution and forfeitures in excess of
those used to restore forfeited accounts, hereafter in this Section jointly
referred to as the Employer's contribution, shall be allocated, up to the
maximum amount permitted under Section 5.02 and any other applicable limitation
on allocations in the Plan, as provided in the following subsections of this
Section.
(i) The preliminary allocation for each Participant who is eligible for
a regular allocation for the Plan Year shall be the percentage of the
Participant's Compensation specified in Sections 4.01(a), (b) and (c) above for
the group of which the Participant is a member, up to the maximum amount
permitted under Section 5.02 and any other applicable limitation on allocations
in the Plan.
(ii) If the Plan is not top heavy for the Plan Year, the preliminary
allocations are then tested for appropriateness under (iii) below. If the Plan
is top heavy, and if any Participant who is eligible for a top heavy allocation
is determined to have a preliminary allocation which is less than the top heavy
allocation described in Section 21.04, then instead the preliminary allocation
for the Plan Year for that Participant shall be the amount described in Section
21.04.
(iii) The resulting preliminary allocations shall be tested for
appropriateness. The preliminary allocations will be considered to be
appropriate if they meet the "ratio percentage" test in subsection (v). As an
alternative, the preliminary allocations will be considered to be appropriate if
they satisfy the "average benefits" test in subsection (vi) taking into account
all of the applicable "aggregated plans". For purposes of this section,
"aggregated plans" mean any qualified plans maintained by the Employer under
which Employees will receive an allocation or accrual for the Plan Year ending
in the same calendar year as the Plan Year for which the preliminary allocation
is being determined. However, plans which cover a qualified separate line of
business other than the one of which this Plan is a part and plans which cover
collectively bargained employees will not be included as aggregated plans.
(iv) The rules of this subsection apply for purposes of performing the
ratio percentage and average benefits tests below.
Highly Compensated Employees and Non-Highly Compensated Employees
refer to such Employees who are not "excludable employees". Excludable employees
are for the Plan Year being tested, any Employees who failed to meet the age and
service
<PAGE> 142
PAGE 3
requirements for eligibility to participate in the Plan, any Employees who
failed to be eligible for an allocation solely because they terminated before
the end of the Plan Year with not more than 500 Hours of Service, and any
Employees whose employment is governed by a collective bargaining agreement
under which retirement benefits were the subject of good faith bargaining.
Both tests involve evaluation of all of the rate groups for the Plan
Year. There is a separate "rate group" for each Highly Compensated Employee who
has received an allocation. The rate group consists of all Participants who have
received an allocation in the Plan Year and whose percentage is equal to or
greater than the Highly Compensated Employee's percentage. The same Participants
may be included in more than one rate group. For this purpose the Employer may
group allocation rates in accordance with Regulation Section
1.401(a)(4)-2(c)(2)(v).
A Participant's "percentage" for the Plan Year is determined as
follows:
(1) The allocation rate for a Participant for a Plan Year equals the
sum of the allocations to the Participant's account for the Plan Year, expressed
as a percentage of Plan Year Compensation.
(2) The amounts taken into account in determining allocation rates for
a Plan Year include all Employer contributions and forfeitures that are
allocated or treated as allocated to the account of a Participant under the Plan
for the Plan Year, other than amounts described in (3) below. For purposes of
this Plan, an Employer contribution is taken into account in the Plan Year for
which it is required to contributed and allocated to Participants' accounts
under the Plan, even if all or part of the required contribution is not actually
made.
(3) Allocations of income, expenses, gains, and losses attributable to
the balance in a Participant's account are not taken into account in determining
allocation rates
If the Plan preliminary allocations fail to be considered appropriate
when tested under subsection (iii), the Plan may use an alternate method of
calculating a Participant's "percentage" for the Plan Year as follows:
(1) Determine for each Participant the present value of the preliminary
allocation at the Participant's age 65, using a Standard Interest Rate
assumption as defined under Regulation Section 1.401(a)(4)-12.
(2) Divide the present value determined in (1) above by the factor for
a life income of $1 per year beginning at the Participant's testing age based on
a Standard Interest Rate assumption as defined under Regulation Section
1.401(a)(4)-12 and an assumption of no pre-testing age mortality and
post-testing age mortality based on a Standard Mortality Table as defined under
by Regulation Section 1.401(a)(4)-12.
<PAGE> 143
PAGE 4
(3) Divide the result determined in (2) above by the Participant's Plan
Year Compensation to determine the Participant's percentage.
For purposes of this paragraph, a Participant's "testing age" is age 65.
For purposes of calculating the Participant's percentage, Participants who are
older than the testing age shall be deemed to be the testing age.
The disparity permitted under Section 401(l) may be imputed when determining a
Participant's "percentage" for the Plan Year in accordance with the rules of
Regulation Section 1.401(a)(4)-7.
(v) THE RATIO PERCENTAGE TEST. The Ratio Percentage Test is performed
as follows:
(1) Within each rate group, calculate the Highly Compensated
Fraction and the Non-Highly Compensated Fraction. The numerator of the Highly
Compensated Fraction is the number of Highly Fraction is the number of Highly
Compensated Employees in the rate group and the denomination of the fraction is
the total number of Highly Compensated Employees for the Plan Year. The
numerator of the Non-Highly Compensated Fraction is the number of Non-Highly
Compensated Employees in the rate group and the denominator of the fraction is
the total number of Non-Highly Compensated Employees for the Plan Year.
(2) If for each rate group the Non-Highly Compensated Fraction is
at least 70% of the Highly Compensated Fraction, the ratio percentage test is
satisfied.
(vi) THE AVERAGE BENEFITS TEST. The Average Benefits Test is satisfied
if the plan satisfies the average benefits percentage test of subsection (vii)
and each rate group satisfies the nondiscriminatory classification test of
subsection (viii).
(vii) THE AVERAGE BENEFITS PERCENTAGE TEST. The Average Benefits
Percentage Test is performed as follows:
(1) Determine for all "aggregated plans" the sum of the
Participant's accrual rates of all of the Non-Highly Compensated Employees and
separately determine the sum of the Participant's accrual rates of all of the
Highly Compensated Employees.
(2) For this purpose, a Participant's accrual rate with respect to
a defined contribution plan is determined by adding together the preliminary
allocation under this Plan and the allocations for the Plan Year ending in the
same calendar year under any other "aggregated plans" and then applying the
procedure described in (iv)(1) - (iv)(3).
(3) For this purpose, a Participant's accrual rate with respect to
defined benefit plans is determined by:
<PAGE> 144
PAGE 5
(a) determining, for each such, for the Plan Year ending in
the same calendar year as the Plan Year being tested under this Plan, the
increase in the individual's accrued benefit for that Plan Year, then
(b) with respect to any such accrued benefits stated in terms
other than the payment of a straight life annuity at the testing age, converting
those accrued benefits to an equivalent accrual of a straight life annuity at
the testing age based a standard interest rate assumption as allowed by
Regulation Section 1.401(a)(4)-12, and a standard mortality table as allowed by
Regulation Section 1.401(a)(4)-12, then
(c) adding the accruals and equivalent accruals for the
individual for the year calculating an accrual rate equal to the sum of those
accruals as a percentage of the individual's average annual compensation. For
this purpose, average annual compensation means the average of the individual's
three highest consecutive Compensations.
(4) Determine the average percentage for each group by dividing
the sum for that group by the number of Employees in that group.
(5) Divide the average percentage for the Non-Highly Compensated
Employees by the average percentage for the Highly Compensated Employees.
(6) If the result in (5) is at least 70%, the plan satisfies the
Average Benefits Percentage Test.
(viii) THE NONDISCRIMINATORY CLASSIFICATION TEST. A rate group
satisfies the Nondiscriminatory Classification Test if the ratio percentage for
that rate group, determined by dividing the Non-Highly Compensated Fraction of
(v)(1) by the Highly Compensated Fraction of (v)(1), is greater than or equal to
the testing percentage from subsection (ix) below.
(ix) TESTING PERCENTAGE FOR THE NONDISCRIMINATORY CLASSIFICATION TEST.
The testing percentage is determined as follows:
(1) Calculate a ratio percentage for the Plan as follows. First
calculate the Highly Compensated Fraction and the Non-Highly Compensated
Fraction. The numerator of the Highly Compensated Fraction is the number of
Highly Compensated Employees who have received an allocation for the Plan Year
and the denominator of the fraction is the total number of Highly Compensated
Employees for the Plan Year. The numerator of the Non-Highly Compensated
Fraction is the number of Non-Highly Compensated Employees who have received an
allocation for the Plan Year and the denominator of the fraction is the total
number of Non-Highly Compensated Employees for the Plan Year. The ratio
percentage is determined by dividing the Non-Highly Compensated Fraction by the
Highly Compensated Fraction.
<PAGE> 145
PAGE 6
(2) Determine the concentration percentage by dividing the number
of Non-Highly Compensated Employees by the sum of the number of Non-Highly
Compensated Employees plus the number of Highly Compensated Employees.
(3) Determine the safe harbor percentage, which is 50% reduced by
.75% for each whole percentage point by which the concentration percentage
exceeds 60%.
(4) Determine the unsafe harbor percentage, which is 40% reduced
by .75% for each whole percentage point by which the concentration percentage
exceeds 60%, but in no event less than 20%.
(5) Determine the midpoint percentage, which is 50% of the sum of
the safe harbor percentage plus the unsafe harbor percentage.
(6) The testing percentage is the smaller of the ratio percentage
calculated in (1) and the midpoint percentage calculated in (5).
(x) If the preliminary allocations are determined to be appropriate
when tested under subsection (iii), then the preliminary allocation as
determined in (a) above is the regular allocation amount (or if determined under
(ii), the top heavy allocation amount) for the Plan Year. If the preliminary
allocations are not determined to be appropriate when tested under subsection
(iii), then instead of the preliminary allocation as calculated above, the
regular allocation amount for all Participants eligible for such an allocation
for the Plan Year shall be the amount determined by applying the default
percentage specified in Section 4.01(a) to each such Participant's
Compensation.
2 Section 4.01(d) is deleted in its entirety.
IN WITNESS WHEREOF, this Amendment has been executed this 12th day of
April, 1996.
KROLL ASSOCIATES, INC.
By: /s/ Robert J. McGuire
------------------------------------
Robert J. McGuire
ATTEST:
/s/ Mary Ellen Lynch
- ---------------------
<PAGE> 146
KROLL ASSOCIATES MONEY PURCHASE PENSION
PLAN AND TRUST
ATTACHMENT TO FORM 5300
ITEM 8a
NAME OF PLAN: Kroll Associates 401(k) Savings
Plan and Trust
TYPE OF PLAN: 401(k) Plan
FORM OF PLAN: Individually Designed
PAIRED OR NOT PAIRED: Not Paired
BENEFIT FORMULA: Elective deferrals with
discretionary match equal to the
lesser of (1) 25% of first 5% of
elective deferrals or (2) $500 and
discretionary profit sharing
contribution based on compensation.
NUMBER OF PARTICIPANTS: 178
<PAGE> 1
Exhibit 10.40
KROLL ASSOCIATES
401(k) SAVINGS PLAN
Amended and restated
Effective January 1, 1994
<PAGE> 2
WHEREAS, Kroll Associates, Inc. (the "Company") has adopted
and maintained the Kroll Associates 401(k) Savings Plan ("Plan");
and
WHEREAS, the Plan is intended to qualify as a Profit Sharing Plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"), and
includes a cash or deferred arrangement described in Section 401(k) of the Code;
WHEREAS, the Company wishes to amend and restate the Plan to comply
with various legislation subsequent to the Tax Reform Act of 1986, and to make
certain other changes; and
WHEREAS, the Company may amend the Plan in accordance with Section
15.03.
NOW, THEREFORE, the Plan shall be amended and restated effective
January 1, 1994, except for the provisions of Section 12.11 which shall be
effective January 1, 1993.
<PAGE> 3
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE ONE
DEFINITIONS
-----------
1.01 Accounts
1.02 Administrative Committee
1.03 Beneficiary
1.04 Code
1.05 Company
1.06 Company Matching Account
1.07 Company Profit Sharing Account
1.08 Company Special Account
1.09 Compensation
1.10 Elective Contribution Account
1.11 Eligible Spouse
1.12 Employee
1.13 Employer
1.14 Entry Date
1.15 ERISA
1.16 ERISA Affiliate
1.17 Hour of Service
1.18 Investment Manager
1.19 Limitation Year
1.20 Normal Retirement Date
1.21 One-Year Break in Service
1.22 Participant
1.23 Plan
1.24 Plan Year
1.25 Rollover Account
1.26 Termination of Employment
1.27 Total and Permanent Disability
1.28 Trust
1.29 Trust Fund or Fund
1.30 Trustee or Trustees
1.31 Valuation Date
1.32 Voluntary Contribution Account
1.33 Year of Service
<PAGE> 4
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE TWO
DEFINITIONS
-----------
Participation and Service
-------------------------
2.01 Participation
2.02 Transfers and Automatic Suspension
of Participation
2.03 Re-employment
2.04 Special Rules
ARTICLE THREE
Salary Reduction Contributions
------------------------------
3.01 Salary Reduction Contributions
3.02 Allocation
3.03 Salary Reduction Agreements
3.04 Amendment and Revocation of Salary
Reduction Agreement
3.05 Deferral Percentage Test of Section 401(k)
3.06 Arrangement Not Disqualified if Excess Contributions
Distributed or Re-characterized
3.07 Special Rules for Family Members
3.08 Special Definitions
ARTICLE FOUR
Contributions
-------------
4.01 Employer Contributions
4.02 Employer Contributions Irrevocable
4.03 Rollover Contributions
4.04 Contribution Percentage Test of Section 401(m)
4.05 Special Distribution Rule
4.06 Special Rules For Family Members
4.07 Special Definitions
<PAGE> 5
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE FIVE
Allocation to Participants' Accounts
------------------------------------
5.01 Method of Allocating Contributions
5.02 Limitation on Annual Additions
5.03 Multiple Plan Reduction
5.04 Cessation of Participant Status
ARTICLE SIX
Investment of Plan Assets
-------------------------
6.01 Funding Policy
6.02 Investment of Trust Fund
ARTICLE SEVEN
Participant's Accounts
----------------------
7.01 Separate Accounts
7.02 Allocation
7.03 Valuation
ARTICLE EIGHT
Administration
--------------
8.01 Appointment of the Committee
8.02 Responsibility for Administration of the Plan
8.03 Responsibility for Administration of the Trust Fund
8.04 Delegation of Powers
8.05 Records
8.06 General Administrative Powers
8.07 Appointment of Professional Assistants and Investment
Manager
8.08 Actions by the Committee
<PAGE> 6
TABLE OF CONTENTS
Section Title
- ------- -----
8.09 Directives of the Committee
8.10 Discretionary Acts
8.11 Responsibility of Fiduciaries
8.12 Indemnity by Company
8.13 Payment of Fees and Expenses
8.14 Plan Administrator
8.15 Allocation and Delegation of Committee Responsibilities
8.16 Appointment of Trustees
ARTICLE NINE
Retirement and Death Benefits
-----------------------------
9.01 Retirement Benefits
9.02 Death Benefits
ARTICLE TEN
Disability Benefits
-------------------
10.01 Disability Benefits
10.02 Determination of Disability
ARTICLE ELEVEN
Termination Benefits
--------------------
11.01 Vested Benefits
11.02 Non-Includible Service
11.03 Forfeitures
11.04 Distribution and Re-Employment Before a Break in
Service
<PAGE> 7
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE TWELVE
Payment of Benefits
-------------------
12.01 Retirement Benefits
12.02 Distribution Upon Termination of Employment or Total
and Permanent Disability
12.03 Methods of Payment of Benefits
12.04 Time of Payment
12.05 Required Beginning Date
12.06 Beneficiary Designation by Participant
12.07 Failure of Participant to Designate
12.08 Beneficiary's Rights
12.09 Unclaimed Account Procedure
12.10 Distribution of Accounts
12.11 Distributions on or after January 1, 1993 q
ARTICLE THIRTEEN
Claims Procedure
----------------
13.01 Claims Procedure
ARTICLE FOURTEEN
Inalienability of Benefits
--------------------------
14.01 Inalienability of Benefits
ARTICLE FIFTEEN
Permanency of the Plan
----------------------
15.01 Right to Terminate Plan
15.02 Merger or Consolidation of Plan and Trust
15.03 Amendment of the Plan
<PAGE> 8
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE SIXTEEN
Discontinuance of Contributions and Termination
-----------------------------------------------
16.01 Discontinuance of Contributions
16.02 Termination of Plan
16.03 Rights to Benefits Upon Termination of Plan or Complete
Discontinuance of Contributions
ARTICLE SEVENTEEN
Exclusive Benefit of Trust Fund
-------------------------------
17.01 Limitation Upon Reversions
17.02 Failure of Qualification of Plan
ARTICLE EIGHTEEN
Applicable Law
--------------
18.01 Applicable Law
ARTICLE NINETEEN
Withdrawals
-----------
19.01 Withdrawals
19.02 Hardship Withdrawals
19.03 Special Rules
ARTICLE TWENTY
Loans
-----
20.01 Loans
<PAGE> 9
TABLE OF CONTENTS
Section Title
- ------- -----
ARTICLE TWENTY-ONE
Top Heavy Provisions
--------------------
21.01 Special Definitions
21.02 Determination of Top Heavy Status
21.03 Top Heavy Plan Requirements
21.04 Minimum Allocations and Benefits
21.05 Multiple Plan Reduction for Top Heavy Plan Years
21.06 Minimum Vesting
ARTICLE TWENTY-TWO
Miscellaneous
-------------
22.01 Interpretation of the Plan and Trust
22.02 Gender and Number
22.03 Counterparts
APPENDIX I
List of Adopting Employers
<PAGE> 10
ARTICLE ONE
DEFINITIONS
For the purposes of this Plan, the following words and
phrases shall have the meanings indicated, unless a different
meaning is plainly required by the context:
1.01. "Accounts" means a Participant's Company Matching Account, Company Profit
Sharing Account, Company Special Account, Elective Contribution Account,
Rollover Account and Voluntary Contribution Account. "Account Value" means the
fair market value of each of the accounts determined in accordance with Article
Seven as determined on any date which the assets therein are required to be
valued.
1.02. "Administrative Committee" or "Committee" means the Committee appointed by
the Board of Directors of the Company to administer the Plan in accordance with
Article Eight.
1.03. "Beneficiary" means any person entitled to receive any amount payable
under the Plan upon the death of a Participant.
1.04. "Code" means the Internal Revenue Code of 1986, as amended.
1.05. "Company" means Kroll Associates, Inc. and any predecessors or successors
thereto.
1.06. "Company Matching Account" means the separate account maintained for each
Participant reflecting Employer contributions allocated on behalf of such
Participant in accordance with the provisions of Sections 5.01 a) of the Plan.
1.07. "Company Profit Sharing Account" means the separate account maintained for
each Participant reflecting Employer contributions allocated on behalf of such
Participant in accordance with the provisions of Sections 5.01 b) of the Plan.
I-1
<PAGE> 11
1.08. "Company Special Account" means the separate account maintained for each
Participant reflecting Employer contributions allocated on behalf of such
Participant in accordance with the provisions of Sections 5.01 c) of the Plan.
1.09. "Compensation" means the aggregate renumeration for services paid by an
Employer to an Employee, and shall be determined without giving effect to any
salary reduction agreement entered into by the Employee under Section 3.03 of
the Plan or under any Plan described in Section 125 of the Code that is
maintained by the Company or an ERISA Affiliate. For purposes of Section 3.03
only, Compensation shall not include overtime pay, commissions, fees, severance
pay, reimbursements, travel allowances or payments of a similar nature.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding anything herein 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) of the Code. The cost-of-living adjustment 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 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 as set forth above.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefit accruing in the current Plan Year,
the Compensation for
I-2
<PAGE> 12
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 January 1, 1994, the OBRA '93 annual
Compensation limit is $150,000.
If a Participant is either the spouse or a lineal descendant under age
nineteen (19) of another Participant who is (A) a five percent (5%) owner
(within the meaning of Section 21.01 d) iii) of the Plan), or (B) a highly
compensated employee who is among the ten (10) most highly compensated
employees, then for purposes of determining such Participant's Compensation,
such Participant shall not be considered a separate individual and any
Compensation paid to such Participant shall be treated as paid to the five
percent (5%) owner or highly compensated employee to whom such Participant is
related as per the provisions of this paragraph. If the $200,000 limit of the
preceding paragraph is exceeded by a family unit as described in this paragraph,
then the Compensation of such family unit, as so limited by such preceding
paragraph, shall be allocated among the referenced members of the family unit in
proportion to their compensation as determined prior to the application of this
and the preceding paragraph.
1.10. "Elective Contribution Account" means the separate account maintained for
each Participant reflecting Employer contributions made on behalf of such
Participant pursuant to Section 3.01 of the Plan.
1.11. "Eligible Spouse" shall mean a Participant's spouse if the Participant and
such spouse had been legally married (as determined in accordance with the laws
of the jurisdiction in which the Participant resides) throughout the one year
period ending on the earlier of the date upon which payment of a Participant's
benefit commences, whether by reason of retirement, disability or other
termination of employment with the Employer, or the date of the Participant's
death; provided, however, that if the Participant marries within one year before
his benefit starting date and the Participant and his spouse in such marriage
have been married for at least the one year period ending on or before the date
of the Participant's
I-3
<PAGE> 13
death, the Participant and his spouse shall be treated as having been married
throughout the one year period ending on the Participant's benefit starting
date.
1.12. "Employee" means any person who is employed by an Employer.
1.13. "Employer" means the Company, or any ERISA Affiliate that, with the
consent of the Company, hereafter adopts the Plan.
1.14. "Entry Date" means January 1 or July 1.
1.15. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.16. "ERISA Affiliate" means any organization (whether or not incorporated)
which, together with the Company, is a member of a controlled group of
corporations, is under "common control" or is a member of an "affiliated service
group" within the meaning of Sections 414(b), 414(c) and 414(m) of the Code,
respectively.
1.17. "Hour of Service" means:
a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for an Employer. These hours shall be
credited to the Employee for the computation period or periods in which duties
are performed; and
b) Each hour for which an Employee is paid, or entitled to
payment, by an 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. For purposes
of this paragraph (b), a payment shall be deemed to be made by or due from an
Employer regardless of whether such payment is made by or due from an Employer
directly, or indirectly through, among others, a trust fund or insurer to which
an Employer contributes or pays premiums, and regardless of whether
contributions made or due to the trust fund, insurer or other entity are for the
benefit of particular Employees or are on behalf of a group of Employees in the
aggregate.
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<PAGE> 14
c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Employer. The same Hours of
Service shall not be credited under both 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 or periods in which the award,
agreement or payment is made. Crediting of Hours of in paragraph (b) above shall
be subject to the limitations set forth in that paragraph.
d) No more than 501 hours of service shall be credited under
paragraphs (b) and (c) for the non-performance of duties for any single
continuous period (whether or not such period occurs in a single computation
period). Hours of Service hereunder shall be calculated and credited pursuant to
Section 2530.200b-2(b) and (c) of the Department of Labor regulations which are
incorporated herein by this reference. In crediting Hours of Service hereunder,
each Employee for whom the Employer does not maintain hourly work records and
who completes at least one Hour of Service (pursuant Service for back pay
awarded or agreed to with respect to periods described to paragraphs (a), (b) or
(c) above) during any week shall be credited with 45 Hours of Service for such
week. For each other Employee, Hours of Service shall be credited based on the
number of hours actually worked. For the purposes of this Section 1.17, the term
Employee shall include all persons employed by an Employer including employees
covered by a collective bargaining agreement and the term Employer shall include
all ERISA Affiliates whether or not they have adopted the Plan.
1.18. "Investment Manager" means any party that (i) is either (a) registered as
an investment adviser under the Investment Advisers Act of 1940, or (b) a bank
(as defined in the Investment Advisers Act of 1940), or (c) an insurance company
qualified to manage, acquire and dispose of Plan assets under the laws of more
than one state, (ii) acknowledges in writing that it is a fiduciary with respect
to the Plan, and (iii) is granted the power to manage, acquire or dispose of any
asset of the Plan pursuant to Section 8.06 of the Plan.
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<PAGE> 15
1.19. "Limitation Year" means the Plan Year.
1.20. "Normal Retirement Date" means the Participant's 65th birthday and fifth
anniversary of commencement of participation in the Plan.
1.21. "One-Year Break in Service" occurs during an eligibility or vesting
computation period in which an Employee has not completed more than 500 Hours of
Service. Solely for the purpose of determining whether an Employee has incurred
a OneYear Break in Service, Hours of Service shall be counted for a temporary
leave of absence or a maternity or paternity absence.
"Temporary leave of absence" means an unpaid temporary cessation from
active employment pursuant to a temporary layoff, illness, disability, military
service or leave of absence granted under a nondiscriminatory leave policy,
whether occasioned by illness, military service, or any other reason.
A "maternity or paternity absence" shall mean, an absence from work for
any period reason of the Employee's pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with the adoption of such
child, or any absence for the purpose of caring for such child for a period
immediately following such birth or placement. Hours of Service shall be
credited for the Plan Year in which the absence from work begins only if credit
therefor is necessary to prevent the Employee from incurring a Break in Service,
or, in any other case, in the immediately following Plan Year. The Hours of
Service credited for a maternity or paternity absence shall be those which would
normally have been credited but for such absence, or, in any case in which the
Trustee is unable to determine such hours normally credited, eight (8) Hours of
Service per day. The total Hours of Service required to be credited for a
maternity or paternity absence shall not exceed 501.
1.22. "Participant" means an Employee who becomes eligible to participate in the
Plan in accordance with the provisions of Article Two.
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1.23. "Plan" means the Kroll Associates 401(k) Savings Plan asset forth in this
document, and any amendments thereto.
1.24. "Plan Year" means the twelve (12) consecutive month period beginning on
January 1 and ending on the following December 31.
1.25. "Rollover Account" means the separate account maintained for each
Participant reflecting a Participant's Rollover contributions made under the
provisions of Section 4.03 of this Plan.
1.26. "Termination of Employment" means termination of employment with an
Employer, whether voluntarily or involuntarily, other than by reason of a
Participant's retirement after attaining his Normal Retirement Date, sustaining
Total and Permanent Disability, or his death.
1.27. "Total and Permanent Disability" means physical and/or mental incapacity
of such a nature that it expected to prevent a Participant from engaging in or
performing the principal duties of his customary employment or occupation on a
continuing or sustained basis.
1.28. "Trust" means the entity created under the provisions of this Plan.
1.29. "Trust Fund" or "Fund" means all monies received by the Trustees from the
Employer or Participants and held by them for investment purposes, adjusted for
any income, gains, losses or expenses.
1.30. "Trustee" or "Trustees" means the person or persons named as Trustees in
the Trust Agreement or any successor or additional Trustees appointed by the
Company to administer the Trust.
1.31. "Valuation Date" means the last business day of December and any such
additional date or dates as the Trustees, shall, from time to time, select.
1.32. "Voluntary Contribution Account" means the separate account maintained for
each Participant reflecting any contributions re-characterized pursuant to
Section 3.06 of the Plan.
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<PAGE> 17
1.33. "Year of Service" means a twelve (12) consecutive month period during
which an Employee is credited with at least one thousand (1,000) Hours of
Service. For purposes of determining an Employee's eligibility for participation
in the Plan and vesting, the initial twelve (12) consecutive month period shall
a) begin on the first day on which such Employee is credited with an Hour of
Service (including (i) years prior to the effective date of this Plan, and (ii)
years worked for an office of Kroll Associates, Inc. which is located outside
the United States); and b) subsequent twelve (12) consecutive month periods
shall begin on anniversaries thereof.
Years of Service include (i) Years of Service prior to the effective
date of the Plan, (ii) Years of Service worked for the Company or an ERISA
Affiliate located outside the United States, and (iii) Years of Service credited
under the special provisions of Appendix I of the Plan, if applicable.
If prior to becoming a Participant, an Employee incurs a One-Year Break
in Service and if his number of One-Year Breaks in Service exceeds the greater
of the number of Years of Service he was credited with for eligibility purposes
prior to such Breaks in Service, or five (5), then if he again becomes an
Employee, his prior service shall be disregarded for eligibility purposes, and
the initial completion period for determining his eligibility for participation
following such One-Year Breaks in Service begin on the date such Employee first
completes an Hour of Service following such One-Year Breaks in Service.
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<PAGE> 18
ARTICLE TWO
-----------
Participation and Service
-------------------------
2.01. PARTICIPATION. Any Employee shall become a Participant on the Entry Date
coinciding with or next following his completion of six (6) continuous Months of
Service and attainment of age 21. For purposes of this Section 2.01, a Month of
Service is any month in which an Employee is credited with at least one Hour of
Service.
Notwithstanding the paragraph above, an Employee shall be eligible to
participate in the Plan no later than the Entry Date coincident with or next
following his completion of at least one Year of Service (as defined in Section
1.33) and attainment of age twenty-one (21).
2.02. TRANSFERS AND AUTOMATIC SUSPENSION OF PARTICIPATION. Each Employee who
becomes a Participant and subsequently is transferred to employment with an
ERISA Affiliate that has not adopted this Plan shall have his participation in
the Plan suspended for as long as he continues to be an Employee of such ERISA
Affiliate, subject to the following:
a) During any period of suspension, his Service shall
accumulate as if employed by an Employer.
b) Except as provided in paragraph (c) below, the suspended
Participant's eligibility for distributions pursuant to Article Eleven and his
vested interest in his Accounts shall be determined when he ceases to be an
employee of the Company and all ERISA Affiliates.
c) If a suspended Participant returns to employment as an
Employee, he shall be eligible to recommence participation in the Plan
immediately as of the date he returns to employment as an Employee.
2.03. RE-EMPLOYMENT. If an Employee who terminates service prior to becoming a
Participant again becomes an Employee, then if his prior eligibility service is
not disregarded under Section 1.33 and the Employee had previously completed one
Year of Service for
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eligibility purposes he shall become a Participant in this Plan or his date of
re-employment, or, if later, on the date he would have otherwise become a
Participant had his employment not terminated.
If such Employee had not previously completed at least one Year of
Service for eligibility purposes, he shall become a Participant in this Plan in
accordance with Section 2.01 taking into account his prior service for
eligibility purposes.
If a former Participant should again become an Employee then he shall
reparticipate in the Plan immediately upon his rehire.
2.04. SPECIAL RULES. Notwithstanding the provisions of Sections 2.01, 2.02 or
2.03 above, an Employee shall not be eligible to participate in this Plan if (A)
he is included in a unit of employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement between
employee representatives and one or more employers, if there is evidence that
retirement benefits were the subject of good faith bargaining between such
employee representatives and such employer or employers, or he is an Employee
who is a non-resident alien who receives no earned income (within the meaning of
Section 911(d)(2) of the Code) which constitutes income from sources within the
United States (within the meaning of Section 801(a)(3) of the Code), or (c) he
is employed as an outside contractor.
For purposes of this Section 2.04, in determining whether there is a
collective bargaining agreement between employee representatives and one or more
employers, the term "employee representative" shall not include any organization
more than one-half of the members of which are employees who are owners,
officers or executives of the employer.
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ARTICLE THREE
-------------
Salary Reduction Contributions
------------------------------
3.01. SALARY REDUCTION CONTRIBUTIONS. The Employer shall contribute to the Trust
Fund on behalf of each Participant an amount equal to the total amount by which
such Participant has agreed to have his Compensation reduced pursuant to salary
reduction agreements entered into in accordance with the provisions of Section
3.03 a).
3.02. ALLOCATION. Amounts contributed in accordance with the provisions of
Section 3.01 by an Employer on behalf of a Participant shall be allocated to the
Participant's Elective Contribution Account, which shall be fully vested at all
times and not subject to forfeiture for any reason.
3.03. SALARY REDUCTION AGREEMENTS.
a) As of each Entry Date an Employee who is a Participant as
of such Entry Date may elect, not later than thirty (30) days prior to such
Entry Date, or within such other time period as the Administrative Committee, in
their discretion determine, to enter into a written salary reduction agreement
with his Employer. A salary reduction agreement shall remain in effect unless
amended or revoked in accordance with Section 3.04.
The Administrative Committee may, in their discretion,
establish alternative guidelines for a Participant to enter into a salary
reduction agreement with his Employer.
b) The terms of any salary reduction agreement made pursuant
to this Section 3.03 a) shall provide that the Participant agrees to accept a
pre-tax reduction in his Compensation and the Employer agrees to contribute to
the Plan on behalf of the Participant the amount by which the Employee's
Compensation is so reduced. A salary reduction agreement shall be implemented by
pay period payroll reductions.
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For the purposes of this Section 3.03 b), a Participant may
not elect a salary reduction agreement through pay period payroll reductions of
less than one percent (1%) or greater than fifteen percent (15%).
c) Notwithstanding any other provision of the Plan to the
contrary, in no event may the amount of contributions (referred to herein as
"deferrals") made by Employers on behalf of any one Participant in such a
Participant's taxable year pursuant to Section 3.01 of the Plan (together with
any other such deferrals made by an employer on behalf of such Participant which
are taken into account under Section 402(g) of the Code for such taxable year)
exceed $7,000, or such other amount that is permitted pursuant to regulations
issued by the Secretary of the Treasury or his delegates pursuant to Section
402(g)(5) of the Code. If such deferrals exceed such amount for any one
Participant in his taxable year then not later than the first March 1 following
the close of such taxable year the Participant, by entering into a salary
reduction agreement pursuant to Section 3.03 of the Plan, agrees that he shall
locate the amount of such excess deferrals among the plans under which the
deferrals were made and shall notify the Trustees in writing of the portion of
such excess deferrals allocated to this Plan, and not later than the first April
15 following the close of such taxable year this Plan shall, without regard to
any other provision of the Plan to the contrary, and without the need of the
consent of the Participant or of his Eligible Spouse, distribute to the
Participant the excess deferrals allocated to this Plan as aforesaid, and any
income allocable to such excess deferrals. For purposes of this Section 3.03 c),
a distribution of an excess deferral for a Participant's taxable year may be
made during such taxable year only if
i) the Participant designates in writing that the
distribution is an excess deferral;
ii) the distribution is made after the date on which the
Plan received the excess deferral; and
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iii) the Plan designates the distribution as a distribution
of an excess deferral.
For purposes of this Section 3.03 c), the income allocable to
excess deferrals is equal to the sum of the allocable gain or loss for the
taxable year of the Participant and the allocable gain or loss for the period
between the end of the taxable year and the date of distribution. Income
includes all earnings and appreciation, including such items as interest,
dividends, rent, royalties, gains from the sale of property, appreciation in the
value of stocks, bonds, annuity and life insurance contracts, and other
property, without regard to whether or not such appreciation has been realized.
The income allocable to excess deferrals for the taxable year
of the Participant is determined by multiplying the income for the taxable year
of the Participant allocable to deferrals by a fraction. The numerator of the
fraction is the amount of excess deferrals made by the Employee for the taxable
year. The denominator of the fraction is the total account balance of the
Participant attributable to deferrals as of the end of the taxable year, reduced
by the gain allocable to such total amount for the taxable year and increased by
the loss allocable to such total amount for the taxable year.
The income allocable to excess deferrals for the period
between the end of the taxable year and the date of distribution may be
calculated under the fractional method set forth in the preceding paragraph or,
alternatively, under the safe harbor method. Under the fractional method, the
income for the period between the end of the taxable year and the distribution
date that is allocable to excess deferrals is multiplied by a fraction
determined under the method described in the preceding paragraph. Under the safe
harbor method, the allocable income for the period between the end of the
taxable year and the distribution date is equal to 10 percent of the income
allocable to excess deferrals for the taxable year (as calculated under the
preceding paragraph) multiplied by the number of
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<PAGE> 23
calendar months that have elapsed since the end of the taxable year. For
purposes of determining the number of calendar months that have elapsed under
the safe harbor method, a distribution occurring on or before the fifteenth day
of the month will be treated as having been made on the last day of the
preceding month, and a distribution occurring after such fifteenth day will be
treated as having been made on the first day of the next subsequent month.
In the case of a corrective distribution of excess
deferrals before the close of a Participant's taxable year, income allocable to
elective deferrals from the beginning of the taxable year to the date on which
the distribution is made shall be determined using the method described in the
preceding paragraph.
The amount of excess deferrals that may be distributed
under this Section 3.03 c) with respect to a Participant for a taxable year
shall be reduced by any excess contributions previously distributed or
re-characterized pursuant to Section 3.06 of the Plan with respect to such
Participant for the Plan Year beginning with or within such taxable year.
In no case may a Participant receive a corrective
distribution of an excess deferral for a taxable year under this Section 3.03 c)
in an amount in excess of the total contributions made on behalf of such
Participant by Employers pursuant to Section 3.01 of the Plan for the taxable
year.
Any distribution of excess deferrals to a Participant under
this Section 3.03 c) that is less than the entire amount of the Participant's
excess deferrals (and income) for a taxable year is to be treated as a pro rata
distribution of excess deferrals and income.
d) Excess deferrals (whether or not distributed pursuant to
Section 3.03) are to be taken into account for all purposes of the provisions of
this Plan with the sole exception that excess deferrals for a Participant who is
not a highly compensated employee are not to be taken into account in
determining such Participant's actual deferral percentage under Section 3.08 of
the Plan to the extent that such excess deferrals are made under this Plan or
any other plan maintained by an Employer or an ERISA Affiliate.
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3.04. AMENDMENT AND REVOCATION OF THE SALARY REDUCTION AGREEMENT.
a) The Employer or the Administrative Committee may
prospectively limit, reduce or revoke any salary reduction agreement, entered
into by a Participant in accordance with the provisions of Section 3.03 a), for
any of the following reasons:
i) To meet the deferral percentage tests of section 401(k)
of the Code, as described in Section 3.05;
ii) To ensure that the maximum annual deferrals limit of
Section 3.03 are met.
iii) To ensure that the maximum annual benefit limitations
of Article Five shall not be exceeded for any Participant.
Any and all actions taken by the Administrative Committee in
accordance with this Section 3.04 a) shall be applied and performed in a
non-discriminatory manner to comply with Sections 401(a), 401(k) and 415 of the
Code.
b) A Participant may, subject to the procedures described
below, prospectively amend or revoke his salary reduction agreement with his
Employer by notifying the Administrative Committee in writing. An amendment of a
salary reduction agreement shall be effective as of the first payroll period of
the next calendar quarter following the receipt by the Administrative Committee
of written notification of such amendment. A revocation of a salary reduction
agreement shall be effective no later than the second payroll period which
begins immediately after the receipt by the Administrative Committee of written
notification of such revocation.
A Participant who has revoked a salary agreement may enter
into a new salary reduction agreement as of the first day of any calendar
quarter following the receipt by the Administrative Committee of written
notification of such election.
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<PAGE> 25
The Administrative Committee may establish alternate
guidelines to limit the number of amendments or revocations to a salary
reduction agreement that may be made by Participants in any one Plan Year.
3.05. DEFERRAL PERCENTAGE TEST OF SECTION 401(K).
a) Annual allocations made to Participants' Elective
Contribution Accounts pursuant to Section 3.02, and to their Company Special
Accounts pursuant to Section 5.01 c) shall satisfy one of the following tests
for each Plan Year:
I) The actual deferral percentage for the highly
compensated employees who are Participants shall not be more than the actual
deferral percentage of all other employees who are Participants multiplied by
1.25, or
II) To the extent permitted by Reg. Paragraph 1.401 (m)-2
issued by the Secretary of the Treasury, the excess of the actual deferral
percentage for the highly compensated employees who are Participants over the
actual deferral percentage of all other employees who are Participants shall not
be more than two (2) percentage points, and the actual deferral percentage for
the highly compensated employees who are Participants shall not be more than the
actual deferral percentage for all other Participants multiplied by two (2).
(b) If this Plan and any other plan or plans maintained by an
Employer or an ERISA Affiliate which include a cash or deferred arrangement as
defined in Section 401(k) of the Code are considered as one plan for purposes of
Section 401(a)(4) or Section 410(b) of the Code, then this Plan and such other
plan (or plans) shall be treated as one Plan for purposes of this Section 3.05
of the Plan.
3.06. ARRANGEMENT NOT DISQUALIFIED IF EXCESS CONTRIBUTIONS DISTRIBUTED OR
RECHARACTERIZED.
a) In General - The Plan shall not be treated as failing to
meet the requirements of Section 3.05 of the Plan for any Plan Year if; after
the close of such Plan
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<PAGE> 26
Year, but within twelve (12) months of such Plan Year close, the amount of
excess contributions for such Plan Year (and any income allocable to such
contributions) is distributed to Participants who are highly compensated
employees. Such distribution shall be permitted notwithstanding any other
provision of this Plan to the contrary, and shall not require the consent of the
Participant or of his Eligible Spouse.
The income allocable to excess contributions shall be equal to
the sum of the allocable gain or loss for the Plan Year and the allocable gain
or loss for the period between the end of the Plan Year and the date of
distribution. Income includes all earnings and appreciation, including such
items as interest, dividends, rent, royalties, gains from the sale of property,
appreciation in the value of stock, bonds, annuity and life insurance contracts,
and other property, without regard to whether such appreciation has been
realized.
The income allocable to excess contributions for the Plan Year
shall be determined by multiplying the income for the Plan Year allocable to
amounts taken into amount in applying the tests of Section 3.05 by a fraction.
The numerator of the fraction is the excess contributions by the Participant for
the Plan Year. The denominator of the fraction is the total account balance of
the Participant attributable to amounts taken into account in applying the tests
of Section 3.05, determined at the end of the Plan Year, reduced by the gain
allocable to such total amount for the Plan Year and increased by the loss
allocable to such total amount for the Plan Year.
The income allocable to excess contributions for the period
between the end of the Plan Year and the date of a corrective distribution may
be calculated under the fractional method set forth in the preceding paragraph,
or, alternatively, under the safe harbor method. Under the fractional method,
the income for the period between the end of the Plan Year and the last day of
the month preceding the distribution date that is allocable to excess
contributions is multiplied by a fraction determined under the method described
in the preceding paragraph. Under the safe harbor method, the allocable income
for the period
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<PAGE> 27
between the end of the Plan Year and the distribution date is equal to 10
percent of the income allocable to excess contributions for the Plan Year (as
determined under the preceding paragraph) multiplied by the number of calendar
months that have elapsed since the end of the Plan Year. For purposes of
determining the number of calendar months that have elapsed under the safe
harbor method, a distribution occurring on or before the fifteenth day of the
month will be treated as having been made on the last day of the preceding
month, and a distribution occurring after such fifteenth day will be treated as
having been made on the first day of the next month.
A distribution of less than the entire amount of excess
contributions (and income) for a Plan Year shall be treated as a pro rata
distribution of excess contributions and income.
b) In lieu of distributing all or any portion of a Plan Years
excess contributions to a Participant who is a highly compensated employee as
may be otherwise required under Section 3.06 a) above, the Plan shall not be
treated as failing to meet the requirements of Section 3.05 for a Plan Year if
all or such portion, as the Administrative Committee decide, of the
contributions made by an Employer on behalf of a Participant for the Plan Year
pursuant to Section 3.01 of the Plan is, within two and one-half (2-1/2) months
after the close of the Plan Year, recharacterized as an after-tax contribution
for such Plan Year. The amount of a Participant's excess contribution that may
be recharacterized for a Plan Year pursuant to this Section 3.06 b) may not
exceed the contributions made by an Employer on behalf of the Participant for
the Plan Year pursuant to Section 3.01 of the Plan. Any contribution made by an
Employer for a Plan Year pursuant to Section 3.01 of the Plan on behalf of a
Participant who is a highly compensated employee that is re-characterized
pursuant to this Section 3.06 b) shall nonetheless continue to be treated as a
contribution made by an Employer pursuant to Section 3.01 for all Plan purposes
with the following exceptions:
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<PAGE> 28
i) such re-characterized amount shall reduce the
Participant's excess contributions so as to permit the Plan to meet the tests of
Section 3.05 of the Plan;
ii) for purposes of determining a Participant's actual
contribution percentage pursuant to Section 4.08(a), a recharacterized amount
for a Plan Year shall be treated as post-tax, voluntary contribution for the
Plan Year that includes the later of (A) the earliest date any contribution made
by an Employer pursuant to Section 3.01 of the Plan on behalf of the Participant
with respect to such year would have been received by such Participant had he
not entered into such a salary reduction agreement pursuant to Section 3.03 with
respect to such contribution, or (B) the first day of the first Plan Year ending
in 1988; and
c) Excess Contributions - For purposes of this Section 3.06,
the term "excess contributions" means, with respect to any Plan Year, the excess
of -
i) the aggregate amount allocated to Elective Contribution
Accounts pursuant to Section 3.02 for Participants who are highly compensated
employees for such Plan Year, over
ii) the maximum amount of such allocations permitted under
Section 3.05 of the Plan (determined by reducing allocations made on behalf of
highly compensated employees who are Participants in order of the actual
deferral percentages beginning with the highest of such percentages).
d) Any distribution or re-characterization of excess
contributions for any Plan Year shall be made to highly compensated employees
who are Participants on the basis of the respective portions of the excess
contributions attributable to each of such Participants.
e) The amount of excess contributions to be re- characterized
under Section 3.06 b) or distributed with respect to a Participant under Section
3.06 a) for a Plan Year shall be reduced by any excess deferrals previously
distributed to such Participant pursuant to Section 3.03 c) for his taxable year
ending with or within such Plan Year.
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3.07. SPECIAL RULES FOR FAMILY MEMBERS.
a) If a Participant who is a highly compensated employee is
either a five-percent owner or one of the ten most highly compensated employees,
so that family aggregation is required under Section 414(q)(6) of the Code, the
combined actual deferral percentage for his family group (which is treated as
one highly compensated employee) must be determined by combining all amounts
taken into account under subparagraph i) or subparagraph ii), as the case may be
of Section 3.08 of all eligible family group members.
b) Amounts that are taken into account under the family
aggregation rule of Section 3.07 a) above are disregarded for purposes of
determining the actual deferral percentage for the group of Participants who are
not highly compensated employees.
c) If an individual is required to be aggregated as a member
of more than one family group in the Plan, all individuals who are members of
those family groups that include that individual shall be aggregated as one
family group in accordance with Sections 3.07 a) and 3.07 b) above.
d) The determination and correction of excess contributions of
a Participant who is a highly compensated employee and whose actual deferral
percentage is determined under the family aggregation rules of Sections 3.07 a),
b) and c) above is accomplished by reducing the actual deferral percentage as
required under subparagraph ii) of Section 3.06 c) and allocating the excess
contributions for the family group among the family members in proportion to the
amount allocated pursuant to Section 3.02 on behalf of each family group member
who is included in determining such actual deferral percentage.
3.08. SPECIAL DEFINITIONS. For the purposes of this Article Three, the terms
below shall be defined as follows:
a) "actual deferral percentage" for any group of
Participants is the average of the percentages calculated separately for each
such Participant, computed as follows:
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<PAGE> 30
i) the numerator is the sum of the amounts, multiplied by
100, allocated to the Participant's Elective Contribution Account pursuant to
Section 3.02 (except to the extent that such amounts constitute excess deferrals
for Participants who are not highly compensated employees), and to his Company
Special Account pursuant to Section 5.01 c).
ii) the denominator is the amount equal to the
Participant's Compensation (as defined in Section 5.02) for such Plan Year.
If any highly compensated employee is a Participant under
another plan or plans that include cash or deferred arrangements (as defined by
Section 401(k) of the Code) of the Employer or an ERISA Affiliate, then for
purposes of determining the actual deferral percentage with respect to such
Participant, the Plan and all such other plan or plans shall be treated as one
plan.
b) For purposes of determining a Participant's actual deferral
percentage for a Plan Year, an amount allocated to the Participant's Elective
Contribution Account pursuant to Section 3.02 may be taken into account only if
either:
i) The amount is allocated to the Participant's Elective
Contribution Account as of a date within that Plan Year. For purposes of this
rule, an amount is considered allocated as of a date within a Plan Year only
if--
A) The allocation is not contingent upon the
Participant's participation in the Plan or performance of services on any date
subsequent to that date, and
B) The amount allocated is actually paid to the Trust no
later than the end of the twelve-month period immediately following the Plan
Year to which the contribution relates, OR
ii) The amount allocated is a contribution which relates to
Compensation that either--
A) Would have been received by the Participant in the
Plan Year but for his election to enter into a salary reduction agreement
pursuant to Section 3.03, OR
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<PAGE> 31
B) Is attributable to services performed by the
Participant in the Plan Year and, but for his election to enter into a salary
reduction agreement pursuant to Section 3.03, would have been received by the
Participant within two and one-half months after the close of the Plan Year.
Further, for purposes of determining a Participant's actual
deferral percentage for a Plan Year, an amount allocated to the Participant's
Company Special Account pursuant to Section 5.01 c) may be taken into account
only if it satisfies the requirements of subparagraph i) of this Section 3.08
b).
c) "highly compensated employee" is an employee who during the
Plan Year or the preceding Plan Year satisfied one of the following criteria: He
i) is (was) a five percent owner
ii) earned more than $75,000
iii) earned more than $50,000 and was a member of the top
paid group (top 20 percent)
iv) is (was) an officer with earnings greater than 50
percent of the defined benefit annual dollar limit under Section 415(b)(1)(A) of
the Code as adjusted in accordance with regulations issued by the Secretary of
the Treasury or his delegate pursuant to Section 415(d) of the Code.
The maximum number to be considered officers is the lesser
of (i) 50 employees, or (ii) greater of 3 employees or 10% of all employees.
For purposes of the above, an employee is considered to
meet one of the last three criteria for the current year only if the employee
met such criteria for the preceding year or is one of the 100 highest paid
employees for the current year.
