<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JAYMARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8748 33-0744824
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
9775 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 535-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ERIC P. WENAAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JAYMARK, INC.
9775 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 535-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
CAMERON JAY RAINS, ESQ. JAMES R. TANENBAUM, ESQ.
DOUGLAS J. REIN, ESQ. GLENN D. SMITH, ESQ.
DAVID R. YOUNG, ESQ. STROOCK & STROOCK & LAVAN LLP
GRAY CARY WARE & FREIDENRICH 2029 CENTURY PARK EAST,
A PROFESSIONAL CORPORATION SUITE 1800
4365 EXECUTIVE DRIVE, SUITE 1600 LOS ANGELES, CA 90067-3086
SAN DIEGO, CA 92121-2189 (310) 556-5800
(619) 677-1400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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================================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock ($0.001 par 1,495,000 shares $14.00 $20,930,000 $6,342.42
value)................................
- ----------------------------------------------------------------------------------------------------------------
Representative's Warrants to Purchase 130,000 N/A $100 $0.03
Common Stock........................
- ----------------------------------------------------------------------------------------------------------------
TOTAL REGISTRATION FEE........... $6,343
================================================================================================================
</TABLE>
(1) Includes 195,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457.
------------------------
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
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 7, 1997
1,300,000 SHARES
[JAYMARK LOGO]
CLASS A COMMON STOCK
------------------------
ALL OF THE 1,300,000 SHARES OF CLASS A COMMON STOCK, PAR VALUE $0.001 PER
SHARE, OFFERED HEREBY ARE BEING SOLD BY JAYMARK, INC. ("JAYMARK" OR THE
"COMPANY"). THE COMPANY'S COMMON STOCK CONSISTS OF CLASS A COMMON STOCK AND
CLASS B COMMON STOCK. OTHER THAN THE CONVERSION OF ALL SHARES OF CLASS B COMMON
STOCK INTO SHARES OF CLASS A COMMON STOCK OVER A FOUR-YEAR PERIOD COMMENCING
UPON THE CLOSING OF THIS OFFERING, THE RIGHTS, PREFERENCES AND PRIVILEGES OF
EACH CLASS OF COMMON STOCK ARE IDENTICAL IN ALL RESPECTS.
Prior to this offering, there has been no public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $12.00 and $14.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Company has applied for quotation of the Class A
Common Stock on the Nasdaq National Market under the symbol "JMRK."
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS(1) TO COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
=================================================================================================
</TABLE>
(1) Excludes the value of warrants to be issued to the representative of the
Underwriters (the "Representative") to purchase up to 130,000 shares of
Class A Common Stock (the "Representative's Warrants"). The Company has
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $950,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 195,000 additional shares of Class A Common Stock on the
same terms and conditions as the Class A Common Stock offered hereby solely
to cover over-allotments, if any. If the Underwriters exercise this option
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Class A Common Stock offered hereby are offered by the
Underwriters, subject to prior sale when, as and if delivered to and accepted by
the Underwriters and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the certificates
representing shares of Class A Common Stock will be made at the offices of Brean
Murray & Co., Inc. in New York, New York on or about , 1997.
------------------------
BREAN MURRAY & CO., INC.
------------------------
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
FIBRESTAR(TM) FIBRE CHANNEL
GIGABIT SOLUTIONS FOR TODAY AND THE FUTURE
Up to 126 Users Per Loop
Simultaneous Network & Storage Products
Copper or Fiber-Optic Cables Depending Upon Distance
[Schematic diagram illustrating a computer network in three buildings of various
sizes using Fibre
Channel technology.]
Full Utilization of Link Speed (1063 Mbps), Even with Multiple Users
Network Attached Offsite Storage (Up to 6 Miles)
Expands Up to 16 Million Users
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POTENTIAL APPLICATIONS
<S> <C>
- - Airline Reservation Systems [Legend depicting figures used to represent
- - Stock Brokerage and Loan Processing the following items in the above schematic
- - Broadcast Video and Video Editing diagram: FibreStar adapters, Disk
- - Geographical and Thermal Mapping Array/RAID, Hub, Switch, Super Server,
- - Point of Sale Transaction Processing Server, Supercomputer and Workstation.]
- - Semiconductor Chip Design and Testing
- - Multi-Facility (Campus) Networks
- - Scientific Computing and Simulation
- - Medical Imaging FIBRESTAR PRODUCT FAMILY
- - Data Warehouses
- - Robotics Control [Picture of FibreStar adapter cards.]