The dollar amount referred to in subparagraph ii) and iii)
above shall be adjusted in accordance with regulations issued by the Secretary
of the Treasury or his delegate pursuant to Section 415(d) of the Code.
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<PAGE> 32
For this purpose a former employee shall be treated as a
highly compensated employee if
a) Such former employee was a highly compensated employee
when he terminated employment, or
b) Such former employee was a highly compensated employee
at any time after attaining age 55.
d) "family group" means, with respect to a Participant, such
Participant's spouse and lineal ascendants or descendants, and the spouses of
such lineal ascendants or descendants.
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ARTICLE FOUR
------------
Contributions
-------------
4.01. EMPLOYER CONTRIBUTIONS.
a) MATCHING CONTRIBUTIONS. In addition to the contributions,
if any, described in Section 3.01 of the Plan, for each Plan Year while this
Plan is in effect, each Employer (or the Company on behalf of an Employer) may
contribute to the Trust Fund an amount which shall be determined and allocated
in accordance with Section 5.01 a).
b) PROFIT SHARING CONTRIBUTIONS. In addition to the
contributions, if any, described in Section 3.01 and Section 4.01 a) of the
Plan, for each Plan Year each Employer (or the Company on behalf of and
Employer) may contribute to the Trust Fund an amount which shall be determined
at the sole discretion of the Board of Directors of the Employer, and which
shall be determined and allocated in accordance with Section 5.01 b).
c) SPECIAL CONTRIBUTIONS. In addition to the contributions, if
any, described in Section 3.01 and Sections 4.01 a), and 4.01 b) of the Plan,
for each Plan Year each Employer (or the Company on behalf of an Employer) may
contribute to the Trust Fund an amount which shall be determined at the sole
discretion of the Board of Directors of the Employer, and which shall be
determined and allocated in accordance with Section 5.01 c).
d) TOP HEAVY CONTRIBUTIONS. In addition to the contributions,
if any, described in Section 3.01 and Sections 4.01 a), b), and c) of the Plan,
for a Plan Year an Employer (or the Company on behalf of an Employer) shall
contribute to the Trust Fund with respect to each Non-Key Employee an amount
that may be required as an Employer contribution on behalf of such Non-Key
Employee pursuant to Article Twenty-One. Contributions made pursuant to this
Section 4.01 d) with respect to a Non-Key Employee shall be allocated in
accordance with Section 5.01 d).
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<PAGE> 34
4.02. EMPLOYER CONTRIBUTIONS IRREVOCABLE. Except as otherwise provided in this
Section 4.02 or in Section 17.02, all contributions made by the Employer to the
Fund shall be irrevocable. Contributions made by the Employer are hereby
conditioned upon their deductibility under the Code for the taxable year of the
Employer with respect to which such contribution is made without the need for
explicit action by the Employer and, to the extent any deduction is disallowed
for such taxable year, the amount of such disallowance shall be returned to the
Employer within one (1) year after such disallowance. In the event a
contribution is made by reason of a mistake of fact, so much of the contribution
as is attributable to the mistake of fact shall be returned to the Employer
within one (1) year after the payment of the contribution.
If an Employer contribution is made to the Plan which does not
initially qualify under Section 401(a) of the Code or any successor provision
thereto, then the contribution shall be returned to the Employer within one (1)
year after the date of denial of qualification of the Plan.
The amount by which any contribution may be returned pursuant to this
Section 4.02 shall be reduced for any losses or expenses of the Trust Fund
attributable thereto.
4.03. ROLLOVER CONTRIBUTIONS.
a) Participants shall not be required nor permitted to make
voluntary post-tax contributions to the Plan; however, a Voluntary Contribution
Account will be maintained for those contributions recharacterized pursuant to
Section 3.06 of the Plan.
b) In the sole discretion of the Trustees and subject to such
terms and conditions as the Trustees may establish from time to time, an
Employee may at any time make a rollover contribution to this Plan. Such
Employee shall submit a written certification by the sponsor, administrator or
other party maintaining the plan from which the rollover contribution is to be
received, satisfactory to the Trustees, that the contribution qualifies as a
rollover contribution. The Trustees shall be entitled to rely upon such
certification.
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<PAGE> 35
c) A contribution shall qualify as a rollover contribution if
it satisfies the requirements of a rollover amount with respect to this Plan as
an Eligible Retirement Plan as defined in Section 402(a) of the Code.
d) A Participant's rollover contribution shall be allocated to
a Rollover Account maintained on behalf of the Participant. A Participant shall
at all times be fully vested in his Rollover Account.
e) A Participant's Rollover Account shall be distributed at
the same time, to the same party and in the same manner as the Participant's
Company Matching Account pursuant to Article XII.
4.04. CONTRIBUTION PERCENTAGE TEST OF SECTION 401(M).
a) Annual allocations, if any, made to Participants' Company
Matching Accounts pursuant to Section 5.01 a) for a Plan Year together with any
excess contributions that are recharacterized as post-tax, voluntary
contributions for such Plan Year pursuant to Section 3.06 b) of the Plan in the
aggregate shall satisfy one of the following tests for each Plan Year:
i) The actual contribution percentage for the highly
compensated employees who are Participants shall not be more than the actual
contribution percentage of all other employees who are Participants multiplied
by 1.25, or
ii) To the extent permitted by Reg. Section 1.401(m)-2 by
the Secretary of the Treasury, the excess of the actual contribution percentage
for the highly compensated employees who are Participants over the actual
contribution percentage of all other employees who are Participants shall not be
more than two (2) percentage points, and the actual contribution percentage for
the highly compensated employees shall not be more than the actual contribution
percentage for all other Employees who are Participants multiplied by two (2).
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<PAGE> 36
b) If the provisions of Reg. Section 1.401(m)-2(b) apply so as
to prevent the multiple use of the tests of Paragraph II of Section 3.05 and
paragraph II of Section 4.04 a), the test of Reg. Section 1.401(m)-(b) shall
apply, and the correction of a failure to satisfy such test shall be carried out
in accordance with Reg. Section 1.401(m)-2(c).
c) If this Plan and any other plan or plans maintained by an
Employee, or an ERISA Affiliate, which include matching contributions (as
described in Reg. Section 1.401(m)- 1(f)(8) issued by the Secretary of the
Treasury or his delegate) or employee after-tax contributions, are considered as
one plan for purposes of Section 401(a)(4) or Section 410(b) of the Code, then
this Plan and such other plan (or plans) shall be treated as one plan for
purposes of this Section 4.04 of the Plan.
4.05. SPECIAL DISTRIBUTION RULE.
a) The Plan shall not be treated as failing to meet the
requirements of Section 4.04 for any Plan Year if; after the close of the Plan
Year in which such excess aggregate contributions arose and before the close of
the following Plan Year, the amount of the excess aggregate contributions for
such Plan Year (and any income allocable to such excess aggregate contributions)
are designated by the Employer as a distribution of excess aggregate
contributions (and income) and are distributed to Participants who are highly
compensated employees to the extent non-forfeitable, and forfeited to the extent
forfeitable, provided, however, that such method of distribution of excess
aggregate contributions shall not discriminate in favor of highly compensated
employees. Such distribution may be made notwithstanding any other provision of
this Plan to the contrary and shall not require the consent of the Participant
or of his Eligible Spouse.
For purposes of this Section 4.05 a), the income allocable to
excess aggregate contributions is equal to the sum of the allocable gain or loss
for the Plan Year and the allocable gain or loss for the period between the end
of the Plan Year and the date of distribution. Income includes all earnings and
appreciation, including such items as interest,
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<PAGE> 37
dividends, rent, royalties, gains from the sale of property, appreciation in the
value of stock, bonds, annuity and life insurance contracts, and other property,
without regard to whether such appreciation has been realized.
The income allocable to excess aggregate contributions for the
Plan Year is determined by multiplying the income for the Plan Year allocable to
amounts taken into account in applying the tests of Section 4.04 a) by a
fraction. The numerator of the fraction is the excess aggregate contributions by
the Participant for the Plan Year. The denominator of the fraction is the total
account balance of the Participant attributable to amounts taken into account in
applying the tests of Section 4.04 a), determined at the end of the Plan Year,
reduced by the gain allocable to such total amount for the Plan Year and
increased by the loss allocable to such total amount for the Plan Year.
The income allocable to excess aggregate contributions for the
period between the end of the Plan Year and the date of a corrective
distribution may be calculated under the fractional method set forth in the
preceding paragraph, or, alternatively, under the following safe harbor method.
Under the fractional method, the income for the period between the end of the
Plan Year and the last day of the month preceding the distribution date that is
allocable to excess aggregate contributions is multiplied by a fraction
determined under the method described in the preceding paragraph. Under the safe
harbor method, the allocable income for the period between the end of the Plan
Year and the distribution date is equal to 10 percent of the income allocable to
excess aggregate contributions for the Plan Year (as determined under the
preceding paragraph) multiplied by the number of calendar months that have
elapsed since the end of the Plan Year. For purposes of determining the number
of calendar months that have elapsed under the safe harbor method, a
distribution occurring on or before the fifteenth day of the month will be
treated as having been made on the last day of the preceding month, and a
distribution occurring after such fifteenth day will be treated as having been
made on the first day of the next month.
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<PAGE> 38
The income allocable to excess aggregate contributions
resulting from contributions re-characterized pursuant to Section 3.06 b) shall
be determined and distributed as if such recharacterized contributions had been
distributed as excess contributions.
A distribution of less than the entire amount of excess
aggregate contributions (and income) for a Plan Year shall be treated as a pro
rata distribution of excess aggregate contributions and income.
b) For purposes of Section 4.05 a), the term "excess aggregate
contributions" means, with respect to any Plan Year, the excess of--
i) the aggregate amount re-characterized as post- tax,
voluntary contributions pursuant to Section 3.06 b) for Participants who are
highly compensated employees for such Plan Year, plus the aggregate amount
allocated to the Participant's Company Matching Account pursuant to Section 5.01
a) for Participants who are Highly Compensated Employees for such Plan Year,
over
ii) the maximum amount of such allocations permitted under
the limitations of Section 4.04 a) (determined by reducing allocations made on
behalf of highly compensated employees who are Participants in order of their
actual contribution percentages beginning with the highest of such percentages).
c) Any distribution of the excess aggregate contributions for
any Plan Year shall be made to highly compensated employees who are Participants
on the basis of the respective portions of such amounts attributable to each of
such employees. Any portion of such excess aggregate contributions that is
forfeited pursuant to paragraph (a) above shall be treated in the same manner as
forfeitures under Section 11.03, but may not be allocated so as to increase
allocations to the Accounts of Participants who are highly compensated employees
for the Plan Year during which such excess aggregate contribution arose.
d) The determination of the amount of excess aggregate
contributions with respect to the Plan shall be made after--
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<PAGE> 39
i) first determining the excess deferrals (within the
meaning of Section 3.03 c) of the Plan), and
ii) then determining the excess contributions under Section
3.06 of the Plan.
e) Excess aggregate contributions distributed or forfeited
pursuant to this Section 4.05 shall nonetheless be taken into account for
purposes of Section 5.02 and Section 5.03 of the Plan.
4.06. SPECIAL RULES FOR FAMILY MEMBERS.
a) If a Participant who is a highly compensated employee and
who is either a five-percent owner or one of the ten most highly compensated
employees, so that family aggregation is required under Section 414(q)(6) of the
Code, the combined actual contribution percentage for the family group (which is
treated as one highly compensated Employee) must be determined by combining all
amounts taken into account under subparagraph (i) or subparagraph (ii), as the
case may be, of Section 4.07 of all eligible family group members.
b) Amounts that are taken into account under the family
aggregation rules of Section 4.06 a) above are disregarded for purposes of
determining the actual contribution percentage for the group of Participants who
are not highly compensated Employees.
c) If an individual is required to be aggregated as a member
of more than one family group in the Plan, all individuals who are members of
those family groups that include such individual are aggregated as one family
group in accordance with Sections 4.06(a) and (b) above.
d) The determination and correction of excess aggregate
contributions of a highly compensated employee who is a Participant and whose
actual contribution percentage is determined under the family aggregation rules
of Sections 4.06 a), b) and c) above is accomplished by reducing the actual
contribution percentage as required under subparagraph
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<PAGE> 40
ii) of Section 4.05 b) and allocating the excess aggregate contributions for the
family group among the family members in proportion to the amounts
re-characterized as Voluntary Contributions and allocated to the Voluntary
Contribution Account pursuant to Section 3.06 b) of the Plan on behalf of each
family group member who is included in determining such actual contribution
percentage.
4.07. SPECIAL DEFINITIONS. For the purposes of this Article Four, the terms
below shall be defined as follows:
a) "actual contribution percentage" for any group of
Participants shall be the average of the percentages calculated separately for
each such employee, computed as follows;
i) the numerator is the sum of the amounts, multiplied by
100, allocated to a Participant's Company Matching Account pursuant to Section
5.01 a) for a Plan Year and amounts
re-characterized as post-tax, voluntary contributions for such
Plan Year pursuant to Section 3.06 b) of the Plan,
ii) the denominator is the amount equal to the
Participant's Compensation (as defined in Section 5.02) for such Plan Year.
If any highly compensated employee is a Participant under
another plan or plans maintained by an Employer or any ERISA Affiliate that
permit matching contributions (as defined in Reg. Section 1.401(m)-1(f)(8)
issued by the Secretary of the Treasury or his delegate) or employee after-tax
contributions, then for purposes of determining the actual contribution
percentage with respect to such Participant, this Plan and all such plans shall
be treated as a single plan.
For purposes of determining a Participant's actual
contribution percentage, (A) a Participant's Voluntary Contribution shall be
taken into account for the Plan Year in which such amounts are contributed to
the Trust re-characterized pursuant to Section 3.06 b) and (B) an amount
allocated to a Participant's Company Matching Account pursuant to Section
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<PAGE> 41
5.01 a) shall be taken into account only if such amount is allocated to the
Participant's Company Matching Account as of any date within the Plan Year and
is actually paid of the Trust no later than the end of the twelve-month period
beginning on the day after the close of such Plan Year.
b) To the extent that amounts allocated to a Participant's
Company Matching Account pursuant to Section 5.01 a) are taken into account for
purposes of satisfying the minimum contribution requirements of Section 21.04
such amounts shall not be taken into account in determining a Participant's
actual contribution percentage for purposes of Section 4.07 a) above.
c) Allocations made to the Elective Contribution Accounts
pursuant to Section 3.02 of Participants who are not highly compensated
employees (except to the extent that such amounts constitute excess deferrals
for Participants who are not highly compensated employees) and to the Company
Special Accounts of such Participants pursuant to Section 5.01 c), may be taken
into account in determining the numerators of the actual deferral percentages
for such Participants pursuant to Section 3.08 for such Plan Year, but only if
the test of Section 3.05 continues to be satisfied after the allocations that
are to be so taken into account under this Section 4.07 c) are disregarded in
determining the numerators of the actual deferral percentages under Section 3.08
for the Participants who are not highly compensated employees.
d) "highly compensated employee" shall be defined pursuant to
Section 3.08 c) of the Plan.
e) "family group" shall be defined pursuant to Section 3.08 d)
of the Plan.
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<PAGE> 42
ARTICLE FIVE
------------
Allocation to Participants' Accounts
------------------------------------
5.01. METHOD OF ALLOCATING CONTRIBUTIONS.
a) MATCHING CONTRIBUTIONS. Contributions, if any, made by or
on behalf of an Employer pursuant to Section 4.01 a) for a Plan Year together
with any forfeitures for the year that are to be allocated in accordance with
this paragraph shall be allocated among the Company Matching Accounts of
Participants eligible to share in such contributions in an amount equal to the
lesser of (i) twenty-five percent (25%) of the first five percent (5%) of the
elective contribution made pursuant to Section 3.01 by such Participants for
such year, or (ii) five hundred dollars ($500).
b) PROFIT SHARING CONTRIBUTIONS. Contributions, if any, made
by an Employer pursuant to Section 4.01 b) for a Plan Year together with any
forfeitures for the year that are to be allocated in accordance with this
paragraph, shall be allocated to the Company Profit Sharing Accounts of those
Participants eligible to share in such contribution in proportion that each such
Participant's Compensation for the Plan Year bears to the Compensation for all
such Participants for such Plan Year.
c) SPECIAL CONTRIBUTIONS. Contributions, if any, made by or on
behalf of an Employer pursuant to Section 4.01 c) for the Plan Year together
with any forfeitures for the year that are to be allocated in accordance with
this paragraph, shall be allocated to the Company Special Accounts of
Participants who are not Highly Compensated Employees during such Plan Year in
proportion that each such Participant's Compensation for the Plan Year bears to
the Compensation for all such Participants for such Plan Year.
d) TOP HEAVY CONTRIBUTIONS. Contributions, if made by or on
behalf of Non-Key Employees pursuant to Section 4.01 d) for a Plan Year together
with any
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<PAGE> 43
forfeitures for the year that are to be allocated in accordance with
this paragraph, shall be allocated to such Non-Key Employee's Company Matching
Account.
e) A Participant shall be eligible to share in Employer
contributions, allocated pursuant to Section 5.01 b)1 c) and d) if he is i)
credited with at least 1000 Hours of Service during the Plan Year and is still
an Employee on the last day of the Plan Year or is on maternity or paternity
absence as of the last day of such Plan Year, or ii) dies, becomes disabled, or
retires after his Normal Retirement Date during the Plan Year. However, a
Participant shall be eligible to share in Employer contributions allocated
pursuant to Section 5.01 d) even if he is not credited with at least 1000 Hours
of Service during the Plan Year.
5.02. LIMITATION ON ANNUAL ADDITIONS.
a) Notwithstanding any other provision of the Plan, the sum of
the annual additions to a Participant's Account(s) for any Limitation Year shall
not exceed the lesser of (i) $30,000, or, if greater, 25% of the applicable
dollar limit under Section 415(b) of the Code, as adjusted in accordance with
regulations prescribed by the Secretary of the Treasury or his delegate
pursuant to Section 415(d) of the Code, such adjustment to take effect in the
Limitation Year which ends in the calendar year in which such adjustment is
effective, or (ii) twenty-five percent (25%) of such Participant's Limitation
Year Compensation (including for this purpose Compensation earned during that
portion of the Limitation Year prior to the date an employee became a
Participant in the Plan). The term "annual additions to a Participant's
Account", for any Limitation Year, means the sum of (A) all Employer
contributions allocated pursuant to Sections 3.02 or 5.01 to such Accounts, and
(B) all suspense account amounts, if any, allocated pursuant to Section 5.02 c)
to such Account(s). For purposes of applying the dollar limitation of clause (i)
above, annual additions shall also include any amount credited to an individual
medical account (as defined in Section 415(l) of the Code) or on behalf of a
Participant, or to a Key Employee's post-retirement medical benefit account (as
referred to in Section 419A of the Code) maintained by an Employer. In
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<PAGE> 44
the case of a Limitation Year of less than twelve (12) months' duration, the
dollar limit of Clause (i) above, as adjusted, shall be proportionately reduced.
For purposes of this Section 5.02, 3.08 a), 4.07 a) and
Article Twenty-One, Compensation shall mean:
I) The participant's wages, salaries, fees for professional
service and other amounts received for personal services actually rendered in
the course of employment with the Employer maintaining the Plan (including, but
not limited to commissions paid to salesmen, compensation for services on the
basis of a percentage of profits, commissions or insurance premiums, tips and
bonuses).
II) In the case of a Participant who is an Employee within the
meaning of Section 401(c)(1) of the Code and the regulations thereunder, the
Participant's earned income (as described in Section 401(c)(2) of the Code and
the regulations thereunder).
III) For purposes of subdivisions (I) and (II) of this
subparagraph, earned income from sources outside the United States (as defined
in Section 911(b) of the Code), whether or not excludable from gross income
under Section 911 of the Code or deductible under Section 913 of the Code.
IV) Amounts described in Sections 104(a)(3), 105(a) and 105(h)
of the Code, but only to the extent that these amounts are includible in the
gross income of the Employee.
V) Amounts described in Section 105(d) of the Code, whether or
not these amounts are excludable from the gross income of the Employee under
that Section.
VI) Amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent that these amounts are
not deductible by the Employee under Section 217 of the Code.
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<PAGE> 45
VII) The value of a non-qualified stock option granted to an
Employee by the Employer, but only to the extent that the value of the option is
includible in the gross income of the Employee for the taxable year in which
granted.
VIII) The amount includible in the gross income of an Employee
upon making the election described in Section 83(b) of the Code, but shall not
include
i) Contributions made by an Employer to a plan of deferred
compensation to the extent that, before the application of Code Section 415
limitations to that plan, the contributions are not includible 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 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 funded plan of deferred
compensation are not considered as compensation for Code Section 415 purposes,
regardless of whether such amounts are includible 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 Code
Section 415 purposes in the year such amounts are includible 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 and the regulations thereunder).
iii) Amounts realized from the sale, exchange, or other
disposition of stock 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
V-4
<PAGE> 46
includible 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) or under a Section
401(k) Plan (whether or not the contributions are excludable from the gross
income of the Employee).
b) In the event it is determined the annual additions to a
Participant's Accounts for any Limitation Year would be in excess of the
limitations described in Section 5.02 a) such annual additions shall be reduced
as described in c) below, to bring such annual additions within the limitations
contained in Subsection 5.02 a).
c) Any excess annual additions for a Limitation Year described
in Section 5.02 b) shall be reduced as follows:
i) First, all or a portion of such excess may be
distributed to a Participant from amounts re-characterized and allocated to his
Voluntary Contribution Account pursuant to Section 3.06 b) for such Limitation
Year, as adjusted for earnings or losses, and to the extent so distributed such
amounts shall not be taken into account for purposes of the average contribution
percentage test of Article IV.
ii) Second, all or portion of such excess may be
distributed to a Participant from amounts allocated to his Elective Contribution
Account pursuant to Section 3.02 for such Limitation Year, as adjusted for
earnings or losses, and to the extent so distributed such amounts shall not be
taken into account for purposes of the average deferral percentage test of
Article III. If, however, such amounts are distributed after the close of a Plan
Year, such amounts shall be taken into account for purposes of the average
deferral percentage test of Article III.
iii) Third, to the extent necessary, amounts allocated to a
Participant's Accounts for such Limitation Year shall be held in a suspense
account (which shall share in earnings, losses, and expenses of the Trust Fund)
and shall be allocated in the following
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<PAGE> 47
Limitation Year to the Accounts of Participants as part of the Employer
contributions to the Plan for such Limitation Year.
d) All qualified defined contribution plans, terminated or
not, maintained by any Employer shall, for purposes of these limitations, be
considered as one plan, and all references in this Section 5.03 to a
Participant's Accounts shall include any accounts maintained for the Participant
under any other qualified defined contribution plan of any Employer. To the
extent necessary "annual additions" to the Participant's account under other
defined contribution plans maintained by an Employer shall be reduced in
accordance with the terms of such Plans.
5.03. MULTIPLE PLAN REDUCTION.
a) If an Employee is a Participant in one or more qualified
defined benefit plans and one or more qualified defined contribution plans
maintained by any Employer, the sum of the defined benefit plan fraction and the
defined contribution plan fraction for any Limitation Year may not exceed 1.0.
The defined benefit plan fraction for any Limitation Year is a fraction (i) the
numerator of which is the projected "annual benefit" (or, if greater, the
"current accrued benefit" as defined in Section 1106(i)(3) of the Tax Reform Act
of 1986) of a Participant under all defined benefit plan(s), determined as of
the close of the Limitation Year, and (ii) the denominator of which is the
lesser of: (A) the product of 1.25 multiplied by the maximum dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such Limitation Year, or
(B) the product of 1.4 multiplied by the amount which may be taken into account
under Section 415(b)(1)(B) of the Code for such Limitation Year. The defined
contribution plan fraction for any Limitation Year is a fraction (I) the
numerator of which is the sum of the "annual additions" to the Participant's
combined accounts under all defined contribution plan(s), determined as of the
close of the Limitation Year, and (II) the denominator of which is the sum of
the lesser of the following amounts determined for such Limitation Year and each
prior year of service with any Employer (including years prior to
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<PAGE> 48
the effective date of this Plan): (1) the product of 1.25 multiplied by the
dollar limitation in effect under Section 4 15(c)(1)(A) of the Code for such
Limitation Year (determined without regard to Section 4 15(c)(6) of the Code),
or (2) the product of 1.4 multiplied by the amount which may be taken into
account under Section 415(c)(1)(B) of the Code for such Limitation Year.
b) Special Rule for defined contribution fraction: At the
discretion of the Trustees, in applying the provisions of Section 5.03 a) with
respect to the defined contribution plan fraction for any Plan Year ending after
December 31, 1982, the amount taken into account for the denominator for each
Participant for all Plan Years ending before January 1, 1983 shall be an amount
equal to the product of the amount of the denominator determined under Section
5.03 a) (as in effect for the Plan Year ending in 1982) for Plan Years ending in
1982, multiplied by the "transition fraction". This paragraph shall apply only
if the plan was in existence on or before July 1, 1982.
For the purposes of the preceding paragraph, the term
"transition fraction" means a fraction (I) the numerator of which is the lesser
of(1) $51,875, or (2) 1.4 multiplied by twenty-five percent (25%) of the
Participant's Compensation for the Limitation Year ending in 1981, and, (II) the
denominator of which is the lesser of(1) $41,500, or (2) twenty-five percent
(25%) of the Participant's Compensation for the Limitation Year ending in 1981.
Notwithstanding the foregoing, for any top heavy Plan Year,
$4 1,500 shall be substituted for $51,875 in determining the "transition
fraction."
c) Excessive Benefit: If the sum of the defined benefit plan
fraction and the defined contribution plan fraction exceeds 1.0 in any
Limitation Year for any Participant, the Company shall adjust the numerator of
the defined contribution plan fraction so that the sum of both fractions shall
not exceed 1.0 in any Limitation Year for such Participant. The adjustment shall
be made as provided in Section 5.02 b).
V-7
<PAGE> 49
The Company may also modify the defined contribution
fraction in accordance with Section 1106(i)(4) of the Tax Reform Act of 1986
with respect to any Participant.
d) For the purpose of Section 5.02 and this Section 5.03, the
term Employer shall include all ERISA Affiliates (as defined in Section 1.16 of
the Plan, as modified as required by Section 415(h) of the Code as it applies to
Sections 414(b) and (c) thereof) whether or not they have adopted the Plan.
5.04. CESSATION OF PARTICIPANT STATUS. If any Participant ceases to be eligible
to participate in the Plan by reason of becoming included in a unit of employees
covered by a collective bargaining agreement as described in Section 2.04 of the
Plan, then unless the applicable collective bargaining agreement otherwise
provides, during the period of such coverage (i) the Accounts of such
Participant shall not receive further allocations of any contributions, or
suspense account amounts under the Plan, (ii) such Participant shall not be
eligible to make salary reduction contributions pursuant to Article Three, and
(iii) the Accounts of such Participant shall, however, continue to share in the
earnings or losses and expenses of the Trust Fund.
V-8
<PAGE> 50
ARTICLE SIX
-----------
Investment Of Plan Assets
-------------------------
6.01. FUNDING POLICY. The Administrative Committee shall establish a funding
policy and method consistent with the objectives of the Plan and the
requirements of Title I of ERISA. The Administrative Committee shall meet at
least annually to review such funding policy and method. All actions of the
Administrative Committee, and the reasons therefor, taken pursuant to this
Section 6.01 shall be recorded in the minutes of the meeting of the
Administrative Committee and shall be communicated to the Board of Directors of
the Company.
6.02. INVESTMENT OF TRUST FUND. The Committee, or an Investment Manager
appointed by the Committee, shall have the sole and complete discretion with
respect to the management and control of the Trust Fund. The Committee may
reserve from investment such amounts of cash as they, from time to time, deem
necessary or advisable in the administration of the Trust.
6.03. CHOICE OF INVESTMENT. Participants may, in writing, and with the consent
of the Trustees instruct the Administrative Committee as the choice of
investment from a group of funds made available to Participants. A Participant
may divide any or all of his Accounts among any of such funds, but in no case
will such apportionment to any single fund be less than 10 percent (10%), or a
multiple thereof.
A Participant may change his allocation of future contributions among
such funds or transfer his existing balance in any or all funds to another fund
or funds. Any change in the allocation of future contributions shall be
effective as of the next calendar quarter that follows the receipt by the
Administrative Committee of written notice of such request for change. Any
transfer of existing balances among the funds shall be effective as soon as is
practicable following the beginning of the calendar year quarter that follows
the receipt by the
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<PAGE> 51
Administrative Committee of written request for such transfer. Further, any
transfer of existing balances among the funds shall be consistent with any
requirements or limitations on such transfers imposed by the sponsor(s) of the
funds.
If a Participant fails to provide proper investment instructions to the
Administrative Committee his Account shall be invested in the Retirement
Government Fund. The Administrative Committee may establish alternate guidelines
to limit the number of investment election changes or transfers that may be
requested by Participants in any one Plan Year.
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ARTICLE SEVEN
Participant's Accounts
7.01. SEPARATE ACCOUNTS. There shall be maintained for each Participant separate
Accounts reflecting amounts allocated only on behalf of such Participant. All
payments to a Participant or his Beneficiaries shall be charged against the
Accounts of such Participant. These Accounts will consist of the Elective
Contribution Account, the Company Special Account, the Company Matching Account,
the Company Profit Sharing Account, the Voluntary Contribution Account, and the
Rollover Account.
7.02. ALLOCATION. All interest and dividend income, gains, and losses, with
respect to a Participant's Accounts, shall be allocated to each such
Participant's Accounts as of a Valuation Date in proportion to the account
values of such Accounts which are invested in the accumulation facilities from
which such interest, dividend income, gains, and losses accrue or arise. Any
expenses of the Plan or of the Fund, to the extent that they are not otherwise
paid by an Employer shall be paid by the Fund and charged against the Accounts
of Participants in proportion to Account balances as of the Valuation Date
coincident with or next following the date upon which such charges arise.
7.03. VALUATION. The account value of a Participant's Accounts shall be
determined for each allocation, distribution, or withdrawal, at each Valuation
Date, or at any other time as may be deemed necessary by the Committee. The
assets of the Fund shall be valued at their fair market value.
VIII-1
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ARTICLE EIGHT
-------------
Administration
--------------
8.01. APPOINTMENT OF THE COMMITTEE. The Company shall appoint a Committee. The
Committee shall be responsible for the management, operation and administration
of the Plan. Any member of the Committee may resign upon (10) days prior written
notice to the Board of Directors of the Company. The Company shall be authorized
to remove any member of the Committee at any time and in its sole discretion to
appoint a successor whenever a vacancy on the Committee occurs. In the event
that the Company does not appoint a Committee, the Company shall act as the
Committee and perform all duties of the Committee as described herein.
8.02. RESPONSIBILITY FOR ADMINISTRATION OF THE PLAN. The Committee shall be
responsible for the management, operation and administration of the Plan. The
Company shall be the "named fiduciary" as provided in Section 402(a) of ERISA.
8.03. RESPONSIBILITY FOR ADMINISTRATION OF THE TRUST FUND. The Committee, or its
designee, shall be responsible for the management and control of the assets of
the Trust Fund.
8.04. DELEGATION OF POWERS. The Committee may appoint such assistants or
representatives as it deems necessary for the effective exercise of its duties
in accordance with the Plan and Trust. The Committee may delegate to such
assistants and representatives any powers and duties, both ministerial and
discretionary, as they deem expedient or appropriate.
8.05. RECORDS. All acts and determinations with respect to the administration of
the Plan made by the Committee, and any of its appointed assistants or
representatives, shall be duly recorded by the Committee or by the assistants or
representatives appointed to keep such records. All records, together with such
other documents as may be necessary for the
VIII-1
<PAGE> 54
administration of the Plan, shall be preserved in the custody of the Committee
or the assistants or representatives appointed by it.
8.06. GENERAL ADMINISTRATIVE POWERS. The Committee shall have
all powers necessary to administer the Plan in accordance with its provisions,
including the power to construe the Plan and its provisions and determine all
questions that may arise thereunder.
8.07. APPOINTMENT OF PROFESSIONAL ASSISTANTS AND INVESTMENT MANAGER. The
Committee may engage accountants, recordkeepers, attorneys, physicians and such
other personnel as it deems necessary or advisable. The Committee may, in their
sole discretion, appoint one or more Investment Manager(s) to manage (including
the power to acquire or dispose of) all or any of the assets of the Trust. The
functions of any such persons engaged by the Committee shall be limited to the
specific services and duties for which they are engaged, and such persons shall
have no other duties, obligations or responsibilities under the Plan or Trust.
Such persons shall exercise no discretionary authority or discretionary control
with respect to the administration of the Plan. The fees and costs of such
services are an administrative expense of the Plan to be paid out of the Trust
Fund, except to the extent such fees and costs are paid by the Company.
8.08. ACTIONS BY THE COMMITTEE. All actions of the Committee shall be taken
pursuant to the decision of a majority of the then members of the Committee.
Such action may be taken at a meeting of the Committee duly called and held, or
by written consent in lieu of a meeting.
8.09. DIRECTIVES OF THE COMMITTEE. Directives of the Committee shall be in
writing and signed by an appropriate member of the Committee.
8.10. DISCRETIONARY ACTS. Any discretionary actions of the Committee or the
Company with respect to the administration of the Plan and Trust shall be made
in a manner which does not discriminate in favor of stockholders, officers or
highly compensated employees. [n the event the Committee exercises any
discretionary authority under the Plan
VIII-2
<PAGE> 55
and Trust with respect to a Participant who is a member of the Committee, such
discretionary authority shall be exercised solely and exclusively by those
Participants of the Committee other than such Participant, or, if such
Participant is the sole member of the Committee, such discretionary authority
shall be exercised solely and exclusively by the Board of Directors of the
Company.
8.11. RESPONSIBILITY OF FIDUCIARIES. The members of the Committee, and their
assistants and representatives (other than any Investment Manager), shall be
free from all liability for their acts and conduct in the administration of the
Plan and Trust except for acts of willful misconduct, provided, however, that
the foregoing shall not relieve any of them from any liability for any
responsibility, obligation or duty they may have pursuant to ERISA or the Code.
8.12. INDEMNITY BY COMPANY. In the event of and to the extent not insured
against by any insurance company pursuant to provisions of any applicable
insurance policy, the Company shall indemnify and hold harmless, to the extent
permitted by law, the members of the Committee and their assistants and
representatives (other than assistants and Investment Managers appointed under
8.07) from any and all claims, demands, suits, proceedings, costs, losses or
damage which may in connection with the Plan or Trust be brought by the
Employers, Employees, Participants or their Beneficiaries or legal
representatives, or by any other person, corporation, entity, government or
agency thereof; provided, however, that such indemnification shall not apply to
any such person for such person's acts of willful misconduct in connection with
the Plan or Trust.
8.13. PAYMENT OF FEES AND EXPENSES. The members of the Committee and their
assistants and representative shall be entitled to payment from the Trust Fund
for all reasonable costs, charges and expenses incurred in the administration of
the Plan and Trust, including, but not limited to, reasonable fees for
accounting, legal and other services rendered, as may be incurred by the members
of the Committee or their assistants and
VIII-3
<PAGE> 56
representatives in the course of performance of their duties under the Plan and
the Trust, except to the extent that such fees and costs are paid by the
Company. Notwithstanding any other provision of the Plan or Trust, no person who
is a fiduciary of the Plan, within the meaning of Section 3(21) of ERISA, and
who receives full-time pay from an Employer or ERISA Affiliate shall receive
compensation from the Trust Fund, except for reimbursement of expenses properly
and actually incurred.
8.14. PLAN ADMINISTRATOR. The Company shall be the "administrator" (as defined
in Section 3(16)(A) of ERISA) of the Plan, and shall be responsible for the
performance of all reporting and disclosure obligations under ERISA and all
other obligations required or permitted under ERISA to be performed by the Plan
administrator. The Plan administrator shall be the designated agent for service
of legal process.
8.15. ALLOCATION AND DELEGATION OF COMMITTEE RESPONSIBILITIES. The Committee
may, upon approval of a majority of the members of the Committee, (i) allocate
among the members of the Committee any of the responsibilities of the Committee
under the Plan or (ii) designate any person, firm or corporation that is not a
member of the Committee to carry out any of the responsibilities of the
Committee under the Plan and Trust. Any such allocation of designation shall be
made pursuant to a written instrument executed by a majority of the members of
the Committee.
8.16. APPOINTMENT OF TRUSTEES. The Company shall appoint the Trustee or Trustees
of this Plan. Any such appointment may be revoked or modified by the Company at
any time, and a new appointment of successor and additional Trustees may be made
hereunder.
Notwithstanding the foregoing, appointment of Trustees shall
not be required to the extent that all the assets of the plan are invested in
insurance contracts or policies insured by an insurance company qualified to do
business in a State. For this purpose the term State shall be defined in
accordance with Section 3(10) of ERISA.
VIII-4
<PAGE> 57
ARTICLE NINE
------------
Retirement and Death Benefits
9.01. RETIREMENT BENEFITS. A Participant's Company Profit Sharing Account and
Company Matching Account shall fully (100%) vest upon the attainment of his
Normal Retirement Date (A) while employed by the Company or an ERISA Affiliate
or (B) during a maternity or paternity absence. If the Participant continues in
the employ of an Employer after his Normal Retirement Date, he shall continue to
be a Participant in the Plan until his actual retirement. Each such Participant
shall be entitled to receive benefits equal to the total amount in his Accounts
upon his retirement after his attainment of his Normal Retirement Date.
9.02. DEATH BENEFITS. Upon the death of a Participant while in the employ of an
Employer or any ERISA Affiliate, or during a maternity or paternity absence, his
Beneficiary shall be entitled to receive benefits equal to the total amount in
the deceased Participant's Accounts. Upon the death of a Participant after
terminating employment with his Employer and all ERISA Affiliates, and not
during a maternity or paternity absence, his Beneficiary shall be entitled to
receive benefits equal to the vested portion of the benefits of the Participant
that had not already been paid to the Participant.
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<PAGE> 58
ARTICLE TEN
-----------
Disability Benefits
-------------------
10.01. DISABILITY BENEFITS. If a Participant suffers a Total and Permanent
Disability while an Employee, or while on a maternity or paternity leave of
absence, he shall be fully (100%) vested in his Accounts.
10.02. DETERMINATION OF DISABILITY. The Committee shall determine whether a
Participant has suffered a Total and Permanent Disability and their
determination in that respect is binding upon the Participant, provided the
Committee shall rely upon professional medical advice in making such
determination. In making their determination, the Committee may require the
Participant to submit to medical examinations by physicians and other similar
professionals selected by the Committee. The provisions of this Article Ten
shall be uniformly and consistently applied to all Participants.
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<PAGE> 59
ARTICLE ELEVEN
--------------
Termination Benefits
--------------------
11.01. VESTED BENEFITS. A Participant shall have a non- forfeitable right to a
percentage of his Company Matching Account and Company Profit Sharing Account
under the following schedule:
Non-forfeitable
Years of Service Percentage
---------------- ----------
Less than 2 0%
2 50%
3 100%
A Participant's Elective Contribution Account, Company Special Account,
Voluntary Contribution Account, and Rollover Account shall at all times be 100%
vested. A Participant's Company Matching Account and Company Profit Sharing
Account shall be one hundred percent (100%) non-forfeitable upon his death,
Total and Permanent Disability, or attainment of Normal Retirement Date while
(A) employed by the Company or an ERISA Affiliate, or (B) while on a maternity
or paternity leave of absence.
11.02. NON-INCLUDIBLE SERVICE. The following rules shall apply to the
determination of a Participant's non-forfeitable percentage:
a) Years of Service before any series of One-Year Breaks in
Service shall be disregarded if a Participant terminates employment, has no
non-forfeitable interest in his benefits, and incurs a consecutive series of
One-Year Breaks in Service that equals or exceeds the greater of:
i) his Year of Service prior to such consecutive One-Year
Breaks in Service; or
ii) five(5).
b) Years of Service after any five (5) consecutive year
One-Year Breaks in Service shall not increase the nonforfeitable percentage of
the Participant's Company Profit
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<PAGE> 60
Sharing Account and Company Matching Account which accrued before such One-Year
Breaks in Service.
11.03. FORFEITURES. The non-vested portion of a Participant's Company Matching
Account and Company Profit Sharing Account shall be forfeited at the time the
Participant incurs a consecutive series of One-Year Breaks in Service of five
(5) years, or if earlier, at the time the Participant receives a lump sum
distribution of the non-forfeitable portion of his benefit upon his termination
of participation in the Plan. A distribution shall be deemed to be made upon
termination of participation in this Plan if such distribution is made prior to
the close of the second Plan Year following the Plan Year in which such
termination occurs. A Participant who incurs a Termination of Employment without
a vested interest in his Accounts shall be deemed to receive a distribution of
the vested portion of his Accounts on the date of such Termination of
Employment.
Forfeitures arising under this Section 11.03 (and under Section 4.05)
shall be applied first to restoration of previously forfeited amounts to the
extent required by Section 11.04. The remaining forfeitures, if any, shall be
used to reduce any Company contributions made pursuant to Section 4.01 a) and b)
for the Plan Year in which such forfeitures arise. Any remaining forfeitures
shall then be allocated among the Company Profit Sharing Accounts of those
Participants eligible to share in such forfeitures in the manner described in
Section 5.01 b).
Notwithstanding the foregoing, forfeitures of excess aggregate
contributions under Section 4.06 may not be allocated so as to increase the
allocation to the Accounts of Participants who are highly compensated employees
for the Plan Year during which such excess aggregate contributions arose.
11.04. DISTRIBUTION AND RE-EMPLOYMENT BEFORE A BREAK IN SERVICE. In the event
that a former Participant who was not 100% vested in his Company Matching
Account and Company Profit Sharing Account, and who received a lump sum
distribution upon his
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<PAGE> 61
Termination of Employment prior to the time he incurred consecutive One-Year
Breaks in Service of five (5) years and who forfeited a portion of his Company
Matching Account and Company Profit Sharing Account upon such distribution, is
re-employed by the Company or an ERISA Affiliate prior to the time he incurs a
consecutive series of One-Year Breaks in Service of five (5) years, such
Participant may elect on a form prescribed by the Trustees to repay to the Plan
in cash, on any Valuation Date prior to the earlier of (A) the fifth anniversary
date of his re-employment or (B) his incurring a consecutive series of One-Year
Breaks in Service of five (5) years, the full amount distributed to him upon his
prior Termination of Employment. In such event, the amount repaid plus the
amount forfeited by such Participant upon his prior Termination of Employment
will be restored and credited to his Company Matching Account and Company Profit
Sharing Account as of such Valuation Date. Any forfeited amounts so restored
shall be derived, to the extent necessary and in the following order, from:
a) The amount, if any, of Participant forfeitures that
would otherwise be allocated under Section 11.03;
b) The amount, if any, of the Trust Fund net income or gain
for the Plan Year.
To the extent the amount(s) available for restoration for a particular
Plan Year is insufficient to enable the Trustee to make the required
restoration, the Employer shall contribute, without regard to any requirement or
condition of Article Four, such additional amount as is necessary to enable the
Trustee to make the required restoration. If, for a particular Plan Year, the
Trustees must restore the Company Matching Account and Company Profit Sharing
Account of more than one (1) re-employed Participant, then the Administrative
Committee shall make the restoration allocation(s) to each such Participant's
Company Matching Account and Company Profit Sharing Account in the same
proportion that a Participant's restored amount for the Plan Year bears to the
aggregate restored amount
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<PAGE> 62
for the Plan Year of all re-employed Participants. The Committee shall not take
into account the allocation(s) under this Section 11.04 in applying the
limitations set forth in Sections 5.02 and 5.03.
XI-4
<PAGE> 63
ARTICLE TWELVE
--------------
Payment of Benefits
-------------------
12.01. RETIREMENT BENEFITS. The Administrative Committee shall direct that the
distribution of the benefits payable to a Participant upon his retirement after
attaining his Retirement Date, or to his Beneficiary upon his death, commence as
soon as practicable based upon the Valuation Date coincident with or immediately
prior to such event. A Participant who retires after his Normal Retirement Date
and whose benefit exceeds $3,500 may elect to postpone commencement of the
distribution of his benefit until the date prescribed in Section 12.06.
12.02. DISTRIBUTION UPON TERMINATION OF EMPLOYMENT OR TOTAL AND PERMANENT
DISABILITY. When a Participant incurs a Termination of Employment or a Total and
Permanent Disability, his benefits shall be distributed as soon as is
practicable based upon the Valuation Date coincident with or immediately prior
to such distribution; provided, however, that if the value of such benefit
exceeds $3,500 then distribution of such benefit shall not commence until the
earlier of (A) the later of his Normal Retirement Date or 62nd birthday, or (B)
his death, unless the Participant, at the time he incurs a Termination of
Employment or Total and Permanent Disability, consents to such earlier
distribution as aforesaid.
A Participant who incurs a Termination of Employment or a Total and
Permanent Disability and whose benefit exceeds $3,500 may elect to postpone the
commencement of his benefit until the date prescribed in Section 12.06.
Notwithstanding the above, if the value of a Participant's benefit is
no more than $3,500, his benefit shall be distributed in a single lump sum as
soon as is practicable following his Termination of Employment or Total and
Permanent Disability, as the case may be.
12.03. METHODS OF PAYMENT OF BENEFITS. Benefits shall be distributed in
accordance with the following guidelines:
XII-1
<PAGE> 64
a) All benefits payable on account of a Participant reaching
his Normal Retirement Date or on account of his Total and Permanent Disability
or Termination of Employment shall be paid in the form of a lump sum, or in the
form of annual installments of approximately equal amounts over a period of not
more than ten years, or not more than life expectancy of the Participant (or the
joint and last survivor life expectancy of the Participant and his Beneficiary).
b) All benefits payable on account of a Participant's death
shall be distributed to his Beneficiary or Beneficiaries in a lump sum as soon
as practicable after the Valuation Date coincident with or immediately following
the date of such death. The Beneficiary may elect to defer distribution of such
death benefit to a date not later than the end of the calendar year in which the
fifth anniversary of the Participant's death occurs.
If the Beneficiary is the Participant's Eligible Spouse,
she may defer distribution of the death benefit until the end of the calendar
year in which the Participant would have attained age 70-1/2. Notwithstanding
the foregoing, if the Participant's benefits had already commenced before his
death in the form of installments, payment of the death benefit to his
Beneficiary shall continue in such installment form unless the Beneficiary
elects a lump sum to be distributed as soon as practicable after the
Participant's death, and in all cases distribution of the death benefit shall be
at least as rapid as under the installment method that was in effect while the
Participant was alive.
c) In all events the present value of the portion of the
benefit payable to the Participant shall be greater than fifty percent (50%) of
the total benefit payable to the Participant and his Beneficiary unless the
Participant's benefit (or the distribution of any benefit payable upon the death
of a Participant) shall comply with the provisions of Section 401(a)(9) of the
Code and regulations published thereunder. This paragraph shall be administered
in accordance with the Minimum Distribution Incidental Benefit Requirements
XII-2
<PAGE> 65
of Reg. Section 1- 401(a)(9)-2, and shall apply notwithstanding any other
contrary provisions in this Plan.
12.04. TIME OF PAYMENT. All benefits payable under the Plan shall be paid or
provided for solely by the Fund. Neither the Company nor any other Employer
assumes any liability or responsibility therefor. Notwithstanding any provision
hereof, and unless the Participant otherwise elects, in no event shall the
payment of benefits commence later than sixty (60) days after the close of the
Plan Year in which occurs the latest of:
a) the Participant reaching his Normal Retirement Date;
b) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or,
c) the Participant's Termination of Employment.
12.05. REQUIRED BEGINNING DATE.
a) Notwithstanding any other provision of the Plan to the
contrary other than paragraph (b) below, (A) in the case of a Participant who
attains age seventy and one-half (70-1/2) after December 31, 1987, his benefits
shall commence no later than April 1 of the calendar year following the calendar
year in which he attains age seventy and one-half (70-1/2), and (B) in the case
of a Participant who attains age seventy and one-half (70-1/2) before January 1,
1988, his benefits shall commence no later than April 1 of the calendar year
following the later of (i) the calendar year in which he attains age seventy and
one-half (70- 1/2), or (ii) the earlier of (I) the calendar year with or within
which ends the Plan Year in which he becomes a "5 percent owner" or (II) the
calendar year in which he retires. For purposes of this Section 12.05, a
Participant shall be considered to be a "5% owner" if during the Plan Year in
which such Participant attains age sixty-six and one-half (66-1/2) or any
subsequent Plan Year the Participant is a 5% owner within the meaning of Section
416 of the Code, ignoring for this purpose Plan Years beginning before January
1, 1980. The amount to be distributed pursuant to this Section 12.05(a) shall be
the minimum amount required with
XII-3
<PAGE> 66
respect to such Participation for each year under Section 401(a)(9) of the Code,
and regulations thereunder issued by the Secretary of the Treasury or his
delegate. This paragraph shall be administered in accordance with Section
401(a)(9) of the Code and regulations thereunder issued by the Secretary of the
Treasury or his delegate. For purposes of this paragraph (a), if a Participant
who is not a "5% owner" and who has not retired prior to January 1, 1989,
attains age 70 1/2 during 1988, he shall be deemed to have retired on January 1,
1989 so that his benefits shall commence by April 1, 1990.
b) In the case of a Participant who, prior to January 1, 1984,
made an election to defer his distribution of his benefits under the Plan, and
if such election satisfies the conditions of Section 242(b) of the Tax Equity
and Fiscal Responsibility Act of 1982, the distribution of such Participant's
benefit shall be deferred until the date specified in such election if such date
is later than the date otherwise required by paragraph (a) above.
12.06. BENEFICIARY DESIGNATION BY PARTICIPANT. Each Participant may designate
one or more Beneficiaries and contingent Beneficiaries by delivering a written
designation thereof to the Trustees. Upon the death of a Participant, his
Beneficiaries shall be entitled to payment of benefits in an amount and in the
manner provided in the Plan. A Participant may change his Beneficiary
designation at any time by delivering a new written designation to the
Administrative Committee. The most recent designation received by the
Administrative Committee shall supersede all prior designations. A designation
of Beneficiary shall be effective only if the designated Beneficiary survives
the Participant.
Notwithstanding the foregoing, if a Participant has an Eligible Spouse
on the date of his death, such Eligible Spouse shall be his sole primary
Beneficiary, unless the spouse delivers a written consent to the Administrative
Committee waiving her right to be the sole primary Beneficiary. Such consent
shall be irrevocable and in favor of a specific alternate beneficiary who may
not be changed without the further consent of such spouse; provided, however,
that an Eligible Spouse may execute an irrevocable general consent which shall
XII-4
<PAGE> 67
expressly permit the Participant to select any alternate Beneficiary at any time
without the need for any additional consent by such spouse. An Eligible Spouse's
consent shall contain an acknowledgement by the Eligible Spouse of the effect
thereof, and shall be witnessed by a representative of the Plan or by a notary
public. Such consent of an Eligible Spouse shall not be required if it is
established to the satisfaction of the Administrative Committee that the
required consent cannot be obtained because there is no Eligible Spouse, or an
Eligible Spouse cannot be located, or in other circumstances that may be
prescribed by Treasury regulations.
12.07. FAILURE OF PARTICIPANT TO DESIGNATE. If a Participant fails to designate
a Beneficiary, in accordance with Section 12.06, or if no designated Beneficiary
survives the Participant, the Participant's spouse, if he is married at the date
of his death, shall be deemed to be his designated Beneficiary. If, under such
circumstances, the Participant is not married at the date of his death, his
designated Beneficiary shall be deemed to be his estate.
12.08. BENEFICIARY'S RIGHTS. Whenever the rights of a Participant are stated or
limited in the Plan, his Beneficiary or Beneficiaries shall be bound thereby.
12.09. UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require the Administrative
Committee to search for, or ascertain the whereabouts of, any Participant or
Beneficiary. The Employer, by certified or registered mail addressed to his last
known address of record with the Administrative Committee, shall notify any
Participant or Beneficiary that he is entitled to a distribution under the Plan.
If the Participant or Beneficiary fails to claim his Accounts or make his
whereabouts known in writing to the Trustees within twelve (12) months of the
date of mailing of the notice, or before the termination or discontinuance of
the Plan, whichever should first occur, the Administrative Committee shall treat
the Participant's or Beneficiary's unclaimed Accounts as forfeited and shall
apply such Accounts as provided in Section 11.03 for the Plan Year in which such
forfeiture occurs. If a Participant or Beneficiary who has incurred a forfeiture
of his Accounts under the provisions of this Section
XII-5
<PAGE> 68
12.09 makes a claim, at any time, for its forfeited Accounts, the Administrative
Committee shall direct the Employer to restore the Participant's or
Beneficiary's forfeited Accounts to the same dollar amount as the dollar amount
of the Accounts so forfeited, unadjusted for any gains or losses occurring
subsequent to the date of forfeiture. The Employer shall make the restoration
within sixty (60) days after the close of Plan Year in which the Participant or
Beneficiary makes such claim.
12.10. DISTRIBUTION OF ACCOUNTS.
a) Except as provided in Article Nineteen and in paragraph (b)
below, amounts held in a Participant's Elective Contribution Account or Company
Special Account may not be distributed to the Participant or his Beneficiary
earlier than upon his retirement, death, Total and Permanent Disability,
Termination of Employment or attainment of age 59- 1/2. Such amounts shall not
be distributable merely by reason of the completion of a stated period of
participation in the Plan, or the elapse of a fixed number of years.
b) Amounts held in a Participant's Elective Contribution
Account, or Company Special Account may be distributed to Participants or
Beneficiaries upon
i) Termination - The termination of the Plan without
establishment or maintenance by an Employer of another defined contribution plan
(other than an employee stock ownership plan as defined in Section 4975(e)(7) of
the Code).
ii) Disposition of Assets - The disposition by an Employer
of substantially all of its assets (within the meaning of Section 409(d)(2) of
the Code), but only with respect to a Participant who continues employment with
the entity acquiring such assets.
iii) Disposition of Subsidiary - The disposition by an
Employer of its interest in a subsidiary (within the meaning of Section
409(d)(3) of the Code), but only with respect to a Participant who continues
employment with such subsidiary.
XII-6
<PAGE> 69
An event shall not be treated as described in subparagraph
(i), (ii) or (iii) of this paragraph (b) with respect to any Participant unless
the Participant receives a lump sum distribution by reason of the event.
For purposes of this paragraph (b), the term "lump sum
distribution" has the meaning given such term by Section 402(e)(4) of the Code,
without regard to clauses (i), (ii), (iii) and (iv) of subparagraph (A),
subparagraph (B), or subparagraph (H) thereof.
An event shall not be treated as described in subparagraph
(ii) or (iii) of this paragraph (b) unless the Employer continues to maintain
the Plan after such disposition.
12.11. DISTRIBUTIONS ON OR AFTER JANUARY 1 1993. This Section applies to
distributions made on or after January 1, 1993. Notwithstanding any provisions
of the Plan to the contrary that would otherwise limit a distributee's election
under this Section, a distributee 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 distributee in a direct rollover.
a) DEFINITIONS
i) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period often years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
XII-7
<PAGE> 70
(ii) 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 individual retirement annuity.
(iii) Distributee: A distributee includes an employee or
former employee. In addition, the employee's or former employee's surviving
spouse and the employee's or former employee's 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.
(iv) Direct rollover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
XII-8
<PAGE> 71
ARTICLE THIRTEEN
----------------
Claims Procedure
----------------
13.01. CLAIMS PROCEDURE. The Board of Directors of the Company shall establish a
procedure for the resolution of disputes and dispositions of claims arising
under the Plan. Until modified by the Board of Directors of the Company, this
procedure is as follows:
Any of the Employees, former Employees, or any Beneficiaries of such
Employees or former Employees may, if they so desire, file with the
Administrative Committee a written claim for benefits under the Plan. Within
ninety (90) days after the filing of such a claim, the Trustees shall notify the
claimant whether his claim is upheld or denied. The Administrative Committee
may, under special circumstances, extend the period of time for processing a
claim by an additional ninety (90) days. If such an extension of time is
required, written notice shall be furnished to the claimant or his duly
authorized representative prior to the termination of the initial ninety (90)
day period. Such notice will indicate the special circumstance requiring an
extension. In the event the claim is denied, the Administrative Committee shall
state in writing:
a) the specific reasons for the denial;
b) specific references to pertinent Plan provisions on which
the denial is based;
c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
d) an explanation of the claim review procedure set forth in
this Section 13.01.
Within sixty (60) days after receipt of notice that his claim
has been denied, the claimant or his duly authorized representative may file
with the Administrative
XIII-1
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Committee a written request for a review hearing and may, in conjunction
therewith, submit written issues and comments. The Administrative Committee
shall then schedule, within sixty (60) days after the filing of such request, a
full and fair hearing of the claim. The Administrative Committee may, under
special circumstances, extend such period of time by an additional sixty (60)
days. Prior to said hearing, the claimant or his representative shall have a
reasonable opportunity to review a copy of the Plan, the Trust agreement, and
other pertinent documents in the possession of the Administrative Committee. The
Administrative Committee shall communicate their decision in writing to the
claimant within thirty (30) days after the hearing. Any claim for benefits and
any request for a review hearing hereunder must be filed on forms to be
furnished by the Administrative Committee upon a Participant's request.
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ARTICLE FOURTEEN
----------------
Inalienability of Benefits
--------------------------
14.01. INALIENABILITY OF BENEFITS.
a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a Participant or
his Beneficiary) (i) shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void, or (ii) shall be subject to the debts, contracts,
liabilities, engagements or torts of any such person, or shall be subject to
attachment or legal process for or against such person, and the same shall not
be recognized by the Administrative Committee.
b) This provision shall not apply to a "qualified domestic
relations order" which meets the requirements of Code Section 414(p), nor to
those other domestic relations orders permitted to be so treated by the Trustees
under the provisions of Section 206(d)(3) of ERISA. The Administrative Committee
shall establish a written procedure to determine the Status of qualified
domestic relations orders.
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ARTICLE FIFTEEN
---------------
Permanency of the Plan
----------------------
15.01. RIGHT TO TERMINATE PLAN. The Company contemplates that the Plan shall be
permanent and the Employer shall be able to continue to make contributions under
the Plan. Nevertheless, the Company reserves the right, at any time or times, by
action of the Board of Directors of the Company, to terminate the Plan, in whole
or in part.
15.02. MERGER OR CONSOLIDATION OF PLAN AND TRUST. The Plan may not be merged or
consolidated with, nor may its assets or liabilities be transferred to, any
other plan or trust, unless each Participant would (if the Plan then terminated)
receive a benefit which, immediately after the merger, consolidation, or
transfer, is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation or transfer if the Plan bad
then terminated.
15.03. AMENDMENT OF THE PLAN.
a) The Board of Directors of the Company, or its designee,
shall have the right at any time, and from time to time to amend, in whole or in
part, any or all of the provisions of this Plan. Further, the Company shall have
the right at any time and from time to time to amend the Plan to comply with
changes in applicable law, and to make such other changes as they deem
appropriate but which would not result in any increase in contributions by
Employers or Participants, or in any increase in benefits. No amendment (i)
shall authorize or permit any part of the Fund (other than such part as is
required to pay taxes and administrative expenses) to be used for or diverted to
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries or estates; (ii) shall cause any reduction in the Account balance
of any Participant accumulated theretofore, or cause or permit any portion of
the Fund to revert to or become the property of the Employer; (iii) shall affect
the method of determining a Participant's vested interest in his Plan benefits
unless such amendment
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<PAGE> 75
complies with the requirements of Section 411(a)(10) of the Code; or (iv) shall
affect the rights, duties or responsibilities of the Trustees without the
Trustees' written consent.
b) A Plan amendment shall not reduce the nonforfeitable
percentage of a Participant's Accounts derived from Employer contributions
determined as of the later of the date that such amendment is adopted, or the
date that such amendment becomes effective. If an amendment changes the vesting
schedule under the Plan, then if a Participant's non-forfeitable interest in his
Accounts under the Plan as amended can at any time be less than such percentage
under the Plan without regard to such amendment and if such Participant has
completed at least three (3) or more Years of Service (determined without regard
to Section 11.02 a) of the Plan), he shall be permitted to elect, within a
"reasonable period" (as defined below) after the adoption of such amendment, to
have the non-forfeitable percentage of his Accounts computed under the Plan
without regard to such amendment. Such election shall be in writing on a form
prescribed by the Administrative Committee and shall be irrevocable. For
purposes of this Section 15.03(b), a "reasonable period" shall begin no later
than the date up"on which a Plan amendment changing the vesting schedule is
adopted, and shall end no earlier than the latest of (i) the sixtieth day after
the adoption of such amendment, (ii) the sixtieth day after such amendment
becomes effective, or (iii) the sixtieth day after the Participant is issued
written notice of such amendment by his Employer or the Administrative
Committee.
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<PAGE> 76
ARTICLE SIXTEEN
---------------
Discontinuance of Contributions and Termination
-----------------------------------------------
16.01. DISCONTINUANCE OF CONTRIBUTIONS. Whenever an Employer, or the Company
acting with respect to an Employer, determines that it is impossible or
inadvisable for such Employer to make further contributions as provided in the
Plan, the Board of Directors of the Employer or the Company, as the case may be,
may adopt an appropriate resolution permanently dscontinuing all further
contributions by the Employer. In such event, the Administrative Committee shall
continue to administer all the provisions of the Plan which are necessary and
remain in force, other than the provisions relating to contributions by the
affected Employer.
16.02. TERMINATION OF PLAN. Upon a complete termination of the Plan, in
accordance with Section 15.01, after payment of all expenses and proportional
adjustment of Accounts of Participants to reflect such expenses, Trust Fund
profits or losses, and allocations of any previously unallocated funds to the
date of termination, the Participants shall be entitled to receive the amount
then credited to their respective Accounts in the Trust Fund.
16.03. RIGHTS TO BENEFITS UPON TERMINATION OF PLAN OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS. Upon the termination or partial termination of the Plan or the
complete discontinuance of contributions by an Employer, the rights of each of
the Participants affected by such termination or partial termination or
discontinuance of contributions to the amount credited to their Accounts at such
time shall be non-forfeitable without reference to any formal action on the part
of the Company or the Administrative Committee.
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ARTICLE SEVENTEEN
-----------------
Exclusive Benefit of Trust Fund
-------------------------------
17.01. LIMITATION UPON REVERSIONS. Except as provided in Section 4.02, the
assets of the Plan shall not inure to the benefit of any Employer and shall be
held for the exclusive purposes of providing benefits to Participants and their
Beneficiaries and defraying reasonable expenses of administering the Plan.
XVII-1
<PAGE> 78
ARTICLE EIGHTEEN
----------------
Applicable Law
--------------
18.01. APPLICABLE LAW. Except as otherwise required under the laws of the United
States, the Plan shall be construed, regulated, interpreted and administered
under and in accordance with the laws of the State of New York, except to the
extent that such laws have been preempted by ERISA.
XVIII-1
<PAGE> 79
ARTICLE NINETEEN
----------------
Withdrawals
-----------
19.01. WITHDRAWALS.
a) Subject to Section 19.03, a Participant who has attained
age 59-1/2 may make a withdrawal up to an amount equal to the vested balance of
his Accounts at any time during a Plan Year.
b) Subject to Section 19.03, any Participant may make a
withdrawal up to an amount equal to the balance of his Rollover Account and
Voluntary Contribution Account at any time during a Plan Year, regardless of his
age.
19.02. HARDSHIP WITHDRAWALS.
a) Subject further to the rules described in this Section
19.02, and in Section 19.03 a Participant prior to attaining age 59 1/2 may make
withdrawals from his Elective Contribution Account and the vested portion of his
Company Matching Account and Company Profit Sharing Account, provided that the
Administrative Committee determine that the withdrawal is necessary to pay
educational expenses of the Participant or his dependent children, or to meet
the expenses of the purchase of a home by the Participant, or to meet a bona
fide and unforeseeable financial emergency of the Participant. Further, prior to
the Participant's attaining age 59-1/2 a withdrawal may be made from a
Participant's Elective Contribution Account only to the extent of contributions
made to such account on behalf of such Participant by Employers pursuant to
Section 3.01 of the Plan, including earnings thereon other than earnings earned
subsequent to December 31, 1988. Any withdrawal made pursuant to this Section
19.02 a) may only be made to the extent that there exists a hardship such that:
i) the distribution is necessary on account of an immediate
and heavy financial need of the Participant,
XIX-1
<PAGE> 80
ii) the distribution is necessary to satisfy such financial
need.
b) A distribution will be deemed to be made on account of an
immediate and heavy financial need of the Participant if the distribution is
made on account of;
i) Medical expenses described in Section 213(d) of the Code
incurred by the Participant, his spouse, or any of his dependents (as defined in
Section 152 of the Code);
ii) Purchase (excluding mortgage payments) of a principal
residence for the Participant; or
iii) Payment of tuition for the next semester or quarter of
post-secondary education for the Participant, his spouse, children, or
dependents.
iv) The need to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of his principal
residence.
c) A withdrawal will not be treated as necessary to satisfy an
immediate and heavy financial need of a Participant to the extent the amount of
the distribution is in excess of the amount required to relieve the financial
need or to the extent such need may be satisfied from other resources that are
reasonably available to the Participant. This determination will be made on the
withdrawal basis of all relevant facts and circumstances. A withdrawal may be
treated as necessary to satisfy a financial need if the Administrative Committee
reasonably rely upon the Participant's representation that the need cannot be
relieved--
i) Through reimbursement or compensation by insurance or
otherwise; or
ii) By reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause an immediate and heavy
financial need; or
iii) By cessation of all of a Participant's elective
pre-tax and post-tax contributions under the Plan and all other Plans that
permit such contributions; or
XIX-2
<PAGE> 81
iv) By other withdrawals or non-taxable (at the time of the
loan) loans from plans maintained by an Employer or by any other employer, or by
borrowing from commercial sources on reasonable commercial terms. For purposes
of this paragraph, a Participant's resources shall be deemed to include those
assets of his spouse and minor children that are reasonably available to the
Participant. Property held for the Participant's child under an irrevocable
trust or under the Uniform Gifts to Minors Acts will not be treated as a
resources of the Participant.
d) A withdrawal will also be deemed to be necessary to satisfy
an immediate and heavy financial need of a Participant if all of the following
requirements are satisfied:
i) The withdrawal is not in excess of the amount necessary
to satisfy the immediate and heavy financial need of the Participant,
ii) The Participant has obtained all withdrawals, and all
non-taxable loans currently available under all Plans maintained by an Employer,
e) The Administrative Committee shall apply the standards set
forth in this Section 19.02 of a uniformly and non-discriminatory basis to all
such Participants in the Plan.
19.03. SPECIAL RULES.
a) Only one withdrawal may be requested under this Article
Nineteen per Plan Year, unless it is for the purpose of tuition payments.
b) No withdrawal under this Article Nineteen shall be for less
than $500 unless it is for the entire balance withdrawable.
c) Any amounts withdrawn by a Participant from any of his
Accounts pursuant to this Article Nineteen, shall be taken into consideration in
satisfying the minimum distribution rules of Section 401(a)(9) of the Code.
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<PAGE> 82
ARTICLE TWENTY
--------------
Loans
20.01. LOANS.
a) Effective for the Plan Year beginning January 1, 1993, a
Participant (and a former Participant who is a "party in interest" as defined in
ERISA) may be permitted to borrow money from this Plan, in an amount not to
exceed one-half(1/2) of the non-forfeitable portion of the Participant's
Accounts as of the date on which the loan is approved, less any outstanding
loans made to the Participant under any other plans that are maintained by the
Employer and that are qualified under Section 401(a) of the Code. In no event
shall the Participant's outstanding loan balance under this plan and all other
plans (as defined in Section 72(p) of the Code) that are maintained by the
Employer exceed $50,000, reduced by the excess, if any, of the highest
outstanding balance on such loans to such Participant during the one year period
ending on the day before the date on which such loan is made, over the
outstanding balance of loans from such plans to the Participant on the date on
which such loan is made. No loan shall be approved if it is for an amount less
than $1,000, unless it is for the full value available.
b) All loans shall be subject to the approval of the
Administrative Committee which shall investigate each application for a loan.
Loans will be permitted if the purpose of the loan meets one of the following
conditions:
i) purchase of a residence;
ii) home improvement;
iii) education expenses; or
iv) other documented financial need as determined
by the Administrative Committee on a uniform and non-discriminatory manner.
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<PAGE> 83
c) In addition to such rules and regulations as the
Administrative Committee may adopt, all loans shall comply with the following
terms and conditions:
i) An application for a loan by Participant shall be made
in writing to the Administrative Committee whose action thereon shall be final.
ii) Each loan shall be supported by the borrower's
collateral promissory note for the amount of the loan. The Administrative
Committee may require that a Participant to whom a loan is to be made shall
enter into an agreement with the Employer authorizing that repayments of
principal and interest on such loan be implemented through payroll withholding.
iii) Interest shall be charged at a reasonable rate, shall
be a rate commensurate with the interest rates charged by persons in the
business of lending money for loans which would be made under similar
circumstances.
iv) The loan shall be amortized over a substantially level
period with payments being made not less frequently than quarterly.
v) Personal loans under this Plan shall be for a term of
five (5) years, or for such lesser term as the Administrative Committee agree is
appropriate. Home loans shall generally be for a term of twenty-five (25) years,
or for such lesser term as the Administrative Committee agree is appropriate.
vi) No distribution shall be made to any Participant or
former Participant or Beneficiary unless and until all unpaid loans, including
interest, have been fully repaid.
vii) Any loan to a Participant shall be treated on a
segregated investment of such Participant's Accounts. To the extent that such
Accounts are invested in different funding media, a loan shall be treated as a
segregated investment against such funding media on a pro-rata basis, unless the
Administrative Committee, in their discretion choose to apply over segregation
in a different manner.
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<PAGE> 84
viii) No Participant may have more than one loan
outstanding at any time.
ix) A Participant may take a loan from the Plan only once
within any twelve (12) consecutive month period.
d) For the purpose of this Article Twenty, the following terms
shall be defined as follows:
i) "home loan" - Any loan, the proceeds of which are used
to acquire, construct, or rehabilitate any dwelling unit which within a
reasonable time is to be used (determined at the time the loan is made) as a
principal residence of the Participant.
ii) "personal loan" - any loan under this Plan which is not
a home loan under this Plan.
e) Loan repayments shall be invested as per the Participant's
investment election in effect at the time of the installment payment.
f) Notwithstanding the foregoing, a loan shall be made from a
Participant's Account in the following order: A) first, from the Participant's
non-forfeitable interest in his Company Matching and Company Profit Sharing
Account; B) second, from the Participant's Elective Contribution Account; C)
third, from the Participant's Rollover Account; and D) fourth, from the
Participant's Voluntary Contribution Account.
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<PAGE> 85
ARTICLE TWENTY-ONE
------------------
Top Heavy Provisions
--------------------
21.01. SPECIAL DEFINITIONS. For the purposes of this Article Twenty-One, the
following words and phrases shall have the meanings set forth below:
a) "Aggregate Account" means, as of the Determination Date,
the sum of:
i) a Participant's account balance as of the most recent
valuation date occurring within a twelve (12) consecutive month period ending on
the Determination Date, including, in the case of a plan subject to the minimum
funding standards of Section 412 of the Code, amounts that would be allocated to
such account as of a date not later than the Determination Date even though such
amounts are not yet required to be contributed to the plan by such Determination
Date:
ii) an adjustment for any contribution due as of the
Determination Date. In the case of a plan not subject to the minimum funding
standards of Section 412 of the Code, such adjustment shall be the amount of any
contributions actually made after the valuation date but on or before the
Determination Date. In the case of a plan that is subject to the minimum funding
standards of Section 412 of the Code, such adjustment shall include any
contribution made, or due to be made, after the valuation date but before the
expiration of the extended payment period described in Section 412(c)(10) of the
Code. In the first plan year, such adjustment shall also reflect the amount of
any contributions made after the Determination Date that are allocated as of a
date in the first plan year;
iii) any plan distributions made within the plan year that
includes the Determination Date or within the four (4) preceding plan years.
However, in the case of distributions made after the valuation date and prior to
the Determination Date, such distributions are not included as distributions for
the purposes of this Article Twenty-One to the extent that such distributions
are already included in the Participant's Aggregate Account
XXI-1
<PAGE> 86
balance as of the valuation date. Notwithstanding anything herein to the
contrary, all distributions, including distributions made prior to January 1,
1984, will be counted.
iv) any employee contributions, whether voluntary or
mandatory provided, however, that amounts attributable to "deductible employee
contributions", as defined in Section 72(o)(5)(A) of the Code, if any, shall not
be considered to be a part of the Participant's Aggregate Account balance.
v) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the employee and made from a plan
maintained by one employer to a plan maintained by another employer that is not
an ERISA affiliate), the Plan making the distribution or transfer shall consider
such distribution or transfer as a distribution for the purposes of this Article
Twenty-One.
If the plan is the plan accepting such rollovers or
plan-to-plan transfers, it shall not consider any such rollovers or plan-to-plan
transfers accepted after December 31, 1983 as part of the Participant's
Aggregate Account balance. However, such unrelated roll overs or plan-to-plan
transfers accepted prior to January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
vi) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the employee or made to a plan
maintained by an ERISA affiliate), the plan making the distribution or transfer
shall not count such distribution or transfer as a distribution for purposes of
this Article Twenty-One. If the plan is the plan accepting such rollover or
plan-toplan transfer, it shall consider such rollover or plan-to-plan transfer
as part of the Participant's Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-plan transfer is accepted.
b) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group, as hereinafter determined.
XXI-2
<PAGE> 87
i) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the employer in which a Key Employee
is a Participant, or has been a Participant during the plan year containing the
Determination Date, or in any of the four (4) preceding plan years (whether or
not such plan has been terminated), and each other plan of the employer which
enables any plan in which a Key Employee participates to meet the requirements
of Sections 401(a)(4) or 410 of the Code during such period, will be required to
be aggregated. Such group shall be known as a Required Aggregation Group. In the
case of a Required Aggregation Group, each plan in the group will be considered
a Top Heavy Plan or Super Top Heavy Plan, as the case may be, if the Required
Aggregation Group is a Top Heavy Group, or Super Top Heavy Group, as the case
may be. No plan in the Required Aggregation Group will be considered a Top Heavy
Plan or Super Top Heavy Plan, as the case may be, if the Aggregation Group is
not a Top Heavy Group.
ii) Permissive Aggregation Group: the employer may also
include any other plan which provides comparable benefits but is not required to
be included in the Required Aggregation Group, provided the resulting group,
taken as a whole, would satisfy the provisions of Sections 401(a)(4) and 410 of
the Code. Such group shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be considered a Top
Heavy Plan, or Super Top Heavy Plan, as the case may be, if the Permissive
Aggregation Group is a Top Heavy Group, or Super Top Heavy Group, as the case
may be. No plan in the Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group.
XXI-3
<PAGE> 88
iii) Only those plans of the employer, in which the
Determination Dates fall within the same calendar year, shall be aggregated in
order to determine whether such plans are Top Heavy or Super Top Heavy Plans.
c) "Determination Date" means (1) the last day of the
preceding plan year, or (2) in the case of the first plan year of a Plan, the
last day of such plan year.
d) "Key Employee" means any employee, former employee, or the
beneficiary of such employee who, at any time during the plan year containing
the Determination Date or any of the preceding four (4) plan years, is or was:
i) an "officer" (as defined within the meaning of the
regulations issued under Section 416 of the Code) of the employer having annual
compensation that, for a plan year, exceeds 50% of the amount referred to in
Section 415(b)(1)(A) of the Code as in effect for the calendar year in which the
plan year ends. For this purpose, no more than fifty (50) Employees (or, if
lesser, the greater of three (3) or ten percent of the Employees) shall be
treated as officers.
ii) one of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the largest percentage
ownership interest in value in the employer or in any organization required to
be aggregated with the Employer under Sections 414(b), (c) or (m) of the Code,
if: (A) such ownership interest exceeds one- half percent (1/2%) and, (B) such
employee's annual compensation during the plan year of such ownership exceeds
the amount referred to in Section 415(c)(1)(A) of the Code as in effect for the
calendar year in which such plan year ends.
iii) a "5-percent owner" of the employer. "5- percent
owner" means any employee who owns (or is considered as owning within the
meaning of Section 318 of the Code) more than five percent (5%) of the value of
the outstanding stock of the employer or stock possessing more than five percent
(5%) of the total combined voting power of all stock of the employer.
XXI-4
<PAGE> 89
v) a "1-percent owner" of the employer having an annual
compensation from the employer of more than $150,000. "1- percent owner" means
any employee who owns (or is considered as owning within the meaning of Section
318 of the Code) more than one percent (1%) of the value of the outstanding
stock of the employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the employer.
v) For the purposes of determining percentage ownership in
accordance with the provisions of this Article Twenty-One, employers that would
otherwise be aggregated under Sections 414(b), (c) or (m) of the Code shall be
treated as separate employers. However, in determining whether an employee has
compensation of more than $150,000 or compensation that exceeds the threshold
amounts described in this Section 21.01(d)(i) and (ii), compensation from all
employers required to be aggregated under Sections 414(b), (c) or (m) of the
Code shall be taken into account.
e) "Non-Key Employee" means any Employee who is not a Key
Employee.
f) "Top Heavy Plan Year" means that, for a particular plan
year commencing after December 31, 1983, the Plan is a Top Heavy Plan.
21.02. DETERMINATION OF TOP HEAVY STATUS.
a) An Aggregation Group shall be a "Top Heavy Group" for any
plan year commencing after December 31, 1983 in which, as of the Determination
Date, the sum of the Present Value of Accrued Benefits of Key Employees and the
Aggregate Account balances of Key Employees under all plans of an Aggregation
Group exceeds sixty percent (60%) of the sum of the Present Value of Accrued
Benefits and the Aggregate Account balances of all employees under the plan and
all plans of the Aggregation Group.
b) An Aggregation Group shall be a "Super Top Heavy Group" for
any plan year commencing after December 31, 1983 in which, at the Determination
Date, the sum of the Present Value of Accrued Benefits of Key Employees and the
Aggregate Account
XXI-5
<PAGE> 90
balances of Key Employees and all plans in an Aggregation Group exceeds ninety
percent (90%) of the sum of the Present Value of Accrued Benefits and the
Aggregate Account balances of all employees under all plans of the Aggregation
Group.
c) "Present Value of Accrued Benefit" means, in the case of a
defined benefit plan, the present value of an accrued benefit, as determined
under the provisions of the applicable defined benefit plan and in compliance
with Treasury Regulations Section 1.416-1(T-25 and T-26). For this purpose the
accrued benefit of any employee (other than a Key Employee) shall be determined-
i) under the method which is used for accrual purposes for
all plans of the employer, or
ii) if there is no method described in clause (i), as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under Section 411(b)(1)(C) of the Code.
d) In determining Top Heavy status, the accrued benefit of (I)
an individual who is not a Key Employee with respect to any Plan in an
Aggregation Group for a Plan Year but who was a Key Employee with respect to a
Plan in an Aggregation Group for a prior Plan Year and (II) an individual who
performed no services for the Company of an ERISA Affiliate during the 5-year
period ending on the Determination Date) shall be disregarded.
21.03. TOP HEAVY PLAN REQUIREMENTS. For any Top Heavy Plan Year, the Plan shall
provide the following:
a) Special minimum benefit and contribution requirements of
Section 416(c) of the Code, pursuant to Section 21.04 of the plan.
b) Special vesting requirements of Section 416(b) of the Code,
pursuant to Section 21.07 of the plan.
XXI-6
<PAGE> 91
c) Special compensation requirements of Section 416(d) of the
Code, pursuant to Section 2 1.06 of the plan.
d) Special benefit limitations of Section 416(h) of the Code,
pursuant to Section 21.05 of the plan.
21.04. MINIMUM ALLOCATIONS AND BENEFITS.
a) In the case of a defined contribution plan, for any Top
Heavy Plan Year, the sum of employer contributions and forfeitures allocated to
the account of each Non-key Employee who is a Participant and who has not
terminated employment by the end of such Plan Year (including (A) Participants
who fail to complete at least 1,000 Hours of Service during the Plan Year, (B)
employees who are excluded from the plan or accrue no benefit because their
compensation is less than a stated amount, and (C) employees who are excluded
from the Plan or accrue no benefit because they fail to make mandatory
contributions, or, in the case of a plan intended to qualify under Section
401(k) of the Code, elective contributions) shall be equal to at least three
percent (3%) of such Non-key Employee's compensation. However, should the sum of
the employer's contributions and forfeitures allocated to the account of each
Key Employee for such Top Heavy Plan Year be less than three percent (3%) of
each such Key Employee's compensation, the sum of the employer's contributions
and forfeitures allocated to the account of each Non-key Employee who is a
Participant (including the employees referred to in the preceding sentence)
shall be equal to the highest percentage allocated to the account of a Key
Employee. The preceding sentence shall not apply to any plan required to be
included in an Aggregation Group if such plan enables a defined benefit plan
required to be included in an Aggregation Group to meet the requirements of
Section 401(a)(4) or Section 410 of the Code. For purposes of satisfying the
minimum contribution requirements of this subparagraph, an employee's elective
deferrals under a cash or deferred arrangement (as defined in Section 401(k) of
the Code) and any contributions made by an employer that are treated as matching
contributions for purposes of
XXI-7
<PAGE> 92
either Section 401(k)or Section 401(m) of the Code shall not be treated as
an employer contribution.
b) In the case of a defined benefit plan, for any Top Heavy
Plan Year, the accrued benefit, when expressed as an Annual Retirement Benefit
(as defined below), of a Participant who is a Non-key Employee and who has
completed at least one thousand (1,000) Hours of Service during the plan year
(including employees who are excluded from the Plan or accrue no benefit because
their compensation is less than a stated amount and employees who are excluded
from the plan or accrue no benefit because they fail to make mandatory
contributions) shall not be less than the product of (A) the number of years of
Top Heavy Service (as defined below), and (B) two percent (2%) of the
Participant's average compensation during the period of the five (5) consecutive
years of Top Heavy Service during which the Participant had the greatest
aggregate compensation. However, under no circumstances will such product exceed
twenty percent (20%) of the average compensation.
i) The foregoing defined benefit minimum shall be
determined without regard to any Social Security contribution or benefit.
ii) "Annual Retirement Benefit" means a benefit which
commences at age 65 and is payable annually in the form of a single life
annuity.
iii) A "year of Top Heavy Service" shall be a Year of
Service which is credited for benefit accrual purposes during a Top Heavy Plan
Year.
c) Notwithstanding anything herein to the contrary, in any
plan year in which a Non-key Employee participates in both a defined benefit
plan and a defined contribution plan, and both such plans are Top Heavy Plans,
the employer shall not be required to provide a Non-key Employee with both the
defined benefit
XXI-8
<PAGE> 93
minimum and the defined contribution minimum. Therefore, for such Non-key
Employee who is participating in a Top Heavy defined benefit plan maintained by
the employer, the defined benefit minimum, as provided under Section 21.04(b)
above, shall accrue and the defined contribution minimum shall not be
applicable.
21.05. MULTIPLE PLAN REDUCTION FOR TOP HEAVY PLAN YEARS.
a) For any Top Heavy Plan Year, 1.0 shall be substituted for
1.25 in Section 5.03, wherever it shall apply, unless (1) the defined
contribution minimum is made pursuant to Section 21.04(a) with "four percent
(4%)" substituted for "three percent (3%)", or (2) the defined benefit minimum
accrues pursuant to Section 21.04(b) with "three percent (3%)" substituted for
"two percent (2%)", and "thirty percent (30%)" substituted for "twenty percent
(20%)". However, for any plan year in which the plan is a Super Top Heavy Plan,
1.0 shall be substituted for 1.25 without exception.
b) For any Top Heavy Plan Year, $41,500 shall be substituted
for $51,875 in determining the "transition fraction" defined in Section 5.04,
unless the extra minimum benefit accrual is made pursuant to Section 21.05(a).
However, for any limitation year in which the Plan is a Super Top Heavy Plan,
$41,500 shall be substituted for $51,875 without exception.
21.06. MINIMUM VESTING.
For any Top Heavy Plan Year, the vested interest of each
Participant who has been credited with at least one (1) Hour of Service during
such Top Heavy Plan Year in his accrued benefit (including benefits accrued
before the effective date of Section 416 of the Code and before the plan became
a Top Heavy Plan, but not including benefits that were forfeited before the plan
became a Top Heavy Plan) shall not be less than the vested percentage specified
in Article Eleven of the Plan, nor less than the applicable percentage indicated
by the following minimum vesting schedule:
XXI-9
<PAGE> 94
Minimum
Vesting
Years of Service Percentage
---------------- ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
Should the plan cease to be a Top Heavy Plan, this minimum vesting
schedule shall no longer apply provided, however, that: (a) a Participant's
vested percentage shall not be less than his vested percentage determined
pursuant to the above minimum vesting schedule as of the end of the last Top
Heavy Plan Year, and (b) such reversion to the original vesting schedule of the
plan shall be treated as a change in the Plan's vesting schedule so that the
provisions of Section 15.03(b) of this Plan shall apply.
For purposes of this Section 21.06, Years of Service during which
neither the Company nor any ERISA Affiliate maintained the Plan, Years of
Service completed by an employee before he attained age 18, and Years of Service
that are disregarded under Section 11.02, shall be disregarded.
XXI-10
<PAGE> 95
ARTICLE TWENTY-TWO
------------------
Miscellaneous
-------------
22.01. INTERPRETATION OF THE PLAN AND TRUST. It is the intention of the Company
that the Plan, and the Trust established to implement the Plan, shall comply
with the provisions of Sections 401 and 501 of the Code and the requirements of
ERISA, and the corresponding provisions of any subsequent laws, and the
provisions of the Plan shall be construed to effectuate such intention.
22.02. GENDER AND NUMBER. Wherever appropriate, words used in the Plan in the
singular may mean the plural, the plural may mean the singular and the masculine
may mean the feminine.
22.03. COUNTERPARTS. This document may be executed in counterparts, all of which
taken together shall constitute a complete document.
XXII-1
<PAGE> 96
IN WITNESS WHEREOF, this Plan has been executed this 22nd day
of December, 1994.
KROLL ASSOCIATES, INC.
BY: /s/ Robert J. McGuire
--------------------------------
Robert J. McGuire
President and Chief Operating
Officer
ATTEST:
Robert Connolly
- ---------------
Robert Connolly
Secretary
<PAGE> 97
APPENDIX I
----------
List of Adopting Employers
--------------------------
The following employers have adopted the Kroll Associates 401(k) Savings for
their employees.
- KROLL INFORMATION SERVICES, INC.
- KROLL ENVIRONMENTAL ENTERPRISES, INC. - An Employee's
Years of Service shall be measured from the earlier
of (i) his most recent date of hire with Harrison
Environmental Services, Inc., or (ii) his date of
hire with Harrison/Kroll Environmental Services,
Inc., or (iii) Kroll Environmental Services.
- KROLL ELECTRONIC RECOVERY, INC.
<PAGE> 98
INTERNAL REVENUE SERVICE
DISTRICT DIRECTOR DEPARTMENT OF THE TREASURY
G.P.O. BOX 1680
BROOKLYN, NY 11202
Employer Identification Number:
11-2286880
Date: Apr. 29, 1993 File Folder Number:
113016295
Person to Contact:
SUSAN CHEN
KROLL ASSOCIATES INC. Contact Telephone Number:
900 THIRD AVENUE (212)264-3897
NEW YORK, NY 10022 Plan Name:
KROLL ASSOCIATES 401K SAVINGS PLAN
AND TRUST
Plan Number: 003
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records.
Continued qualification of the plan under its present form will depend
on its effect in operation. (See section 1.401- 1(b)(3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may effect the qualified
status of your employee retirement plans and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal or
local statutes.
This determination letter is applicable for the plan adopted
on Dec. 31, 1991.
This letter is based upon the certification and demonstrations you
submitted pursuant to Revenue Procedure 91-66. Therefore, the certification and
demonstrations are considered an integral part of this letter. Accordingly, YOU
MUST KEEP A COPY OF THESE DOCUMENTS AS A PERMANENT RECORD OR YOU WILL NOT BE
ABLE TO RELY ON THE ISSUES DESCRIBED IN REVENUE PROCEDURE 91-66.
The information on the enclosed addendum is an integral part of this
determination. Please be sure to read and keep it with this letter.
We have sent a copy of this letter to your representative as indicated
in the power of attorney.
<PAGE> 99
-2-
KROLL ASSOCIATES INC.
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
Sincerely, yours,
/s/ Herbert J. Huff
Herbert J. Huff
District Director
Enclosures:
Publication 794
PHBA 515
Addendum
<PAGE> 100
-3-
KROLL ASSOCIATES INC.
"Effective January 1, 1993, all qualified plans, including this plan,
must comply with Code section 401(a)(31). In general, section 701(a)(31)
requires plans to permit participants to elect to have an eligible retirement
distribution paid directly to an eligible retirement plan in a direct rollover.
This requirement applies to distributions made on or after January 1, 1993.
Because your application was submitted before January 1, 1993, the Service did
not review this plan for compliance with section 401(a)(31). Accordingly, the
scope of this determination letter does not extend to the plan's compliance with
section 401(a)(31), and this determination letter may not be relied upon with
respect to that issue. For more details, see Revenue Procedure 93-12, 1993-3
I.R.B.
<PAGE> 101
TRUST AGREEMENT
under the
KROLL ASSOCIATES 401(K) PLAN
----------------------------
(name of Plan)
This TRUST AGREEMENT is between KROLL ASSOCIATES, INC., a Delaware corporation
with its principal office at 900 3rd Ave, New York, New York 10022 (the
"employer") and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association with an office at Chase Square, Rochester, New York 14643,
as Trustee, to amend and restate the Trust maintained under the KROLL ASSOCIATES
401(k) the Plan), effective as of August 1, 1994. This Trust is intended to be a
qualified trust exempt from tax under Section 501(a) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 102
ARTICLE I
---------
GENERAL DUTIES OF THE PARTIES
SECTION 1.1. General Duties of Employer.
--------------------------
The Employer shall provide the Trustee with a certified copy
of the Plan and with copies of all amendments promptly upon their adoption and
shall certify to the Trustee the names and specimen signatures of those
individuals responsible for the administration of the Plan (individually and
collectively referred to in this Agreement as the "Administrator"). Each person
so certified to the Trustee as the Administrator shall have full authority to
act as the Administrator for purposes of this Agreement. The Employer shall make
its contributions as the same may be appropriated by due corporate action.
Contributions may be in cash or in other property acceptable to the Trustee. The
Employer shall keep accurate books and records with respect to its employees and
their compensation.
SECTION 1.2. Funding Policy.
--------------
From time to time the Administrator shall communicate in writing to the
Trustee, and to any Investment Manager who may have been appointed, the current
funding policy and method that have been established to carry out the objectives
of the Plan.
SECTION 1.3. General Duties of Trustee.
-------------------------
The Trustee shall hold all property received by it under this
Agreement, which, together with any income, gains and additions, shall
constitute the Trust Fund. The Trustee shall manage, invest and reinvest the
Trust Fund (except as otherwise provided in this Agreement), collect the income,
and make payments as provided in this Agreement. The Trustee shall be
responsible only for the property actually received by it under this Agreement.
It shall have no duty or
<PAGE> 103
-2-
authority to compute any amount to be paid to it by the Employer or to bring any
action or proceeding to enforce the collection from the Employer of any
contribution to the Trust Fund.
ARTICLE II
----------
INVESTMENT, ADMINISTRATION AND DISBURSEMENT
OF THE TRUST FUND
SECTION 2.1. Eligible Investments for the Trust Fund.
---------------------------------------
The Trust Fund may be invested in any real, personal, or mixed
property, regardless of where it is situated and whether or not it is productive
of income or consists of wasting assets. Eligible investments include, without
limitation, common and preferred stocks, bonds, notes, debentures, financial
futures and options, swaps and other derivatives, convertible securities,
mortgages (including, without limitation, any collective or part interest in any
bond and mortgage or note and mortgage), certificates of deposit, demand or time
deposits (including any deposit with the Trustee or an affiliate of the
Trustee), shares of investment companies and mutual funds, interests in
partnerships and trusts, insurance policies and contracts, and oil, mineral or
gas properties, royalties, interests or rights (including related equipment).
Investments shall not be limited to the classes of property in which trustees
are authorized to invest trust funds by any law or rule of any court or state.
Nevertheless, the Trust Fund shall not be invested in any stock or securities of
the Employer or the Company except as permitted by law. Investments may be made
without regard to the proportion any property may bear to the entire amount of
the Trust Fund, provided, however, that, except as otherwise provided in this
Agreement, investments shall be so diversified as to minimize the risk of large
losses unless it is clearly prudent not to do so under the circumstances in the
sole judgment of the Trustee or Investment Manager, as the case may be. Any
property received at any time by the Trustee may be retained in the Trust Fund.
<PAGE> 104
-3-
SECTION 2.2. Investment Management Responsibilities of the Trustee.
-----------------------------------------------------
(a) The Trustee shall manage, invest, and reinvest the Trust Fund in
its discretion, except to the extent otherwise provided in Sections 2.3 or 2.4.
(b) The Trustee may invest and reinvest any assets under its management
collectively with funds of other pension and profit-sharing trusts exempt from
tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the
"Code") by reason of qualifying under Section 401(a) of the Code either in short
term obligations selected by the Trustee or by investment collectively with
other funds through the medium of one or more collective investment funds which
have been or may be established and maintained by it or any bank affiliated with
it. Any investment in a collective investment fund shall be subject to the terms
of the instrument or instruments governing the fund.
(c) Any Investment Manager appointed under Section 2.3 may delegate to
the Trustee authority by written authorization to invest any specified portion
of the assets managed by the Investment Manager, in the Trustee's sole
discretion, in short term obligations or in one or more mutual funds which
invests primarily in short-term obligations. The Trustee may make these
investments collectively with other funds, including without limitation through
the medium of one or more collective investment funds. Any such collective
investment fund shall be managed by the Trustee or any bank affiliated with it
in its sole discretion.
(d) The Trustee shall have all the investment powers given to trustees
by applicable law. Without limiting this grant of authority, the Trustee shall
have the power:
(i) To sell or exchange any property at public or private sale for
cash or on credit and to grant options for the purchase or exchange of that
property;
(ii) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan relating to any property
held in the Trust Fund, and
<PAGE> 105
-4-
to consent to or oppose such a plan or any action under such a plan, or any
contract, lease, mortgage, purchase, sale or other action by any person or
corporation;
(iii) To exercise conversion and subscription rights pertaining to
any property held in the Trust Fund;
(iv) To extend the time of payment of any obligation held in the
Trust Fund;
(v) To enter into stand-by agreements for future investment, either
with or without a stand-by fee; and
(vi) To hold uninvested, without liability for interest thereon,
any moneys received by the Trustee until the same shall be reinvested or
disbursed.
Nevertheless, the Trustee shall exercise these powers only with respect
to assets of the Trust Fund which are under its management or, with respect to
assets which are not under its management in accordance with the direction of an
Investment Manager, the Administrator, or a Participant, as the case may be.
(e) THE TRUSTEE IS AUTHORIZED TO INVEST ASSETS UNDER ITS MANAGEMENT
FROM TIME TO TIME IN REGISTERED INVESTMENT COMPANIES TO WHICH IT OR AN AFFILIATE
ACTS AS INVESTMENT ADVISER OR PROVIDES OTHER SERVICES. FROM TIME TO TIME THE
TRUSTEE SHALL DETERMINE THE TRUST'S PRO RATA SHARE OF ANY FEES RECEIVED BY THE
TRUSTEE OR ITS AFFILIATES FROM THE INVESTMENT COMPANY FOR SERVICES RENDERED
(WHETHER OR NOT FOR INVESTMENT ADVISORY SERVICES). THE TRUSTEE THEN SHALL REDUCE
THE COMPENSATION PAYABLE TO THE TRUSTEE UNDER THIS AGREEMENT BY AN AMOUNT EQUAL
TO THE TRUST'S PRO RATA SHARE OF THOSE FEES. ALTERNATIVELY, IF THE TRUSTEE AND
THE
<PAGE> 106
-4-
ADMINISTRATOR SO AGREE, THE TRUSTEE SHALL WAIVE ITS COMPENSATION UNDER THIS
AGREEMENT FOR THAT PORTION OF THE TRUST FUND WHICH IS INVESTED IN ANY SUCH
INVESTMENT COMPANY FOR THE DURATION OF THE INVESTMENT. NEVERTHELESS, NOTHING IN
THIS SUBSECTION SHALL REQUIRE ANY OFFSET OF THE TRUSTEE'S COMPENSATION OR
REIMBURSEMENT FOR ANY FEE WHICH THE TRUSTEE RECEIVES FROM AN INVESTMENT COMPANY
WITH RESPECT TO AN INVESTMENT MADE BY AN INVESTMENT MANAGER OR THE ADMINISTRATOR
UNDER SECTION 2.3 OR AT THE DIRECTION OF A PARTICIPANT UNDER SECTION 2.4.
(f) Except as provided in the next sentence, the Trustee shall have the
power in its discretion to exercise all voting rights with respect to any
investment held in the Trust Fund and to grant proxies, discretionary or
otherwise. The Trustee shall not exercise its discretion, however, with respect
to voting any securities which are under the management of an Investment
Manager. In that case the Trustee shall send the Investment Manager all proxies
and proxy materials relating to the applicable securities, signed by the Trustee
without indication of voting preference, and the Investment Manager shall
exercise all voting rights with respect to them. Additionally, except as
otherwise required by law, the Trustee shall not exercise its discretion with
respect to the voting of securities issued by the Employer or any of its
affiliates which are held subject to the direction of Participants (the
"Employer Securities"). The Trustee shall send all proxies and proxy materials
relating to the Employer Securities to the appropriate Participants. Moreover,
unless the Plan provides otherwise, the Trustee shall allocate the votes for any
Employer Securities for which a Participant fails to complete a proxy in
proportion to the Participants' vote of the remaining Employer Securities.
SECTION 2.3. Management by Investment Managers or the Administrator.
------------------------------------------------------
(a) IN GENERAL. From time to time the Administrator shall specify by
written notice to the Trustee whether the investment of the Trust Fund shall be
managed in whole or in part by the Trustee, one or more investment managers
appointed by the Board of Directors of the
<PAGE> 107
-6-
Employer (each an "Investment Manager"), or the Administrator. If the investment
management of the Trust Fund is to be shared, the notice shall specify how the
investment responsibility is to be divIded with respect to assets, classes of
assets or separate investment funds. Each Investment Manager shall either (i) be
registered as an investment adviser under the Investment Advisers Act of 1940,
(ii) be a bank, as defined in that Act, or (iii) be an insurance Employer
qualified to perform investment management services under the laws of more than
one state.
(b) Management by Investment Managers.
---------------------------------
(i) If investment of the Trust Fund is to be managed in whole or in
part by one or more Investment Managers, the Trustee shall be given copies of
the instruments appointing the Investment Manager, evidencing its acceptance of
the appointment and acknowledging that it is a fiduciary of the Plan, and a
certificate evidencing the Investment Manager's registration under the
Investment Advisers Act. The Trustee may continue to rely upon these instruments
and that certificate until otherwise notified in writing by the Administrator.