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary............................................................ 3
Risk Factors.................................................................. 6
Use of Proceeds............................................................... 13
Dividend Policy............................................................... 13
Capitalization................................................................ 14
Dilution...................................................................... 15
Selected Consolidated Financial Data.......................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 17
Business...................................................................... 22
Management.................................................................... 39
Certain Transactions.......................................................... 47
Principal Stockholders........................................................ 48
Description of Capital Stock.................................................. 50
Shares Eligible for Future Sale............................................... 51
Underwriting.................................................................. 53
Legal Matters................................................................. 54
Experts....................................................................... 54
Additional Information........................................................ 54
Glossary...................................................................... 55
Index to Consolidated Financial Statements.................................... F-1
</TABLE>
------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than in connection with the offer made by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
Class A Common Stock offered hereby in any jurisdiction in which such an offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to
its date.
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
FibreStar and Auto-Arrestor are trademarks of the Company. This Prospectus
also contains trade names and trademarks of other companies that are the
property of their respective holders.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus, including information under "Risk Factors." The
shares of Class A Common Stock offered hereby involve a high degree of risk and
investors should carefully consider information set forth in "Risk Factors."
Unless otherwise indicated, all information in this Prospectus (i) gives effect
to a three-for-five reverse stock split to be consummated prior to the
effectiveness of this offering, (ii) gives effect to the Company's
reincorporation in Delaware to be completed prior to the effectiveness of this
offering, and (iii) assumes that the Underwriters' over-allotment option as
described in "Underwriting" is not exercised. See "Glossary" for the definition
of certain terms used herein.
THE COMPANY
Jaymark provides advanced technology products and services to the
Department of Defense (the "DoD") and other government agencies, and
commercializes selected government-funded technologies following a disciplined
evaluation of market size and profitability. The Company's first products
developed under this commercialization strategy are high-speed digital
communication adapters, which have been sold in production quantities since
December 1996. These products, marketed under the FibreStar brand, are designed
to the ANSI Fibre Channel standard. The Fibre Channel standard has become well
supported in the industry because of its high performance, which includes (i)
the highest commercially available speed (2125 megabits per second ("Mbps") in
full duplex), (ii) scalability (up to 126 nodes on a single loop), (iii)
simplicity of installation and maintenance, (iv) multiprotocol transport
(simultaneously within both storage and network environments), (v) long
connection distance (up to six miles), and (vi) high reliability of data
reception and absence of congestion with multiple users. FibreStar products
provide essential hardware and software to reduce network congestion, thereby
delivering substantial performance improvement to users requiring high-bandwidth
data transmission capabilities, including multimedia, in such applications as
(i) business and scientific computing, (ii) high volume database access for the
financial and retail industries, and (iii) multistream digital video
transmission and editing for the entertainment and broadcast industries.
With over twenty years of government-funded advanced technology
development, the Company has established several core competencies, including
(i) electronic and electro-optic system design, (ii) communications engineering,
(iii) electromagnetic effects, and (iv) nuclear and high-explosive weapon
effects (e.g., blast and shock effects on structures). In 1991, under the
leadership of new management, the Company began to target government contracts
involving the development of proprietary technologies with potential commercial
applications ("dual-use technologies").
The Company's objective is to increase profitability by leveraging its core
competencies and its advanced government-funded research through
commercialization of dual-use technologies. The key elements of the Company's
strategy are to:
- Establish FibreStar as a leading line of adapters in the emerging market
for networking and storage products utilizing the Fibre Channel standard.
- Selectively identify and commercialize additional dual-use technologies
and products with compelling market potential, and establish separate
business entities, when appropriate, to provide dedicated management and
focused business objectives.
- Maintain and expand core competencies to provide new proprietary
technologies, products and resources through the pursuit of
government-funded research and strategic acquisitions.
The Company has recently formed a wholly owned subsidiary, Jaycor Networks,
Inc. ("JNI" or "Jaycor Networks"), to which it contributed its FibreStar
products and technology in order to capitalize on the commercial potential of
these products. The efficient and rapid transfer of information throughout
networks has become increasingly critical to the daily operation of business.
The annual market for Fibre Channel adapters, such as the FibreStar products, is
projected to grow from $68 million in 1996 to over $200 million in 1997 and to
exceed $1 billion by the year 2000, according to an industry study by EMF
Associates, a networking consulting group. The Company believes that only a
small portion of this market is currently associated with independent suppliers
of Fibre Channel adapters. In the future, however, the Company believes that
independent suppliers, such as JNI, will supply a larger portion of the market.
As an example of how widely the Fibre Channel standard has been adopted, JNI and
35 other companies exhibited a variety of their Fibre Channel product lines at
the Comdex computer trade show meeting in November 1996, including Adaptec,
3
<PAGE> 6
Ancor Communications, Box Hill Systems, Digital Equipment Corporation, Emulex,
Gadzoox Microsystems, Hewlett-Packard, Intel, Interphase, LSI Logic, Philips,
QLogic, Quantum, Seagate Technology, Sun Microsystems, Texas Instruments,
Unisys, Vitesse Semiconductor, and XPoint Technology. In December 1996 and
January 1997, JNI shipped over $200,000 of FibreStar products.