(ii) The Trustee shall follow the directions of the Investment
Manager regarding the investment and reinvestment of the Trust Fund, or that
portion of the Trust Fund as shall be under management by the Investment
Manager. The Trustee shall be under no duty or obligation to review any
investment to be acquired, held or disposed of in accordance with those
directions or to make any recommendations with respect to the disposition or
continued retention of any investment under the Investment Manager management.
The Trustee shall have no liability or responsibility for acting without
question on the direction of, or failing to act in the absence of any direction
from, the Investment Manager, unless the Trustee knows that, as a result, it
will be participating in a breach of fiduciary duty by the Investment Manager.
(iii) The Investment Manager at any time and from time to time may
issue orders directly to a broker for the purchase or sale of securities. In
order to facilitate those transactions, the Trustee shall execute and deliver
appropriate trading authorizations upon request. Written or electronic
notification of the issuance of each order given directly to a broker shall
<PAGE> 108
-7-
be given promptly to the Trustee by the Investment Manager. The execution of
each order shall be confirmed to the Trustee by the broker. The notification
shall be authority for the Trustee to pay for securities purchased against
receipt and to deliver securities sold against payment, as the case may be.
(iv) If an Investment Manager should resign or be removed by the
Employer, the Employer shall give the Trustee written notice of the resignation
or removal. Upon receipt of the notice, the Trustee shall manage the investment
of the Trust Fund unless and until it shall be notified of the appointment of
another Investment Manager.
(c) Management by the Administrator
-------------------------------
(i) If the Plan so provides, the Administrator may direct any or
all investments of the Trust Fund, and the Trustee generally shall follow the
directions of the Administrator regarding the investment and reinvestment of any
part of the Trust Fund. Investments made at the direction of the Administrator
may consist to the extent authorized by the plan of investments in group annuity
contracts containing terms and conditions acceptable to the Administrator,
investment companies, collective pension and profit sharing trusts sponsored by
financial institutions not affiliated with the Trustee, real estate investment
trusts, guarantied investment contracts, deposits at banks and other depository
institutions, and any other investment, provided that, for any investment
directed by the Administrator, the investment is reasonably satisfactory to the
Trustee from a systems and operations standpoint. The terms and conditions of
the declaration of trust for any such collective pension and profit sharing
trust are incorporated herein by reference. If the Administrator and the
Trustees agree in writing, the Administrator may transmit the funds directly to
third parties such as insurance companies, investment companies, or dealers to
settle any investment transaction directed by the Administrator.
(ii) The Trustee shall be under no duty or obligation to review any
investment to be acquired, held, or disposed of in accordance with the
Administrator's directions or to make any recommendations with respect to the
acquisition, disposition, or continued retention of any
<PAGE> 109
-8-
investment directed by the Administrator. Nevertheless, the Trustee may refuse
to comply with any direction of the Administrator, or dispose of any investment
held at the direction of the Administrator and reinvest the proceeds, if it
reasonably determines that It may be required to take such an action under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(d) NOTWITHSTANDING SECTION 2.2(e), THE TRUSTEE MAY RETAIN, WITHOUT
OFFSET AGAINST ANY FEE OWE[) TO IT UNDER THIS AGREEMENT, ANY REASONABLE FEES
PAID TO IT, OR TO ANY OF ITS AFFILIATES, BY ANY PERSON FOR THE PROVISION OF
INVESTMENT ADVISORY, SHAREHOLDER SERVICING, ADMINISTRATIVE, CUSTODIAL,
SPONSORSHIP, DISTRIBUTION, OR SIMILAR SERVICES TO ANY REGISTERED INVESTMENT
COMPANY, OR TO ANY COLLECTIVE PENSION AND PROFIT-SHARING TRUST WHICH IS EXEMPT
FROM TAX BY REASON OF SECTION 501(a) OF THE CODE, IN WHICH ANY INVESTMENT
MANAGER (OR THE ADMINISTRATOR) MAY INVEST ASSETS OF THE TRUST FUND.
SECTION 2.4. Direction of Investments by Participants.
----------------------------------------
(a) If the Plan so provides, Participants may direct the investment of
assets held in their respective individual account or accounts in investment
alternatives selected by the Administrator or set forth in the Plan document or
Plan adoption agreement, as the case may be (each an "Investment Alternative").
The Administrator may select as Investment Alternatives collective investment
funds managed by the Trustee, portfolios of assets managed by the Trustee or an
Investment Manager as the case may be, or other Investment Alternatives
(including registered investment companies) acceptable to the Trustee from an
administration and operations standpoint.
(b) The Trustee may establish rules and procedures from time to time
for the direction of investments by Participants. Instructions provided to the
Trustee in accordance with this
<PAGE> 110
-9-
subsection 2.4(b) for the direction of investments shall be deemed a
certification by the Administrator and the Employer that the investment is (i)
in accordance with the terms of the Plan, (ii) in accordance with the investment
instructions of the Participant if provided by the Administrator or some other
person designated by the Administrator on the Participant's behalf and (iii)
complies with applicable law and is otherwise proper. The Trustee shall be fully
protected in relying on the truth of any instruction or representation which
purports to be given in accordance with this subsection and shall have no duty
to investigate the accuracy or authenticity of such an instruction or
representation.
(c) Participants directing their investments shall be solely
responsible for the designation of investments for their individual accounts,
and neither the Trustee nor any Investment Manager shall be responsible or have
any authority with respect to any such designation except for complying with
ERISA and with investment directions provided by the Participants in accordance
with this Agreement and any procedures established by the Trustee. Further,
neither the Trustee nor any Investment Manager shall be obligated to review
investments held in any of these Participants' accounts or be responsible for
the failure of any Participant to diversify investments. Nevertheless, the
Trustee or an Investment Manager, as the case may be, shall remain responsible
under this Agreement for the management of any collective investment fund or
other portfolio of assets selected as an Investment Alternative (other than a
registered investment company) which it manages.
(d) NOTWITHSTANDING SECTION 2.2(e), THE TRUSTEE MAY RETAIN, WITHOUT
OFFSET AGAINST ANY FEE OWED TO IT UNDER THIS AGREEMENT, ANY REASONABLE FEES PAID
TO IT, OR TO ANY OF ITS AFFILIATES, BY ANY PERSON FOR THE PROVISION OF
INVESTMENT ADVISORY, SHAREHOLDER SERVICING, ADMINISTRATIVE, CUSTODIAL,
SPONSORSHIP, DISTRIBUTION, OR SIMILAR SERVICES TO ANY REGISTERED INVESTMENT
COMPANY OR TO ANY COLLECTIVE PENSION AND PROFIT-SHARING TRUST WHICH IS EXEMPT
FROM TAX BY REASON OF SECTION 501(a) OF THE CODE WHICH THE ADMINISTRATOR SELECTS
AS AN INVESTMENT ALTERNATIVE.
<PAGE> 111
-10-
(e) If the Administrator selects one or more investments managed by the
Trustee as Investment Alternatives, the Trustee shall invest in its discretion
in accordance with Section 2.2, those Trust Fund assets which Participants may
direct from time to time to the alternatives managed by the Trustee.
Nevertheless, the Trustee's investments shall be in accordance with investment
objectives selected by the Administrator and shall be made without regard to the
Trust Fund's other investments on behalf of those Participants. Further, the
Trustee's investments may be made without regard to the proportion any property
may bear to the entire amount of the Trust Fund, provided, however, that
investments within an Investment Alternative managed by the Trustee shall be so
diversified as to minimize the risk of large losses within that Investment
Alternative unless it is clearly prudent not to do so under the circumstances in
the sole judgment of the Trustee.
(f) Investment Alternatives consisting of registered investment
companies for which the Trustee or any of its affiliates acts as investment
adviser shall not be considered to be Investment Alternatives managed by the
Trustee for purposes of this Agreement. Neither the Trustee nor any of its
affiliates assumes any fiduciary responsibility to the Trust or the participants
with respect to the management of such a registered investment company except as
may otherwise be provided in the investment advisory agreement with the
investment company or the Investment Company Act of 1940.
(g) If the Employer intends that, with respect to any portion of the Trust which
is invested in accordance with this Section 2.4, the Plan shall qualify as an
"ERISA Section 404(c) Plan," as that term is defined in Regulation Section
2550.404c-1 of the United States Department of labor or any successor to that
regulation. The Employer and the Administrator shall be solely responsible for
the Plan satisfying the various criteria set forth in that regulation for
qualification as an ERISA Section 404(c) Plan. Thus, among other things, the
Employer and the Administrator shall be solely responsible for satisfying the
regulation's criteria with respect to selecting a broad range of investment
alternatives among which Participants may designate investments of their
accounts, providing Participants with adequate information concerning the
designated investment alternatives, and restricting the frequency with which
<PAGE> 112
-11-
Participants may issue investment instructions.
SECTION 2.5. Administrative Powers of Trustee.
--------------------------------
The Trustee shall have power in its discretion:
(a) To cause any investment to be registered and held in the
name of one or more of its nominees, or one or more nominees of any
system for the central handling of securities, without increase or
decrease of liability;
(b) To collect and receive any and all money and other
property due to the Trust Fund and to give full discharge for the money
or property;
(c) To settle, compromise or submit to arbitration any claims
debts or damages due or owing to or from the Trust; to commence or
defend suits or legal proceedings to protect any interest of the Trust;
and to represent the Trust in all suits or legal proceedings in any
court or before any other body or tribunal;
(d) To organize under the laws of any state a corporation for
the purpose of acquiring and holding title to any property which it is
authorized to acquire under this Agreement and to exercise with respect
to that corporation any or all of the powers set forth in this
Agreement;
(e) To manage, operate, repair, improve, develop, preserve,
mortgage or lease for any period any real property or any oil, mineral
or gas properties, royalties, interests or rights held by it directly
or through any corporation, either alone or by joining with others,
using other Trust assets for any of such purposes; to modify, extend,
renew, waive or otherwise adjust any or all of the provisions of any
such mortgage or lease; and to make provision for amortization of the
investment in or depreciation of the value of such property; and
<PAGE> 113
-12-
(f) To borrow money from others, to issue its promissory note
or notes, and to secure repayment by pledging any property; in its
possession. Nevertheless, no loan or advance shall be made by the
Trustee other than temporary advances to the Trust Fund, on a cash or
overdraft basis, on which no interest is payable.
(g) To employ accountants, actuaries, brokers, appraisers,
counsel and others deemed necessary by the Trustee in its
administration of the Trust and to pay from the Trust Fund the
reasonable compensation and expenses for such services;
(h) To pay from the Trust fund all expenses of the Plan and
Trust, including all taxes and all reasonable fees and expenses of the
Trust; and
(i) Generally to do all acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable for the
protection of the Trust Fund.
SECTION 2.6. Trustee's Authority.
-------------------
Persons dealing with the Trustee shall be under no obligation to see to
the proper application of any money paid or property delivered to the Trustee or
to inquire into the Trustee's authority as to any transaction.
SECTION 2.7. Payments and Distributions from Trust Fund.
------------------------------------------
(a) The Trustee shall make payments, transfers, and distributions from
the Trust Fund in accordance with any written directions of the Administrator.
The Trustee shall not be responsible for the application of any payment,
transfer, or distribution made to a paying agent at such time or times and to
such person or persons, including, for example, a paying agent or agents
designated by the Administrator or the Administrator as paying agent. (Any cash
or property so paid or delivered to any paying agent shall be held in trust by
the payee until it is disbursed in accordance with the Plan.) The Trustee shall
comply with directions to transfer and
<PAGE> 114
-13-
deliver any part of the Trust Fund to any other trust established for the
purpose of funding benefits under the Plan or under any other plan qualifying
under Section 401 of the Code established for the benefit of Participants in the
Plan or their beneficiaries by the Employer or any successor or transferee of
the Employer, but only if the transfer conforms with the requirements of Federal
law. Neither during the existence nor upon the discontinuance of the Plan shall
any part of the Trust Fund be used for or diverted to purposes other than for
the exclusive benefit of the employees of the Employer or their beneficiaries,
except as provided by law or in Section 7.2. Any written direction of the
Administrator shall constitute a certification that the distribution or payment
so directed is one which the Administrator is authorized to direct.
(b) The Trustee may make any distribution or payment required to be
made by it by mailing its check for the specified amount, or delivering the
specified property, to the person to whom such distribution or payment is to be
made, at the address which may have been last furnished to the Trustee. If no
such address shall have been so furnished, the Trustee may make the distribution
or payment to that person in care of the Employer or the Administrator) or (if
so directed by the Administrator) by crediting the account of that person or by
transferring funds to such person's account by bank wire or transfer.
SECTION 2.8. Loans to Participants.
---------------------
If specified in the Plan, the Trustee (or, if loans are treated as
Directed Investments under the Plan, the Administrator) may, in the Trustee's
(or, if applicable, the Administrator's) sole discretion, make loans to
Participants or Beneficiaries as provided in the Plan.
ARTICLE III
-----------
ADDITIONAL PROVISIONS RELATING TO THE TRUSTEE
SECTION 3.1. Authority of Individuals designated as the Administrator.
--------------------------------------------------------
<PAGE> 115
-14-
(a) The Trustee may continue to rely on the authority of each person
designated by the Employer as the Administrator until notified in accordance
with Section 1.1 that that person has ceased to act in that capacity. If at any
time no Administrator has been appointed, the Board of Directors of the Employer
(or, if the Employer is a partnership, its management committee) shall be deemed
to be the Administrator.
(b) The Administrator may appoint employees of the Employer to act on
its behalf on matters relating to the Trust Fund and this Agreement, and, from
time to time, it shall certify to the Trustee the name or names of any person or
persons so authorized to act. The Trustee may continue to rely on the authority
of a person to act for the Administrator until the Administrator notifies the
Trustee that that person is no longer authorized to act for the Administrator.
SECTION 3.2. Action by the Employer, the Administrator or its Designate;
-----------------------------------------------------------
Notices.
-------
(a) The Trustee may rely upon any certificate, notice or direction
purporting to have been signed by or on behalf of the Administrator which the
Trustee believes to have been signed by the Administrator or the person or
persons authorized to act for the Administrator. The Trustee also may rely upon
any certificate, notice, or direction of the Employer which the Trustee believes
to have been signed by a duly authorized officer or agent of the Employer.
(b) Communications to the Trustee shall be sent to the Trustee's office
or to any such other address as the Trustee may specify. No communication shall
be binding upon the Trust Fund or the Trustee until it is received by the
Trustee. Communications to the Administrator or to the Employer shall be sent to
the Employer's principal office or to any other address as the Employer may
specify.
SECTION 3.3. Advice of Counsel or Administrator.
----------------------------------
The Trustee may consult with any legal counsel, including
its internal legal staff and counsel to the Employer or the Administrator, with
respect to the construction of this Agreement,
<PAGE> 116
-15-
its duties, or any act which it proposes to take or omit and shall be protected
fully with respect to any action or omission taken in reasonable reliance on the
advice received. The Trustee may pay the reasonable fees and expenses of any
such counsel (including the allocated cost of internal counsel) from the Trust
Fund.
SECTION 3.4. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall discharge its duties under this Agreement with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with similar matters
would use in the conduct of an enterprise of a like character and with like
aims. The Trustee shall not be liable for any loss sustained by the Trust Fund
by reason of the purchase, retention, sale or exchange of any investment in good
faith and in accordance with the provisions of this Agreement and of any
applicable Federal law.
(b) The Trustee's duties and obligations shall be limited to those
expressly imposed upon it by this Agreement, notwithstanding any reference to
the Plan.
SECTION 3.5. Indemnification of the Trustee.
------------------------------
(a) The Employer shall indemnify, hold harmless, and defend the
Trustee, its affiliates, and their officers, agents and employees from and
against all damages, claims, losses, liabilities, demands, penalties,
obligations, costs, disbursements, and expenses (including, for example,
attorneys' and experts' fees, expenses, and disbursements) which it or they may
receive, suffer or incur, arising out of or resulting from the performance of
the Trustee's responsibilities with respect to the Trust, except to the extent
that the same is determined to be the result of the negligence or wilful
misconduct of the Trustee or its affiliates or their officers, agents, or
employees.
(b) Additionally, the Employer and the Trust, jointly and separately,
shall indemnify, hold harmless, and defend the Trustee, its affiliates, and
their officers, agents and employees from
<PAGE> 117
-16-
and against all damages, claims, losses, liabilities, demands, penalties,
obligations, costs, disbursements, and expenses (including, for example,
attorneys and experts' fees, expenses, and disbursements) which it or they may
receive, suffer or incur arising out of or resulting from the performance of the
Trustee s responsibilities with respect to the Trust, except to the extent that
tile same is determined to be the result of the negligence or wilful misconduct
of the Trustee or its affiliates or their officers, agents, or employees.
SECTION 3.6. Delegation
----------
The Trustee may delegate its authority (other than the management and
control of the Trust Fund) to one or more persons or entities provided its
delegation is prudent. The Trustee shall not be liable for any error or omission
by any such delegee provided that the delegation was prudent and the Trustee
monitored the performance of the delegee from time to time in a prudent manner.
SECTION 3.7. Retention of the Trustee as Agent.
---------------------------------
The Employer, the Administrator or both at any time may employ the
Trustee as agent to perform any act, keep any records or accounts, or make any
computations required of the Employer or the Administrator by this Agreement or
the Plan. Nothing done by the Trustee as agent shall affect its responsibility
or liability as Trustee.
SECTION 3.8. Expenses and Compensation.
-------------------------
The Trustee shall pay from the Trust Fund its reasonable expenses of
management and administration of the Trust including, for example, reasonable
compensation of counsel and of any agents engaged by the Trustee to assist it in
the management and administration of the Trust Fund, to the extent they are not
paid by the Employer. When directed by the Administrator to do so, the Trustee
shall also pay from the Trust Fund any specified expenses of administration of
the Plan. The Trustee shall be entitled to reasonable compensation for its
services as Trustee,
<PAGE> 118
-17-
to be paid from the Trust Fund from time to time unless first paid by the
Employer.
ARTICLE IV
----------
RECORDS-SETTLEMENT OF ACCOUNTS
SECTION 4.1. Records.
-------
The Trustee shall keep accurate and detailed accounts of all receipts,
disbursements, investments, and other transactions of the Trust and all
accounts, books and records relating thereto. The Trustee shall not be required
to keep records as to the contributions or earnings or losses of the Trust Fund
credited or debited to individual Participants, or to the benefits to which
individual Participants are entitled, except to the extent provided in a
separate written agreement between the Employer and the Trustee. Financial
statements, books and records with respect to the Trust Fund shall be open to
inspection by the Employer or the Administrator or their representatives upon
reasonable notice at all reasonable times during business hours of the Trustee
and may be audited not more frequently than once in each fiscal year by an
independent certified public accountant engaged by the Administrator.
SECTION 4.2. Settlement of Accounts of Trustee and Administrator.
---------------------------------------------------
(a) Within 90 days after the close of each year, or any termination of
the duties of the Trustee, the Trustee shall prepare, sign and mail to the
Employer an account of its acts and transactions as Trustee. If the Employer
finds the account to be correct, the Employer shall so inform the Trustee in
writing, and the account shall then become an account stated as between the
Trustee and the Employer. If within 90 days after receipt of the account or any
amended account the Employer has neither indicated its acceptance in writing to
the Trustee, nor given the Trustee written notice of any objection to any act or
transaction of the Trustee, the account or amended account shall then become an
account stated as between the Trustee and the Employer.
<PAGE> 119
-18-
If any written notice of objection has been sent to the Trustee, and if the
Employer is satisfied that it should be withdrawn or if the account is adjusted
to its satisfaction, the Employer shall so inform the Trustee and it shall
become an account stated as between the Trustee and the Employer.
(b) When an account becomes an account stated, it shall be considered
to be finally settled, and the Trustee shall be completely discharged and
released, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction in an action or proceeding in which
the Trustee and the Employer were parties.
(c) The Trustee, the Administrator or the Employer shall have the right
to apply at any time to a court of competent jurisdiction for judicial
settlement of any account of the Trustee which has not become an account stated.
It shall be necessary to join as parties only the Trustee, the Administrator and
the Employer (although the Trustee may also join such other parties as it may
deem appropriate). Any judgment or decree entered in such an action or
proceeding shall be conclusive.
(d) The Administrator may also render supplementary or separate
accounts of its proceedings to the Employer. All provisions of this Section
respecting settlement of the accounts of the Trustee shall prevail with respect
to accounts of the Administrator with the same force and effect as if the
Administrator were named wherever the Trustee is named in this Section.
SECTION 4.3. Determination of Interests under Plan or in Trust Fund--Enforcement
------------------------------------------------------------------
of Trust--Legal Proceedings.
- ---------------------------
The Administrator shall have authority to determine the interests of
all persons in the Trust Fund or under the Plan, and the Trustee shall have no
duty to question any direction given by the Administrator to the Trustee. The
Employer and the Administrator shall have authority, either jointly or
severally, to enforce this Agreement on behalf of all persons claiming any
interest in the Trust Fund or under the Plan.
<PAGE> 120
-19-
ARTICLE V
---------
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 5.1. Resignation of Trustee.
----------------------
The Trustee may resign at any time by notifying the Employer in
writing. The resignation shall take effect upon the earlier of the appointment
of a successor under Section 5.3 or 60 days from the date the notice is given.
SECTION 5.2. Removal of Trustee.
------------------
The Board of Directors of the Employer may remove the Trustee at any
time by delivering to the Trustee a written notice of its removal and an
appointment of a successor under Section 5.3. No removal shall take effect prior
to 60 days after the delivery of the notice unless the Trustee agrees to an
earlier effective date.
SECTION 5.3. Appointment of Successor Trustee.
--------------------------------
The appointment of a successor to the Trustee shall take
effect upon deliver to the Trustee of (a) an instrument in writing appointing
the successor, executed by the Employer, and (b) an acceptance in writing,
executed by such successor, both acknowledged in the same form as this
Agreement. The Employer shall send notice of such appointment to the
Administrator. If a successor is not appointed within 60 days after the Trustee
gives notice of its resignation pursuant to Section 5.1, the Trustee or the
Administrator may apply to any court of competent jurisdiction for appointment
of a successor. All of the provisions set forth in this Agreement with respect
to the Trustee shall relate to each successor with the same force and effect as
if the successor had been originally named as Trustee.
<PAGE> 121
-20-
SECTION 5.4. Transfer of Fund to Successor.
-----------------------------
Upon the resignation or removal of the Trustee and
appointment of a successor, and after the final account of the Trustee has been
settled as provided in Article IV, the Trustee shall transfer and deliver the
Trust Fund to the successor.
ARTICLE VI
----------
DURATION AND TERMINATION OF TRUST--AMENDMENT
SECTION 6.1. Duration and Termination.
------------------------
This Trust shall continue for as long as may be necessary to accomplish
the purpose for which it was created, but it may be terminated at any time by
the Employer by action of its Board of Directors. Notice of the termination
shall be given to the Trustee by an acknowledged instrument in writing executed
by the Employer, together with a certified copy of the resolution of the Board
of Directors of the Employer authorizing the termination.
SECTION 6.2. Distribution upon Termination.
-----------------------------
If this Trust is terminated, the Trustee shall liquidate the Trust Fund
to the extent required for distribution upon the written direction of the
Administrator. After the Trustee's final account has been settled as provided in
Article IV, the Trustee shall distribute the net balance of the Trust Fund in
accordance with the directions of the Administrator, or in the absence of the
Administrator's direction, as may be directed by a judgment or decree of a court
of competent jurisdiction. Upon making the distributions, the Trustee shall be
relieved from all further liability. The powers of the Trustee under this
Agreement shall continue so long as any assets of the Trust Fund remain in its
hands.
<PAGE> 122
-21-
SECTION 6.3. Amendment.
---------
The Employer shall have the right at any time and from time to time to
amend this Agreement in whole or in part by an acknowledged written instrument
delivered to the Trustee executed in accordance with the order of the Employer's
Board of Directors. No amendment shall affect the rights and responsibilities of
the Trustee without its written consent. Further, no amendment to this Agreement
shall divert any part of the Trust Fund to purposes other than the exclusive
benefit of the employees of the Employer or their beneficiaries. Any amendment
shall become effective upon (i) delivery to the Trustee of the written
instrument of amendment, together with a certified copy of the resolution of the
Board of Directors of the Employer authorizing the amendment, and (ii)
endorsement of receipt by the Trustee on the instrument together with its
consent, if that consent is required.
ARTICLE VII
-----------
MISCELLANEOUS
SECTION 7.1. Governing Law.
-------------
This Agreement and the Trust hereby created shall be construed and
regulated by the laws of the State of New York, except as those laws are
superseded by ERISA or other Federal law.
SECTION 7.2. Reorganization of Trustee.
-------------------------
Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger,
reorganization or consolidation to which the Trustee may be a party, or any
corporation to which all or substantially all the pension trust business of the
Trustee's Regional Banking line of business may be transferred, shall be the
successor of the Trustee under this Agreement, without the execution of any
instrument or the performance of any further act.
<PAGE> 123
-22-
SECTION 7.3. Headings
--------
Section names and other headings are included only for purposes of easy
reference and shall not affect the meaning of any provision of this Agreement.
SECTION 7.4. Counterparts
------------
The parties may execute separate counterparts of this Agreement which,
when taken together, shall constitute one Agreement.
IN WITNESS WHEREOF, The Company and The Chase Manhattan Bank, N.A have
caused this Agreement to be executed by their duly authorized officers on the
dates set by their respective signatures.
The Trustee The CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Kathleen Lewis
--------------------------------
Attest: Peggy Nicols
------------------- Its: Associate Treasurer
-------------------------------
Dated: 8/18/94
-----------------------------
The Employer
By: Robert J. McGuire
---------------------------------
Attest: Barbars A. Laccinti
------------------- Its: /s/ Robert J. McGuire, President
--------------------------------
Dated: 8/9/94
------------------------------
<PAGE> 1
Exhibit 10.41
PROGRESS PARTNERS
LANDLORD
and
KROLL ASSOCIATES, INC.
TENANT
-------------------------------------------------------------
AMENDED AND RESTATED LEASE
-------------------------------------------------------------
DEMISED PREMISES:
Entire Rentable Area
of the 6th and 7th Floors
and a Portion of the Rentable Area of the 8th Floor
900 Third Avenue
New York, New York
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
1 Demised Premises
2 Term, Preparation and Possession of Demised Premises
3 Use
4 Fixed Rent
5 Taxes
6 Operating Expenses
7 Electricity
8 Landlord's Property, Tenant's Property
9 Repairs, Alterations and Liens
10 Compliance with Laws
11 Assignment, Subletting, Mortgaging
12 Insurance; Property Loss; Reimbursement
13 Damage or Destruction
14 Limitation of Landlord's Liability, Indemnification
15 Moving of Heavy Equipment, Floor Load, Noise, Window
Cleaning
16 Condemnation
17 Conditions of Limitation
18 Re-Entry by Landlord, Waiver of Right of Redemption
19 Landlord's Remedies, Damages
20 Landlord's Right to Perform Tenant's Obligations
21 Services and Equipment
22 Access, Right to Change Public Portions of Building
23 Invalidity of Any Provision
24 Broker
25 Subordination
26 Excavation
27 Legal Proceedings; Waiver of Jury Trial
- i -
<PAGE> 3
28 Estoppel Certificate
29 Rules and Regulations
30 Surrender of Demised Premises
31 Deferred Collections
32 Notices
33 No Waiver; Entire Agreement
34 Letter of Credit
35 Captions
36 Name of Building
37 Inability to Perform
38 Covenant of Quiet Enjoyment
39 No Representation by Landlord
40 Definition of Landlord
41 Landlord's Work
42 Tenant's Work
43 Landlord's Contribution
44 Successors and Assigns
45 Tenant's Eighth Floor Expansion Rights
46 Miscellaneous
47 Execution and Delivery of Lease
Exhibit A Floor Plan
Exhibit B Existing Kroll Leases
Exhibit C Contractors
Exhibit D Cleaning Schedule
Exhibit E Form of Subordination of Mortgage
Exhibit F Rules and Regulations
Exhibit G Expansion Space Floor Plan
- ii -
<PAGE> 4
LEASE made as of the _____ day of December, 1992, between PROGRESS
PARTNERS, a New York general partnership, CIO JMB Properties Company, having an
address at 900 Third Avenue, New York, New York 10022 (hereinafter referred to
as the "Landlord") and KROLL ASSOCIATES, INC., a Delaware corporation, having an
address at 900 Third Avenue, New York, New York 10022 (herein referred to as the
"Tenant").
WITNESSETH
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
DEMISED PREMISES
----------------
Section 1.01. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord, upon and subject to the terms, covenants and conditions of
this Lease, the premises described in Section 1.02 hereof in the building known
as and by the street address 900 Third Avenue (the "Building") located in the
Borough of Manhattan, City, County and State of New York on the land ("Land")
upon which the Building is situated.
Section 1.02. The premises ("Demised Premises") hereby leased to
Tenant consist of the entire rentable area of the sixth (6th) and seventh (7th)
floors and a portion of the rentable area of the eighth (8th) floor of the
Building, being substantially as indicated by hatching on the floor plan annexed
hereto as Exhibit "A" and made a part hereof. Tenant shall have the right to
use, for purposes of access to and egress from the Demised Premises, in common
with others, the lobbies, elevators and other public portions of the Building.
ARTICLE 2
TERM. PREPARATION AND POSSESSION OF DEMISED PREMISES
----------------------------------------------------
Section 2.01. The term of this Lease shall commence on January 1,
1993 (the "Commencement Date") and shall expire at noon on December 31, 2007
(the "Expiration Date") or on such earlier date, if any, on which the term of
this Lease shall be sooner terminated pursuant to any of the conditions or
provisions of this Lease or pursuant to law.
Section 2.02. The taking possession of the Demised Premises shall be
deemed an acceptance of the same by Tenant and shall be deemed substantial
compliance by Landlord with Landlord's obligations pursuant to this Lease to
prepare the Demised Premises for Tenant's occupancy, except with respect to
latent defects.
Section 2.03. Tenant shall take possession of the Demised Premises
"as is", and Landlord shall have no obligation to alter, improve, decorate or
otherwise prepare the Demised Premises for Tenant's occupancy, except that
Landlord shall
<PAGE> 5
perform Landlord's Work (as defined in Article 41). Tenant, at its sole cost and
expense (subject to Article 43 hereof) and in accordance with Article 9 and
Article 42, may make such Tenant's Changes (as hereinafter defined) in the
Demised Premises as Tenant may consider necessary or desirable to prepare the
same for Tenant's occupancy. Tenant acknowledges that Landlord shall have no
obligation to construct demising walls for eighth (8th) floor space of the
Demised Premises, and Tenant agrees to construct such demising walls and doors
as shown on Exhibit "A" attached hereto and made a part hereof ("Tenant's
Demising Work") as part of Tenant's Changes in accordance with this Lease on or
before April 1, 1993. Landlord agrees to reimburse Tenant for the cost of
constructing such demising wall and doors as shown on Exhibit "A" attached
hereto and made a part hereof up to an amount not to exceed $11,400.00 within
thirty (30) days following delivery to Landlord of reasonable evidence of such
cost and completion of such work.
Section 2.04. Tenant acknowledges that Tenant presently is, and shall
remain, in possession and occupancy of the Demised Premises pursuant to the
terms of the leases and agreements (the "Existing Kroll Leases") described on
Exhibit B attached hereto and made a part hereof up to the Commencement Date,
and Tenant agrees to accept possession of the Demised Premises subject to the
occupancy and right of possession of any existing subtenants or occupants.
Section 2.05. Landlord and Tenant agree that this Lease entirely
amends, restates and supersedes the Existing Kroll Leases and any other prior
agreements or understandings, oral or written, with respect to the terms and
conditions of Tenant's use and occupancy of the Demised Premises.
ARTICLE 3
Section 3.01. Tenant shall use and occupy the Demised Premises for
executive and general business office purposes and for no other purpose.
Landlord represents that the use of the Demised Premises permitted by this
Section 3.01 does not violate the present Certificate of Occupancy of the
Building.
Section 3.02. If any governmental license or permit, other than a
Certificate of Occupancy for the entire Building, shall be required for the
proper and lawful conduct of Tenant's business in the Demised Premises or any
part thereof which arises from Tenant's particular use of the Demised Premises
and not merely for the uses set forth under Section 3.01, Tenant, at its
expense, shall duly procure and thereafter maintain such license or permit and
furnish a photostatic copy thereof to Landlord upon Landlord's request therefor.
Tenant shall at all times comply with the terms and conditions of each such
license or permit.
- 2 -
<PAGE> 6
Section 3.03. (a) Any provision hereof to the contrary
notwithstanding, Tenant shall not use the Demised Premises or any part thereof
or permit the Demised Premises or any part thereof to be used (i) for a banking,
trust company, depository, guarantee or safe deposit business, (ii) as a savings
bank, or as a savings and loan association or as loan company, (iii) for the
sale of travelers' checks, money orders, drafts, foreign exchange or letters of
credit or for the receipt of money for transmission, (iv) as a stock broker's or
dealer's office or for the underwriting of securities, other than as executive
offices for tenants conducting such types of businesses, (v) as a restaurant or
bar or for the sale of confectionery, soda, beverages, sandwiches, ice cream or
baked goods or for the preparation, dispensing or consumption of food or
beverages in any manner whatsoever, except for a pantry for the preparation of
coffee or tea, except that this section shall not preclude the use of a
dishwasher, refrigerator, sink, vending machines or microwave in Tenant's
designated "dining area", if any, for use by Tenant's employees only, (vi) as a
school, (vii) by any agency or department of the United States Government or the
City or State of New York or any foreign government or instrumentality, (viii)
for public stenography, (ix) for an employment or placement agency, except that
this shall not preclude the training of Tenant's employees, or (x) for the
business of photographic, multilith or multigraph reproductions or offset
printing.
(b) Tenant shall not suffer or permit the Demised Premises or
any part thereof to be used in any manner, or anything to be done therein, or
suffer or permit anything to be brought into or kept therein, which would in
Landlord's reasonable judgment (i) violate any of the provisions of any Superior
Lease (as hereinafter defined) or Superior Mortgage (as hereinafter defined),
the Certificate of Occupancy for the Demised Premises or the Building or the
requirements of public authorities, (ii) make void or voidable any fire or
liability insurance policy then in force with respect to the Building, (iii)
make unobtainable from reputable insurance companies authorized to do business
in New York State any fire insurance with extended coverage, or liability,
elevator, boiler or other insurance required to be furnished by Landlord under
the terms of any Superior Lease or Superior Mortgage at standard rates (iv)
cause or in Landlord's reasonable opinion be likely to cause physical damage to
the Building or any part thereof, (v) constitute a public or private nuisance,
(vi) impair, in the reasonable opinion of Landlord, the appearance, character or
reputation of the Building, (vii) discharge objectionable fumes, vapors or odors
into the Building air conditioning system or into the Building flues or vents
not designed to receive them or otherwise in such manner as may offend other
occupants, (viii) interfere with the normal operation of the heating,
air-conditioning, ventilating, plumbing or other mechanical or electrical
systems of the Building or the elevators installed
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<PAGE> 7
therein, (ix) impair or interfere with the use of any of the other areas of the
Building by, or occasion discomfort, annoyance or inconvenience to, Landlord or
any of the other tenants or occupants of the Building, any such impairment or
interference to be in the reasonable judgment of Landlord, or, in Landlord's
reasonable judgment, increase the pedestrian traffic in and out of the Demised
Premises or the Building above an ordinary level. The foregoing shall not
preclude the use of a residential-type dishwasher (provided Tenant supplies its
own hot water to such dishwasher), hot plates, refrigerators, sinks, microwave
ovens and vending machines in Tenant's designated "dining area" (provided the
same do not allow cooking or require any venting or grease traps), use of data
processing, computer equipment, office automation equipment or communications
equipment, or the installation and use of an exercise room for Tenant's
personnel, provided that the location of Tenant's dining area and exercise room
are either as in existence on the date hereof or are shown on Tenant's Plans (as
defined in Article 42) and further provided that such dining area, data
processing, computer equipment, office automation equipment, communications
equipment and exercise room are installed and operated in accordance with this
Lease and in compliance with all applicable laws, codes and governmental
regulations.
Section 3.04. Landlord agrees that subject to Landlord's approval as
to location and method of installation, Tenant may from time to time at its sole
cost and expense, install and maintain one (1) staircase connecting the seventh
(7th) and eighth (8th) floors of the Demised Premises, and wires and conduits in
and about the Building for Tenant's computer equipment, office automation
equipment, telephone and other communications systems. Such installations shall
comply with all applicable legal requirements, and shall be installed and
maintained by Tenant in accordance with all applicable provisions of this Lease.
ARTICLE 4
FIXED RENT
----------
Section 4.01. Throughout the term of this Lease, Tenant shall pay
fixed minimum rent ("Fixed Rent") in lawful money of the United States at an
annual rate of: (i) ONE MILLION THREE HUNDRED THOUSAND EIGHT HUNDRED TEN DOLLARS
AND 00/XX ($1,300,810.00) in equal monthly installments of $108,400.83 for the
period beginning on the Commencement Date through and including December 31,
1997 (the "First Period"); (ii) ONE MILLION FOUR HUNDRED FORTY NINE THOUSAND
FOUR HUNDRED SEVENTY- FOUR DOLLARS AND 00/XX ($1,449,474.00) payable in equal
monthly installments of $120,789.50 for the period beginning on January 1, 1998
through and including December 31, 2002 (the "Second Period"); and (iii) ONE
MILLION FIVE HUNDRED NINETY-EIGHT ThOUSAND ONE HUNDRED THIRTY-EIGHT DOLLARS AND
00/XX ($1,598,138.00) payable in equal monthly installments of
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$133,178.16 for the period beginning on January 1, 2003 through and including
the Expiration Date (the "Final Period"), in advance, on the first day of each
and every calendar month during the term of this Lease without any set off or
deduction, except as expressly provided for herein.
Section 4.02. All costs and expenses (other than Fixed Rent) which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease shall be
deemed and constitute additional rent hereunder, and in the event of nonpayment,
Landlord shall have all the rights and remedies with respect thereto as is
herein and at law provided for in case of nonpayment of Fixed Rent.
Section 4.03. All Fixed Rent, additional rent and adjustments of
Fixed Rent, as in this Lease provided, shall be paid promptly when due, without
notice or demand therefor, and without any abatement, deduction or set-off for
any reason whatsoever, except as may be expressly provided in this Lease, and
shall be paid in lawful money of the United States to Landlord at its office
address set forth on the first page of this Lease or such other place as
Landlord may designate by notice to Tenant, or (b) to Landlord's agent or
designee at such place as Landlord may designate by notice to Tenant. Any checks
tendered by Tenant in payment of Fixed Rent, additional rent and adjustments of
Fixed Rent, shall be either (i) a teller's or cashier's or official bank check
of a bank which is a member of the New York Clearing House Association and shall
be payable to the order of Landlord (or Landlord's designee) or (ii) Tenant's
good, unendorsed check drawn on such a bank and payable to the order of Landlord
(or Landlord's designee).
ARTICLE 5
TAXES
-----
Section 5.01. In addition to the Fixed Rent hereinbefore reserved,
Tenant covenants and agrees to pay to Landlord, as additional rent, sums
computed in accordance with the following sections hereof.
Section 5.02. For the purposes of this Article and other provisions
of this Lease:
(a) The term "Taxes" shall mean all real estate taxes,
assessments, special assessments, water and sewer rents, governmental levies,
county taxes or any other governmental charge, general or special, ordinary or
extraordinary, unforeseen as well as foreseen, of any and every kind or nature
whatsoever, which are or may be assessed or imposed upon the Land, the Building
and the sidewalks, plazas, streets and alleys in front of or adjacent thereto,
and any rights or interests appurtenant thereto under the laws of the United
States, the State of New York or any political subdivision thereof or by the
City of New York, or any political subdivision thereof. Except as permitted
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<PAGE> 9
pursuant to the following sentence, the term "Taxes" shall not include any
franchise, income, transit, profit, capital stock or transfer tax imposed on
Landlord. If, due to a future change in the method of taxation or in the taxing
authority, a franchise, income, transit, profit or other tax or governmental
imposition, however designated (including without limitation any tax, excise or
fee, measured by or payable with respect to any rents, licenses or other charges
received by Landlord and levied against Landlord and/or the Land and/or
Building) shall be levied against Landlord and/or the Land and/or the Building
in substitution, in whole or in part, or as an addition to or in lieu of any
Taxes then such franchise, income, transit, profit or other tax or governmental
imposition shall be deemed to be included within the definition of the term
"Taxes" for the purposes hereof, but only to the extent the same would be
imposed on Landlord if the Land and the Building were the sole property owned by
Landlord and the operation thereof were the sole business in which Landlord was
engaged.
(b) The term "Base Tax Year" shall mean the twelve (12) month
fiscal period commencing on July 1, 1993 and ending June 30, 1994.
(c) The term "Tax Year" shall mean each twelve (12) month fiscal
period commencing on July 1 and ending on June 30 following the Base Tax Year,
any portion of which fiscal period occurs during the term of this Lease. If the
real estate tax fiscal year of the City of New York shall be changed during the
term hereof, then for the purpose of making the computation pursuant to Section
5.03 hereof a proportionate part of the Taxes for any such real estate tax
fiscal year, any part of which shall occur during the particular Tax Year for
which the computation is being made pursuant to Section 5.03 hereof, shall be
included in the Taxes for such particular Tax Years apportioned on the basis of
the number of days in any such real estate tax fiscal year occurring during such
particular Tax Year.
(d) The term "Tenant's Proportionate Tax Share" shall mean
7.22%.
Section 5.03. Tenant shall pay to Landlord, as additional rent
hereunder, an amount (the "Tax Payment") equal to Tenant's Proportionate Tax
Share of the amount, if any, by which the Taxes for any Tax Year, any part of
which shall occur during the term of this Lease, shall exceed the Taxes payable
for the Base Tax Year, whether such increase results from a higher Tax rate or
an increase in the assessed valuation of the Land or the Building, or both, or
from any other cause or reason whatsoever. A copy of the tax bill of The City of
New York or other taxing authority imposing Taxes on the Land or the Building
shall be sufficient evidence of the amount of Taxes. Notwithstanding the fact
that the aforesaid additional rent is measured by Taxes, such amount is
additional rent and shall be paid by Tenant as
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provided herein regardless of the fact that Tenant may be exempt, in whole or in
part, from the payment of any Taxes by reason of Tenants's diplomatic status or
for any other reason whatsoever.
Section 5.04. With respect to each Tax Year occurring in whole or in
part during the term of this Lease, Tenant shall pay to Landlord the Tax
Payment, in installments in the same manner that Taxes for such Tax Year are due
and payable by Landlord to (a) the City of New York or other applicable
governmental authority or (b) the holder of any mortgage or ground lease
affecting the Land and/or the Building as part of a monthly escrow or otherwise.
Landlord agrees to pay Taxes in the maximum number of installments permitted by
law without incurring interest, penalty or late charges. Tenant shall pay each
such installment within fifteen (15) days after the rendering of a written
statement ("Landlord's Tax Statement") therefor by Landlord to Tenant,
accompanied by the relevant tax bills (or if a tax bill is not issued or is
otherwise not available, other reasonable evidence of the amount of Taxes which
are the subject matter of such statement), which Landlord's Tax Statement shall
only be rendered by Landlord so as to require Tenant's Tax Payment to be paid by
Tenant not more than thirty (30) days prior to the date such installment of
Taxes first becomes due. Landlord's Tax Statement shall set forth in reasonable
detail the computation of Tenant's Tax Payment of the particular installment(s)
being billed. If there shall be any increase or decrease in the Taxes for any
Tax Year, whether during or after such Tax Year, the Tax Payment for such Tax
Year shall be appropriately adjusted and paid or refunded, as the case may be.
Tenant shall pay the amount of any deficiency within fifteen (15) days after
demand therefor and Landlord shall credit the amount of any overpayment against
the next installments of Fixed Rent and Additional Charges that thereafter
become due. Any adjustment outstanding at or following the end of the term of
this Lease shall be paid to Tenant within thirty (30) days after the taxing
authority sets the tax rates for such Tax Year (or, if Landlord obtains a
reduction in Taxes as provided for in Section 5.05 below, within thirty (30)
days after receipt of payment or credit on account of such reduction).
Section 5.05. Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the assessed valuation of the Land or
the Building. Should Landlord be successful in any such reduction proceedings
and obtain a rebate for any Tax Year for which Tenant has paid installments of
the Tax Payment, Landlord, after deducting the reasonable expenses incurred in
obtaining such rebate including, without limitation, attorneys' fees, court, or
other administrative costs and disbursements, shall credit Tenant's
Proportionate Tax Share of such rebate against the next monthly installments of
the Fixed Rent payable under this Lease.
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ARTICLE 6
OPERATING EXPENSES
------------------
Section 6.01. In addition to the annual Fixed Rent, Tenant covenants
and agrees to pay, as additional rent, sums computed in accordance with the
following sections hereof.
Section 6.02. For the purposes of this Article 6 and other provisions
of this Lease:
(a) The term "Operating Expenses" shall mean all costs and
expenses paid or incurred by Landlord or on Landlord's behalf which are properly
allocable to the repair, maintenance and operation of the Building, the Land and
any plazas, sidewalks, curbs and appurtenances thereto, including, without
limitation, the following items (which items are illustrative of items to be
included in Operating Expenses):
(1) "Labor Costs" (as such term is hereinafter defined) for
the services of the following classes of persons performing services required in
connection with the operation, repair and maintenance of the Land or the
Building to the extent the costs incurred for such personnel are incurred for
work performed in connection with the Building:
(i) the building superintendent, concierge(s), assistant
concierge(s) and/or manager(s), his or their assistants
and the clerical staff attached to his or their offices;
(ii) elevator operators, floor directors and assistant floor
directors;
(iii) window cleaners and miscellaneous handymen;
(iv) porters, cleaners and janitors employed in and about the
Building for the performance of services and for which
services Landlord is not specifically reimbursed by any
tenant;
(v) all security personnel, including without limitation,
watchmen, caretakers and other persons engaged in
patrolling and protecting the Land, Building, its plazas
and sidewalks;
(vi) carpenters, engineers, firemen, mechanics, electricians
and plumbers engaged in the operation, repair and
maintenance of any part of the Building its plazas,
sidewalks, curbs and appurtenances, and the heating,
air-conditioning, ventilating, plumbing, electrical,
elevator and other systems of the Building;
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<PAGE> 12
(vii) personnel engaged in supervision of any of the persons
mentioned above (other than officers or executives of
Landlord, unless they actually perform work with respect
to the Building ordinarily performed by a third person);
The term "Labor Costs" shall mean, with respect to each calendar
year, all expenses incurred by Landlord or on Landlord's behalf which shall be
related to employment of personnel, including without limitation amounts
incurred for wages, salaries and other compensation for services, payroll,
social security, unemployment and other similar taxes, Workers' Compensation
insurance, liability benefits, pensions, hospitalization, retirement plans and
insurance (including, without limitation, group life and disability), uniforms
and working clothes and the cleaning thereof, and expenses imposed on or on
behalf of Landlord pursuant to any collective bargaining agreement relating to
such employees, which salaries and other benefits shall be comparable to those
of similar employees servicing first-class office buildings in the Borough of
Manhattan comparable to the Building. With respect to employees who are not
employed on a full-time basis with respect to the Building, a prorata portion of
expenses allocable to the time any such employee is employed with respect to the
Building shall be included in Labor Costs.
(2) The cost of (including, without limitation, any rental
cost of) materials and supplies used in the operation, cleaning, safety,
security, repair and maintenance of the Building, its plazas, sidewalks, curbs
and appurtenances, including any sales and other taxes thereon, except if done
in other tenant space in the Building;
(3) The depreciation for, or the rental cost or value
(including applicable sales taxes) of, hand tools and other movable equipment
used in the operation, cleaning, safety, security, repair or maintenance of the
Building, its plazas, sidewalks, curbs and appurtenances;
(4) Reasonable legal, accounting and other professional fees
incurred in connection with the operation of the Land or the Building;
(5) Amounts charged to Landlord by independent contractors
for services, materials and supplies furnished in connection with the operation,
repair and maintenance of any part of the Building not occupied by tenants, its
plazas, sidewalks, curbs and appurtenances, including the heating,
air-conditioning, ventilating, plumbing, electrical, elevator, safety and other
systems of the Building;
(6) The cost of all charges for window cleaning and other
cleaning, janitorial, security and other services, in
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and about the common areas of the Building, its plazas, sidewalks, curbs and
appurtenances;
(7) Premiums paid by Landlord for rent, casualty, boiler,
sprinkler, plate-glass, liability and fidelity insurance with respect to the
Land or Building, its plazas, sidewalks, cu?bs and appurtenances, and any other
insurance Landlord maintains or is required to maintain with regard to the Land
or the Building or the maintenance or operation thereof to the extent such
insurance is generally carried by prudent owners of first-class office buildings
in the Borough of Manhattan comparable to the Building;
(8) Costs (including all applicable taxes) for electricity
(as measured by the Building's dedicated electric meters and evaluated under the
same rate classification and frequency that Landlord is charged by the public
utility furnishing electricity to the Building), steam, telephone, and other
utilities for the portions of the Land and the Building not leased and occupied
by tenants in the Building, and for utilities and electricity (so measured and
evaluated) consumed in connection with the operation of the heating, ventilating
and air conditioning equipment servicing the Building, including the tenant
portions thereof.
(9) Water charges and sewer rents or charges to the extent
not specifically reimbursable by tenants of the Building;
(10) The cost of painting and otherwise decorating any
non-tenant areas of the Building, its plazas and sidewalks;
(11) Holiday decorations for the lobby and other public
portions of the Building, its plazas and sidewalks;
(12) Dues, fees and contributions paid to civic
organizations and associations representing Landlord, or of which Landlord is a
member, in the City of New York;
(13) Franchise, license and similar fees and charges paid by
Landlord to any governmental agency for the privilege of owning, leasing,
operating, maintaining or servicing the Building or any of its equipment,
property or appurtenances (except as otherwise provided in Section 5.02 hereof
and which are otherwise imposed on or measured by the income or profits of
Landlord);
(14) The cost of exterior and interior landscaping of
non-tenant areas of the Land, the Building, its plazas and sidewalks;
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<PAGE> 14
(15) The cost of uniforms, work clothes and dry cleaning for
personnel of the Building;
(16) The cost or value, or the cost or value of the rental,
together with the cost of installation of any Building security or other system
used in connection with life or property protection installed after the Base
Year (including the cost, or the cost or value of the rental, of all machinery,
electronic systems and other equipment comprising any part thereof), as well as
the cost of the operation and repair of any such system in operation during the
Base Year; provided, however, that to the extent such costs are capitalized
under generally accepted accounting principles, such costs shall be amortized on
a straight line basis, together with interest at an annual rate (the "Prime
Rate") equal to the prime interest rate announced from time to time by Citibank,
N.A. (or its successor), over the useful life of such installation and
equipment;
(17) Whether or not capitalized under generally accepted
accounting principles, costs for alterations and improvements to the Building
made after the Base Year by reason of the laws and requirements of any public
authorities or the requirements of insurance bodies or Landlord's insurer;
provided, however, that to the extent such costs are capitalized under generally
accepted accounting principles, such costs shall be amortized on a straight line
basis, together with interest at the Prime Rate, over the useful life of such
alteration and improvement;
(18) Management fees which are not in excess of the then
prevailing rates for management fees of other first class office buildings
comparable to the Building in the vicinity of the Building and incurred for the
performance of comparable functions, or, if no managing agent is employed by
Landlord, a sum in lieu thereof which is not in excess of the then prevailing
rates for management fees of other first class office buildings comparable to
the Building in the vicinity of the Building, and incurred for the performance
of comparable functions;
(19) Whether or not capitalized under generally accepted
accounting principles, the cost of improvements, equipment or machinery
installed after the Base Year for the purpose of reducing energy consumption or
reducing other Operating Expenses; provided, however that (a) to the extent such
costs are capitalized under generally accepted accounting principles, such costs
shall be amortized on a straight line basis, together with interest at the Prime
Rate, over the useful life of such improvements, equipment or machinery, and (b)
such amortized cost shall not exceed the amount of savings realized in such
Operating Expenses as reasonably estimated by Landlord for such Operating Years;
and
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<PAGE> 15
(20) All other charges properly allocable to the repair,
operation or maintenance of the Building in accordance with real estate
accounting practices customarily used in New York City.
(b) The following items are to be excluded from Operating Expenses:
(1) Labor Costs in respect of officers and executives of
Landlord, unless for work actually performed in or about the Building ordinarily
done by a third person, and then only at compensation no higher than that which
would have been paid to such third person;
(2) Legal or other fees, leasing commissions, advertising
expenses, promotional expenses and other costs incurred in leasing or attempting
to lease any portion of the Building or in connection with tenant disputes;
(3) Any insurance premium to the extent that Landlord is
specifically entitled to be reimbursed therefor by Tenant pursuant to this Lease
(other than pursuant to this Article) or by any other tenant or other occupant
of the Building pursuant to its lease (other than pursuant to an operating
expenses escalation clause contained therein);
(4) The cost of any items for which Landlord is reimbursed
by insurance or otherwise compensated, including reimbursement by any tenant or
through eminent domain;
(5) The cost of any alterations, additions, changes,
replacements, improvements and repairs and other items which are made in order
to prepare space for occupancy by a new tenant or for services or work performed
by Landlord for any tenants for which those tenants are billed;
(6) The cost of electricity furnished to the Demised
Premises or any other space in the Building leased to tenants and for which
tenants are specifically billed in accordance with the terms of their leases;
(7) All Taxes;
(8) Refinancing costs;
(9) Accounting fees, other than for ordinary and customary
Building accounting services;
(10) Amounts billed to Tenant or other tenants for any
services furnished to Tenant or such other tenants by Landlord for which a
separate charge is made, including overtime a!r conditioning or heating, or
which is attributable to any retail space in the Building payable by the retail
tenants;
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<PAGE> 16
(11) Depreciation of the Building;
(12) Mortgage debt service and costs of financing of any
kind;
(13) Rent or other charges under any Superior Lease;
(14) Non-arms-length payments to entities affiliated with
Landlord but only to the extent such payments exceed payments which would have
been reasonably made to entities not affiliated with Landlord;
(15) Legal fees and other transactional expenses incurred
with respect to any financing or transfer of Landlord's interest in the
Building;
(16) Except as expressly provided for in Sections
6.02(a)(3), (16), (17) and (19), expenses of any kind or nature whatsoever
relating to capital improvements to the Building or any part thereof which are
capitalized under generally accepted accounting principles;
(17) The cost of constructing additional floors to the
Building;
(18) The cost of any work or service performed for any
tenant of the building (other than Tenant) to a materially greater extent or in
a materially more favorable manner than that furnished generally to the tenants
and other occupants (including Tenant); and
(19) The cost of any repairs or replacements made to the
Building as a result of a casualty in excess of an amount equal to a
commercially reasonable casualty insurance deductible.
In no event for any period shall any item of Taxes or Operating
Expenses be included in more than one category in determining increases pursuant
to Articles 5 and 6.
(c) The cost of any item which was included in Operating Expenses for
the Base Year and which is no longer being incurred by Landlord by reason of the
installation of a labor saving device or other capital improvement shall be
deleted from Operating Expenses for the Base Year in connection with the
calculation of the Operating Payment for all Operating Years from and after the
Operating Year in which such installation occurs.
(d) If during all or part of any Operating Year, Landlord shall not
furnish any particular item(s) of work or service (which would otherwise
constitute an Operating Expense hereunder) to portions of the Building due to
the fact that (i) such portions are not occupied or leased, (ii) such item of
work
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<PAGE> 17
or service is not required or desired by the tenant of such portion, (iii) such
tenant is itself obtaining and providing such item of work or service or (iv)
for any other reason, then, for the purposes of computing Operating Expenses,
the amount for such item and for such period shall be deemed to be increased by
an amount equal to the additional costs and expenses of furnishing such item of
work or services to such portion of the Building or to such tenant.
(e) The term "Operating Year" shall mean each calendar year following
the Base Operating Year.
(f) The term "Operating Statement" shall mean a written statement
prepared by Landlord or its agent, setting forth Landlord's computation of the
sum payable by Tenant under this Article for a specified Operating Year.
(g) The term "Base Operating Year" shall mean the 1993 calendar year.
(h) The term "Tenant's Proportionate Operating Share" shall Section
6.03. For each Operating Year, any part of which shall occur during the term of
this Lease, Tenant shall pay an amount (the "Operating Payment") equal to
Tenant's Proportionate Operating Share of the amount, if any, by which the
Operating Expenses for such Operating Year shall exceed the Operating Expenses
for the Base Operating Year, provided, however, that if the Commencement Date of
the term of this Lease shall occur other than on the first day of an Operating
Year or if the term of this Lease shall expire or be sooner terminated on other
than the last day of an Operating Year, then the Operating Payment in respect
thereof shall be prorated to correspond to that portion of such Operating Year
occurring within the term of this Lease.
Section 6.04. At any time during each Operating Year, Landlord may
furnish to Tenant a written statement (an "Estimate Statement") setting forth
Landlord's estimate of the Operating Payment for such Operating Year (the
"Estimated Payment"). Tenant shall pay to Landlord on the first day of each
month during each Operating Year an amount equal to one twelfth (1/12th) of the
Estimated Payment. The Estimated Payment, for each Operating Year following the
first Operating Year, shall not exceed one hundred ten (110%) percent of the
Operating Payment for the previous Operating Year provided, however, that such
limitation shall not apply to the extent Landlord can identify increases in
Operating Expenses in excess of such 10% limitation. If Landlord furnishes an
Estimate Statement for an Operating Year subsequent to the commencement thereof,
then (i) until the first day of the month following the month in which the
Estimate Statement is furnished to Tenant, Tenant shall continue to pay to
Landlord on the first day of each month an amount equal to the monthly sum
payable by Tenant to Landlord with respect to the next previous Operating Year,
(ii) promptly after the Estimate
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<PAGE> 18
Statement is furnished to Tenant, Landlord shall give notice to Tenant stating
whether the amount previously paid by Tenant to Landlord for the current
Operating Year was greater or less than the installment of the Estimated Payment
to be paid for the current Operating Year, and (a) if there shall be a
deficiency, Tenant shall pay the amount thereof within fifteen (15) days after
demand therefor, or (b) if there shall have been an overpayment, Landlord shall
credit the amount thereof against the next monthly installments of the Fixed
Rent payable under this Lease; and (iii) on the first day of the month following
the month in which the Estimate Statement is furnished to Tenant, and monthly
thereafter throughout the remainder of the Operating Year, Tenant shall pay to
Landlord an amount equal to one-twelfth (1/12th) of the Estimated Payment shown
on the Estimate Statement. Landlord may, not more than twice during each
Operating Year, furnish to Tenant a revised Estimate Statement; if a revised
Estimate Statement is furnished to Tenant, the Estimated Payment for such
Operating Year shall be adjusted in the same manner as provided in the preceding
sentence.
Section 6.05. At any time during or within the four month period
following each Operating Year, Landlord shall furnish to Tenant an annual
statement (the "Annual Statement"), certified as accurate by Landlord or
Landlord's managing agent, for such Operating Year, provided, however, that the
failure to provide the Annual Statement shall in no way be construed as a waiver
of Landlord's rights pursuant to this Article. If the Annual Statement shows
that the Estimated Payment (or other payments) for such Operating Year exceed
the Operating Payment which should have been paid for Operating Year, Landlord
shall credit the amount of such excess against the next monthly installment of
Fixed Rent payable under this Lease; provided, however, if the amount of such
overpayment shall equal or exceed ten percent (10%) of the amount of the
Operating Payment actually due for such previous Operating Year, then Tenant
shall also be entitled to interest at the Prime Rate in effect on the date such
overpayment is determined on the amount of such overpayment calculated from the
date Tenant's Estimated Payments first exceeded the Operating Payment actually
due for such previous Operating Year until the date that the entire overpayment
plus interest is actually credited against Fixed Rent and Additional Charges. If
the Annual Statement for such Operating Year shows that the Estimated Payment
for such Operating Year was less than the Operating Payment (or other payments)
which should have been paid for such Operating Year, Tenant shall pay the amount
of such deficiency within twenty (20) days after receipt of the Annual
Statement.
Section 6.06. Each Annual Statement shall be conclusive and binding
upon Tenant unless, within ninety (90) days after receipt thereof, Tenant shall
notify Landlord that it disputes the correctness of the Annual Statement,
specifying the particular respects in which the Annual Statement is claimed to
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be incorrect. If such notice is sent, provided Tenant shall pay to Landlord the
amount shown to be due to Landlord on the disputed 'Annual Statement, the
parties agree that, due to the confidential nature of Landlord's books and
records, Tenant shall have the right during Business Hours on Business Days on
not less than ten (10) days prior notice to Landlord to examine Landlord's books
and records with respect to the Annual Statement at Landlord's offices, one time
per year, provided, however, that such inspection must be conducted by Tenant's
employees or certified public accounting firm, and if no resolution thereof is
reached within ninety (90) days, either party may refer the decision of the
issues raised to a reputable independent firm of certified public accountants
selected by Landlord (and reasonably acceptable to Tenant), and the decision of
such accountants shall be conclusive and binding upon the parties. The fees and
expenses involved in such decision shall be borne by the unsuccessful party (and
if both parties are partially unsuccessful, the accountants shall apportion the
fees and expenses between the parties based on the degree of success of each
party).
ARTICLE 7
ELECTRICITY
-----------
Section 7.01. Electricity shall be supplied to the Demised Premises
on the Commencement Date in accordance with the provisions of this Article 7.
Section 7.02. Tenant shall arrange to obtain electric service
directly from the public utility company servicing the Building, and may utilize
the feeders, risers and wiring serving the Demised Premises to the extent
available, suitable and safely capable of being used for such purpose and only
to the extent of Tenant's then authorized connected load, as approved by
Landlord. Tenant shall not be entitled to use any existing electric meter and
panel located on the eighth (8th) floor of the Building in connection with such
electrical service, but shall install an electric meter and panel boards,
feeders, users, wiring and other conductors and equipment which may be required
to obtain electric energy directly from such public utility company, at Tenant's
sole cost and expense, and thereafter maintained by Tenant.
Section 7.03. Tenant agrees not to make any electrical installations,
alterations, additions or changes to the electrical equipment or appliances in
the Demised Premises other than lamps, typewriters, word processors, personal
computers, office computers, communication equipment, office automation
equipment and other small office machines which consume comparable amounts of
electricity, without the prior written consent of Landlord in each such instance
which shall not be unreasonably withheld or delayed. Tenant shall at all times
comply with the rules and regulations applicable to the service, equipment,
wiring and requirements of Landlord and of the utility company supplying
electricity to the Building. Subject to
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Section 7.04, Tenant covenants and agrees that at all times its use of
electricity will not exceed the capacity of existing feeders to the Building or
the risers or wiring installations therein and Tenant shall not use any
electrical equipment which will overload such installations or interfere with
the use thereof by other tenants in the Building. In the event that, in
Landlord's sole judgment, Tenant's electrical requirements necessitate
installation of an additional riser or risers, or other proper and necessary
equipment or services, including additional ventilating or air conditioning,
Landlord shall notify Tenant in writing and, unless Tenant shall reduce its
electrical requirements within ten (10) days, the same shall be provided or
installed by Landlord at Tenant's sole expense, which shall be chargeable and
collectible as additional rent and paid within five (5) days after the rendition
to Tenant of a bill therefor. Rigid conduits only will be allowed. Landlord
shall not be liable in any way to Tenant for any failure or defect in the supply
or character of electric service furnished to the Demised Premises by reason of
any requirement, act or omission of the utility company servicing the Building
or for any other reason not attributable to the gross negligence of Landlord.
Section 7.04. Landlord represents that the electrical risers provide
electricity service at the electric closets located within and serving the
eighth (8th) floor portion of the Demised Premises and shall throughout the term
of this Lease have capacity to provide not less than five (5) watts demand load
of electricity per rentable square foot per floor of the Demised Premises,
excluding electricity for heating, ventilating and air-conditioning systems of
the Building. Notwithstanding the foregoing, Landlord agrees that Tenant may
continue to use the demand load of electricity currently serving the sixth (6th)
and seventh (7th) floors of the Demised Premises. Tenant covenants and agrees
that at no time will the demand load in the Demised Premises exceed five (5)
watts per rentable square foot of the eighth (8th) floor portion the Demised
Premises, excluding electricity for heating, ventilating and air-conditioning
systems of the Building.
Section 7.05. If any tax is imposed upon Landlord with respect to
electrical energy furnished as a service to Tenant by any Federal, State or
Municipal Authority, Tenant covenants and agrees that, where permitted by law or
applicable regulations, Tenant's prorata share of such taxes shall be reimbursed
by Tenant to Landlord as additional rent.
Section 7.06. Landlord's failure during the term of this Lease to
prepare and deliver any statements or bills under this Article 7, or Landlord's
failure to make a demand under this Article 7, or any other provisions of this
Lease shall not in any way be deemed to be a waiver of, or cause Landlord to
forfeit or surrender its rights to collect any electricity charge, and any other
amounts of additional rent which may have become due
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pursuant to this Lease. Tenant's liability for any amounts due under this
Article 7 shall survive the expiration or sooner termination of this Lease for
eighteen (18) months unless Landlord's request arises as a result in changes in
law.
Section 7.07. If either the quantity or character of the electrical
service is changed by the utility company supplying electrical service to the
Building or is no longer available or suitable for Tenant's requirements, no
such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of Fixed Rent or additional rent, or relieve Tenant from any of
its obligations under this Lease or impose any liability upon Landlord, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise, unless caused by Landlord's
gross negligence or willful misconduct.
Section 7.08. Notwithstanding any other provision herein, the parties
understand and acknowledge that the consideration for Tenant's payment of the
electricity charges and any additional amount payable pursuant to the terms of
this Article and Landlord's agreement, subject to all the terms of this Lease,
to make available and furnish and redistribute electrical energy to or for
Tenant's use in all or any portion of the Demised Premises, and Tenant's failure
or refusal for any reason whatsoever to utilize such electrical energy as
Landlord stands ready to provide, shall not entitle Tenant to any abatement or
diminution in the Fixed Rent or additional rent payable hereunder.
Section 7.09. Landlord agrees that Tenant may, in its sole
discretion, provide electricity to subtenants on a rent inclusion, submetering,
or other basis, subject, however, to the terms of this Article 7 and Article 11.
ARTICLE 8
LANDLORD'S PROPERTY. TENANT'S PROPERTY
--------------------------------------
Section 8.01. Except to the extent provided in Section 8.02 hereof,
all alterations, decorations, installations, additions, fixtures, equipment,
improvements and appurtenances attached to or built into the Demised Premises at
the commencement of or during the term of this Lease, including, without
limitation, any and all paneling, partitions, railings, mezzanine floors,
galleries and the like, and whether or not by or at the expense of Tenant
(herein collectively called "Landlord's Property") shall be and remain a part of
the Demised Premises, shall be deemed the property of Landlord and shall not be
removed by Tenant. Any carpeting or other personal property in the Demised
Premises on the Commencement Date, unless installed and paid for by Tenant,
shall also fall within the definition of and constitute part of Landlord's
Property and
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shall not be removed by Tenant unless Tenant shall simultaneously therewith or
promptly thereafter install like replacements of equivalent or better quality,
in which event any such replacement(s) shall be deemed Landlord's Property.
Section 8.02. All moveable partitions, business and trade fixtures,
machinery and equipment, including communications equipment and office
equipment, whether or not attached to or built into the Demised Premises, which
are installed in the Demised Premises by or for the account of Tenant and can be
removed without structural damage to the Building (except all other articles of
moveable property which constitute Landlord's Property) and all furniture,
furnishings and other articles of moveable property owned by Tenant and located
in the Demised Premises (herein collectively called "Tenant's Property") shall
be and shall remain the property of Tenant and may be removed by Tenant at any
time during the term of this Lease; provided, however, that if any of Tenant's
Property is removed, except as otherwise provided in this Lease, Tenant, at
Landlord's option, shall repair or pay to Landlord, Landlord's reasonable and
necessary costs (including, in either case, a fifteen percent (15%) supervisory
fee) of repairing any damage to the Demised Premises or to the Building
resulting from the removal thereof or caused by the original installation
thereof. Any equipment or other property for which Landlord shall have granted
any allowance or credit to Tenant shall not be deemed to have been installed by
or for the account of Tenant without expense to Landlord and shall not be
considered Tenant's Property but shall instead be deemed Landlord's Property.
Section 8.03. At or before the Expiration Date of the term of this
Lease or the date of any earlier termination of this Lease, Tenant, at its
expense, shall remove from the Demised Premises all of Tenant's Property.
Notwithstanding anything to the contrary contained herein, Tenant shall not be
required to remove Tenant's Work, performed pursuant to Article 42, except as
described in the following sentence, and Tenant shall not be required to remove
the fixtures in existence as of the date hereof on the sixth (6th) and seventh
(7th) floors of the Demised Premises. At the time of giving of Landlord's
consent to any extraordinary work performed in the Demised Premises (such as the
installation of staircases, HVAC units or raised floors), Landlord shall also
inform Tenant whether same shall be required to be removed at the end of the
term.
In case Tenant shall desire not to remove any part of Tenant's
Property, Tenant shall give notice to Landlord thereof not less than sixty (60)
days prior to the Expiration Date and not less than ten (10) days prior to any
sooner termination of the term of this Lease specifying the items of Tenant's
Property which Tenant has decided not to remove. If, within thirty (30) days
after the service of such notice, Landlord shall request Tenant to remove any of
the specified items of Tenant's Property,
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Tenant, at its expense, at or before the expiration or sooner termination of the
term of this Lease, shall remove said items of Tenant's Property. Upon any
removal of Tenant's Property, Tenant, at Tenant's sole cost and expense, shall
promptly restore the portion(s) of the Demised Premises affected by such removal
to good order and condition, reasonable wear and tear and damage by the elements
excepted, and shall repair any damage to the Demised Premises or the Building
resulting from any such removal and/or the original installation of Tenant's
Property.
Section 8.04. Any items of Tenant's Property which shall remain in
the Demised Premises following Tenant's moving therefrom and after the
Expiration Date of the term of this Lease, or after any earlier termination
date, may, at the option of Landlord, be deemed to have been abandoned, and in
any such case such items may be retained by Landlord as its property or disposed
of by Landlord, without accountability, in such manner as Landlord shall
determine at Tenant's expense and Tenant shall pay to Landlord promptly upon
being billed therefor, all of Landlord's reasonable and necessary costs incurred
in connection with any such removal and disposition as well as in connection
with any restoration of the Demised Premises required by such removal. The
obligations of Tenant pursuant to this Article 8 shall survive the Expiration
Date or earlier termination of this Lease.
ARTICLE 9
REPAIRS. ALTERATIONS AND LIENS
------------------------------
Section 9.01. Tenant, at its expense, throughout the term of this
Lease, shall take good care of the Demised Premises, the fixtures and
appurtenances therein, Tenant's Property and Landlord's Property and shall make
all non-structural repairs thereto as and when needed to preserve them in good
working order and condition, ordinary wear and tear and damage from fire or
other insurable casualty covered under a standard form fire and multi-perils
policy usually carried by landlords of first class office buildings in the
vicinity of the Building, excepted. In addition, Tenant shall be responsible, at
its sole cost and expense, for making all repairs, interior and exterior,
structural and non-structural, ordinary and extraordinary, in and to the Demised
Premises and the Building and the facilities and systems thereof, the need for
which is caused by or arises out of
(a) the performance or existence of any Tenant's work or
alterations,
(b) the installation, use or operation of any Tenant's Property
or Landlord's Property in the Demised Premises,
(c) the moving of any Tenant's Property or any Landlord's
Property in or out of the Building, and
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(d) any air-conditioning unit or system short circuits, flow or
leakage of water, steam, illuminating gas, sewer gas, sewerage or odors, or
frost or by bursting or leaking of pipes or plumbing works or gas, or any other
cause of any other kind or nature whatsoever due, in all of the instances
contemplated in this Section 9.01 (d), to the carelessness, omission, neglect,
improper conduct or other cause of Tenant or any of its sublessees, or its or
their employees, agents, contractors, visitors, licensees or invitees, unless
the loss is otherwise covered by insurance proceeds received by Landlord.
Tenant shall, at its expense, promptly replace all scratched, damaged
or broken doors and glass in and to the Demised Premises excluding elevator cabs
and exterior glass or windows that are a part of the structure of the Building
(unless the damage thereto was caused by Tenant or Tenant's sublessees, or its
or their employees, agents, contractors, visitors, licensees or invitees, in
which event, at Landlord's option, either (i) Landlord shall perform the
necessary replacements or repairs at Tenant's sole cost and expense, or (ii)
Tenant shall perform the necessary replacements or repairs at its sole cost and
expense) and shall be responsible for all repairs, maintenance and replacements
of wall and floor coverings in the Demised Premises and for the repair and
maintenance of all sanitary, plumbing, and electrical fixtures and equipment
therein unless such repair, maintenance or replacement is necessitated by the
carelessness, omission, neglect, improper conduct or other cause of Landlord or
Landlord's employees, agents, contractors, visitors, licensees or invitees.
Tenant shall, at its expense, promptly make all repairs in or to the Demised
Premises for which Tenant is responsible; any repairs required to be made by
Tenant to the mechanical, electrical, sanitary, plumbing, heating, ventilating,
air-conditioning or other systems of the Building, shall be performed only by
contractor(s) reasonably designated by Landlord. If Tenant fails to make any
repairs, restorations or replacements for which Tenant is responsible hereunder,
Landlord, after not less than 10 days written notice to Tenant and reasonable
opportunity to do so, except in an emergency when no notice shall be required,
may (but shall not be obligated to) make same and Landlord's costs of doing so,
plus a fifteen percent (15%) supervisory fee to Landlord, shall be collectible
as additional rent hereunder and shall be paid by Tenant to Landlord within
fifteen (15) days after rendition of Landlord's bill or statement therefor. Any
other repairs in or to the Building and the facilities and systems thereof for
which Tenant is responsible, shall be performed by Landlord at Tenant's sole
cost and expense (but only after Tenant failed to perform such repairs using
only those contractors on Landlord's list of approved contractors within a
reasonable amount of time), which shall not exceed all of Landlord's actual and
reasonable costs, including, without limitation, any and all actual and
reasonable architectural and engineering fees, filing fees and supervisory fees,
plus a fifteen percent (15%) supervisory fee to Landlord.
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Section 9.02. Except for those matters which are Tenant's
responsibility, as provided in Section 9.01 hereof, Landlord, at its expense,
shall maintain and keep the exterior and structural elements of the Building and
the public portions of the Building and its systems and facilities servicing the
Demised Premises in good working order, condition and repair, including, without
limitation, public halls, stairways, toilets, exterior windows, walls,
radiators, fans, plumbing, wiring and mechanical systems for the supply of
water, heat, air conditioning, elevator service, gas and electricity; Landlord
shall also make all repairs and replacements for damage caused by the
carelessness, neglect, omission, improper conduct or other cause of Landlord,
its servants, agents, employees, and licensees. If requested by Tenant and if
reasonably practicable, Landlord shall perform any repairs, with respect to the
Demised Premises that it is obligated to perform under this Lease on after-hours
basis provided that Tenant shall promptly pay to Landlord the extra costs
related to the overtime work incurred by Landlord. Tenant shall give Landlord
prompt notice of any defective condition of which it has knowledge in any
Building plumbing, heating or cooling system or electrical line located in,
servicing or passing through the Demised Premises. Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's use and occupancy while
making any repairs in the Building or the Demised Premises.
Section 9.03. Except as otherwise may be expressly provided in this
Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants
and obligations under this Lease be reduced or abated in any manner whatsoever
by reason of any inconvenience, annoyance, interruption or injury to business
arising from Landlord's making any repairs or changes which Landlord is required
or permitted by this Lease, or required by Law, to make in or to any portion of
the Building or of the Demised Premises, or in or to the fixtures, equipment,
systems or appurtenances of the Building or the Demised Premises.
Section 9.04. Tenant shall make no alterations, decorations,
installations, additions or improvements in or to the Demised Premises, without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed, and then only by contractors or mechanics selected from
Landlord's then approved list, which list shall include not less than three (3)
contractors, or selected by Tenant and approved by Landlord, which approval
shall not be unreasonably withheld or delayed, prior to any bidding for any such
work. Landlord's consent shall not be required for painting, decoration or
non-structural wall covering in the Demised Premises, provided that (i) Tenant
gives Landlord ten (10) days prior written notice of Tenant's intention to
perform such work, and which notice shall contain a description of the work to
be performed and the name of the contractor who will perform the work; (ii) the
performance of such work does not cause a disruption in the Building; and (iii)
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Tenant performs such work in compliance with the terms and conditions of this
Lease. All such work, alterations, decorations, installations, additions or
improvements shall be done at Tenant's sole cost and expense at such times and
in such manner as Landlord may from time to time reasonably designate and in
full compliance with all laws, rules and regulations of all governmental bodies
having jurisdiction thereover. In connection with any Tenant alterations,
decorations, installations, additions or improvements to the Demised Premises,
Tenant agrees to obtain during the progress of such work, and deliver to
Landlord, written and unconditional waivers of mechanics' liens, to the extent
permitted by law, upon the real property in which the Demised Premises are
located, for all work, labor, and services performed and materials furnished by
them in connection with such work, signed by all contractors, subcontractors,
materialmen and laborers involved in such work. No lien waivers shall be
required to be obtained prior to the commencement of any work in the Demised
Premises or prior to the commencement of Tenant's Work. Tenant agrees to
reimburse the Landlord for all out-of-pocket costs ("Actual Costs") which the
Landlord incurs by payment to third parties in connection with the review of
Tenant's proposed work and the granting or denial of the requested consent.
Actual Costs shall include, without limitation, all reasonable out-of-pocket
expenses, engineers', architects' or contractors' fees. Landlord shall not be
liable for any failure of the air-conditioning, and heating and ventilating
equipment in the Demised Premises installed by Landlord, which is caused by
alterations, installations, and/or additions by Tenant, and Tenant shall correct
any condition causing such failure. Upon Tenant's failure to correct same,
Landlord may make such correction and charge Tenant for the cost thereof, plus a
supervisory fee of fifteen (15%) percent. Such gums due Landlord shall be deemed
additional rent and shall be paid by Tenant within fifteen (15) days upon being
billed therefor.
Section 9.05. Prior to commencing any work pursuant to the provisions
of this Article, Tenant shall furnish Landlord with:
(a) Copies of all governmental permits and authorizations which
may be required in connection with such work.
(b) A certificate evidencing that Tenant (or Tenant's
contractors) has (have) procured Workers Compensation insurance covering all
persons employed in connection with the work who might assert claims for death
or bodily injury against Landlord, any Superior Lessor, Superior Mortgagee,
Tenant or the Building.
(c) Such additional personal injury and property damage
insurance (over and above the insurance required to be
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carried by Tenant pursuant to the provisions of Article 12 hereof) as Landlord
or Landlord's managing agent may reasonably require based on the work to be done
by Tenant.
(d) Plans and specifications (including architectural,
engineering, mechanical, electrical and plumbing drawings, if applicable) for
the work to be done and copies of all contracts with contractors and
subcontractors selected by Tenant and approved by Landlord.
Section 9.06. With respect to any of Tenant's alterations,
improvements or repairs which shall cost in excess of $25,000.00, Tenant shall
pay to Landlord or at Landlord's direction, Landlord's managing agent, within
ten (10) days after being billed therefor, a supervisory and coordination fee,
in an amount equal to ten percent (10%) of the cost of any such alterations,
improvements or repairs for indirect costs, field supervision and coordination
in connection therewith, but only to the extent such cost exceeds $25,000.00.
Tenant shall keep accurate and complete cost records of Tenant's alterations,
improvements and repairs costing in excess of $25,000.00 and shall furnish
photostatic copies thereof and of all contracts entered into and work orders
issued by Tenant in connection therewith to Landlord's managing agent, certified
as correct by Tenant, within 45 days of Landlord's managing agent's request
therefor. For the purposes of this Article all alterations, improvements or
repairs performed by Tenant within the Demised Premises as part of a single work
project shall be considered together as a single cost. Notwithstanding anything
contained in this Section 9.06 to the contrary, in the event Tenant uses a
contractor named on Landlord's list of approved contractors for the Building to
perform work in the Demised Premises, including, without limitation, Tenant's
Work performed pursuant to Article 42, Tenant shall not be obligated to pay any
supervisory fee in connection with such work. Except in connection with Tenant
Changes in connection with Tenant's initial occupancy of the eighth (8th) floor
portion of the Demised Premises, Landlord agrees that in no event shall Tenant
be obligated to pay a supervisory fee in the event Tenant's Work consists solely
of decorative work such carpeting, painting and wallcoverings Landlord agrees
that its list of approved contractors for the Building, which may change from
time to time, shall always contain at least three (3) reputable, independent
contractors, and the fees charged by such contractors shall be comparable to
those of other contractors in the Borough of Manhattan, and Tenant acknowledges
receipt of Landlord's current list of approved contractors attached hereto as
Exhibit "C".
Section 9.07. Tenant will not do any act or suffer any act which
will, in any way, encumber the title of Landlord (or Tenant) in and to the
Demised Premises nor will the interest or estate of Landlord or Tenant in the
Demised Premises be in any way subject to any claim by way of lien or
encumbrance, whether
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by operation of law or by virtue of any express or implied contract by Tenant,
except that Tenant may execute and file Uniform Commercial Code financing
statements in connection with financings of Tenant's personalty and fixtures.
Section 9.08. Tenant will not suffer or permit any liens to be filed
against the Demised Premises, the Building or any part thereof, by reason of any
work, labor, services or materials done for, or supplied, or claimed to have
been done for, or supplied to Tenant, or anyone holding the Demised Premises, or
any part thereof, through or under Tenant. If any such lien is at any time filed
against the Demised Premises or the Building, Tenant will cause the same to be
discharged of record within forty-five (45) days after Tenant either receives
notice of or becomes aware of the filing of the same, by either payment, deposit
or bonding and if Tenant shall fail to do so, then, in addition to any other
right or remedy of Landlord, Landlord may, but shall not be obligated to,
procure the discharge of the same either by paying the amount claimed to be due
by deposit in court or bonding, and/or Landlord will be entitled, if Landlord so
elects, to compel the prosecution of an action for the foreclosure of such lien
by the lienor and to pay the amount of the judgment, if any, in favor of the
lienor with interest, costs and allowances. Any amount paid or deposited by
Landlord for any of the aforesaid purposes, and all legal and other expenses of
Landlord, including reasonable attorneys' fees, in defending such action or in
procuring the discharge of such lien, with all necessary disbursements in
connection therewith, will become due and payable as additional rent within ten
(10) days of Landlord's notice to Tenant.
Section 9.09. Nothing in this Lease shall be deemed to be, or
construed in any way as constituting, the consent or request of Landlord,
express or implied by inference or otherwise, to any person, firm or being
condemned or vacated, by reason of non-compliance or otherwise by reason of such
contest;
(b) before the commencement of such contest, Tenant shall
furnish to Landlord either (i) the bond of a surety company satisfactory to
Landlord, which bond shall be, as to its provisions and form, reasonably
satisfactory to Landlord, and shall be in an amount at least equal to one
hundred and twenty five (125%) percent of the cost of such compliance (as
reasonably estimated by a reputable contractor designated by Landlord) and shall
indemnify Landlord against the cost thereof and against all liability for
damages, interest, penalties, expenses (including reasonable attorneys' fees and
expenses) resulting from or incurred in connection with such contest or
non-compliance, or (ii) other security in place of such bond reasonably
satisfactory to Landlord;
(c) such non-compliance or contest shall not constitute or
result in any violation of any Superior Lease or
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Superior Mortgage, or if any such Superior Lease and/or Superior Mortgage shall
permit such non-compliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of the Tenant; and
(d) Tenant shall keep Landlord advised as to the status of such
proceedings.
Without limiting the application of the foregoing, Landlord
shall be deemed subject to prosecution for a crime if Landlord, or its managing
agent, or officer, director, partner, shareholder or employee of Landlord or its
managing agent, as an individual, is charged with a crime of any kind or degree
whatever, whether by service of a Summons or otherwise, unless such charge is
withdrawn before Landlord or its managing agent, or such officer, director,
partner, shareholder or employee of Landlord or its managing agent, as the case
may be, is required to plead or answer thereto.
Section 10.04. To the extent that compliance is not Tenant's
obligation pursuant to Section 10.02 hereof, Landlord, at Landlord's expense,
shall comply with or cause to be complied with, all laws, orders, ordinances
regulations and requirements of any public authority or lawful direction of any
public official or officer which, with respect to the Systems, public, and/or
structural portions of the Building, shall affect Tenant's access to the Demised
Premises or which shall affect the Building systems servicing the Demised
Premises. Landlord, however, may defer such compliance so long as Landlord shall
be contesting the validity or applicability thereof. Tenant agrees to comply
with all laws in effect as of the date Tenant completes Tenant's Work necessary
for its initial occupancy of the 8th floor portion of the Demised Premises
concerning handicapped access that affects the public bathrooms on the eighth
(8th) floor of the Building, including, without limitation, Local Law 58 and the
Americans with Disabilities Act, and such obligation shall not be affected by
the existence of any bathroom located within the Demised Premises on the 8th
floor of the Building (the intention of the parties being that obligation shall
be determined as if there are no bathrooms within the Demised Premises located
on the 8th floor of the Building).
ARTICLE 11
ASSIGNMENT. SUBLETTING. MORTGAGING
----------------------------------
Section 11.01. Except as otherwise expressly provided in this Lease,
Tenant shall not, whether voluntarily, involuntarily or by operation of law or
otherwise assign or otherwise transfer this Lease or the estate and term hereby
granted, sublet or suffer or permit the Demised Premises or any part thereof to
be used, occupied or utilized by anyone other than Tenant, or mortgage, pledge,
encumber or otherwise
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hypothecate (any of which shall be referred to as a "mortgaging") this Lease or
the Demised Premises or any part thereof in any manner whatsoever without, in
each instance, obtaining the prior written consent of Landlord. The consent by
Landlord to any assignment or subletting or mortgaging shall not in any manner
be construed to relieve Tenant (or any assignee or sublessee) from obtaining
Landlord's express written consent to any other or further assignment or
subletting or mortgaging. In no event shall any permitted sublessee assign or
encumber its sublease or further sublet all or a portion of its sublet space, or
otherwise suffer or permit the sublet space or any part thereof to be used or
occupied by others without Landlord's prior written consent in each instance.
Section 11.02. (a) If Tenant is a corporation or partnership, the
provisions of Section 11.01 shall apply to a transfer (by one or more transfers)
of a majority of the stock or partnership interests of Tenant (as the case may
be) as if such transfer of a majority of the stock or partnership interests of
Tenant were an assignment of this Lease; but said provisions, and the provisions
of Section 11.09, shall not apply and Landlord's consent shall not be required
and recapture provisions shall not apply to transactions with a corporation or
partnership into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets or stock are transferred, provided that in
any of such events
(i) the successor to Tenant has a net worth computed
in accordance with generally accepted accounting
principles at least equal to the net worth of
Tenant immediately prior to such merger,
consolidation or transfer, and
(ii) proof reasonably satisfactory to Landlord of
such net worth shall have been delivered to
Landlord at least ten (10) days prior to the
effective date of any such transaction.
(b) Landlord agrees that the Tenant named herein (and not its
successors and assigns) shall have the right, without the prior consent of
Landlord and without being subject to Landlord's rights pursuant to Section
11.03(b) or Section 11.09, to assign the Lease to, sublet to, or permit the use
or occupancy of all or any part of the Demised Premises by, any parent,
subsidiary or affiliate of Tenant, for the uses herein permitted and for such
period as such assignee or sublessee shall remain a parent, subsidiary or
affiliate of Tenant. A "subsidiary" of Tenant shall mean a corporation,
partnership or other entity more than fifty percent (50%) of whose outstanding
voting stock and all other classes of outstanding stock at the time of such
assignment or sublease shall be owned by Tenant. An "affiliate" of Tenant shall
mean any corporation, partnership or
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other entity more than fifty percent (50%) of whose outstanding voting stock and
all other classes of outstanding stock at the time of such assignment or
sublease shall be owned by the same persons and/or entities owning more than
fifty percent (50%) of the outstanding voting stock and all other classes of
outstanding stock of Tenant. A "parent" of Tenant shall mean a corporation,
partnership or other entity owning more than fifty percent (50%) of the
outstanding voting stock and all other classes of outstanding stock of Tenant at
the time of such assignment or sublease. No assignment or sublease under this
Section shall be valid unless Tenant shall give Tenant's Notice (as hereinafter
defined) to Landlord of the proposed assignee or sublessee within ten (10) days
after the execution thereof and Tenant shall deliver to Landlord an assignment
or a sublease, duly executed by Tenant and such assignee or sublessee, as the
case may be, which agreement complies with the requirements of this Article 11.
(c) Notwithstanding any other provision of this Lease, the
transfer of stock of Tenant by Jules Kroll to the estate of Jules Kroll, or from
the estate of Jules Kroll to the spouse and/or children of Jules Kroll and/or to
senior officers of Tenant then responsible for major management decisions shall
not be deemed an assignment of this Lease.
Section 11.03. (a) If Tenant desires to assign its interest in
this Lease or sublease all or any portion of the Demised Premises, Tenant shall
deliver to Landlord Tenant's Notice (as hereinafter defined) prior to entering
into each and every assignment or subletting. "Tenant's Notice" shall be a
written notice from Tenant setting forth (i) Tenant's desire to enter into an
assignment of this Lease or a sublease, (ii) the proposed terms and conditions
of the proposed assignment or subletting, including, without limitation, copies
of all term sheets, offers and requests for proposal sent to, or received from,
any prospective assignees or sublessees, if any, and (iii) in the event of
desired subletting of less than all of the Demised Premises, a description and
floor plan of the proposed subleased premises.
(b) Within forty-five (45) days (or twenty (20) business days in
the event that Tenant's Notice is not the first Tenant's Notice delivered in and
twenty-four (24) month period during the term of the Lease) following receipt of
Tenant's Notice containing the above required information, Landlord may elect
any of the options hereinafter set forth in this subsection 11.03(b), subject,
however, to Section 11.03(c):
(1) In the event of a proposed assignment or in the event of a
proposed subletting of all or substantially all of the Demised Premises,
Landlord, at its option, exercisable by notice given to Tenant within the
aforesaid forty-five (45) day period (or 20-business day period, if applicable),
may (i) terminate this Lease, or (ii) in the event of a proposed
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assignment, require Tenant to assign this Lease to Landlord or its designee, in
either case effective as of a date which shall be one hundred eighty (180) days
after the giving of Landlord's termination notice. If Landlord shall exercise
such termination option, then the term of this Lease shall cease and expire on
the date specified in Landlord's termination notice with the same force and
effect as if such date were originally provided herein as the Expiration Date of
the term hereof.
(2) In the event of a proposed sublease for less than all or
substantially all of the Demised Premises but for all or substantially all of
the balance of the term hereof, Landlord, at its option, exercisable by notice
given to Tenant within said forty-five (45) day period (or 20-business day
period, if applicable), may terminate this Lease only as to the portion of the
Demised Premises which the proposed sublease would cover effective as of a date,
which date shall be either (x) 90 days after the giving of Landlord's
termination notice in the event that the proposed sublease is less than two (2)
full floors of the Building, or (y) one hundred eighty (180) days after the
giving of Landlord's termination notice in the event that the proposed sublease
is for two (2) full floors or more of the Building. In the event Landlord shall
exercise such termination option (A) the term of this Lease with respect only to
such portion of the Demised Premises shall cease and expire on the date
specified in Landlord's termination notice, (B) the Fixed Rent and additional
rent payable hereunder shall be respectively reduced, effective as of 11:59 p.m.
on said date, by the amounts thereof allocable to such portion of the Demised
Premises, and (C) the parties shall then (or prior thereto or promptly
thereafter as Landlord may request) enter into a modification agreement of this
Lease reflecting the deletion of such portion from the Demised Premises
effective as of said date and the reduction of Fixed Rent, additional rent and
Tenant's Proportionate Share required thereby. In the event Landlord shall
exercise its foregoing option, Tenant shall be responsible for the cost of
constructing any necessary demising walls required by the deletion or subletting
of such portion of the Demised Premises and complying with any laws and
requirements of public authority pertaining thereto.
(3) In the event of a proposed sublease for less than all or
substantially all of the Demised Premises and for less than all or substantially
all of the balance of the term hereof, Landlord, at its option, exercisable by
notice given to Tenant within said forty-five (45) day period (or 20-business
day period), may require Tenant to enter into a sublease of such portion of the
Demised Premises to Landlord or its designee as sublessee upon the terms set
forth in Section 11.04 hereof, which sublease shall be effective as of a date,
which date shall be either (x) 90 days after the giving of Landlord's
termination notice in the event that the proposed sublease is less than two (2)
full floors of the Building, or (y) one hundred eighty (180)
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days after the giving of Landlord's notice. In the event Landlord shall exercise
the foregoing option Tenant shall be responsible for the cost of constructing
any necessary demising walls and complying with any laws and requirements of any
public authority pertaining thereto.
For purposes of this subsection 11.03(b), as used herein the term
"substantially all" shall mean in excess of eighty (80%) percent of the Demised
Premises, or the remaining term of the Lease, as the case may be.
(c) Landlord shall not be entitled to exercise any of the
foregoing options contained in Section 11.03(b) with respect to a proposed
sublease by Tenant provided: (i) the proposed sublease has a term commencing
prior to the fifth anniversary of the Commencement Date; and (ii) the term of
the proposed sublease expires prior to the ninth anniversary of the Commencement
Date (the "Initial Subleases"). The foregoing is not intended to waive any
requirement under this Article 11 with respect to Tenant's obligation to obtain
Landlord's consent to subleases.
Section 11.04. If Landlord exercises its option to sublet the
premises proposed to be subleased, such sublease to Landlord (or its designee)
as sublessee, shall be at the portions of the Fixed Rent and additional rents
then payable hereunder allocable to the sublease premises, and shall be for the
same term as that of the proposed subletting, and:
(a) Such sublease shall be expressly subject to all of the
covenants, agreements, terms, provisions and conditions of this Lease except
such as are irrelevant or inapplicable, and except as otherwise expressly set
forth to the contrary in this Section;
(b) Such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in this
Section:
(c) Such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or any
interest therein and/or to sublet the space covered by such sublease or any part
or parts of such space and to make any and all changes, alterations and
improvements in the space covered by such sublease;
(d) Such sublease shall provide that any assignee or further
assignee or further sublessee(s) of the sublessee's interest thereunder, may, at
the election of Landlord, be permitted to make alterations, decorations, and
installations in such space or any part thereof and shall also provide in
substance that any such alterations, decorations and
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installations in such space therein made by any assignee or sublessee may be
removed, in whole or in part, by such assignee or sublessee, at its option,
prior to or upon the expiration or other termination of such sublease provided
that such assignee or sublessee, at its expense, shall repair any damage and
injury to such space so sublet caused by such removal; and
(e) Such sublease shall also provide that (i) the parties to
such sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties, (ii)
any assignment or subletting by Landlord or its designee (as the sublessee) may
be for any purpose or purposes that Landlord, in Landlord's sole discretion,
shall deem suitable or appropriate, (iii) Tenant, at Tenant's expense, shall and
will at all times provide and permit reasonably appropriate means of ingress to
and egress from such space to be sublet by Tenant to the Landlord or designee,
and (iv) that at the expiration of the term of such sublease, Landlord will
deliver the space to Tenant at the expiration of the sublease in substantial
similar design, configuration and condition as same was in as of the
commencement date of such sublease, reasonable wear and tear excepted.
Section 11.05. In the event Tenant shall have duly complied with the
provisions of Section 11.03 and Landlord shall not have exercised any of its
options pursuant to Section 11.03 and on condition that Tenant is 'Lot then in
default in the payment of any Fixed Rent or additional rent due hereunder and is
not otherwise in material default with respect to any of Tenant's other
obligations under this Lease, Landlord's consent (which shall be in writing and
in form satisfactory to Landlord) to a proposed assignment or sublease shall not
be unreasonably withheld and shall be granted or denied within thirty (30) days
of Tenant's request for consent, provided, however, that Landlord may withhold
consent thereto if, in the exercise of its reasonable judgment, it determines
that:
(a) The financial condition (as shall be reasonably evidenced to
Landlord by Tenant) and general reputation of the proposed assignee or sublessee
are not commensurate with the financial obligations imposed by the proposed
assignment or sublease, or the character and dignity of the Building and the
existing tenancies thereof; provided, however, that if Tenant's net worth (as
shall be reasonably evidenced to Landlord by Tenant) as of the effective date of
the sublease or assignment shall be the same or greater than Tenant's net worth
as of the Commencement Date hereof, then Landlord shall not be entitled to
withhold its consent to a proposed assignment -or sublease on the basis of the
proposed assignee's or subtenant's financial condition.
(b) The proposed use of the Demised Premises or the relevant
part thereof (i) is not appropriate for the Building
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or consistent with the character of the existing tenancies thereof or (ii) will
violate the permitted use(s) set forth in Section 3.01 hereof or will violate
any negative covenant as to use contained in any other lease of space in the
Building;
(c) The nature of the occupancy of the proposed assignee or
sublessee will cause a materially greater density of employees or traffic or
make materially greater demands on the Building's services, or facilities or in
any other way will lessen the character or dignity of the Building;
(d) The proposed assignee or sublessee (or any parent,
subsidiary or affiliate thereof, as such terms are defined in Section 11.02(b)
herein) is then an occupant of any part of the Building;
(e) The proposed assignee or sublessee is a person or entity
with whom Landlord was actively and in good faith negotiating to lease space in
the Building at any time during the previous six (6) month period;
(f) The form of the proposed sublease or assignment is not in
form and content reasonably satisfactory to Landlord or does not comply with the
applicable provisions of this Article;
(g) There would be, as a result of the proposed assignment or
subletting, more than five occupants (including Tenant or its designee) of any
floor of the Demised Premises;
(h) The amount of the aggregate rent payable under the proposed
sublease is less than ninety percent (90%) of the aggregate rent that Landlord
is leasing other comparable space in the Building; and
(i) With respect to any proposed assignment or sublease the term
of which commences on or prior to the day which shall be the fifth anniversary
of the Commencement Date, Tenant would, as a result of the proposed assignment
or sublease, occupy less than 3500 square feet.
Notwithstanding anything contained herein to the contrary, with
respect to the Initial Subleases only, (i) SubSection 11.05(f) shall not apply,
(ii) Sub-Sections 11.05(d) and (e) shall only apply provided that Landlord has
space in the Building comparable to the space Tenant has offered to the proposed
assignee or sublessee, and which comparable space is made available by Landlord
for leasing by such proposed assignee or sublessee, and (iii) with respect to
Sub-Section 11.05(a), it is understood that if Tenant submits to Landlord all
the financial information it possesses on a proposed sublessee or assignee, such
financial information shall be deemed sufficient
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to permit Landlord to make its determination pursuant to such
Sub-Section 11.05(a).
As a condition of Landlord's consent to any assignment or subletting,
Tenant shall reimburse Landlord on demand for any reasonable costs that may be
incurred by Landlord in connection with said assignment or sublease, including,
without limitation, the cost of making investigations as to the acceptability of
the proposed assignee or sublessee, and reasonable administrative and attorneys'
fees incurred in connection with the reviewing of the assignment or sublease and
preparing any consent thereto.
Section 11.06. Except for any subletting by Tenant to Landlord or its
designee pursuant to the provisions of this Article, each subletting pursuant to
this Article shall be subject to all of the covenants, agreements, terms,
provisions and conditions contained in this Lease. Notwithstanding any such
subletting to Landlord or any such subletting to any other sublessee and/or
acceptance of rent or additional rent by Landlord from any sublessee, Tenant
shall and will remain fully liable for the payment of the Fixed Rent and
additional rent due and to become due hereunder and for the performance of all
the covenants, agreements, terms, provisions and conditions contained in this
Lease on the part of Tenant to be performed and all acts and omissions of any
licensee or sublessee or anyone claiming under or through any sublessee which
shall be in violation of any of the obligations of this Lease, and any such
violation shall be deemed to be a violation by Tenant. Tenant further agrees
that notwithstanding any such subletting, no other and further subletting of the
Demised Premises by Tenant or any person claiming through or under Tenant, shall
or will be made except upon compliance with and subject to the provisions of
this Article. If Landlord shall decline to give its consent to any proposed
assignment or sublease, or if Landlord shall exercise any of its options under
Section 11.03, Tenant shall indemnify, defend and hold harmless Landlord against
and from any and all loss, liability, damages, cost and expense, including
reasonable attorneys' fees, resulting from any claims that may be made against
Landlord by the proposed assignee or sublessee or by any brokers or other
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
Section 11.07. In the event that (a) Landlord fails to exercise any
of its options under Section 11.03, and (b) Tenant fails to deliver the fully
executed assignment or sublease within six (6) months after the expiration of
Landlord's options period pursuant to said Section then Tenant shall again
comply with all of the provisions and conditions of Section 11.03 before
assigning this Lease or subletting the Demised Premises or the relevant part
thereof; provided, however that Tenant shall be entitled to a one-time 30-day
extension, of such six (6) month period if Tenant delivers to Landlord notice
requesting such
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extension together with a draft of sublease currently being negotiated, prior to
the expiration of such six (6) month period.
Section 11.08. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease (except for a
subletting by Landlord pursuant to Section 11.04 hereof), it is further agreed
that:
(a) no subletting shall be for a term ending later than one day
prior to the expiration date of this Lease;
(b) no subletting shall be for less than 2,000 contiguous
rentable square feet;
(c) no sublease shall be valid, and no sublessee shall take
possession of the Demised Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(d) Tenant, whether through a broker, agent, representative, or
otherwise shall not have (i) advertised or publicized in any way the
availability of the Demised Premises or the relevant part thereof without prior
notice to and written approval thereof by Landlord, which approval shall not be
unreasonably withheld or delayed, nor shall any advertisement state the name (as
distinguished from the address) of the Building or the proposed rents, or (ii)
listed the Demised Premises or relevant part thereof for subletting, at a rental
rate less than the aggregate rent that Landlord is then asking for other
comparable space in the Building.
(e) each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess by
Landlord under this Lease Landlord may, at its option, take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, and such
sublessee shall, at Landlord's option, attorn to Landlord with respect to the
executory provisions of such sublease except that Landlord shall not (i) be
liable for any previous act or omission of the sublessor under such sublease,
(ii) be subject to any offset, not expressly provided in such sublease, which
theretofore accrued to such sublessee against Tenant, or (iii) be bound by any
previous modification of such sublease to which Landlord shall not have
consented in writing or by any previous prepayment of more than one month's rent
or additional rent thereunder.
Section 11.09. If the Landlord shall give its consent to any
assignment of this Lease or to any sublease Tenant shall in consideration
therefor, pay to Landlord, as additional rent hereunder, the following sums,
(each of which shall hereinafter be referred to as "Profit");
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(a) in the case of an assignment, fifty percent (50%) of the
excess, if any, of (i) all sums and other consideration received by Tenant
and/or its designee for or by reason of such assignment (including, but not
limited to, sums paid for the sale or rental of Tenants fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property less,
in the case of a sale, the then net unamortized or undepreciated cost of any
such fixture, leasehold improvements, equipment, furniture or other personal
property determined on the basis of Subtenant's federal income tax returns)
less, (ii) customary and reasonable brokerage fees, advertising and attorneys
fees incurred in connection with such assignment and any reasonable and
customary sums actually paid to such assignee as a tenant allowance for the
construction of improvements for initial occupancy or the cost of any work
performed by Tenant in connection with initial occupancy;
(b) in the case of a sublease, fifty percent (50%) of the
excess, if any, of (i) the sum of (A) all rents, additional rents and other
consideration received by Tenant in connection with the sublease and (B) all
other sums and consideration received by Tenant or its designee for or by reason
of such subletting (including, but not limited to, sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment, furniture or
other personal property less, in the case of a sale, the then net unamortized or
undepreciated cost of any such fixture, leasehold improvements, equipment,
furniture or other personal property determined on the basis of Subtenant's
federal income tax returns) less, (ii) the sum of (X) that part of the Fixed
Rent and additional rent hereunder allocable to the subleased space and accruing
for the corresponding period during the term of the sublease, and (Y) customary
and reasonable brokerage, advertising and attorneys fees incurred in connection
with such sublease and any reasonable and customary sums actually paid to such
sublessee as a tenant allowance for the construction of improvements for initial
occupancy or the cost of any work performed by Tenant in connection with initial
occupancy.
Any amount(s) payable under this Section 11.09 shall be paid to
Landlord as and when sums on account thereof are paid by or on behalf of any
assignee(s) and/or any sublessee(s) to, Tenant or its designee, and Tenant
agrees to promptly advise Landlord thereof and furnish such information with
regard thereto as Landlord may reasonably request from time to time.
Tenant shall furnish to Landlord in the January calendar month
immediately following each calendar year during any part of which any such
sublease shall be in effect, a reasonably detailed financial statement certified
as being correct by an executive financial officer or, if Tenant is not a
corporation, a principal of Tenant, setting forth all sums accruing during the
prior calendar year and realized by Tenant from such sublease and a computation
of the Profit realized by
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Tenant during such prior calendar year. Tenant shall remit to Landlord together
with such statement any Profit or portion thereof on account of such calendar
year not previously remitted to Landlord.
Section 11.10. If this Lease shall be assigned, or if the Demised
Premises or any part thereof be sublet or occupied by any person or persons
other than Tenant, Landlord may, after default by Tenant, collect rent from the
assignee, sublessee or occupant and apply the net amount collected to the Fixed
Rent and additional rent herein reserved, but no such assignment, subletting,
occupancy or collection of rent shall be deemed a waiver of the covenants in
this Article, nor shall it be deemed acceptance of the assignee, sublessee or
occupant as a tenant, or a release of Tenant from the full performance by Tenant
of all the terms, conditions and covenants of this Lease.
Section 11.11. Each assignee or transferee shall assume and be deemed
to have assumed this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of the Fixed Rent, additional rent and adjustments
of rent, and for the due performance of all of the terms, covenants, conditions
and agreements herein contained on Tenant's part to be performed for the term of
this Lease. No assignment shall be binding on Landlord unless such assignee or
Tenant shall deliver to Landlord a duplicate original of the instrument of
assignment which contains a covenant of assumption by the assignee of all of the
obligations aforesaid and shall obtain from Landlord its aforesaid written
consent thereto. The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time for performance of, or modifying
any of the obligations of, this Lease, or by any waiver or failure of Landlord
to enforce any of the obligations of Tenant pursuant to this Lease.
Section 11.12. The listing of any name other than that of Tenant,
whether on the doors of the Demised Premises, on the Building directory or
otherwise shall not operate to vest any right or interest in this Lease or the
Demised Premises nor shall it be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Demised Premises
or to the use or occupancy thereof by third parties. It is expressly understood
that any such listing is a privilege extended by Landlord that is revocable at
will by written notice to Tenant.
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ARTICLE 12
INSURANCE: PROPERTY LOSS: REIMBURSEMENT
---------------------------------------
Section 12.01. Landlord shall maintain during the term of this Lease
a policy or policies of insurance insuring the Building against loss or damage
due to fire and other casualties covered within the classification of fire and
extended coverage, vandalism coverage and malicious mischief, sprinkler leakage,
water damage and special extended coverage on the Building. Such coverage shall
be in such amountS as Landlord may from time to time determine but not less than
the full replacement cost value. Additionally, at the option of Landlord, such
insurance coverage may include the risks of earthquakes and/or flood damage and
additional hazards, a rental loss endorsement and one or more loss payee
endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Land or Building or the ground or
underlying lessors of the Land or Building, or any portion thereof. Tenant shall
neither use the Demised Premises nor permit the Demised Premises to be used or
acts to be done therein which will (a) increase the premium of any insurance
described in this Article; (b) cause a cancellation of or be in conflict with
any such insurance policies; (c) result in a refusal by insurance companies of
good standing to insure the Building or the Land in amounts reasonably
satisfactory to Landlord; or (d) subject Landlord to any liability or
responsibility for injury to any person or property by reason of any operation
being conducted in the Demised Premises. Tenant shall, at Tenant's expense,
comply as to the Demised Premises with all insurance company requirements
pertaining to the use of the Demised Premises. If Tenant's conduct or use of the
Demised Premises causes any increase in the premium for such insurance policies,
then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
Section 12.02. Tenant shall maintain during the term of this Lease
the following coverages:
(a) Comprehensive General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the Demised
Premises, including a Broad Form Comprehensive General Liability endorsement
covering the insuring provisions of this Lease and the performance by Tenant of
the indemnity agreements set forth in this Article, for limits of liability not
less than:
Bodily Injury and $3,000,000 each occurrence
Property Damage Liability $3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
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0% Insured's participation
(b) Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Demised Premises installed by, for, or at the expense of Tenant,
(ii) the Tenant's improvements, and (iii) all other improvements, alterations
and additions to the Demised Premises. Such insurance shall be written on an
"all risks" of physical loss or damage basis, for the full replacement cost
value new without deduction for depreciation of the covered items and in amounts
that meet any co-insurance clauses of the policies of insurance and shall
include a vandalism and malicious mischief endorsement, sprinkler leakage
coverage.
(c) The minimum limits of policies of insurance required of
Tenant under this Lease shall in no event limit the liability of Tenant under
this Lease. Such insurance shall (i) name Landlord, and any other party it so
specifies, as an additional insured; (ii) specifically cover the liability
assumed by Tenant under this Lease, including, but not limited to, Tenant's
obligations under this Article; (iii) be issued by an insurance company having a
rating of not less than A-X in Best's Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of New York;
(iv) be primary insurance as to all claims thereunder and provide that any
insurance carried by Landlord is excess and non-contributing with any insurance
requirement of Tenant; (v) provide that said insurance shall not be cancelled or
coverage changed unless thirty (30) days' prior written notice shall have been
given to Landlord and any mortgagee of Landlord; and (vi) contain a
cross-liability endorsement or severability of interest clause acceptable to
Landlord. Tenant shall deliver duplicate copies of said policy or policies or
original certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof. In the
event Tenant shall fail to procure such insurance, or to deliver such policies
or certificate, Landlord may, at its option, procure such policies for the
account of Tenant, and the cost thereof shall be paid to Landlord as additional
rent within five (5) days after delivery to Tenant of bills therefor.
(d) Tenant shall carry and maintain during the entire term of
this Lease, at Tenant's sole cost and expense, increased amounts of the
insurance required to be carried by Tenant pursuant to this Article, and such
other reasonable types of insurance coverage and in such reasonable amounts
covering the Demises Premises and Tenant's operations therein, as may be
reasonably requested by Landlord; provided that such types and/or amounts of
insurance are comparable to those being required by other landlords of first
class office buildings located in the Borough of Manhattan.
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Section 12.03. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant. As long as
such waivers of subrogation are contained in their respective insurance
policies, Landlord and Tenant hereby waive any right that either may have
against the other on account of any loss or damage to their respective property
to the extent such loss or damage is insurable under policies of insurance for
fire and all risk coverage, theft, public liability, or other similar insurance.
ARTICLE 13
DAMAGE OR DESTRUCTION
---------------------
Section 13.01. If the Building or the Demised Premises shall be
partially or totally damaged or destroyed by fire or other cause, then whether
or not the damage or destruction shall have resulted from the fault or neglect
of Tenant, or its employees, agents or visitors (and if this Lease shall not
have been terminated as in this Article 13 hereinafter provided) then Landlord,
to the extent permitted by available insurance proceeds, shall repair the damage
and restore and rebuild the Building and/or the Demised Premises with reasonable
dispatch after notice to Landlord of the damage or destruction; provided,
however, that Landlord shall not be required to repair or replace any of
Tenant's Property or the property that is deemed Landlord's Property pursuant to
Section 8.01 hereof, unless caused by the gross negligence or willful misconduct
of Landlord, its employees, agents, contractors or licensees.
Section 13.02. In the event all or a portion of the Demised Premises
shall be so damaged by fire or other casualty as to be rendered completely or
partially untenantable or in the event the Building shall be so damaged
(irrespective of whether or not the Demised Premises are damaged) so that all or
a portion of the Demised Premises shall be rendered untenantable, then, and in
any such event, Fixed Rent and the additional rent payable pursuant to Article 5
and 6 hereof shall be
(a) completely abated in the event all of the Demised
Premises shall be untenantable, or
(b) in the event only a portion of the Demised Premises
shall be untenantable, partially abated to the extent
that such Fixed Rent and additional rent shall be
allocable to such untenantable portion of the Demised
Premises,
in both cases only for the period from the date of such damage to the date (i)
such damage shall be substantially repaired, or (ii) if the Demised Premises are
not damaged but rendered untenantable because of damage to the Building, the
date on which the Demised Premises are again tenantable, provided, however,
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<PAGE> 43
that if Tenant (or any sublessee(s) or licensee(s) of Tenant) should reoccupy
all or part of such untenantable space for the conduct of business therein prior
to the date that the damage thereto is substantially repaired or such space is
again tenantable, then the abatement of Fixed Rent and additional rent pursuant
to Article 5 and 6 hereof allocable to such reoccupied space shall cease as of
the date of such reoccupancy. The term "substantially repaired" as used herein
shall mean repaired except for such minor details or so called "punch-list"
items, the non-performance of which shall not preclude Tenant from reoccupying
the affected portion or all of the Demised Premises, as the case may be, and
conducting its business therein.
Section 13.03. In the event the Building or the Demised Premises
shall be totally damaged or destroyed by fire or other casualty, or in the event
the Building shall be so damaged or destroyed by fire or other casualty
(irrespective of whether or not the Demised Premises are damaged thereby) that
Landlord shall decide to demolish or rebuild it, or if the leases in the
Building affecting seventy-five (75%) percent or more of the Building are
terminated by either Landlord or tenants (or any combination thereof) then, and
in any of said events, Landlord shall have the option, exercisable by notice
given to Tenant within one hundred twenty (120) days after the date of the
casualty, to cancel and terminate this Lease as of a date specified in
Landlord's termination notice which date shall be not more than forty-five (45)
days after the giving of Landlord's termination notice, in which event the term
of this Lease shall cease and expire on the date specified in Landlord's notice
with the same force and effect as if such date were originally provided herein
as the expiration date of the term hereof.
Section 13.04. In the event of any damage or destruction mentioned in
this Article 13 which shall cause (a) the Demised Premises to be untenantable,
and if Landlord has not substantially completed the making of the repairs and
restoration required to be made by Landlord pursuant to the provisions of this
Article within a period of one year from the date of such damage or destruction,
which period, however, shall be extended by the number of days, if any, as shall
equal the aggregate number of days (but not in excess of one hundred twenty
(120) days) that Landlord may have been delayed in making such repairs and
restoration by reason of labor trouble, governmental controls, act of God,
adjustment of insurance loss or other similar causes beyond Landlord's
reasonable control, or (b) more than 50% of the total rentable area of the
Demised Premises shall be damaged by casualty during the last Lease Year, then
Tenant may terminate this Lease by notice given to Landlord within sixty (60)
days after the expiration of such one year period or longer (by reason of any
such extension) period in the event of (a), or within sixty (60) days of the
date of such casualty in the event of (b), as the case may be, effective as of a
date specified in such notice, which shall be not more than thirty (30) days
after
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<PAGE> 44
the giving thereof, and the term of this Lease shall expire on such date with
the same force and effect as if such date were originally provided herein as the
expiration date of the term hereof.
Section 13.05. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of the Building
pursuant to this Article 13. Landlord shall use reasonable efforts to effect
such repair or restoration promptly and in such a manner (working, however,
during Business Hours of Business Days unless Landlord in its sole discretion
shall otherwise determine) as not to unreasonably interfere with Tenant's use
and occupancy of the Demised Premises.
Section 13.06. Notwithstanding any of the foregoing provisions of
this Article 13, if Landlord or any Superior Lessor or the holder of any
Superior Mortgage shall be unable to collect all of the insurance proceeds
(including, without limitation thereof, rent insurance proceeds) applicable to
damage or destruction of the Demised Premises or the Building by fire or other
cause, by reason of some action or inaction on the part of the Tenant or any of
its employees, agents or contractors, then, without prejudice to any other
remedies which may be available against Tenant, there shall be no abatement of
Fixed Rent or additional rent until the total amount of such rents not abated
which would otherwise have been abated equals the amount of uncollected
insurance proceeds.
Section 13.07. Landlord will not carry separate insurance of any kind
on Tenant's Property or on property which is deemed Landlord's Property pursuant
to Section 8.01 hereof and, except as provided in Section 13.01 hereof, Landlord
shall not be obligated to repair any damage thereto or restore or replace same,
the repair, restoration and replacement of which shall be Tenant's
responsibility and Tenant shall carry appropriate insurance thereon and on all
improvements and betterments made for or on behalf of Tenant in the Demised
Premises as required by Section 12.03 hereof.
Section 13.08. In the event of the termination of this Lease pursuant
to any of the provisions of this Article 13, this Lease and the term and estate
hereby granted shall expire as of the date of such termination with the same
effect as if such date were the date originally set forth herein as the
expiration date of the term hereof, and the Fixed Rent and additional rent
payable hereunder shall be apportioned as of such date subject, however, to any
applicable abatement to which Tenant may be entitled pursuant to the provisions
hereof.
Section 13.09. The provisions of this Article 13 shall be considered
an express agreement governing any case of damage
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<PAGE> 45
or destruction of the Demised Premises by fire or other casualty, and Section
227 of the Real Property Law of the State of New York, providing for a
contingency in the absence of an express agreement and any other law of like
import, now or hereafter in force, shall have no application to the Demised
Premises and this Lease.
ARTICLE 14
LIMITATION OF LANDLORD'S LIABILITY: INDEMNIFICATION
---------------------------------------------------
Section 14.01. Neither Landlord nor any partner, director, officer,
agent, servant or employee of Landlord shall be liable to Tenant for
(a) any loss, injury or damage to property of Tenant or of
others entrusted to employees of the Building, or for any loss of or damage to
any property of Tenant or others by theft or action by a third party, or
(b) any injury or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow
leaks from any part of said Building or from the pipes, appliances or plumbing
works or from the roof, street or subsurface or from any other place or by
dampness or by any other cause of whatsoever nature, unless caused by or due to
the gross negligence of Landlord, its agents, servants, employees, contractors,
licensees, or
(c) any of the foregoing damage, loss or injury caused by other
tenants or persons in the Building or caused by operations in construction of
any private, public or quasi-public work, or
(d) consequential damages arising out of any loss of use of, or
loss or damage to, all or any part of the Demised Premises or any equipment or
facilities therein whether or not caused by negligence.
If, at any time, any windows of the Demised Premises are temporarily
or permanently closed, darkened or bricked up for any reason whatsoever
including but not limited to, Landlord's own acts, Landlord shall not be liable
for any damage Tenant may sustain thereby and Tenant shall not be entitled to
any remuneration therefor or any abatement of Fixed Rent or additional rent
hereunder nor shall the same release Tenant from any of its obligations
hereunder nor constitute an eviction. Notwithstanding the foregoing, Landlord
agrees not to permanently close, darken or brick up windows of the Demised
Premises except as a result of compliance with law.
Section 14.02. Tenant shall indemnify and hold harmless Landlord and
all Superior Lessors, Superior Mortgagees and its and their respective partners,
directors, officers,
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<PAGE> 46
agents and employees from and against any and all claims arising
from or in connection with
(a) the conduct or management of the Demised Premises or of any
business therein, or any work or thing whatsoever done, or any condition created
(other than by Landlord or its agents, employees, contractors or licensees), in
or about the Demised Premises during the term of this Lease or any holdover
period or during the period of time, if any, prior to the Commencement Date that
Tenant may have been given access to the Demised Premises;
(b) any act, omission or negligence of Tenant or any of its
subtenants or licensees or its or their partners, directors, officers, agents,
employees or contractors;
(c) any accident, injury or damage whatever (unless caused
solely by Landlord's gross negligence or the gross negligence of Landlord's
agents, employees, contractors or licensees), occurring in, at or upon the
Demised Premises; and
(d) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease; together with
all costs, expenses and liabilities incurred in or in connection with each such
claim or action or proceeding brought thereon, including, without limitation,
reasonable attorneys fees and expenses. In case any action or proceeding be
brought against Landlord and/or any Superior Lessor or Superior Mortgage and/or
its or their partners, directors, officers, agents and/or employees by reason of
any such claim, Tenant, at its expense, upon notice from Landlord or such
superior lessor, shall resist and defend such action or proceeding by counsel
reasonably satisfactory to Landlord and/or such Superior Lessor or Superior
Mortgagee.
Section 14.03. Tenant agrees to look solely to Landlord's estate and
interest in the Land and Building, or the lease of the Building, or of the Land
and Building, and the Demised Premises (and/or the proceeds of any of the
foregoing), for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord, in the event of any liability by Landlord, and no other
property or assets of Landlord or its partners or principals, disclosed or
undisclosed, shall be subject to levy, execution, attachment, or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder, or
Tenant's use and occupancy of the Demised Premises, or any other liability of
Landlord to Tenant.
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<PAGE> 47
ARTICLE 15
MOVING OF HEAVY EQUIPMENT, FLOOR LOAD, NOISE, WINDOW CLEANING
-------------------------------------------------------------
Section 15.01. Tenant shall not move any safe, heavy equipment or
bulky matter in or out of the Building without Landlord's prior written consent
which consent Landlord agrees not to unreasonably withhold or delay. If the
movement of such items requires special handling, Tenant agrees to employ only
persons holding a Master Rigger's License to do said work and all such work
shall be done in full compliance with the Administrative Code of the City of New
York and other municipal requirements. All such movements shall be made during
hours which will least interfere with the normal operations of the Building, and
all damage to the Demised Premises caused by such movement shall be promptly
repaired by Tenant at Tenant's expense, and any damage to any part of the
Building and its systems may be repaired by Landlord at Tenant's expense.
Section 15.02. Tenant shall not place a load upon any floor of the
Demises Premises which exceeds the load per square foot which such floor was
designed to carry and which is allowed by law.
Section 15.03. Business machines and mechanical equipment belonging
to Tenant which cause noise or vibration that may be transmitted to the
structure of the Building or to the Demised Premises to such a degree as to be
reasonably objectionable to Landlord or other tenants shall be placed and
maintained by the party owning the machines or equipment, at such party's
expense, in settings of cork, rubber or spring type vibration eliminators
sufficient to eliminate noise or vibration.
Section 15.04. Tenant will not clean, nor require, permit, suffer or
allow any window in the Demised Premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or the rules of the Board of Standards
and Appeals or of any other board or body having or asserting jurisdiction.
ARTICLE 16
CONDEMNATION
------------
Section 16.01. If the whole Building or the Demised Premises shall be
taken by condemnation or in any other manner for which any public or
quasi-public use or purpose (other than in a temporary taking for use, as to
which Section 16.04 shall apply) this Lease and the term and estate hereby
granted shall terminate as of this date of vesting of title on such taking
(herein called the "Date of the Taking"), and the Fixed Rent and additional rent
shall be prorated and adjusted as of such date.
Section 16.02. If twenty percent (20%) or more of the Demised
Premises or if twenty percent (20%) or more of the
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<PAGE> 48
Building shall be so taken, this Lease shall be unaffected by such taking except
that
(a) With respect to the taking of 20% or more of the Building,
Landlord may, at its option, terminate this Lease by giving Tenant notice to
that effect within sixty (60) days after the Date of the Taking, and
(b) if twenty percent (20%) or more of the Demised Premises
shall be so taken and the remaining area of the Demised Premises and/or the
means of access (provided, however, that Landlord shall have a reasonable period
of time from the date of taking to create a new means of access to the Demised
Premises) shall not be reasonably sufficient for Tenant to continue the feasible
operation of its business therein, Tenant may terminate this Lease by giving
Landlord notice to that effect within ninety (90) days after the Date of the
Taking. This Lease shall terminate on the date specified in such notice from
Landlord or Tenant which shall be not less than sixty (60) days from the date of
such notice, and the Fixed Rent and additional rent shall be prorated and
adjusted as of such termination date. Upon such partial taking and this Lease
continuing in force as to any part of the Demised Premises, the Fixed Rent and
additional rent shall be adjusted according to the rentable area remaining.
Section 16.03. Landlord shall be entitled to receive the entire award
payment in connection with any taking without deduction therefrom for any estate
vested in Tenant by this Lease and Tenant shall receive no part of such award
except as hereinafter expressly provided in this Article. Tenant hereby
expressly assigns to Landlord all of its rights, title and interest now or
hereinafter arising in and to every such award or payment. Notwithstanding the
foregoing, in the event of a termination of this Lease by reason of any taking,
Tenant may make separate claim for its fixtures and leasehold improvements not
deemed to be Landlordes Property pursuant to this Lease actually taken and for
moving expenses.
Section 16.04. If the temporary use or occupancy of all or any part
of the Demised Premises shall be taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this Lease,
Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award or payment for such taking which repre8ents compensation
for use and occupancy of the Demised Premises, for the taking of Tenant's
Property and for moving expenses, and Landlord shall be entitled to receive that
portion which represents reimbursement for the cost of restoration of the
Demised Premises. This Lease shall be and remain unaffected by such taking and
Tenant shall continue responsible for all of its obligations hereunder insofar
as such obligations are not affected by such taking and shall continue to pay in
full the Fixed Rent and additional rent when due. If the period of
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<PAGE> 49
temporary use of occupancy shall be extended beyond the expiration date of this
Lease, that part of the award which represents compensation for the use and
occupancy of the Demised Premises (or a part thereof) shall be apportioned
between Landlord and Tenant so that Landlord shall receive for its own account
so much thereof as shall be allocable to the period after such expiration date,
and such portion thereof as shall be allocable up to and including such
expiration date shall be received, held and applied by Landlord as a trust fund
for payment of the Fixed Rent and additional rent becoming due hereunder during
such period prior to Landlord's receipt of such trust funds, Landlord shall
reimburse Tenant therefor out of such trust funds when received by Landlord.
Section 16.05. In the event of any taking of less than the whole of
the Building and/or the Land which does not result in a termination of this
Lease, or in the event of a taking for a temporary use or occupancy of all or
any part of the Demised Premises which does not result in a termination of this
Lease, Landlord, at its expense, and whether or not any award or awards shall be
sufficient for the purpose, shall proceed with reasonable diligence to repair
the remaining parts of the Building and the Demised Premises (other than those
part of the Demised Premises which are Tenant's Property) to substantially their
former condition to the extent that the same may be feasible (subject to
reasonable changes which Landlord shall deem desirable) and so as to constitute
a tenantable Building and Demised Premises.
ARTICLE 17
CONDITIONS OF LIMITATION
------------------------
Section 17.01. This Lease and the term and estate hereby granted are
subject to the limitations that:
(a) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall file a voluntary petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act or any
other present or future applicable federal, state or other statute or law
(foreign or domestic) or shall make an assignment for benefit of creditors, or
shall seek or consent or acquiesce in the appointment of any trustee, receiver
or liquidator of Tenant or of all or any part of Tenant's Property; or
(b) if, within ninety (90) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future applicable federal,
state or other statute or law (foreign or domestic,) such proceeding shall not
have been dismissed, or if within ninety
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<PAGE> 50
(90) days after the appointment of any trustee, receiver or liquidator of Tenant
or of all or any part of Tenant's Property, without the consent or acquiescence
of Tenant, such appointment shall not have been vacated or otherwise discharged;
or
(c) if any execution or attachment shall be issued against
Tenant or any of Tenant's Property pursuant to which the Demised Premises shall
be taken or occupied or attempted to be taken or occupied, then Landlord at any
time after the occurrence of any such event, may give Tenant a notice of
intention to end the term of this Lease at the expiration of three (3) days from
the date of the giving of such notice of intention, and upon the expiration of
said three (3) day period this Lease and the term and estate hereby granted,
whether or not the term shall theretofore have commenced, shall terminate with
the same effect as if that day were the expiration date of this Lease, but
Tenant shall remain liable for damages as provided in Article 19 hereof.
Section 17.02. This Lease and the term and estate hereby granted are
subject to the further limitations that:
(a) if Tenant shall default in the payment of any Fixed Rent or
additional rent, and such default shall continue uncured for ten (10) days after
notice by Landlord to Tenant of such default; or
(b) if Tenant shall, whether by action or inaction, be in
default of any of its obligations under this Lease other than a default in the
payment of any Fixed Rent or additional rent and such default shall continue and
not be remedied within thirty (30) days after notice by Landlord to Tenant of
such default, or, if such default is of such a nature that it cannot with due
diligence be remedied within said period of thirty (30) days, if Tenant shall
not (i) promptly upon the giving by Landlord of such notice, give notice to
Landlord of Tenant's intention to institute all steps necessary to remedy such
default, (ii) promptly institute and thereafter diligently and with continuity
prosecute to completion all steps necessary to remedy the default, and (iii)
complete such remedy within a reasonable time after the date of the giving of
said notice by Landlord and in any event prior to such time as would either (x)
subject Landlord, or any directors, officers, partners or employees or agents of
Landlord, or any Superior Lessor, or Superior Mortgagee to prosecution for a
crime or (y) cause a default under any Superior Lease or any Superior Mortgage;
or
(c) if any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Article 11; or
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<PAGE> 51
(d) if Tenant shall abandon the Demised Premises; or
(e) if there shall be any default by Tenant (or any person
which, directly or indirectly, controls, is controlled by, or is under common
control with Tenant) under any other lease with Landlord for space in the
Building which shall not be remedied within the applicable grace period, if any,
provided therefor in such other lease, then and in any of said events, Landlord
may give to Tenant a notice of intention to terminate this Lease and to end the
term and estate hereby granted at the expiration of three (3) days from the date
of the giving of such notice, and upon the expiration of said three (3) day
period, this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if such third day were the expiration date of this Lease, but Tenant shall
remain liable for damages as provided in Article 19 hereof.
Section 17.03. Nothing in Sections 17.01 or 17.02 shall be deemed to
require Landlord to give the notices therein provided for prior to the
commencement of a summary proceeding for nonpayment of rent or a plenary action
for recovery of rent on account of any default in the payment of the same, it
being intended that such notices are for the sole purpose of creating a
conditional limitation hereunder pursuant to which this Lease shall terminate
and if Tenant thereafter remains in possession after such a termination, it
shall do so as a holdover tenant.
ARTICLE 18
RE-ENTRY BY LANDLORD
--------------------
WAIVER OF RIGHT OF REDEMPTION
-----------------------------
Section 18.01. If Tenant shall default in the payment of any Fixed
Rent or additional rent, and such default shall continue for ten (10) days after
notice by Landlord to Tenant of such default, or if this Lease shall terminate
as provided in Article 17:
(a) Landlord or Landlord's agent or employees may immediately or
at any time thereafter peaceably re-enter the Demised Premises, or any part
thereof, either by summary dispossess proceedings or by any other suitable
action or proceeding at law, or by force or otherwise (without being liable to
indictment, prosecution or damages therefore) and may repossess the same and
dispossess Tenant and any other person(s) from the Demised Premises and may
remove Tenant or any and all of their property and effects therefrom, without
liability for damages thereto or accountability therefor, to the end that
Landlord may have, hold and enjoy the Demised Premises, provided however, in no
event, shall any such re-entry be deemed an acceptance of surrender under this
Lease;
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<PAGE> 52
(b) Landlord, at its option, may relet the whole or any
portion(s) of the Demised Premises from time to time, either in the name of the
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, or on or after the date originally provided herein as the expiration
date of the term hereof, at such rentals and upon such other conditions, which
may include concessions and free rent period, as Landlord in its sole discretion
may determine. Landlord shall have no obligation to relet the Demised Premises
or any portion thereof and shall in no event be liable for refusal or failure to
relet the Demised Premises or any portion thereof or, in the event of any such
reletting, for failure to collect any rent due upon such reletting, and no such
refusal or failure shall operate to release or relieve Tenant from any liability
under this Lease or otherwise to affect such liability. Further, Landlord may
make such repairs, improvements, alterations, additions, decorations and other
physical changes in and to the Demised Premises as Landlord in its discretion
considers advisable or necessary in connection with any such reletting or
proposed reletting, without releasing or relieving Tenant from any liability
under this Lease or otherwise affecting any such liability; and
(c) the words "re-enter", "re-entry" and "re-entered" as used
in this Lease shall not be deemed to be restricted to their technical legal
meanings. If this Lease is terminated under the provisions of Article 17, or if
Landlord shall re-enter the Demised Premises pursuant to the provisions of this
Article, or in the event of the termination of this Lease, or of re-entry, by or
pursuant to any summary dispossess or other proceedings or action or any
provision of law by reason of default hereunder on the part of the Tenant:
(i) Tenant shall thereupon pay to Landlord the Fixed Rent and
additional rent payable up to the time of such termination of
this Lease, or of such recovery of possession of the Demised
Premises by Landlord, as the case may be, (ii) Tenant shall also
pay to Landlord damages as provided in Article 19, and (iii)
Landlord shall be entitled to retain all monies, if any, paid by
Tenant to Landlord, whether as advance rent, security or
otherwise, but such monies shall be credited by Landlord against
any Fixed Rent or additional rent due from Tenant at the time of
such termination or re-entry or, at Landlord's option, against
any damages payable by Tenant under Article 19 or pursuant to
law.
Section 18.02. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant including all creditors, does hereby expressly
waive any and all rights, so far as is permitted by law, which Tenant and all
such persons might otherwise have to
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<PAGE> 53
(a) the service of any notice of intention to re- enter or to
institute legal proceedings to that end,
(b) redeem the Demised Premises or any interest therein,
(c) re-enter or repossess the Demised Premises, or
(d) restore the operation of this Lease after Tenant shall have
been dispossessed by a judgment or by a warrant of any court or judge, or after
any re-entry by Landlord, or after any termination of this Lease, whether such
dispossess, re-entry by Landlord or termination shall be by operation of law or
pursuant to the provisions of this Lease.
Section 18.03. In the event of a breach or threatened breach by
Tenant of any of its obligations under this Lease, Landlord shall also have the
right of injunction. The special remedies to which Landlord may resort hereunder
are cumulative and are not intended to be exclusive of any other remedies to
which Landlord may lawfully be entitled at any time and Landlord may invoke any
remedy allowed at law or in equity as if specific remedies were not provided for
herein.
ARTICLE 19
LANDLORD'S REMEDIES DAMAGES
---------------------------
Section 19.01. If this Lease is terminated pursuant to the provisions
of Article 17, or if Landlord shall re-enter the Demised Premises pursuant to
the provisions of Article 18, or in the event of the termination of this Lease,
or of re-entry, by or pursuant to any summary dispossess or other proceeding or
action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord,
either:
(a) a sum which at the time of such termination of this Lease or
at the time of such re-entry by landlord, as the case may be, represents the
then value of the excess, if any, of (i) the aggregate amount of the Fixed Rent
and the additional rent under Articles 5 and 6 which would have been payable by
Tenant (conclusively presuming the average monthly additional rent under
Articles 5 and 6 to be the higher of (x) the same additional rent payable under
said Articles as were payable for the year, or if less than three hundred and
sixty five (365) days have then elapsed since the commencement Date, the partial
year immediately preceding such termination or re-entry) or (y) the projected
additional rent payable under said Articles utilized in determining aggregate
rental value pursuant to clause (ii) hereof, for the period commencing with such
earlier termination of this Lease or the date of such re-entry, as the case may
be, and en4ing with the date contemplated as the expiration date
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hereof if this Lease had not so terminated or if Landlord had not so re-entered
the Demised Premises for the same period, over (ii) the aggregate rental value
of the Demised Premises for the same period, or
(b) sums equal to the Fixed Rent and the additional rent which
would have been payable by Tenant had this Lease not so terminated, or had
Landlord not so re-entered the Demised Premises, payable upon the due dates
therefor specified herein following such termination or such re-entry and until
the date contemplated as the expiration date hereof if this Lease had not so
terminated or if Landlord had not so re-entered the Demised Premises during said
period, provided, however, that if Landlord shall relet the Demised Premises
during said period, Landlord shall credit Tenant with the net rents received by
Landlord for such reletting, such net rents to be determined by first deducting
from the gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Demised Premises and in securing possession thereof, as well as
the expenses of reletting, including, without limitation, altering and preparing
the Demised Premises for new tenants, brokers' commissions, legal fees, and all
other expenses properly chargeable against the Demised Premises and the rental
therefrom, it being understood that any such reletting may be for a period
shorter or longer than the remaining term of this Lease and that such reletting
may be of all or portion(s) of the Demised Premises either alone or together
with other space in the Building (in which event the net rents therefrom and the
expenses of reletting shall be equitably apportioned); but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for
the collection of damages pursuant to this subdivision to a credit in respect Cf
any net rents from a reletting, except to the extent that such net rents are
actually received by Landlord.
If the Demised Premises or any portion(s) thereof be relet by
Landlord for the unexpired portion of the term of this Lease, or any portion
thereof, before presentation of proof of such damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall, prima facie,
be the fair and reasonable rental value for the Demised Premises, or portion
thereof, so relet during the term of the reletting.
Section 19.02. An action or actions for the recovery of such damages,
or any installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be:
(a) deemed to require Landlord to Postpone action until the date
when the term of this Lease would have expired if it had not been so terminated
under the provisions of Article 17,
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or under any provision of law, or had Landlord not re-entered the Demised
Premises;
(b) construed to limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant; or
(c) construed to limit or prejudice the right of Landlord to
prove for and obtain as damages by reason of the termination of this Lease or
re-entry in the Demised Premises for the default of Tenant under this Lease an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved whether or not such amount be greater, equal to, or less than any of the
lums referred to in Section 19.01.
Section 19.03. In addition, if this Lease is terminated under the
provisions of Article 17, or if Landlord shall re-enter the Demised Premises
under the provisions of Article 18, Tenant agrees that:
(a) the Demised Premises then shall be in the same condition as
that in which Tenant has agreed to surrender the same to Landlord at the
expiration of the term hereof in accordance with this Lease;
(b) Tenant shall have performed prior to any such termination
any covenant of Tenant contained in this Lease for the making of any alteration
or for restoring or rebuilding the Demised Premises or the Building, or any part
thereof; and
(c) for the breach of any covenant of Tenant set forth above in
this Section 19.03, Landlord shall be entitled immediately, without notice or
other action by Landlord, to recover, and Tenant shall pay, as and for
liquidated damages therefor, the cost of complying with such covenant (as
estimated by an independent contractor selected by Landlord)
Section 19.04. In addition to any other remedies Landlord may have
under this Lease, and without reducing or adversely affecting any of Landlord's
rights and remedies under Article 17, if any Fixed Rent, additional rent or
damages payable hereunder by Tenant to Landlord are not paid within five (5)
days after the date due hereunder, the same shall bear interest at the rate of
one and one-half percent (1.5%) per month or the maximum rate permitted by law,
whichever is less, from the due date thereof until paid, and the amount of such
interest shall be additional rent hereunder.
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ARTICLE 20
LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
------------------------------------------------
Section 20.01. If Tenant shall default in the observance or
performance of any term or covenant on its part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease, Landlord, without being under any obligation to do so and without thereby
waiving such default, may remedy such default for the account and at the expense
of Tenant, without notice in the event of an emergency, and in any other event
only if such default shall continue uncured after (i) notice of such default
shall have been given by Landlord to Tenant, and (ii) any applicable grace
period for curing same shall have expired. Tenant shall reimburse Landlord, as
additional rent hereunder, within five (5) days after Landlord's rendition of a
statement therefor for all expenditures made by, or damages or fines sustained
or obligations incurred by Landlord including, without limitation, reasonable
counsel fees and legal fees in instituting, prosecuting or defending any action
or proceedings, due to non-performance or non-compliance with or breach or
failure to observe any term, covenant or condition of this Lease upon Tenant's
part to be kept, observed, performed or complied with.
ARTICLE 21
SERVICES AND EQUIPMENT
----------------------
Section 21.01. For purposes of this Lease,
(a) the term "Business Days" shall mean all days excluding
Saturdays, Sundays and days observed by the State or City of New York or Federal
Government as legal holidays, and further excluding holidays established by any
union contract applicable to Building employees, and
(b) the term "Business Hours" shall mean the hours from 8:00
a.m. to 6:00 p.m. of Business Days.
Section 21.02. So long as this Lease is in full force and effect, and
Tenant is not in default of any monetary obligations past applicable notice and
cure periods, Landlord shall, at its sole cost and expense:
(a) provide necessary elevator facilities to the Demised
Premises during Business Hours of Business Days and shall have sufficient
elevators available at all other times serving the Demised Premises. At
Landlord's option, the elevators shall be operated by automatic control or by
manual control, or by a combination of both of such methods;
(b) maintain and keep in good order and repair all Building
systems, including the air conditioning, heating and ventilating systems
installed by Landlord. The aforesaid systems
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will be operated by Landlord when seasonably required during Business Hours on
Business Days to provide a comfort level and service comparable to other
first-class buildings in the vicinity of the Building. Landlord shall have no
responsibility or liability for the ventilating conditions and/or temperature of
the Demised Premises during the hours or days Landlord is not required to
furnish heat, ventilation or air conditioning pursuant to this section, except
in the event Landlord is required to provide, and charges Tenant for, overtime
heat, ventilation or air conditioning as hereinafter provided in this Section
21.02(b). Landlord has informed Tenant that the windows of the Demised Premises
and the Building are or may be sealed, and that the Demised Premises may become
uninhabitable and the air therein may become unwholesome during the hours or
days when Landlord is not required pursuant to this paragraph to furnish heat,
ventilation or air conditioning. Any use or occupancy of the Demised Premises
during the hours or days Landlord is not so required to furnish heat,
ventilation or air conditioning to the Demised Premises shall be at the sole
risk, responsibility and hazard of Tenant. Such condition of the Demised
Premises shall not constitute nor be deemed to be a breach or a violation of
this Lease or of any provision thereof, nor shall it be deemed an eviction nor
shall Tenant claim or be entitled to claim any abatement of rent nor make any
claim for any damages or compensation by reason of such condition of the Demised
Premises. Tenant shall in any event cause all of the windows in the Demised
Premises to be kept closed and shall cause and keep entirely unobstructed all of
the vents, intakes, outlets and grilles, at all times and shall comply with and
observe all regulations and requirements prescribed by Landlord for the proper
functioning of the heating, ventilating and air-conditioning systems. In the
event that Tenant shall require air conditioning, heating or ventilation at
times when same are not required to be furnished by Landlord, Tenant shall give
Landlord reasonable advance notice of such requirement and, if same is furnished
by Landlord, Tenant agrees to pay Landlord's then established charges therefor
as addittonal rent; overtime air-conditioning, heating or ventilation is to be
provided at Landlord's actual cost.
(c) provide Building standard cleaning and janitorial services
in accordance with the provisions of Exhibit "D" hereof;
(d) furnish hot and cold water for lavatory and drinking and
office cleaning purposes. If Tenant requires, uses or consumes water for any
other purposes, Landlord may install a meter or meters or use other means to
measure Tenant's water consumption for all purposes, and Tenant shall reimburse
Landlord for the cost of the meter or meters and the installation thereof, and
shall pay for the maintenance of said meter equipment and/or pay Landlord's cost
of other means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the
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cost of all water consumed, as measured by said meter or meters or as otherwise
measured, including sewer rents; and
(e) provide Tenant with twelve (12) listings in the Building's
directory.
Section 21.03. (a) Landlord reserves the right to interrupt, curtail
or suspend the services required to be furnished by Landlord under this Article
21 when the necessity therefore arises by reason of accident, emergency,
mechanical breakdown, or when required by any law, order or regulation of any
federal, state, county or municipal authority, or for any other cause beyond the
reasonable control of Landlord. Landlord shall use reasonable efforts to
complete all repairs or other work so that Tenant's inconvenience resulting
therefrom may be for as short a period of time as circumstances will permit.
Landlord acknowledges that nothing contained in this Lease shall preclude Tenant
from bringing, and Tenant shall have the right to bring, an action for damages
against Landlord resulting from a Service Interruption or Elevator Interruption.
(b) In the event that there shall be an interruption,
curtailment or suspension of the Building's electricity service, heating,
ventilating or air conditioning systems (a "Service Interruption"), and if (i)
such Service Interruption shall continue for at least five (5) consecutive
Business Days following receipt by Landlord of written notice from Tenant
describing such Service Interruption, (ii) such Service Interruption shall
materially impair the operation of Tenant's business in the Demised Premises,
render the Demised Premises untenantable and cause Tenant not to use the Demised
Premises for the conduct of its business and (iii) such Service Interruption
shall not have been caused, in whole or in part, by an act or omission in
violation of this Lease or negligence of Tenant, or of Tenant's agents,
servants, employees, contractors or visitors (a Service Interruption that
satisfies all of the foregoing conditions being referred to hereinafter as a
"Material Service Interruption"), then, as Tenant's sole remedy in connection
with such Material Service Interruption, Tenant shall be entitled to an
abatement of Fixed Rent and additional rent payable pursuant to Articles 5, 6
and 7 for the period which shall begin on the commencement of such Material
Service Interruption and which shall end on the earlier of the day of which (a)
such Material Service Interruption shall cease or (b) Tenant shall recommence
use of the Demised Premises.
(c) In the event that there shall be an interruption,
curtailment or suspension of the Building's elevator facilities (an "Elevator
Interruption"), and if (i) such Elevator Interruption shall continue for at
least five (5) consecutive Business Days following receipt by Landlord of
written notice from Tenant describing such Elevator Interruption, (ii) such
Elevator Interruption shall render the Demised Premises
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inaccessible and cause Tenant not to use the Demised Premises for the conduct of
its business and (iii) such Elevator Interruption shall not have been caused, in
whole or in part, by an act or omission in violation of this Lease or negligence
of Tenant or o'f Tenant's agents, servants, employees, contractors or visitors
(an Elevator Interruption that satisfies all of the foregoing conditions being
referred to hereinafter as a "Material Elevator Interruption"), then, as
Tenant's sole remedy in connection with such Material Elevator Interruption,
Tenant shall be entitled to an abatement of Fixed Rent and additional rent
payable pursuant to Articles 5, 6 and 7 for the period which shall begin on the
commencement of such Material Elevator Interruption and which shall end on the
day Tenant may obtain access to the Demised Premises through at least one
elevator.
Section 21.04. Tenant shall reimburse Landlord for the cost to
Landlord of removal from the Demised Premises and the Building of so much of any
refuse and rubbish of Tenant as shall exceed that ordinarily accumulated daily
in the routine of business office occupancy or by any use of the Demised
Premises during other than Business Hours.
Section 21.05. It is expressly agreed that only Landlord or any one
or more persons, firms or corporations authorized in writing by Landlord will be
permitted to furnish laundry, linen, towels, drinking water, ice and other
similar supplies and services to tenants and occupants of the Building. Landlord
may fix, in its own absolute discretion, at any time and from time to time, the
hours during which and the regulations under which such supplies and services
are to be furnished. Landlord expressly reserves the right to act as or to
designate, at any time and from time to time, an exclusive supplier of all or
any one or more of the said suppliers and services, provided that the quality
thereof and the charges therefor are reasonably comparable to that of other
suppliers; and Landlord furthermore expressly reserves the right to exclude from
the Building any person, firm or corporation attempting to furnish any of said
supplies or services not so designated by Landlord.
Section 21.06. Deleted prior to execution.
Section 21.07. Tenant agrees to employ such office maintenance
contractor as Landlord may from time to time designate for all waxing,
polishing, lamp replacement, cleaning (other than those cleaning services
Landlord is obligated to furnish) and the maintenance work in the Demised
Premises, provided that the quality thereof and the charges therefor are
reasonably comparable to that of other contractors. Tenant shall not employ any
other contractor without Landlord's prior written consent, which shall not be
unreasonably withheld or delayed.
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Section 21.08. Landlord will not be required to furnish any other
services, except as may otherwise be specified in this Lease.
Section 21.09. Tenant, at its sole cost and expense, shall cause the
Demised Premises to be exterminated on a monthly basis to the satisfaction of
Landlord and shall for such purposes employ exterminators designated by
Landlord. If Tenant shall have facilities in the Demised Premises for cooking,
drinking, eating, washing and/or storage of food, or similar items, Tenant
shall, on a weekly basis, cause the portion of the Demised Premises on which
such facilities are located to be exterminated to the satisfaction of Landlord
by exterminators designated by Landlord. The foregoing shall not, however,
constitute any approval or consent to the use of the Demised Premises for such
purposes.
If Tenant fails to comply with the provisions of this Section 21.09,
Landlord, in addition to any other remedies available to it under this Lease or
pursuant to law, may furnish such exterminating service and the cost therefor
shall be paid by Tenant on demand as additional rent hereunder.
ARTICLE 22
ACCESS. RIGHT TO CHANGE PUBLIC PORTIONS OF BUILDING
---------------------------------------------------
Section 22.01. Except for the space within the inside surfaces of all
walls, hung ceilings, floors, windows (which term "windows" shall include any
film now or hereafter installed thereon by Landlord, at its option, to conserve
energy in the Building) and doors bounding the Demised Premises, all of the
Building, including, without limitation, exterior Building walls, core corridor
walls and doors and any core corridor entrance, any terraces or roofs adjacent
to the Demised Premises and any space in or adjacent to the Demised Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
access thereto through the Demised Premises for the purposes of operation,
maintenance, decoration and repair, are reserved to Landlord, subject to
Tenant's rights under this Lease.
Section 22.02. Landlord reserves the right, and Tenant shall permit
Landlord, to install, erect, use and maintain pipes, ducts and conduits in and
through the Demised Premises. Landlord shall use reasonable efforts to install
new pipes, ducts and conduits so that same are substantially located within the
walls, columns, floor or hung ceilings of the Demised Premises, or, in the case
of vertical lines, adjacent to the walls of the Demised Premises to the extent
practicable and appropriately furred by Landlord at its sole cost and expense.
Landlord shall use reasonable efforts to perform such installation, use and
maintenance of these items so that same shall not unreasonably interfere with
Tenant's use and enjoyment of the Demised
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Premises. Landlord agrees that the foregoing work will not materially diminish
the ceiling height and/or the floor area, and Tenant's use of the Demised
Premises shall not be materially affected after such installation.
Notwithstanding the foregoing, there shall be no liability of Landlord, nor any
right of Tenant to terminate this Lease or abate its rental obligations, for
Landlord's breach under this section, and Tenant's sole remedy shall be
injunctive relief.
Section 22.03. Subject to the provisions of this Lease specifying the
time and manner in which Landlord may perform any of its obligations and
exercise any of its rights hereunder, Landlord and its employees and agents
shall have the right, on reasonable prior notice, except in an emergency, to
enter and/or pass through the Demised Premises at any time or times (a) to
examine the Demised Premises and to show same to actual and prospective lessors,
mortgagees, purchasers, or lessees of the Land and/or the Building or any
interest therein, and (b) to make such repairs, changes, alterations, additions
and improvements in or to the Demised Premises and/or in or to any portion(s) of
the Building facilities, equipment and systems located in or passing through the
Demised Premises as Landlord is required by law or reasonably desires to make.
Landlord shall be allowed to take all materials into and upon the Demised
Premises that may be required in connection therewith without any liability to
Tenant and without the same constituting an eviction of Tenant, in whole or in
part, and without any abatement or reduction in Fixed Rent or additional rent
payable hereunder or any reduction of Tenant's covenants and obligations
hereunder. Without limiting the generality of the foregoing, except in case of
emergency, neither Landlord nor any other party entitled access to the Demised
Premises, as set forth above, shall be entitled access to areas of the Demised
Premises in which cash, securities, or confidential material are stored except
in the presence of Tenant's representative (and only during Business Hours).
Section 22.04. Subject to Section 22.02, Tenant shall permit Landlord
to use and maintain and replace pipes and conduits in and through the Demised
Premises and to erect new pipes and conduits therein. Subject to the provisions
of this Lease specifying the time and manner in which Landlord may perform any
of its obligations and exercise any of its rights hereunder, Landlord may,
during the progress of any work in the Demised Premises, take all necessary
materials and equipment into the Demised Premises without the same constituting
an eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Landlord shall have the right
to enter the Demised Premises at reasonable hours upon reasonable prior notice
for the purpose of showing the same to prospective purchasers or mortgages of
the building, and during the last eighteen (18) months of the term for the
purpose of showing the same to
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prospective tenants. If Tenant is not present to open and permit an entry into
the premises, Landlord or Landlord's agent may enter the same whenever such
entry may be necessary or permissable by master key or forcibly and provided
reasonable care is exercised to safeguard Tenant's property and such entry shall
not render Landlord or its agents liable therefor unless caused by or due to the
gross negligence or willful misconduct of Landlord, its agents, employees,
contractors or licensees nor in any event shall the obligations of Tenant
hereunder be affected.
Section 22.05 If at any time any windows of the Demised Premises are temporarily
darkened or obstructed by reason of any repairs, improvements, rigging,
maintenance and/or cleaning in or about the Building, or if any part of the
Building other than the Demised Premises is temporarily or permanently closed or
inoperable, the same shall be without liability to Landlord and without any
reduction or diminution of Tenant's obligations under this Lease.
Notwithstanding the foregoing, Landlord shall not permanently close, darken or
brick up the windows of the Demised Premises except as required by law.
Section 22.06. If, during the last three (3) months of the term of
this Lease, Tenant has removed all or substantially all of Tenant's property
from the Demised Premises and is no longer using the Demised Premises, Landlord
may, upon reasonable prior written notice to Tenant, immediately enter the
Demised Premises and alter, renovate and decorate the same, without liability to
Tenant and without reducing or otherwise affecting Tenant's covenants and
obligations hereunder.
Section 22.07. Landlord reserves the right at any time, without
incurring any liability to Tenant therefor, and without affecting or reducing
any of Tenant's covenants and obligations hereunder, to make such changes,
alterations, additions and improvements in or to the Building and the fixtures
and equipment thereof, as well as in or to the street entrances, doors, halls,
passageways, elevators, escalators and stairways thereof, and other public parts
of the Building, as Landlord shall deem necessary or desirable, provided any
such change does not materially diminish Tenant's access to the Demised
Premises, materially and adversely interfere with Tenant's use of the Demised
Premises or the services or facilities furnished or available to the Demised
Premises.
ARTICLE 23
INVALIDITY OF ANY PROVISION
---------------------------
Section 23.01. If any term, covenant, condition or provision of this
Lease or the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease, or the application
thereof to any circumstances or to any person, firm
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or corporation other than those as to which any term, covenant, condition or
provision is held invalid or unenforceable, shall not be affected thereby and
each remaining term, covenant, condition and provision of this Lease shall be
valid and shall be enforceable to the fullest extent permitted by law.
ARTICLE 24
BROKER
------
Section 24.01. Tenant and Landlord covenant, warrant and represent
that no broker other than JNB Properties Company and its affiliates, as
Landlord's agent, and R.B. Schlesinger & Company, Inc., (individually and
collectively referred to as the "Broker") was in any way instrumental in
bringing about or consummating this Lease and that neither Landlord nor Tenant
had any conversations or negotiations with any broker other than Broker
concerning the leasing of the Demised Premises. Tenant and Landlord each agree
to indemnify the other and hold the other harmless against and from any claims
for any brokerage commissions and all costs, expenses and liabilities in
connection therewith including, without limitation, attorneys' fees and expenses
arising out of any conversations or negotiations had by Tenant or Landlord, as
the case may be, with any broker other than Broker. Subject to the foregoing,
Landlord agrees to pay any commissions earned by Broker in connection with this
Lease pursuant to separate agreements.
ARTICLE 25
SUBORDINATION
-------------
Section 25.01. This Lease and all rights of Tenant hereunder are
subject and subordinate to all ground leases, overriding leases and underlying
leases of the Land and/or the Building now or hereafter existing (any of the
foregoing being herein referred to as a "Superior Lease") and to all mortgages
which may now or hereafter affect the Land and/or the Building and/or any of
such leases (any of the foregoing being herein referred to as a "Superior
Mortgage") whether or not such Superior Mortgages shall also cover other lands
and/or buildings and/or leases, to each and every advance made or hereafter to
be made under such Superior Mortgages, and to all renewals, modifications,
consolidations, replacements and extensions of such Superior Leases and such
Superior Mortgages. This Section shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
certificate that Landlord, the lessor under any Superior Lease or the holder of
any Superior Mortgage or any of their respective successors in interest may
reasonably request to evidence such subordination; and if Tenant fails to
execute, acknowledge or deliver any such instruments within seven (7) business
days after request therefor, Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's attorney-in-fact,
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coupled with an interest, to execute any such certificate or certificates for
and on behalf of Tenant.
Section 25.02. At the option of Landlord or any successor landlord,
including the holder of any Superior Mortgage, the purchaser of the mortgaged
premises in foreclosure and any lessor under any Superior Lease who shall
succeed to the Landlord's interest herein (collectively the "Successor
Landlord"), Tenant agrees that neither the cancellation nor termination of any
Superior Lease to which this Lease is now or may hereafter become subject or
subordinate, nor any foreclosure of a Superior Mortgage affecting the Land
and/or the Building and/or the Demised Premises, nor the institution of any
suit, action, summary or other proceeding against the Landlord herein or any
successor to Landlord, or any foreclosure proceeding brought by the holder of
any such Superior Mortgage (any such holder being herein referred to as a
"Superior Mortgagee") to recover possession of the premises covered thereby,
shall by operation of the law or otherwise result in cancellation or termination
of this Lease or the obligations of the Tenant hereunder, and upon the option of
and at the request of any such Successor Landlord, Tenant covenants and agrees
to attorn to and recognize such Successor Landlord as Tenant's landlord under
this Lease and shall promptly execute and deliver any instrument that such
Successor Landlord may reasonably request to evidence such attornment. Upon such
attornment this Lease shall continue in full force and effect as a direct Lease
between the Successor Landlord and Tenant upon all of the terms, conditions and
covenants as are set forth in this Lease except that the Successor Landlord
shall not
(a) be liable for any previous act or omission of Landlord under
this Lease;
(b) be subject to any offset not expressly provided for in this
Lease, which theretofore shall have accrued to Tenant against Landlord; or
(c) be bound by any previous modification of this Lease or by
any previous prepayment of more than one month's Fixed Rent or additional rent,
unless such modification or prepayment shall have been expressly approved in
writing by the lessor of the Superior Lease or the holder of the Superior
Mortgagee, through or by reason of which the Successor Landlord shall have
succeeded to the rights of Landlord under this Lease.
Section 25.03. In the event of any act or omission by the Landlord
which would give the Tenant the right to terminate this Lease or to claim a
partial or total eviction, pursuant to the terms of this Lease, if any, the
Tenant will not exercise any such right until (a) Tenant has given written
notice of such act or omission to: (i) the holders of any Superior Mortgages
whose names and addresses shall previously have been furnished to
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Tenant, and (ii) to the lessors under any Superior Leases to which this Lease is
subject and subordinate, whose names and addresses shall previously have been
furnished to Tenant, by delivering such notice of such act or omission addressed
to such holders at the last addresses so furnished, and (b) a reasonable period
for remedying such act or omission shall have elapsed following the giving of
such notice during which none of such parties, following the giving of such
notice, has given notice to Tenant of its intention to remedy such act or
omission or to cause the same to be remedied (which period shall not be in
excess of that period of time with respect to which Landlord would be entitled
under this Lease to effect such remedy, unless such act or omission shall be one
which is not capable of being remedied by Landlord or such holder or lessor
within a reasonable period of time) and promptly commences and thereafter
continues with reasonable diligence to remedy such act or omission or cause the
same to be remedied.
Section 25.04. If, in connection with obtaining financing, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications of this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not, in Tenant's reasonable opinion, materially increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's use and enjoyment of the Demised Premises.
Section 25.05. (a) Notwithstanding anything contained herein to the
contrary, Landlord shall use its best efforts to obtain and deliver on or before
the Commencement Date, and, if not obtained and delivered on or before the
Commencement Date, Landlord shall continue thereafter to use its best efforts to
obtain and deliver, a Subordination of Mortgage from Teachers Insurance and
Annuity Association of America ("TIM") substantially in the form attached hereto
as Exhibit "E", the holder of a Superior Mortgage, which Subordination of
Mortgage Tenant shall accept and sign, provided that such Subordination of
Mortgage does not adversely affect Tenant's right of offset as described in
Article 43. If, after using its best efforts, Landlord shall fail to obtain a
Subordination of Mortgage from TIM by April 1, 1993, Landlord's obligation to so
obtain and deliver a Subordination of Mortgage pursuant to the provisions of
this Section 25.05(a) terminates, and, the validity of this Lease shall not be
affected, nor shall Landlord be subject to any liability to Tenant resulting
from such failure. Tenant shall be responsible for any costs, expenses, fees or
charges incurred by or charged to Landlord, or otherwise due and payable in
connection with obtaining a Subordination of Mortgage pursuant to this Section
25.05(a), and nothing contained in this Section 25.05 shall be deemed to require
Landlord to institute any legal action or proceeding to compel TIM to deliver
such Subordination of Mortgage. Landlord represents and warrants that, as of the
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date hereof, the Superior Mortgage held by TIM is the sole Superior Mortgage
affecting the Land and/or Building and there are no Superior Leases affecting
the Land and/or the Building.
(b) Furthermore, in consideration of, and as an express
condition precedent to, Tenant's agreement to permit its interest pursuant to
this Lease to be subject and subordinate to a Superior Lease or the lien of any
Superior Mortgage entered into after the date hereof, and provided Tenant is not
in default under this Lease beyond the expiration of applicable notice and cure
periods, Landlord shall deliver to Tenant a subordination, non-disturbance and
attornment agreement executed and delivered by the Superior Mortgagee or the
lessor under such Superior Lease ("Superior Lessor"), as the case may be, and in
recordable form reasonably satisfactory to the Superior Mortgagee, Superior
Lessor and Tenant, and Tenant agrees to execute and deliver any such
subordination, non-disturbance and attornment agreement. If Landlord elects not
to request such subordination, non-disturbance and attornment or in the event
Landlord fails to deliver such agreement to Tenant in accordance with the
foregoing, and provided Tenant is not in default under this Lease beyond the
expiration of applicable notice and cure periods, then this Lease shall not be
subject and subordinate to such Superior Mortgage and Superior Lease. Tenant
shall be responsible for any costs, expenses, fees or charges incurred by or
charged to Landlord, or otherwise due and payable in connection with obtaining
such agreement. Nothing contained in this Section 25.05 shall be deemed to
require Landlord to institute a legal action or proceeding to compel such
Superior Mortgagee or Superior Lessor to deliver such nondisturbance agreement.
ARTICLE 26
EXCAVATION
----------
Section 26.01. In the event that an excavation should be made for
building or other purposes upon land adjacent to the Building, or should be
authorized to be made, Tenant shall, if necessary, afford to the person or
persons causing or authorized to cause such excavation, license to enter upon
the Demised Premises for the purpose of doing such work as shall reasonably be
necessary to protect or preserve the wall or walls of the Building, or the
Building, from injury or damage and to support them by proper foundations,
pinning and/or underpinning, provided that Landlord shall undertake such work
after Business Hours, at Tenant's expense for the additional costs incurred by
reason of such work being performed after Business Hours, if such work would in
Tenant's reasonable opinion cause material interference with the conduct of
Tenant's business.
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ARTICLE 27
LEGAL PROCEEDINGS: WAIVER OF JURY TRIAL
---------------------------------------
Section 27.01. Landlord and Tenant hereby waive, to the extent such
waiver is not prohibited by law, the right to a jury trial in any action,
summary proceeding or legal proceeding between or among the parties hereto or
their successors arising out of this Lease or Tenant's occupancy of the Demised
Premises or Tenant's right to occupy the Demised Premises.
Section 27.02. Tenant hereby waives the right to interpose a
counterclaim in any summary proceeding instituted by Landlord against Tenant or
in any action instituted by Landlord for unpaid Fixed Rent or additional rent
under this Lease, except compulsory counterclaims.
Section 27.03. In the event the Tenant claims or asserts that the
Landlord has violated or failed to perform a covenant of Landlord not to
unreasonably withhold or delay Landlord's consent or approval, or in any case
where Landlord's reasonableness in exercising its judgment is in issue, 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 for a
breach of such covenant and in no event shall Tenant claim or assert any claims
for 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.
ARTICLE 28
ESTOPPEL CERTIFICATE
--------------------
Section 28.01. Tenant agrees, at any time, and from time to time,
upon not less than seven (7) days prior notice by Landlord, to execute,
acknowledge and deliver to Landlord, a statement in writing addressed to
Landlord or Landlord's designee certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), stating the
dates to which Fixed Rent and additional rent have been paid and stating whether
or not to the best knowledge of the signer of such certificate, there exists any
default in the performance of any covenant, agreement, term, provision or
condition contained in this Lease, and any claim or offset in favor of the
Tenant, and, if any, specifying each such default, claim or offset in favor of
the Tenant, of which signer may have knowledge, and stating whether or not, to
the best knowledge of the signer, any event has occurred which with the giving
of notice or the passage of time or both, would constitute such a default and,
if so, specifying each such event, it being intended that any such statement
delivered pursuant hereto shall be deemed a representation and warranty which
may be relied upon, regardless of independent investigation, by Landlord and
others
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with whom Landlord may be dealing including, without limitation, any purchaser
or prospective purchaser of the Land and/or the Building and/or Landlord's
interest under any Superior Lease, and by any mortgagee or prospective mortgagee
of any Superior Mortgage and/or Landlord's interest in any Superior Lease, and
by any landlord under a Superior Lease. Landlord agrees, upon not less than
fifteen (15) days prior written notice by Tenant, to execute, acknowledge and
deliver to Tenant, a statement in writing addressed to Tenant certifying that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified, and
stating the modifications), stating the dates to which Fixed Rent and additional
rent have been paid and stating whether or not to the best knowledge of the
signer of such certificate after due inquiry, there exists any default in the
performance of any covenant, agreement, term, provision or condition contained
in this Lease, and any claim or offset, and, if any, specifying each such
default, claim or offset of which signer may have knowledge, and stating whether
or not, to the best knowledge of the signer, any event has occurred which with
the giving of notice or the passage of time, or both, would constitute such a
default and, if so, specifying each such event, it being intended that any such
statement may be relied upon, regardless of independent investigation, by others
with whom Tenant may be dealing including, without limitation, Tenant's lender
or any purchaser of Tenant's business. Notwithstanding anything contained herein
to the contrary, Tenant shall only be entitled to such certificate from Landlord
in connection with a merger, acquisition or the sale of all or substantially all
of the assets or business of Tenant.
ARTICLE 29
RULES AND REGULATIONS
---------------------
Section 29.01. Tenant, its servants, employees, agents, visitors, and
licensees shall observe faithfully and comply strictly with the rules and
regulations (the "Rules and Regulations") set forth in Exhibit "F" attached
hereto and made a part hereof. Landlord shall have the right from time to time
during the term of this Lease to make reasonable changes in and additions to the
Rules and Regulations thus set forth provided same are not retroactively applied
unless such changes and their retroactive application are required by law or
regulations promulgated by a governmental agency or authority.
Section 29.02. Any failure by Landlord to enforce any Rules and
Regulations now or hereafter in effect, either against Tenant or any other
tenant in the Building, shall not constitute a waiver of any such Rules and
Regulations. Landlord agrees not to enforce any Rules and Regulations in a
discriminatory manner.
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ARTICLE 30
SURRENDER OF DEMISED PREMISES
-----------------------------
Section 30.01. Upon the expiration or other termination of the term
of this Lease, Tenant shall quit and surrender the Demised Premises in good
order and condition, ordinary wear and tear and damage by fire or other casualty
excepted, and shall remove all property therefrom, required to be removed as in
Article 8 provided. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease.
Section 30.02. No act or thing done by Landlord or its agents shall
be deemed an acceptance of a surrender of the Demised Premises, and no agreement
to accept such surrender shall be valid unless in writing and signed by
Landlord.
Section 30.03. Tenant agrees it shall indemnify and save Landlord
harmless against all costs, claims, loss or liability resulting from delay by
Tenant in surrendering the Demised Premises upon the expiration or sooner
termination of the term of this Lease, including, without limitation, any claims
made by any succeeding tenant founded on such delay. Promptly upon receipt of
the written request of Tenant, and only upon such request, Landlord agrees to
deliver to Tenant a copy of the provisions of any lease relating to Landlord's
obligation to deliver the Demised Premises (or any portion thereof) to any
succeeding tenant. The parties recognize and agree that the damage to landlord
resulting from any failure by Tenant timely to surrender the Demised Premises
will be substantial, will exceed the amount of monthly rent theretofore payable
hereunder, and will be impossible of accurate measurement. Tenant therefore
agrees that if possession of the Demised Premises is not surrendered to Landlord
upon the Expiration Date or sooner termination of the term of this Lease, then
Tenant will pay Landlord as liquidated damages for each month and for each
portion of any month during which Tenant holds over in the Demised Premises
after expiration or sooner termination of the term of this Lease, an amount (the
"Holdover Rent") equal to two (2) times the average of the monthly installments
of Fixed Rent and additional rent which was payable per month under this Lease
during the six (6) month period preceding such expiration or sooner termination
of the term of this Lease. In addition to all other damages as provided in this
Lease or pursuant to law, if Landlord shall, at any time after the expiration or
sooner termination of the term hereof, proceed to remove Tenant from the Demised
Premises as a holdover tenant, Tenant shall pay the Holdover Rent for the use
and occupancy of the Demised Premises during any holdover period. Tenant's
aforesaid obligations shall survive the expiration or earlier termination of the
term of this Lease.
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ARTICLE 31
DEFERRED COLLECTIONS
--------------------
Section 31.01. If all or any part of the Fixed Rent or additional
rents, as above defined, shall at any time become uncollectible, reduced or
required to be refunded by virtue of any rules, regulations, orders, laws and
ordinances (including, without limitation, rent control or stabilization laws),
of governmental or quasi governmental authorities having jurisdiction
(collectively, "Laws and Ordinances") then for the period prescribed by said
Laws and Ordinances Tenant shall pay to Landlord the maximum amounts permitted
pursuant to said Laws and Ordinances (but not in excess of the applicable amount
provided herein). Upon the expiration of the applicable period of time during
which such amounts shall be uncollectible, reduced or all such uncollected,
reduced or refunded amounts that would have been payable for the period absent
such Laws and Ordinances, provided the retroactive collection thereof shall then
be lawful. Tenant's aforesaid obligations shall survive the expiration or
earlier termination of the term of this Lease.
ARTICLE 32
NOTICES
-------
Section 32.01. (a) Except as expressly stated otherwise in this
Lease, any notice or other communication required or permitted to be given or
made by either Landlord or Tenant to the other pursuant to this Lease or
pursuant to any applicable law or requirement of public authority shall be in
writing and shall be delivered to such other party personally, or sent by
registered or certified mail (return receipt requested) or by a nationally
recognized overnight courier, addressed to Tenant at the Building, Attention:
General Counsel and to Landlord, c/o JMB Properties Company, 900 North Michigan
Avenue, Chicago, Illinois 60611, Attention: Legal Department, or at such other
address designated by such party in accordance with this Article. The date of
the giving of such bill, statement, notice or communication shall be deemed to
be the date of personal delivery or mail. Either party may, by notice from time
to a different address (which, however, shall be located in the continental
United States and shall not be a Post Office Box) for notices intended for it.
Any notice of change of address shall be deemed to have been given when received
by the party to whom such notice is given.
(b) A copy of all notices to Tenant and Landlord shall be sent
to the following addresses and otherwise in accordance with the provisions of
this Article:
If to Tenant, Battle Fowler
A COPY TO: 280 Park Avenue
New York, New York 10017
Attention: Martin Edelman, Esq.
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If to Landlord,
A COPY TO: JMB Properties Company
900 Third Avenue
New York, New York 10022
Attention: Building Manager
Pircher, Nichols & Meeks
1211 Avenue of the Americas
New York, New York 10036
Attention: Real Estate Notices
(c) Landlord and Tenant agree that any notice required to be
given to the other party under the provisions of the Lease may be given by
Landlord's or Tenant's agents or attorneys (as the case may be), as same are set
forth above, and in such event, such notice shall be deemed to have been given
by Landlord or Tenant (as the case may be).
ARTICLE 33
NO WAIVER: ENTIRE AGREEMENT
---------------------------
Section 33.01. The failure of Landlord or Tenant to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the rules and regulations set forth or
hereafter adopted by Landlord shall not prevent a subsequent act, which would
have originally constituted a violation, from having all the force and effect of
an original violation. The receipt by Landlord of rent with knowledge of the
breach of any covenant of this Lease shall not be deemed a waiver of such
breach. No provision of this Lease shall be deemed to have been waived by
Landlord, unless such waiver be in writing signed by Landlord. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment of rent be deemed an accord and
satisfaction, and Landlord may accept and deposit such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
Section 33.02. This Lease with the Exhibits annexed hereto, if any,
contains the entire agreement between Landlord and Tenant and any executory
agreement hereafter made between Landlord an Tenant shall be ineffective to
change, modify, waive, release, discharge, terminate, or effect an abandonment
of this Lease, in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, waiver, release, discharge, termination or the effecting of the
abandonment is sought.
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ARTICLE 34
LETTER OF CREDIT
----------------
Section 34.01. (a) Upon execution hereof by Landlord and Tenant,
Tenant will deliver to Landlord a clean, irrevocable, expressly assignable and
unconditional letter of credit (such letter of credit and any renewal thereof
being referred to herein, collectively, as the "Letter of Credit") issued by and
drawn upon a commercial bank which is a member of the New York Clearing House
Association, reasonably acceptable to Landlord, with offices for banking
purposes in the City of New York (the "Bank"), which Letter of Credit has a term
of one year, is for the account of Landlord and is in the amount of $400,000.00
as security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease, including, without limitation, the
surrender of possession of the Demised Premises to Landlord as herein provided.
Tenant agrees to cause the Bank to renew the Letter of Credit, in the same form
from time to time during the term of this Lease, at least sixty (60) days prior
to the expiration thereof so that a Letter of Credit issued by the Bank to
Landlord shall be in force and effect through the Expiration Date hereunder. It
is agreed that in the event Tenant defaults in respect of any of the terms,
conditions, or provisions of this Lease, including, but not limited to, the
payment of the Fixed Rent and additional rent and the aforesaid agreement to
cause the Bank to renew the Letter of Credit, (I) Landlord shall have the right
to require the Bank to make payment to Landlord of the entire sum represented by
the proceeds of the Letter of Credit; (ii) Landlord may apply or retain the
whole or any part of said sum so paid to it by the Bank to the extent required
for the payment of any Fixed Rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this Lease, including, but not limited to, any
damages or deficiency in the reletting of the Demised Premises, whether such
damages or deficiency accrues before or after summary proceedings or other
re-entry by Landlord, without thereby waiving any other rights or remedies of
Landlord with respect to such default; and (iii) Landlord shall hold the
remainder of such sum paid to it by the Bank, if any, as security for the
faithful performance and observance by Tenant of the terms, covenants, and
conditions of this Lease on Tenant's part to be observed and performed, with the
same rights as hereinabove set forth to apply or retain the same in the event of
any further default by Tenant under this Lease. If Landlord applies or retains
any part of the proceeds of the Letter of Credit, Tenant, upon demand, promptly
shall deposit with Landlord the amount so applied or retained so that Landlord
shall have the full deposit on hand at all times during the term of this Lease
that is required pursuant to the terms of this Article. If Tenant shall fully
and faithfully comply with all of terms, provisions, covenants, and conditions
of this Lease, the Letter of Credit or
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any remaining portion of any sum collected by Landlord thereunder from the Bank,
together with any other portion of any other sums then held by Landlord as such
security, shall be returned to Tenant within thirty (30) days after the
Expiration Date.
(b) Tenant shall have the right to reduce the amount of the Letter of
Credit from and after January 1, 1997 in the event that (i) Tenant shall not
have defaulted in its non-monetary obligations under this Lease (beyond the
expiration of applicable notice and cure periods) or monetary obligations under
this Lease, in either event during the six (6) month period immediately
preceding delivery by Tenant to Landlord of the financial statements hereinafter
described and (ii) the total indebtedness of, or guaranteed by, Tenant (the
"Indebtedness"), as evidenced by financial statements delivered to Landlord,
prepared in accordance with generally accepted accounting principles and
certified by an independent, reputable certified public accounting firm, is less
than $10,000,000. In such events, Tenant shall have the right to reduce the
Letter of Credit, but not earlier than thirty (30) days after delivery to
Landlord of the financial statements described above, to (w) $360,000.00 in the
event the Indebtedness is between $9,000,000 and $8,000,000, (x) $320,000.00 in
the event the Indebtedness is between $7,999,999 and $7,000,000, (y) $280,000.00
in the event the Indebtedness is between $6,999,999 and $6,000,000, and (z)
$250,000.00 in the event the Indebtedness is $5,999,999 or less; provided,
however, that in no event shall the Letter of Credit be less than $250,000.00
during the term of this Lease.
Section 34.02. Landlord agrees that Tenant, at any time during the
term, but at least sixty (60) days prior to the expiration of the Letter of
Credit, may deposit with Landlord the entire sum represented by the Letter of
Credit, as security hereunder in lieu of the Letter of Credit. Landlord shall
have all of the same rights with respect to such cash security as Landlord has
hereunder with respect to the Letter of Credit. Landlord agrees, that if not
prohibited by law or the general policies of lending institutions in the City of
New York, Landlord shall deposit any sums held by Landlord as security under
this Article in an interest-bearing account at a bank selected by Landlord, and
all interest accruing thereon, less an administrative fee equal to 1% of such
security, shall be added to the amount being held as security hereunder.
Section 34.03. In the event of a sale of the Land and Building or
leasing conveyance or transfer of the Building, of which the Demised Premises
form a part, Landlord shall have the right to transfer the security to the
vendee, lessee or transferee and Landlord shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Landlord solely for the return of maid security and it is agreed that
the provisions hereof shall apply to every transfer or assignment made of the
security to a new
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landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Landlord nor its successors or assigns shall be bound by any assignment,
encumbrance, attempted assignment or attempted encumbrance.
Section 34.04. Nothing contained in this Article 34 nor the exercise
by Landlord of its rights with respect to the Letter of Credit shall be deemed
to preclude, limit or otherwise restrict Landlord's rights under any separate
guaranty executed in connection with this Lease.
ARTICLE 35
CAPTIONS
--------
Section 35.01. The captions of Articles in this Lease are inserted
only as a matter of convenience and for reference and they in no way define,
limit or describe the scope of this Lease or the intent of any provision
thereof.
ARTICLE 36
NAME OF BUILDING
----------------
Section 36.01. The Building may be known as or by such name as
Landlord, in its sole discretion, may determine, and Landlord shall have the
right, at any time and from time to time, to change the name and/or the address
of the Building without Tenant's consent.
ARTICLE 37
INABILITY TO PERFORM
--------------------
Section 37.01. This Lease and the obligations of Tenant to pay Fixed
Rent and additional rent hereunder and performance all of the other covenants
and agreements hereunder on the part of Tenant to be performed shall in no wise
be affected, impaired or excused because Landlord is unable to fulfill any of
its obligations under this Lease to supply or is delayed in supplying any
service expressly or impliedly to be supplied or is unable to make, or is
delayed in making any repair, additions, alterations or decorations or is unable
to supply or is delayed in supplying any equipment or fixtures if Landlord is
prevented or delayed from so doing by reason of strike or labor troubles or any
outside cause whatsoever, including, but not limited to, governmental preemption
in connection with a national emergency or by reason of any rule, order of
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency.
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ARTICLE 38
COVENANT OF QUIET ENJOYMENT
---------------------------
Section 38.01. Landlord covenants that Tenant may peaceably and
quietly enjoy the Demised Premises, subject nevertheless to the terms and
conditions of this Lease and provided, however, that no eviction of Tenant by
reason of paramount title, the foreclosure of any mortgage now or hereafter
affecting the Demised Premises or by reason of any termination of any ground or
underlying lease to which this Lease is subject and subordinate, whether such
termination is by operation of law, by agreement or otherwise, shall be
construed as a breach of this covenant nor shall any action by reason thereof be
brought against Landlord, and provided further that this covenant shall bind and
be enforceable against Landlord, subject to the terms hereof, only so long as
Landlord is the holder of the Landlord's interest in this Lease and is
collecting rent from Tenant but not thereafter.
ARTICLE 39
NO REPRESENTATION BY LANDLORD
-----------------------------
Section 39.01. Landlord or Landlord's agents have made no
representations or promises with respect to the Building, the Land or the
Demised Premises except as herein expressly set forth and no rights, easements
or licenses are acquired by Tenant by implication or otherwise except as
expressly set forth in the provisions of this Lease. The taking of possession of
the Demised Premises by Tenant shall be conclusive evidence, as against Tenant,
that Tenant accepts said premises and that the Demised Premises and the Building
were in good and satisfactory condition at the time such possession was so
taken, except as to latent defects.
ARTICLE 40
DEFINITION OF LANDLORD
----------------------
Section 40.01. The term "Landlord" wherever used in this Lease shall
be limited to mean and include only the owner or owners at the time in question
of the Land and the Building or the Building or the tenant under a ground or
underlying lease affecting the Land and the Building or the Building, or both,
to whom this Lease may be assigned, or a mortgagee in possession, so that in the
event of any sale, assignment or transfer of the Land and the Building or the
Building, or of such ground or underlying lease, such owner, tenant under a
ground lease or mortgagee in possession shall thereupon be released and
discharged from all covenants, conditions and agreements of Landlord thereafter
accruing hereunder; but such covenants, conditions and agreements shall be
binding upon each new owner, tenant under a ground or underlying lease, or
mortgagee in possession for the time being of the Land and the Building or the
Building, until sold, assigned or transferred.
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ARTICLE 41
LANDLORD'S WORK
---------------
Section 41.01. Provided that Tenant shall not then be in monetary
default or in default of any material obligation under the Lease beyond
applicable notice and cure periods, Landlord shall, at its sole cost and expense
and using Building standard materials, perform the work necessary to build out
the eighth (8th) floor corridor of the Building, including, without limitation,
the installation of wall coverings, carpeting, lighting and ceiling tiles
("Landlord's Work"), such that when completed the installation shall be
comparable in quality and appearance to the common corridor of the eighteenth
(18th) floor of the Building. Landlord shall substantially complete Landlord's
Work within one hundred twenty (120) days after receipt of notice from Tenant
that Tenant's Demising Work has been substantially completed.
ARTICLE 42
TENANT'S WORK
-------------
Section 42.01. Prior to commencing any work in the Demised Premises,
Tenant shall submit to Landlord, for Landlord's written approval, not to be
unreasonably withheld or delayed, architectural, engineering, mechanical,
electrical and plumbing drawings, plans and specifications (herein collectively
referred to as "Tenant's Plan") for or in connection with the improvements and
installations to be made by Tenant (such improvements or installations herein
collectively referred to as "Tenant's Work"). Tenant's Plan shall be fully
detailed, shall show complete dimensions, shall not require any changes in the
structure of the Building and shall not be in violation of any laws, orders,
rules or regulations of any governmental department or bureau having
jurisdiction over the Demised Premises.
Section 42.02 Within ten (10) business days after submission to
Landlord of Tenant's Plans, Landlord shall either approve same or shall set
forth in writing the particulars in which Landlord does not approve Same In the
latter case Tenant shall, if Tenant wishes to proceed with Tenant's Work, within
five (5) business days after Landlord's notification, submit to Landlord a
revised Tenant's Plan, which shall be subject to Landlord's approval which shall
be either granted or denied within ten (10) business days. Landlord shall not
collect any fees from Tenant for the review of Tenant's Plans.
In the event Landlord neither grants nor denies its consent or
approval within the relevant time period allowed pursuant to this Article 42,
(i) such consent or approval is required in order for Tenant to proceed with
Tenant's Work and Landlord's inaction has, therefore, caused a delay in the
performance of Tenant's Work, and (ii) Tenant has given Landlord notice of such
delay and a good faith estimate by Tenant's
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engineer or architect of the number of days of such delay, which number of days
shall not include (a) the time period allowed for Landlord's response pursuant
to this Article, or (b) any days following the day Landlord grants or denies
consent or approval, then the date that the Fixed Rent commences (as provided in
Article 4 herein) shall be delayed by the number of days contained in Tenant's
notice pursuant to (ii) hereinabove.
Section 42.03. Tenant further agrees that Tenant shall not make any
changes in Tenant's Plan subsequent to approval by Landlord without the further
written consent of Landlord not to be unreasonably withheld or delayed. Landlord
shall have the right to refuse to consent to any such changes if, in the
reasonable judgment of Landlord or Landlord's Architect, such changes materially
deviate from Tenant's Plan theretofore approved by Landlord or otherwise violate
the terms of this Lease.
Landlord agrees to cooperate with Tenant with respect to installation
and planning of Tenant's Work.
Section 42.04 Following compliance by Tenant with its obligations
under the foregoing subsections and approval of Tenant's Plan and Tenant's
Contracts by Landlord, Tenant shall file Tenant's Plan with all necessary and
appropriate governmental agencies and bureaus and shall obtain all required
permits, licenses and authorizations from governmental agencies and bureaus,
including without limitation, the New York City Buildings Department. Tenant
shall commence Tenant's Work and it shall proceed diligently with same in order
to complete same within a reasonable period of time using first class materials
and in a good and workmanlike manner.
Section 42.05. Tenant agrees that in the performance of Tenant's Work
that (i) neither Tenant nor its agents or employees shall interfere with the
work being done by Landlord and its contractors, agents and employees, (ii)
Tenant shall comply with any reasonable work schedule, rules and regulations
proposed by Landlord, its agents, contractors or employees, (iii) the labor
employed by Tenant shall be harmonious and compatible with the labor employed by
Landlord in the Building, it being agreed that, if in Landlord's judgment the
labor is incompatible Tenant shall upon Landlord's demand immediately withdraw
such labor from the Demised Premises, (iv) prior to commencing Tenant's Work,
Tenant shall procure and deliver to Landlord workmen's compensation, public
liability, property damage and such other insurance policies, in such amounts as
shall be reasonably acceptable to Landlord in connection with Tenant's Work, but
in no event less than the amounts required of Tenant under this lease, and shall
upon Landlord's request cause Landlord, any Superior Mortgagee and any Superior
Lessor to be named as an insured thereunder, (v) Tenant shall indemnify and hold
Landlord harmless from and against any and all claims
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arising from or in connection with any act or omission of Tenant or its agents,
contractors and employees, (vi) Tenant's Work shall be performed in accordance
with the approved Tenant's Plan and in compliance with the laws, orders, rules
and regulations of any governmental agency or bureau having jurisdiction over
the Demised Premises and Tenant shall immediately correct any non-conforming
work, and (vii) Tenant shall promptly pay for Tenant's Work in full, and shall
not permit any lien to be filed against the land and/or building.
Section 42.06. Landlord may, at any time and from time to time, at
Tenant's reasonable expense, in addition to any other right of access given to
Landlord pursuant to the terms of this lease, enter upon the Demised Premises
with one or more engineers and/or architects of Landlord's selection
("Landlord's Architect") to determine the course and degree of completion of
Tenant's Work and its compliance with Tenant's Plan and the terms and conditions
of this Lease.
Section 42.07. Notwithstanding anything to the contrary, nothing
contained herein shall be construed to be a consent by Landlord to any lien
filed against Land and/or Building.
Section 42.08. In the event there is no sprinkler system in the
Demised Premises, Tenant shall install a sprinkler system in the Demised
Premises as part of Tenant's Work, (i) such sprinkler system must comply with
all applicable laws, orders, ordinances, regulations and requirements of any
public authority or directions of any public official applicable to the Demised
Premises; (ii) the supplying and installing of any such sprinkler system shall
be made in accordance with the provisions of the Lease, including but not
limited to the provisions of this Article 42, and the type, brand, location and
manner of installation of such sprinkler system shall be subject to Landlord's
prior written approval; (iii) Tenant shall make all repairs and replacements
thereof in accordance with the provisions of this Lease; and (iv)
notwithstanding anything in the Lease to the contrary, such sprinkler system and
any installations in connection therewith shall, upon expiration or earlier
termination of the Lease, be deemed Landlord's Property. Notwithstanding the
foregoing, Landlord shall have the election of supplying and installing such
sprinkler system either by itself or its agents or contractors, in which event
(a) all costs and expenses incurred by Landlord in connection therewith shall be
reimbursed by Tenant upon demand of Landlord as additional rent, (b) all costs
and expenses incurred by Landlord in connection with the repair and replacement
of such sprinkler system and replacements thereto shall be reimbursed by Tenant
upon demand of Landlord as additional rent, and (c) such sprinkler system shall
be deemed Landlord's Property.
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ARTICLE 43
LANDLORD'S CONTRIBUTION
-----------------------
Section 43.01. Supplementing the provisions of Article 9 and Article
42 hereof, provided that Tenant shall not then be in monetary default or in
default of a material obligation under this Lease beyond applicable notice and
cure periods, Landlord shall (subject to, and in accordance with, the provisions
of this Article) contribute an amount, not to exceed in aggregate (including
soft costs), the sum of $260,968.00 ("Landlord's Contribution") towards the cost
of performing Tenant's Work to prepare the portion of the Demised Premises
located on the eighth (8th) floor for Tenant's initial occupancy, but not any
costs associated with the design and construction of a staircase connecting the
seventh (7th) and eighth (8th) floors of the Demised Premises. Tenant shall
deliver to Landlord evidence of the expenses incurred in the installation and
construction of Tenant's Work, such as paid invoices, receipted bills, or
cancelled checks to the contractors or sub-contractors employed in the
performance of said Tenant's Work. The evidence of the expenses incurred with
respect to labor and materials theretofore performed and incorporated into the
Demised Premises, shall be allocated as follows: (i) expenses with respect to
"soft costs" (which shall be defined herein to mean all costs, fees and charges
for permits and licenses and any architectural, engineering and design
consulting and construction management fees incurred in connection with Tenant's
Work), and (ii) the amount of "hard costs" (which shall be defined herein to
mean all costs and expenses of labor, materials and supplies incurred in
connection with Tenant's Work, including, without limitation, carpeting). The
terms "soft costs" and "hard costs" shall specifically exclude any expenses for
the purchase or installation of moveable communications equipment, moveable
computer equipment, furniture and art work and Landlord shall have no obligation
to make any Landlord's Contribution with respect to such items. Landlord's
obligation to pay Landlord's Contribution toward soft costs in connection with
the Tenant's Work shall not exceed seventeen percent (17%) of Landlord's
Contribution disbursed. Tenant shall provide a reasonable initial estimate (the
"Initial Estimate") of the cost of Tenant's Work, which Initial Estimate may be
reasonably updated from time to time. Landlord shall reimburse Tenant, or in the
event Tenant shall use one of the contractors on Landlord's then approved list,
shall make payment to such contractor, in the same proportion that Landlord's
Contribution bears to the Initial Estimate, as reasonably updated from time to
time, not more often than one (1) time per month, for the expenses incurred in
performing Tenant's Work to the extent that such expenses do not exceed
Landlord's Contribution and subject to a 10% holdback. Such reimbursement shall
be made as the performance of Tenant's Work progresses within thirty (30) days
of receipt of evidence of such expenses. Provided that Tenant shall not then be
in default under this Lease beyond the expiration of applicable notice and
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cure period, within thirty (30) days following the last to occur of: (v)
Tenant's request for payment of the final installment of Landlord's
Contribution, (w) completion of Tenant's Work in accordance with the provisions
of this Lease, (x) the certification of Tenant's architect that the same has
been completed in a good and workmanlike manner, to the satisfaction of Tenant's
architect, substantially in accordance with Tenant's plans and specifications
and in compliance with all governmental permits, (y) delivery by Tenant to
Landlord of waivers of lien from all contractors desiring final payment for all
work performed by such Contractors and (z) delivery by Tenant to Landlord of "as
built" drawings with respect to Tenant's Work, the balance of Landlord's
Contribution which has not been previously disbursed shall be disbursed to much
contractor, or Tenant, am the came may be. Landlord Shall be entitled to deduct
from Landlord's Contribution the supervisory fee referred to in Article 9 of
this Lease, if any. Notwithstanding the foregoing, if Landlord has not received,
on or before January 1, 1994, a request from Tenant in accordance with the
provisions of this Article 43 for payment of all or any portion of the
Landlord's Contribution, then, at Landlord's option, Landlord shall be relieved
of any further obligations with respect to Landlord's Contribution and shall
credit any unpaid Landlord's Contribution against the monthly installments of
Fixed Rent and additional rent next due under the Lease.
(b) In the event Landlord shall fail to pay to Tenant the amount of
any Landlord's Contribution improperly withheld from Tenant within five (5) days
after Tenant shall notify Landlord of such failure, and Landlord shall fail to
pay such amount within five (5) days after receipt of such notice from Tenant,
then Tenant shall have the right, by notice to Landlord delivered no later than
five (5) days prior to the first (1st) day of any calendar month in which Fixed
Rent shall be payable to Landlord, to obtain a reduction in the next payments of
Fixed Rent and additional rent that shall thereafter become due, equal to the
amount of any portion of Landlord's Contribution not paid pursuant to
subparagraph (a) above, plus interest from the date due until the date of
reduction or payment at the Prime Rate then in effect, which amounts shall be
deemed to satisfy payment of such unpaid portion of Landlord's Contribution.
ARTICLE 44
SUCCESSORS AND ASSIGNS
----------------------
Section 44.01. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and, except as otherwise
provided herein, their assigns.
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ARTICLE 45
TENANT'S EIGHTH FLOOR EXPANSION RIGHTS
--------------------------------------
Section 45.01. (a) Landlord agrees that if at any time during the
period between the Commencement Date and the commencement of the Final Period
(the "Expansion Period") Landlord shall receive from a prospective tenant or its
representative a reasonable request for lease proposal, reasonable written offer
or reasonable term sheet (which does not include a proposal to lease any other
space in the Building) with respect to the leasing of any portion of the eighth
(8th) floor of the Building, then and in any such event Landlord shall not enter
into or consummate a lease for such space unless and until Landlord shall have
made an offer (the "Offer") to Tenant to lease the remainder of the eighth (8th)
floor of the Building (the "Expansion Space") as described on the floor plan
attached hereto am Exhibit "G" in accordance with the terms of this Article 45
and Tenant shall have had an opportunity to exercise its rights under this
Article.
(b) Notwithstanding anything to the contrary contained in this
Article, this Article shall not be effective and Tenant shall not have any
rights with respect to the Expansion Space if (i) Tenant shall be in monetary
default or in default of any of its material obligations under this Lease
beyond, in either case, any applicable notice or cure periods either on the date
on which Landlord shall give Tenant such Offer or on the Expansion Space
Commencement Date (as hereinafter defined), (ii) there shall have been a
termination, cancellation or surrender of this Lease, or a surrender of all or
substantially all of the Demised Premises (as defined in Article 11), (iii) on
the date on which Landlord shall give Tenant such Offer or on the Expansion
Space Commencement Date, Kroll Associates, Inc. (and not its successors or
assigns) and its Related Entities (as defined herein) is not in actual occupancy
of the entire sixth (6th) and seventh (7th) floors of the Building, or (iv) the
Expansion Period shall have expired.
Section 45.02. With respect to the Offer, Tenant shall have the right
to accept the Offer only by giving Landlord written notice of such acceptance
within five (5) business days after Landlord shall have delivered the Offer to
Tenant, time being of the essence with respect to said five (5) business day
period. If Tenant shall timely exercise its right to accept the Offer, then the
Expansion Space shall be added to and become part of the Demised Premises upon
the following terms and conditions:
(a) The commencement date for the Expansion Space (the "Expansion
Space Commencement Date") shall be at noon on that date which is ten (10) days
after Landlord shall have given Tenant the Offer and the expiration date of the
term applicable to the Expansion Space shall be co-terminus with the term of
this Lease.
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(b) If the Expansion Space Commencement Date shall occur at any time
on or before December 31, 1995, then Fixed Rent for such Expansion Space shall
be an amount equal to (i) $242,690.00 per annum ($20,224.17 per month) for the
period commencing on the Expansion Space Commencement Date and ending on the
expiration of the First Period, (ii) $270,426.00 per annum ($22,535.50 per
month) during Second Period, and (iii) $298,162.00 per annum ($24,846.83 per
month) during Final Period, payable by Tenant in accordance with the terms and
conditions established for the payment of Fixed Rent in Article 4 of this Lease,
except that Fixed Rent and additional rent payable for the Expansion Space shall
be conditionally excused for a period of ninety (90) days commencing on the
Expansion Space Commencement Date. If, at any time prior to the Expiration Date,
Tenant shall be in default under the Lease beyond the expiration of any
applicable notice and cure period, then the total sum of such Fixed Rent and
additional rent so conditionally excused shall become immediately due and
payable by Tenant to Landlord. If, as of the Expiration Date, Tenant shall not
have defaulted under this Lease beyond the expiration of any applicable notice
and cure period, Landlord shall waive payment of all such Fixed Rent and
additional rent so conditionally excused. Except as set forth in subparagraph
45.02(f) below, there shall be no change with respect to Articles 5 and 6 of
this Lease and additional rent payable thereunder shall be apply prospectively
to the Expansion Space as if such Expansion Space shall have been part of the
Demised Premises as of the Expansion Space Commencement Date of this Lease.
(c) If the Expansion Space Commencement Date shall occur at any time
on or after January 1, 1996 through and including December 31, 2002, then Fixed
Rent and additional rent for such Expansion Space shall be as provided for in
the first sentence of Section 45.02(b) above ("Current Rent"), unless Landlord
determines that Market Rent (as hereinafter defined) is greater than Current
Rent. Landlord agrees that Tenant shall under all circumstances be entitled to a
90-day free rent period in connection with its leasing of the Expansion Space
pursuant to this Article 45. In such event, Landlord shall endeavor to notify
Tenant of its initial determination of Market Rent ("Landlord's MR") no later
than the Expansion Space Commencement Date. Tenant shall have fifteen (15) days
after Landlord's delivery of notice to Tenant of Landlord's MR to deliver notice
to Landlord objecting thereto and setting forth Tenant's determination of Market
Rent ("Tenant's MR") and, if Tenant fails to deliver much notice within this
fifteen (15) day period, Tenant shall be deemed to have accepted Landlord's MR,
provided, however, that Landlord shall have delivered a second notice of
Landlord's MR and Tenant fails to deliver notice with Tenant's MR within five
(5) days after delivery to Tenant of such second notice. Within fifteen (15)
days after receipt by Landlord of the notice specifying Tenant's MR, Landlord
and Tenant shall mutually select an umpire in this matter (the "MR Umpire"). The
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MR Umpire shall be a real estate broker or consultant having at least fifteen
(15) years continuous experience in the business of leasing commercial
properties in Midtown area in the borough of Manhattan, City of New York. In the
event that Landlord and Tenant shall fail to agree upon the designation of the
MR Umpire within thirty (30) days after delivery of Landlord's notice rejecting
Tenant's MR, then either party shall have the right to request that The Real
Estate Board of New York, or if such organization fails to act in accordance
herewith or no longer exists, then the American Arbitration Association (or any
organization which is the successor thereto) select an MR Umpire in accordance
with the requirements of this Article and such selection shall be conclusive and
binding upon the parties. Within fifteen (15) days after the date of selection
of the MR Umpire, the MR Umpire shall hold one hearing during which Landlord and
Tenant shall have an opportunity to present evidence supporting their
determination of the Market Rent. Within ten (10) days after the date of such
hearing, the MR Umpire shall determine whether Landlord's MR is the Market Rent
or Tenant's MR is the Market Rent and shall so notify Landlord and Tenant. In no
event, however, shall the Market Rent be less than Current Rent. Each party
shall pay its own counsel fees and expenses, if any, in connection with any
arbitration under this Article and the parties shall share equally all other
expenses and fees of any such arbitration, including the expenses and fees of
any MR Umpire selected in accordance with the provisions of this Article. The MR
Umpire's determination rendered in accordance with the provisions of this
Article shall be final and binding in determining the Market Rent. The MR Umpire
shall not have the power to add to, modify, or change any of the provisions of
this Lease. In determining Market Rent, Landlord, Tenant and the MR Umpire shall
give effect to the other terms and conditions of this Lease, but shall not take
into account or give any credit or allowance to Tenant for the value of
leasehold improvements made by or for the benefit of Tenant. If for any reason
the Market Rent shall not have been determined prior to the Expansion Space
Commencement Date, then until the Market Rent and, accordingly, the Fixed Rent
shall have been finally determined, the Fixed Rent shall be equal to the
Landlord's MR. Upon final determination, an appropriate adjustment shall be made
reflecting such final determination, and Landlord shall pay Tenant any
overpayment from the Expansion Space Commencement Date to the date of such final
determination.
The term "Market Rent" shall mean the annual fair market rental value
of the Demised Premises in an arms length transaction, including Fixed Rent and
additional rent pursuant to Articles 5 and 6 and a 90 day free rent period for
construction (which shall be taken into account in determining fair market
value), in its then existing condition based on the rentals obtained for
comparable space in the Building or, if no such comparables exist, in other
comparable first-class office buildings in the vicinity of the Building.
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(d) If the Expansion Space Commencement Date shall occur at any time
on or prior to December 31, 1998, then Landlord shall reimburse Tenant as
Landlord's Contribution an amount not to exceed $232,982.40 in accordance with
Article 43 hereof for its expenses incurred in connection with any Tenant
Changes necessary to prepare the Expansion Space for Tenant's initial occupancy
(subject to and in accordance with the provisions of Article 9 and Article 42).
(e) If the Expansion Space Commencement Date shall occur at any time
on or after January 1, 1999 through and including December 31, 2002, Landlord
shall reimburse Tenant as Landlord's Contribution in accordance with Article 43
hereof for its expenses incurred in connection with any Tenant Changes necessary
to prepare the Expansion Space for Tenant's initial occupancy (subject to and in
accordance with the provisions of Article 9 and Article 42), an amount equal to
$23,298.24 multiplied by the number of years (with whole months expressed as
fractions) remaining on the term of this Lease.
(f) Tenant's Proportionate Operating Share under this Lease shall be
increased by 1.43%, and Tenant's Proportionate Tax Share shall be increased by
1.35%.
(g) Tenant shall accept the Expansion Space vacant and free of
tenants and other occupants and in its "as is" and "where is" condition, and
Landlord shall have no obligation whatsoever to perform any work to prepare the
Expansion Space for Tenant's occupancy, or make any repairs, improvements or
alterations in or to the Expansion Space, except the sprinkler loop in existence
as of the date hereof shall remain in the Expansion Space and the Expansion
Space shall be delivered in compliance with all laws applicable to such space as
of the Expansion Space Commencement Date. Upon Tenant's acceptance of the Offer,
Tenant and Landlord shall execute, upon the request of the other party, any
amendment or other documentation reasonably required by the other party to
reflect Tenant's acceptance of the Offer.
(h) The amount of the Letter of Credit shall be increased by an
amount equal to the amount of the Letter of Credit required of Tenant as of the
Expansion Space Commencement Date (assuming no leasing of the Expansion Space)
multiplied by 21% prior to the Expansion Space Commencement Date and held in
accordance with Article 34 hereof.
Section 45.03. In the event Tenant shall fail to exercise its right
with respect to any Offer, Tenant shall, within five (5) days after Landlord's
request therefor, deliver an instrument in form reasonably satisfactory to
Landlord confirming the aforesaid waiver, but no such instrument shall be
necessary to make the provisions hereof effective.
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Section 45.04. The rights of Tenant set forth in this Article are
available only to the Tenant first named in the heading of this Lease, or to any
assignee that is a parent, subsidiary or affiliate as such terms are defined in
Section 11.02(b) hereof (a "Related Entity"), and the rights accorded in this
Article shall be available only to Tenant, and to no other person, party or
entity whatsoever, other than any assignee who is a Related Entity.
Section 45.05. If Tenant does not accept (or fails to timely accept)
the Offer, then Landlord shall have the right to lease all or any portion of the
Expansion Space to any other party upon such terms and conditions as Landlord
shall, in its sole discretion, determine. Following Landlord's initial leasing
of such Expansion Space (and any extension or renewal thereof), if at any time
during the Expansion Period the Expansion Space shall again become available for
leasing, then Tenant's rights under this Article 45 shall be reinstated. If
Tenant does not accept (or fails to timely accept) a subsequent Offer, then
Landlord shall have the right to lease all or any portion of the Expansion Space
to any other party upon such terms and conditions as Landlord shall, in its sole
discretion, determine, and Tenant shall have no further rights under this
Article 45.
Section 45.06. If Tenant accepts the Offer and if the Expansion Space
shall not be available for Tenant's occupancy on the date Landlord has offered
to deliver such Expansion Space for any reason including the holding over of the
then existing tenant, then Landlord shall not be subject to any liability for
the failure to give possession on such date, and the failure to have such
Expansion Space available for occupancy by Tenant shall in no way affect or
impair the validity of this Lease or the inclusion of such Expansion Space as a
part of the Demised Premises or the obligations of Landlord or Tenant hereunder,
nor shall the same be construed in any way to extend the term of this Lease, and
for the purpose of this Article the Expansion Space Commencement Date shall be
deferred to and shall be the date such Expansion Space is available for Tenant's
occupancy unleased and free of tenants or other occupants. The provisions of
this Section are intended to constitute "an express provision to the contrary"
within the meaning of Section 223-a of the New York Real Property Law and the
parties hereto expressly waive the provisions of such Section 223-a.
Section 45.07. The termination of this Lease shall also terminate and
render void all of Tenant's options or elections under this Article whether or
not the same shall have been exercised; and nothing contained in this Article
shall prevent Landlord from exercising any right or action granted to or
reserved by Landlord in this Lease to terminate this Lease. None of Tenant's
options or elections set forth in this Article may be severed from this Lease or
separately sold, assigned or transferred.
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ARTICLE 46
MISCELLANEOUS
-------------
Section 46.01. Landlord warrants and represents that there is no
asbestos or material containing the same in the Demised Premises (including any
utility system or other facility which serves the Demised Premises whether
located in the Demised Premises or in other portions of the Building) including
by way of example, but not by limitation, the interior of any partition or
demising walls, whether structural or otherwise, columns or beams, and all
utility lines, shafts and ducts, HVAC or other equipment. Landlord shall be
solely responsible for and shall comply with all laws, rules, ordinances or
regulations of any governmental authority having jurisdiction over the Demised
Premises with respect to the presence or removal of asbestos.
Section 46.02 Landlord and Tenant agree to keep and maintain this
Lease and all information received under this Lease confidential and not to
publicize any such information or copies of this Lease or portion hereof, except
(i) in the normal course of Landlord's business, (ii) in connection with a bona
fide sale or loan application, (iii) in connection with any litigation, or (iv)
as required by law or judicial process. Notwithstanding the foregoing, neither
party shall have any liability to the other, nor shall either party have the
right to terminate this Lease, in the event of a breach under this section. The
sole remedy of either party in the event of such breach shall be injunctive
relief.
ARTICLE 47
EXECUTION AND DELIVERY OF LEASE
-------------------------------
Section 47.01. Submission to Tenant by Landlord of the within Lease
for review and execution by Tenant shall confer no rights nor impose any
obligations on either party unless and until both Landlord and Tenant shall have
executed this Lease and duplicate originals thereof have been delivered to the
respective parties hereto.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as
of the day and year first and above written.
LANDLORD: PROGRESS PARTNERS,
a New York general partnership
By: JNB Properties Company,
Agent
By:___________________________
Name:
Title:
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TENANT: KROLL ASSOCIATES, INC.
By:________________________
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STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On the _____ day of ____________ l9__, before me personally
came ___________to me known, who being by me duly sworn, did depose and say that
he resides at________________________________ that he is the _______________, of
_______________________the corporation which is named herein as Tenant; and that
he signed his name thereto by like order of the board of directors of such
corporation.
_______________________________________
Notary Public
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EXHIBIT "A"
FLOOR PLAN
----------
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<PAGE> 90
EXHIBIT "A"
-----------
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EXHIBIT "B"
EXISTING KROLL LEASES
---------------------
1. That certain Lease dated July 23, 1984 by and between
Progress Partners, as landlord, and Datapoint Corporation ("Datapoint"), as
tenant.
2. That certain Agreement of Sublease dated as of May 22, 1986
by and between Datapoint, as landlord, and Kroll Associates, Inc. ("Kroll"),
as tenant.
3. That certain First Amendment to Agreement of Sublease by
and between Datapoint and Kroll, dated as of May 22, 1986.
4. That certain letter agreement dated August 5, 1991, by and
Progress Partners, Datapoint and Kroll.
5. Non-Disturbance Agreement dated May 22, 1986, by and
between Progress Partners, as prime landlord, and Kroll, as subtenant.
6. First Amendment to Non-Disturbance Agreement dated June
19,1989, by and between Progress Partners, as prime landlord, and Kroll, as
subtenant
7. That certain Lease dated as of August 25, 1989 between
Progress Partners, as landlord, and Kroll, as tenant, for premises consisting
of the entire eighth (8th) floor of the Building.
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EXHIBIT "C"
CONTRACTORS
-----------
E.S. McCann & Son Inc.
1271 Avenue of the Americas
New York, New York 10020
Brian McMahon
(212) 586-8000
James G. Kennedy & Company Inc.
215 East 38th Street
New York, New York 10016
John O'Leary
(212) 599-5800
Planned Management Construction Corp.
27 West 24th Street
New York, New York 10010
William Schnell
(212) 633-0710
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EXHIBIT "D"
CLEANING SCHEDULE
-----------------
GENERAL CLEANING NIGHTLY
- ------------------------
General Offices
---------------
1. Dust mop all hard surface floors with treated dust
mop.
2. Using a manual carpet sweeper remove all obvious
litter from carpet areas.
3. Mop all stains and spills especially coffee and
drink spills.
4. Dust all horizontal surfaces.
5. Empty and damp wipe ashtrays.
6. Empty all trash receptacles and replaces liners as
necessary.
7. Remove all collected trash to designated area.
8. Dust wipe all telephones including ear and mouth
piece.
9. Clean and polish all drinking fountains.
10. Empty recycle paper trash containers; replace
correct color liners in containers as necessary.
11. Remove recycle paper trash and store in designated
area.
Public Lavatories
-----------------
1. Clean and sanitize all restroom fixtures.
2. Wipe mirrors and polish all chrome.
3. Refill all dispensers.
4. Empty trash.
5. Damp mop floor.
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<PAGE> 94
WEEKLY
- ------
General Office
--------------
1. Fully vacuum all carpets from wall to wall.
2. Dust all low reach areas.
3. Clean and polish all bright metal work.
MONTHLY
- -------
Public Lavatories
-----------------
1. Dust and clean all return air vents.
2. Machine scrub all restroom floors using germicidal
detergent.
3. Wash all restroom partitions on both sides.
QUARTERLY
- ---------
General Office
--------------
1. Dust all high reach areas.
2. Dust all venetian blinds.
3. Clean all ceiling diffusers.
Public Lavatories
-----------------
1. Hand wash all walls.
Wash exterior and interior of windows periodically, subject to weather
conditions and requirements of law.
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EXHIBIT "E"
SUBORDINATION OF MORTGAGE
-------------------------
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, as owner and
holder of a certain Note in the aggregate principal sum of NINETY-ONE MILLION
SEVEN HUNDRED FIFTY THOUSAND AND NO/lOOTHS ($91,750,000.00) DOLLARS and of a
certain Mortgage securing said Note (which Note and Mortgage are more
particularly described in Exhibit A attached hereto and hereby made a part
hereof)1 which Mortgage is now a first lien upon the premises more
particularly demised and described in that certain Lease dated ____________
199__, by and between Progress Partners, as Lessor, and ___________________ as
Lessee, and upon other property, in consideration of such leasing and of the
sum of One (*1.00) Dollar and other good and valuable consideration, receipt
of which is hereby acknowledged,
DOES hereby covenant and agree that the said Mortgage shall be and
the same is hereby made SUBORDINATE to the said Lease with the same force and
effect as if the said Lease had been executed, delivered and recorded prior to
the execution, delivery and recording of the said Mortgage;
EXCEPT, however, that this Subordination of Mortgage shall not affect
nor be applicable to and does hereby expressly exclude:
(a) The prior right, claim and lien of the said Mortgage in, to
and upon any award or other
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<PAGE> 96
compensation heretofore or hereafter to be made for
any taking by eminent domain of any part of the
said premises, and to the right of disposition
thereof in accordance with the provisions of the
said Mortgage,
(b) The prior right, claim and lien of the said Mortgage
in, to and upon any proceeds payable under all
policies of fire and rent insurance upon the said
premises and as to the right of disposition thereof
in accordance with the terms of the said Mortgage,
and
(c) Any lien, right, power or interest, in any, which may
have arisen or intervened in the period between the
recording of the said Mortgage and the execution of
the said Lease, or any lien or judgment which may
arise at any time under the terms of such Lease.
This Subordination of Mortgage shall inure to the benefit of
and shall be binding upon the undersigned, its successors and assigns.
IN WITNESS WHEREOF, this Subordination of Mortgage has been
duly signed and delivered by the undersigned as of this _____ day of ________
1992.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
BY:_______________________________
Title: Assistant Secretary
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
Before me, a Notary Public, in and for said County,
personally appeared _______________________ to me known and
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known to me to be the person who, as ________________________ of TEACHERS
INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, the corporation which executed the
foregoing instrument, signed the name, and acknowledged to me that he did so
sign said instrument in the name and upon behalf of said corporation as such
officer; that the same is his free act and deed as such officer and the free act
and deed of said corporation; that he was duly authorized thereunto by its board
of trustees; and that the seal affixed to said instrument is the corporate seal
of said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and
affixed my official seal at New York, New York this day of ________, 1992.
____________________________________
Notary Public
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<PAGE> 98
LESSEE'S AGREEMENT
------------------
The undersigned, as Lessee under the lease herein described,
does hereby accept and agree to the terms of the foregoing Subordination of
Mortgage, which shall inure to the benefit of and be binding upon the
undersigned and the heirs, executors, administrators, legal representatives,
successors and assigned or the undersigned.
[NAME OF TENANT]
By:____________________________________
Name:_________________________
Title:________________________
CORPORATE
- ---------
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On this ____ day of _______, 1992, before me appeared to me
personally known, who, being by me duly sworn, did say that he is the
_____________________________ of ____________________ and that the seal affixed
to the foregoing instrument is the corporate seal of said corporation, and that
said instrument was signed and sealed on behalf of said corporation by authority
of its Board of Directors, and he acknowledged said instrument to be the free
act and deed of said corporation.
_________________________________
Notary Public
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<PAGE> 99
EXHIBIT "F"
RULES AND REGULATIONS
---------------------
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under
such conditions as to interfere with the use and enjoyment of any of the
plazas, entrances, corridors, escalators, elevators and other facilities of
the Building by other tenants. Fire exits and stairways are for emergency use
only, and they shall not be used for any other purposes by the tenants, their
employees, licensees or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best
for the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees, agents,
contractors or invitees or the tenant, shall be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of
Business Hours on Business Days (as such terms are defined in the lease to
which this Exhibit is attached) to any person not known to the watchman in
charge or not having a pass issued by the Landlord or not properly identified,
and may require all persons admitted to or leaving the Building outside of
Business Hours on Business Days to register. Tenant's employees, agents and
visitors shall be permitted to enter and leave the building whenever
appropriate arrangements have been previously made between the Landlord and
the Tenant with respect thereto. Each tenant shall be responsible for all
persons for whom he requests such permission and shall be liable to the
Landlord for all acts of such persons. Any person whose presence in the
Building at any time shall, in the judgment of the Landlord, be~prejudicial to
the safety, character, reputation and interests of the Building or its tenants
may be denied access to the Building or may be ejected therefrom. In case of
invasion, riot, public excitement or other commotion the Landlord may prevent
all access to the Building during the continuance of the same, by closing the
doors or otherwise, for the safety of
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<PAGE> 100
the tenants and protection of property in the Building. Landlord reserves the
right to inspect all objects and matter to be brought into the Building and to
exclude from the Building all objects and matter which violate any of these
Rules and Regulations or the lease of which this Exhibit is a part. Landlord
reserves the right to restrict or prohibit access to the Building elevators and
the tenant premises in the Building to persons with food deliveries, messengers
and couriers (which are not employees of Tenant), package delivery services and
express mail delivery services (except for reputable, national overnight express
mail services, Le. U.S. Postal Service, Federal Express, DHL). If Landlord
prohibits delivery to the tenant's premises, Landlord agrees to inform Tenant of
such deliveries, and, at Tenant's option, Landlord will either have a Building
employee make such delivery to tenant's premises or Landlord will hold such
deliveries in a designated area in the lobby of the Building until picked up by
tenant. The Landlord may require any person leaving the Building with any
package or other object to exhibit a pass, listing such package or other object,
from the tenant from whose premises the package or object is being removed, but
the establishment and enforcement, or failure to enforce, of such requirements
shall not impose any responsibility on the Landlord for the protection of any
tenant against the removal of property from the premises of the tenant. The
Landlord shall, in no way, be liable to any tenant for damages or loss arising
from the admission, exclusion or ejection of any person to or form the tenant's
premises or the Building under the provisions of this rule. Tenant shall comply
with and shall require its principal, officers, employees, agents, visitors and
invitees to comply with all security rules and regulations as may be put into
effect by Landlord from time to time.
4. No tenant shall obtain or accept for use in its premises ice,
drinking water, food, beverages, towels, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
persons not authorized by the Landlord in writing to furnish much services. No
tenant shall install or permit to be installed any vending machines Such
services shall be furnished only at such hours, in such places within the
tenant's premises and under such regulations as may be fixed by the Landlord
from time to time.
5. No awnings, window or other air-conditioning units or other
projections over or around the windows shall be installed by any tenant and
only such window coverings as are supplied or permitted by the Landlord shall
be used in a tenant's premises.
6. There shall not be used in any space, or in the public halls of
the Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail, any hand trucks, except those equipped with
rubber tires and side guards.
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<PAGE> 101
7. All entrance doors in each tenant's premises shall be left locked
when the tenant's premises are not in use. Entrance doors shall not be left
open at anytime. All windows in each tenant's premises shall be kept closed at
all times and all blinds or drapes therein above the ground floor shall be
lowered or closed when and as reasonably required because of the position of
the sun, during the operation of the Building air conditioning system to cool
or ventilate the tenants' premises.
8. No noise, including, but not limited to, music or the playing of
any musical instruments, radio or television, which, in the judgment of the
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant and no cooking shall be done in the Tenant's premises
except as expressly approved by the Landlord. Nothing shall be done or
permitted in any tenant's premises, and nothing shall be brought into or kept
in any tenant's premises, which would impair or interfere with any of the
Building's services or the proper and economic heating, ventilating, air
conditioning, cleaning or other servicing of the Building or the premises, or
the use or enjoyment by any other tenant of any other premises, nor shall
there be installed by any tenant any ventilating, air conditioning, electrical
or other equipment of any kind which, in the judgment of the Landlord, might
cause any such impairment or interference. No dangerous, inflammable,
combustible or explosive object, material or fluid shall be brought into the
Building by any tenant or with the permission of any tenant.
9. No tenant shall cause or permit any cooking, food or other odors
to emanate from its premises into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures in or serving
any tenant's premises shall not be used for any purpose other than the
purposes for which they were designed or constructed and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
All damages resulting from any misuse of the fixtures shall be borne by the
tenant who, or whose servants, employees, agents, visitors or licensees, shall
have caused the same.
11. No lettering, signs, advertisement, notice or other objects shall
be exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside of the premises or the Building without the prior written
consent of Landlord. In the event of the violation of the foregoing by any
tenant, Landlord may remove the same without any liability, and may charge the
expense incurred by such removal to the tenant violating this rule. Interior
signs, elevator cab designations and lettering on doors and the Building
directory shall be inscribed, painted, or affixed for each tenant by Landlord
at the
- 98 -
<PAGE> 102
expense of such tenant, and shall be of a size, color and style acceptable to
Landlord. Any permitted changes or additions to the Building directory shall be
made by Landlord upon Tenant's request and Tenant shall pay Landlord's
administrative charge therefor. Landlord shall have the right to prohibit any
advertising or identifying sign by any tenant which impairs the reputation of
the Building or its desirability as a building for others, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising
or identifying signs.
12. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect. Duplicate keys for a
tenant's premises and toilet rooms shall be procured only from the Landlord,
who may make a reasonable charge therefor. Upon the termination of a tenant's
lease, all keys of the tenant's premises and toilet rooms shall be delivered
to the Landlord and in the event of the loss of any keys furnished by
Landlord, such tenant shall pay to Landlord the cost thereof.
13. No tenant shall mark, paint, drill into, or in any way deface any
part of the Building or the premises demised to such tenant. No boring,
cutting or stringing of wires shall be permitted, except with the prior
written consent of Landlord, and as Landlord may direct. No tenant shall
install any resilient tile or similar floor covering in the premises demised
to such tenant except in a manner approved by Landlord.
14. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant in the
Building or advertise for laborers giving an address at the Building.
15. No premises shall be used, or permitted to be used, at any time,
as a store for the sale or display of goods 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 involves direct patronage of the general public
in the premises demised to such tenant, or for manufacturing or for other
similar purposes.
16. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of the irregular duties, unless under
special instructions from the office of the Landlord.
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
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<PAGE> 103
janitorial or other cleaning services and making repairs or alterations in
said premises.
18. Employees of Tenant shall not loiter in or. around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
19. If the premises become infested with insects or 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.
20. Any and all water and/or food garbage, including coffee grinds,
are to be deposited in a plastic liner bag in a water basket or other
receptacle.
21. No premises of any tenant shall be used for lodging or sleeping
or for any immoral or illegal purpose.
22. No animals or birds, bicycles, mopeds or vehicles of any kind
shall be kept in or about the Building permitted therein.
23. No furniture, office equipment, packages or merchandise will be
received in the Building or carried up or down in the elevator, except between
such hours as shall be designated by Landlord. Landlord shall prescribe the
charge for freight, elevator use and the method and manner in which any
merchandise, heavy furniture, equipment or safes shall be brought in or taken
out of the Building, and also the hours at which such moving shall be done.
Landlord in all cases retains the right to prescribe the weight and proper
position of such heavy furniture and safes. All damages done to the Building
by taking in or out such merchandise, heavy furniture or safes or any damages
done to the Building while any of said property shall be therein, shall be
made good and paid for by tenant on demand.
24. Landlord reserves the right to rescind, alter or waive any rule
or regulation at any time prescribed for the Building, which, in its judgment,
it deems is necessary, desirable or proper for its best interest and for the
best interests of the tenants generally, and no alteration or waiver of any
rule or regulation in favor of one tenant shall operate as an alteration or
waiver in favor of any other tenant. Landlord shall not be responsible to any
tenant for the non-observance or violation by any other tenants of any of the
rules and regulations at any time prescribed for the Building.
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<PAGE> 104
EXHIBIT "G"
EXPANSION SPACE FLOOR PLAN
--------------------------
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<PAGE> 105
EXHIBIT "G"
-----------
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<PAGE> 106
BATTLE FOWLER
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
280 Park Avenue
New York, NY 100l7
(212) 856-7000
FACSIMILE TRANSMISSION COVER SHEET
----------------------------------
DATE:________________________________________________________________________
FROM:________________________________________________________________________
CLIENT/MATTER NAME:__________________________________________________________
CLIENT/MATTER NO.:___________________________________________________________
PLEASE DELIVER THE FOLLOWING PAGES TO:
NAME:________________________________________________________________________
FAX NUMBER:__________________________________________________________________
TOTAL PAGES (INCLUDING COVER SHEET): _____
MESSAGE:
Our facsimile number is (212) 986-5135. If any problems occur during this
transmission, please notify us immediately by telephone at either (212) 856-7075
or (212) 856-7166.
TRANSMITTED BY: ______ DATE: ________ TIME: ________
[ ] Original will not follow.
[ ] Original will follow via:
[ ] Regular Delivery [ ] Overnight Delivery [ ] Hand Delivery
[ ] Other:____________________________________________________________________
The information contained in this facsimile message is
attorney client privileged and confidential information intended only for the
use of the individual or entity named above. If you are not the intended
recipient, you are hereby notified that any dissemination, distribution or
copying of the communication is strictly prohibited. If you received this
communication in error, please immediately notify us by telephone and return the
original message to us at the above address. Thank you.
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<PAGE> 107
AGREEMENT AND GUARANTEE
-----------------------
KNOW ALL MEN BY THESE PRESENTS THAT:
WHEREAS:
1. PROGRESS PARTNERS ("LANDLORD"), a New York general
partnership, having an office c/o JMB Realty Corporation, 1211 Avenue of the
Americas, New York, New York 10036, has been requested by KROLL ASSOCIATES, INC.
("TENANT"), a Delaware corporation, having an office at 900 Third Avenue, to
enter into a proposed lease ("LEASE"), whereby Landlord would let and demise
unto Tenant, and Tenant would hire and rent from Landlord the entire sixth (6th)
and seventh (7th) floors and a portion of the eighth (8th) floor, as more
particularly described and set forth in the Lease ("DEMISED PREMISES"), in the
building located at 900 Third Avenue, Borough of Manhattan, City, County and
State of New York, which Lease is hereby incorporated in this instrument by
reference; and
2. JULES KROLL ("GUARANTOR"), an individual having an address
at 900 Third Avenue, Rev York, Rev York, is the owner of issued and outstanding
stock of Tenant and is willing to guarantee the obligations of Tenant under the
Lease to the extent Bet forth below; and
3. Guarantor acknowledges that Landlord would not enter into
the Lease unless this Agreement and Guarantee accompanied the execution and
delivery of the Lease.
NOW, THEREFORE, in consideration of the execution and delivery
of the Lease and of other good and valuable consideration, the receipt and
sufficiency whereof are hereby acknowledged by Guarantor, Guarantor agrees as
follows:
FIRST: Guarantor does hereby:
A. Guarantee to Landlord the full and prompt payment of the
rent, additional rent and all other sums and charges payable by Tenant or its
successors and assigns under the Lease, and Guarantor covenants to and agrees
with Landlord that if Tenant, or its successors or assigns, shall default at any
time during the term demised in the Lease in the payment of rent, additional
rent, or other charges payable by Tenant under the Lease beyond the applicable
grace period provided in the Lease for the curing of such default, if any, then
Guarantor will, without notice or demand, forthwith pay to Landlord the rent,
additional rent and other charges payable by Tenant under the Lease, or any
arrears thereof that may remain due to Landlord, its successors and assigns, and
all damages, costs and expenses,
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<PAGE> 108
including, but Rot limited to, any damages payable pursuant to
the Lease that may arise in consequence of Tenant's insolvency;
B. Covenant to and agree with Landlord that any action, suit
or proceeding brought against Guarantor to collect the amount of any deficiency
under the Lease for any month or months shall not prejudice in any way the
rights of Landlord to collect any such deficiency for any subsequent mouth or
months in any similar suit or proceeding;
C. Covenant to and agree with Landlord that Guarantor may, at
Landlord's option, without prior notice or demand, be joined in any action, suit
or proceeding commenced by Landlord against Tenant in connection with or based
upon the Lease or any term, covenant or condition thereof , that recovery may be
had against Guarantor in much action or proceeding or in any independent action
or proceeding against Guarantor without Landlord, it. successors or assigns,
first asserting, prosecuting, or exhausting any remedy or claim against Tenant,
its successors or assigns, or against any security of Tenant held by Landlord
under the Lease, and that Guarantor will be conclusively bound in any
jurisdiction by the judgment in any such action by Landlord against Tenant as if
Guarantor were a party to such action even though Guarantor is not joined as a
part in such action;
D. Covenant to and agree with Landlord that this Agreement
and Guarantee shall be a continuing guarantee and shall remain in full force
and effect notwithstanding any modifications, amendments or extensions of the
Lease by Kroll Associates, Inc. or a Related Entity (as defined in the Lease),
any releases or discharges of Tenant (other than full release and complete
discharge of all of Tenant's obligations under the Lease by Landlord, as
opposed to pursuant to an adjudication by any bankruptcy or other legal
proceeding), any extension of time that Ray be granted by Landlord to Tenant,
any subletting or assignment (whether entered into with or without Landlord's
consent), any changed or different use of the Demised Premises, any other
dealings or matters occurring between Landlord and Tenant, the taking by
Landlord of any additional guarantees from other persons or entities, the
releasing by Landlord of any other guarantor, the taking of any legal action
by Landlord against Tenant, or Landlord's failure to perfect or rely upon any
security interest provided in the Lease or any Landlord's lien provided by
law, to all of which foregoing matters Guarantor hereby consents in advance;
E. Covenant to indemnify and save Landlord harmless of and
from all loss, cost, liability, expense or damage, including, but not limited
to counsel fees and disbursements which may arise by reason of Tenant's
default under the Lease, Tenant's insolvency, Guarantor's default hereunder or
otherwise enforcing the Lease and this Agreement and Guarantee;
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<PAGE> 109
F. Covenant to and agree with Landlord (I) that the validity
of this Agreement and Guarantee shall in no way be terminated, modified,
affected, diminished or impaired by reason of (a) any action which Landlord
may take or fail to take against Tenant, or by reason of any waiver of, or
failure to enforce, any of the rights or remedies of Landlord under the Lease
or otherwise, or by release of Tenant from any of Tenant's obligations under
the Lease or otherwise, or (b) the release or discharge of Tenant in any
creditors' proceedings, receivership, bankruptcy or other proceedings, (c) the
impairment, limitation or modification of the liability of Tenant or the
estate of Tenant in bankruptcy, or any remedy for the enforcement of Tenant's
Bald liability under the Lease, resulting from the operation of any present or
future provision of The Bankruptcy Reform Act of 1978, as amended, or other
statute or from the decision of any court, or (d) the rejection or
disaffirmance of the Lease in any such proceedings; (ii) that the failure or
refusal of Landlord to re-let the Demised Premises or any part thereof in the
event that Landlord shall obtain possession thereof after Tenant's insolvency
or default shall not release or affect Guarantor's liability hereunder, nor
shall Landlord be liable in any way whatsoever for failure to re-let the
Demised Premises or any part thereof, nor, in the event that the Demised
Premises are re-let, for failure to collect rent under any such re-letting;
and (iii) that Landlord, at Landlord's option, may make such alterations,
repairs, replacement or decorations in the Demised Premises or any part
thereof as Landlord in Landlord's sole judgment, considers advisable and
necessary for the purpose of re-letting the Demised Premises, and the making
of such alterations or decorations shall not operate or be construed to
release Guarantor from its liability hereunder;
G. Waive notice of the acceptance of thin Agreement and
Guarantee and of any and all defaults by Tenant in the payment of rent,
additional rent, or other charges, and of any and all defaults by Tenant in
the performance of any of the terms, covenants or conditions of the Lease on
Tenant's part to be observed or performed, and of any and all notices or
demands which may be given by Landlord to Tenant, whether or not required to
be given to Tenant under the terms of the Lease;
H. Waive (i) trial by jury of any and all issues arising in
any action or proceeding between the parties, upon, under or in connection
with this Agreement and Guarantee or any and all negotiations and agreements
in connection therewith, (ii) any defenses of Tenant to payment and
performance. under the Lease that may be available to Guarantor and (iii) the
benefit of any statute of limitations affecting Guarantor~s liability under
this Agreement and Guarantee;
I. Acknowledge that this Agreement and Guarantee is an
absolute and unconditional guarantee of payment up to the Guarantee Amount,
and not of collection in respect to any
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<PAGE> 110
obligations which Ray accrue to Landlord from Tenant under the provisions of the
Lease, and that this Agreement and Guarantee shall be enforceable against
Guarantor without the necessity of any suit or proceedings on the part of
Landlord of any kind or nature whatsoever against Tenant, its successors and
assigns, without the necessity of resorting to any security of Tenant held by
Landlord and without the necessity of any notice of nonpayment, nonperformance
or nonobservance or any notice of acceptance of this Agreement and Guarantee or
of any other notice or demand to which Guarantor might otherwise be entitled,
all of which Guarantor hereby expressly waives in advance;
J. Covenant to and agree with Landlord that the validity of
this Agreement and Guarantee shall in no way be terminated, affected or
otherwise impaired by reason of any assignment or transfer of all or any part
of Tenant's interest in the Lease;
K. Covenant to and agree with Landlord that in the event of
termination of the Lease by reason of the occurrence of any of the events of
default set forth in the Lease, or in the event of the disaffirmance or
rejection of the Lease Guarantor shall, upon written request of Landlord given
by certified mail, return receipt requested, at Guarantor's address first set
forth above, within thirty (30) days next following any such termination,
disaffirmance or rejection (and actual notice thereof to Landlord in the event
of a disaffirmance or rejection or in the event of a termination other than by
act of Landlord) pay to Landlord all rent, additional rent and other charges
due and owing from Tenant to Landlord under the Lease;
L. Covenant to and agree with Landlord that, until all the
covenants and conditions in the Lease on Tenant's part to be performed and
observed are fully performed and observed, Guarantor (i) waives any right that
Guarantor may have against Tenant by reason of any payments or acts of
performance by Guarantor herewith or any right to enforce any remedy which
Guarantor may have against Tenant by reason of any such payment or
performance, and (ii) subordinates any liability or indebtedness of Tenant nov
or hereafter held by Guarantor to the obligations of Tenant to Landlord under
the Lease;
M. Covenant to and agree with Landlord that if the Lease
shall be renewed, or its term extended, for any period beyond the date
specified in the Lease for the expiration of said term, either pursuant to any
option granted under the Lease or otherwise, or if Tenant holds over beyond
the term of the Lease, the obligations of Guarantor hereunder shall extend and
apply with respect to any such modification thereof;
N. Deleted prior to execution.
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<PAGE> 111
O. Submit Guarantor to the jurisdiction of the Courts of the
State of New York and the United States Federal Courts sitting in the City of
New York;
P. Represent that Guarantor has the legal right and capacity
to enter into this Agreement and Guarantee, and that this Agreement and
Guarantee constitutes a valid and binding agreement enforceable against
Guarantor in accordance with its terms;
Q. Deleted prior to execution.
R. Covenant to and agree with Landlord that if this
Agreement and Guarantee be held ineffective or unenforceable Guarantor shall
be deemed to be a tenant under the Lease with the same force and effect as if
Guarantor were expressly named as a joint tenant therein with joint and
several liability thereunder; and
SECOND: The liability of Guarantor under this Agreement and
Guarantee (including, without limitation, the operation of paragraph I above)
shall in no event exceed, in an aggregate, TWO HUNDRED THOUSAND DOLLARS
($200,000.00) (as such amount may be reduced as provided below, the "Guarantee
Amount").
Notwithstanding the foregoing, the Guarantee Amount shall be
reduced to (i) $100,000.00 so long as the net worth of Tenant exceeds
$3,000,000.00 and (ii) $0.00 so long as the net worth of Tenant exceeds
$4,000,000.00, provided that, in each instance such net worth is evidenced by
financial statements delivered to Landlord no later than April 1 of each
calendar year prepared in accordance with generally accepted accounting
principles and certified by a nationally recognized public accounting firm. In
such events, upon Landlord's satisfactory review of such financial statements,
Landlord shall confirm in writing the reduction of the Guarantee Amount as set
forth above, provided, however, that (i) the Guaranteed Amount cannot be reduced
below $100,000 prior to January 1, 1997 and (ii) no such reduction in the
Guarantee Amount shall be effective against Landlord during the periods of time
that Tenant's net worth is less than $3,000,000 or $4,000,000, as the case may
be.
Moreover, this Agreement and Guarantee shall terminate and be
of no further force and effect in the event that Tenant, at its sole option,
either (a) increases the amount of the Letter of Credit (as defined in the
Lease) then required to be held pursuant to the Lease by $200,000.00 or (b)
delivers an additional letter of credit in the amount of $200,000.00 in form
satisfactory to Landlord, less, in either case, the amount of any payments Rate
by Guarantor to Landlord pursuant to this Agreement and Guarantee prior to the
date of such increase of the Letter of Credit or the delivery of the additional
letter of credit. In the event Tenant elects to deliver an additional letter of
credit
- 108 -
<PAGE> 112
same shall not be subject to any reduction. In the event Tenant elects to
increase the Letter of Credit as provided for herein then such increased portion
of the Letter of Credit shall not be subject to any reduction, notwithstanding
the provisions of Article 34 of the Lease which provides for reduction of the
Letter of Credit on the basis of total indebtedness of Tenant. In the event of
such increase in the Letter of Credit or the delivery of the additional letter
of credit as set forth above, Landlord agrees to execute any documents
reasonably requested by Guarantor in order to evidence the termination of this
Agreement and Guarantee.
THIRD: The provisions, covenants and guarantees of this
Agreement and Guarantee shall be binding upon Guarantor, its successors, assigns
and legal representatives and shall inure to the benefit' of Landlord, its
successors, assigns and legal representatives, and shall not be deemed waived or
modified unless specifically set forth in writing, executed by Landlord and
delivered to Guarantor.
FOURTH: The provisions of this Agreement and 'Guarantee
shall be governed by and interpreted in accordance with the law of the State
of New York, without giving effect to its principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned Guarantor has signed and
sealed Agreement and Guarantee as of this _____ day of ______________ , l9__.
_______________________________
JULES KROLL
- 109 -
<PAGE> 113
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On this ______ day of ________________, 199__, before me
personally came Jules Kroll to me known, who being by me duly sworn, did
depose and say that he resides at __________________________________________
that he is the individual described in and who executed the foregoing
instrument.
__________________________________
Notary Public
- 110 -
<PAGE> 1
Exhibit 10.42
August 8, 1997
Jules Kroll
Chairman
Kroll Holdings, Inc.
900 Third Avenue
New York, New York 10022
Dear Jules:
This letter agreement is delivered in connection with the execution and
delivery on today's date of that certain Plan and Agreement to Merge among The
O'Gara Company ("O'Gara"), VDE, Inc. ("NEWCO"), Kroll Holdings, Inc. ("KHI") and
Jules Kroll ("Kroll") (the "Merger Agreement"). Capitalized terms used but not
defined herein shall have the same meaning given to them in the Merger
Agreement.
In order to induce KHI and Kroll to enter into the Merger Agreement, I
hereby agree to be present (in person or by proxy) at the meeting of the
shareholders of O'Gara to be held pursuant to Article XI of the Merger
Agreement, and to vote or cause to be voted at such meeting all shares of O'Gara
Common Stock owned by me and all other shares of O'Gara Common Stock the voting
of which is in my control (collectively, the "O'Gara Shares") in favor of
approval and adoption of the Merger Agreement and the consummation of the
Merger. In addition, I agree not to sell, transfer, convey, assign, pledge,
hypothecate or otherwise dispose of any of the O'Gara Shares owned by me, or the
right to vote the O'Gara Shares, to or for the benefit of any Person prior to
the sooner of (x) the termination of the Merger Agreement and (y) the Effective
Time of the Merger, unless any such transferee agrees to be bound by this
Agreement.
Sincerely yours,
Thomas M. O'Gara
<PAGE> 1
Exhibit 10.43
August 8, 1997
Thomas H. O'Gara
Chairman
The O'Gara Company
9133 Lesaint Drive
Fairfield, Ohio 45014
Dear Tom:
This letter agreement is delivered in connection with the execution and
delivery on today's date of that certain Plan and Agreement to Merge among The
O'Gara Company ("O'Gara"), VDE, Inc., Kroll Holdings, Inc. ("KHI") and myself
(the "Merger Agreement"). Capitalized terms used but not defined herein shall
have the same meaning assigned to them in the Merger Agreement.
In order to induce O'Gara and NEWCO to enter into the Merger Agreement,
I hereby agree to be present (in person or by proxy) at the meeting of the
shareholders of KHI to be held pursuant to Article XI of the Merger Agreement,
and to vote or cause to be voted at such meeting all shares of KHI Capital Stock
owned by me and all other shares of KHI Capital Stock the voting of which is in
my control (collectively, the "Kroll Shares") in favor of approval and adoption
of the Merger Agreement and the consummation of the Merger. In addition, I agree
not to sell, transfer, convey, assign, pledge, hypothecate or otherwise dispose
of any of the Kroll Shares owned by me, or the right to vote the Kroll Shares,
to or for the benefit of any Person prior to the sooner of (x) the termination
of the Merger Agreement and (y) the Effective Time of the Merger, unless any
such transferee agrees to be bound by this agreement.
Sincerely yours,
Jules Kroll
<PAGE> 1
EXHIBIT 10.45
August 8, 1997
Jules Kroll
Kroll Holdings, Inc.
900 Third Avenue
New York, NY 10022
Re: Registration Rights With Respect to O'Gara Common Stock
Dear Jules:
In connection with the execution and delivery on today's date of that
certain Plan and Agreement to Merge among The O'Gara Company ("Company"), VDE,
Inc., Kroll Holdings, Inc. ("KHI") and Jules Kroll ("Kroll") (the "Merger
Agreement"), this letter agreement sets forth the registration rights, after the
Effective Time of the Merger, of each of Kroll and Thomas M. O'Gara ("O'Gara")
relating to the shares of the Company's common stock owned by Kroll and O'Gara.
Defined terms used but not defined herein shall have the meanings assigned to
them in the Merger Agreement.
If the Company registers any shares of its common stock, $.0l par value
per share (the "Company Common Stock"), for sale after the Effective Time of the
Merger pursuant to the Securities Act of 1933 (the "Act") and if any shares of
Company Common Stock owned by O'Gara are included in such registration
statement, then the Company will afford to Kroll the opportunity, on a pro-rata
basis with O'Gara, to include in such registration statement shares of Company
Common Stock owned by Kroll, on the same terms and conditions and subject to the
same limitations as shall apply to O'Gara.
If the Company registers any shares of its Company Common Stock for
sale after the Effective Time of the Merger pursuant to the Act and if any
shares of Company Common Stock owned by Kroll are included in such registration
statement, then the Company will afford to O'Gara the opportunity, on a pro-rata
basis with Kroll, to include in such registration statement shares of Company
Common Stock owned by O'Gara, on the same terms and conditions and subject to
the same limitations as shall apply to Kroll.
<PAGE> 2
Jules Kroll
August 8, 1997
Page 2
Please evidence your agreement by signing both copies of this letter in
the space provided below and returning one copy to the undersigned.
Sincerely yours,
THE O'GARA COMPANY
By:_____________________________
Thomas M. O'Gara, Chairman
-----------------------------
Thomas M. O'Gara, Individually
Agreed:
- ---------------------------
Jules Kroll
<PAGE> 1
Exhibit 11
THE O'GARA COMPANY
COMPUTATION OF PRO FORMA EARNINGS PER COMMON SHARE
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Weighted Average Pro Forma
Number of Common Pro Forma Earnings per
Shares Outstanding Net Income Common Share
------------------ ---------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Shares outstanding January 1, 1996...................... 4,490,383 $ - $ -
Dilutive stock options outstanding prior
to exercise........................................ 77,989 - -
Issuance of common stock upon exercise
of options......................................... 43,474 - -
Newly issued shares necessary to fund payment
of certain indebtedness and AAA distributions
(1,809,015 shares at $7.29 per share estimated
net proceeds to fund $13,181,658).................. 1,561,882 - -
Initial public offering of common stock................. 273,224
Issuance of shares through underwriter's
exercise of over-allotment option.................. 2,098
Pro forma net income.................................... - 4,449 -
--------- ---------- ------------
6,449,050 $ 4,449 $ 0.69
========= ========== ============
Six Months Ended June 30, 1996:
Shares outstanding December 31, 1995.................... 4,490,383 $ - $ -
Dilutive stock options outstanding prior
to exercise........................................ 121,463 - -
Newly issued shares necessary to fund payment
of certain indebtedness and AAA distributions
(1,809,015 shares at $7.29 per share estimated
net proceeds to fund $13,181,658).................. 1,561,882 - -
Pro forma net income.................................... - 2,453 -
--------- ---------- ------------
6,173,728 $ 2,453 $ 0.40
========= ========== ============
Weighted
Average Number
of Common Shares Earnings Per
Outstanding Net Income Common Share
---------------- ---------- -------------
Six Months Ended June 30, 1997:
Shares outstanding December 31, 1996.................... 6,659,846 $ - $ -
Weighted average shares issued in conjunction
with the acquisitions (614,917 shares issued)..... 463,766 - -
Weighted average shares resulting from stock
issued compensation................................ 2,487 - -
Dilutive stock options outstanding...................... 15,290 - -
Net income before extraordinary item - 2,682 0.38
Extraordinary item...................................... - 194 0.03
Net income.............................................. - 2,488 0.35
--------- ---------- ------------
7,141,389 $ 2,488 $ 0.35
========= ========== ============
</TABLE>
<PAGE> 1
Exhibit 21.1
<TABLE>
<CAPTION>
Subsidiaries of O'Gara Jurisdiction of Incorporation
- ---------------------- -----------------------------
<S> <C>
O'Gara-Hess & Eisenhardt Armoring Company ........ Delaware
O'Gara-Hess & Eisenhardt Armoring Company
de Mexico, SA de CV .......................... Mexico
O'Gara-Hess & Eisenhardt do Brasil LTDA ........ Brazil
O'Gara Security International, Inc. ............ Delaware
Labbe SA ................................... France
O'Gara Satellite Networks, Inc. .................. Delaware
O'Gara Satellite Networks Limited ................ Ireland
Next Destination Limited ......................... United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
September 16, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Kroll Holdings, Inc.
New York, New York
We consent to the use in this Registration Statement of the O'Gara Company on
Form S-4 of our report dated March 13, 1997 (August 8, 1997 as to Notes 7 and 17
to the financial statements) appearing in the Prospectus, which is a part of
this Registration Statement, and of our report dated March 13, 1997 relating to
the financial statement schedule appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
September 17, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF SBC WARBURG DILLON READ INC.
We hereby consent to the use of Appendix C containing our opinion letter to
the Board of Directors of The O'Gara Company ("O'Gara") dated as of the date of
and incorporated in the Proxy Statement/Prospectus constituting a part of the
Registration Statement on Form S-4 relating to the Merger of Kroll Holdings,
Inc. ("Kroll") with a wholly owned subsidiary of O'Gara and to the references to
our firm in such Proxy Statement/Prospectus. In giving this consent we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
SBC WARBURG DILLON READ INC.
By: /s/ WILLIAM POWELL
-----------------------------------------------------
Authorized Signature
By: /s/ AARON C. HILL
-----------------------------------------------------
Authorized Signature
New York, New York
September 12, 1997
<PAGE> 1
EXHIBIT 23.6
The Board of Directors
Kroll Holdings, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
New York, New York
September 17, 1997
<PAGE> 1
EXHIBIT 99.3
CONSENT
I, Jules Kroll, consent in this Registration Statement on Form S-4 of
The O'Gara Company to the inclusion of my name as a nominee for director of The
O'Gara Company.
/s/ Jules Kroll
---------------------------------
Name: Jules B. Kroll
<PAGE> 1
EXHIBIT 99.4
CONSENT
I, Howard I. Smith, consent in this Registration Statement on Form S-4
of The O'Gara Company to the inclusion of my name as a nominee for director of
The O'Gara Company.
/s/ Howard I. Smith
----------------------------
Name: Howard I. Smith
<PAGE> 1
EXHIBIT 99.5
CONSENT
I, Michael Cherkasky, consent in this Registration Statement on Form
S-4 of The O'Gara Company to the inclusion of my name as a nominee for director
of The O'Gara Company.
/s/ Michael G. Cherkasky
---------------------------------
Name: Michael G. Cherkasky
<PAGE> 1
EXHIBIT 99.6
CONSENT
I, Marshall S. Cogan, consent in this Registration Statement on Form
S-4 of The O'Gara Company to the inclusion of my name as a nominee for director
of The O'Gara Company.
/s/ Marshall S. Cogan
---------------------------------
Name: Marshall S. Cogan