The Company's government contract business is performed through Jaycor,
Inc. ("Jaycor"), its wholly owned subsidiary. Jaycor's objective is to maintain
and expand its advanced technology government research base, which will provide
both the technology and resources for further product commercialization. In
addition to FibreStar, Jaycor has developed other dual-use technologies that
have the potential for successful commercial applications, including: (i) a
bomb-resistant luggage container designed for aircraft safety, (ii) an
Auto-Arrestor to prevent or terminate dangerous high-speed chases, (iii) several
non-lethal weapon applications for military and domestic security purposes, and
(iv) several weapon detection systems. Jaycor intends to focus on areas in which
government funding is likely to remain stable or increase, while simultaneously
identifying problems and providing solutions to the government in areas in which
its core competencies provide a competitive advantage. Jaycor maintains active
relationships with the Departments of Defense, State, Justice, Transportation,
and Energy, and had approximately 200 contracts or subcontracts that generated
revenue during the fiscal year ended January 31, 1997, which were funded by
approximately 40 different government agencies, most of which are within the
DoD.
Unless the context otherwise requires, the "Company" or "Jaymark" refers to
Jaymark, Inc. and its consolidated subsidiaries. The Company's principal
executive offices are located at 9775 Towne Centre Drive, San Diego, California
92121, and its telephone number at that location is (619) 535-3100. The Company
is in the process of reincorporating in Delaware and will complete such
reincorporation prior to the effectiveness of this offering.
THE OFFERING
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Common Stock Offered by the Company.......... 1,300,000 shares of Class A Common Stock
Common Stock Outstanding After the
Offering(1)................................ 1,648,309 shares of Class A Common Stock(2)
1,393,332 shares of Class B Common Stock(2)
Use of Proceeds.............................. For general corporate purposes, including product
development, working capital and potential acquisitions,
for repayment of indebtedness outstanding under the
Company's bank line of credit, and to finance the
Company's repurchase, subject to certain conditions, of
120,000 shares of Common Stock
Proposed Nasdaq National Market Symbol....... "JMRK"
</TABLE>
- ---------------
(1) Unless the context otherwise requires, the term "Common Stock" collectively
refers to the Class A Common Stock and Class B Common Stock of the Company.
Other than the conversion of the Class B Common Stock into Class A Common
Stock over a four-year period commencing upon the closing of this offering,
the rights, preferences and privileges of each class of Common Stock are
identical in all respects. Approximately 95% of such outstanding shares of
Class B Common Stock are held directly or indirectly by executive officers
and directors of the Company, current and former employees of the Company
and the Company's Employee Stock Ownership Plan (the "ESOP"). See "Principal
Stockholders," "Management -- Benefit Plans" and "Description of Capital
Stock."
(2) Approximately 25% of such outstanding shares of Class B Common Stock will
convert into shares of Class A Common Stock upon each of the first four
anniversaries of the closing of this offering. Gives effect to the Company's
repurchase, subject to certain conditions, of 120,000 shares of Common Stock
to be consummated within 30 days of the closing of this offering. Excludes
1,270,875 shares of Class B Common Stock issuable upon the exercise of
outstanding options at January 31, 1997 at a weighted average exercise price
of $4.91 per share, 984,150 of which were exercisable as of such date. The
shares of Class B Common Stock issuable upon exercise of such options
convert into shares of Class A Common Stock over a four-year period
commencing on the closing of this offering. Also excludes (i) 130,000 shares
of Class A Common Stock issuable upon exercise of the Representative's
Warrants, (ii) 10,928 shares of Common Stock reserved for issuance pursuant
to the terms of an acquisition which was completed in October 1995, and
(iii) 8,596 shares of Common Stock potentially issuable pursuant to the
terms of an Employment Agreement. See "Use of Proceeds," "Capitalization,"
"Management -- Benefit Plans," "Underwriting" and Notes 5 and 8 of Notes to
Consolidated Financial Statements.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
--------------------- ---------------------------------------------
1996 1995 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................. $ 41,452 $ 38,733 $ 52,928 $ 57,656 $ 55,901 $ 57,695
Costs and expenses:
Cost of revenues....................... 34,233 32,095 43,803 47,846 46,656 48,684
Selling, general and administrative.... 4,797 4,555 5,977 7,363 6,592 6,733
Research and development(1)............ 310 400 560 228 206 365
--------- --------- --------- --------- --------- ---------
39,340 37,050 50,340 55,437 53,454 55,782
--------- --------- --------- --------- --------- ---------
Operating income......................... 2,112 1,683 2,588 2,219 2,447 1,913
Interest expense......................... 1,427 1,423 2,018 1,721 1,632 568
--------- --------- --------- --------- --------- ---------
Income before income taxes............... 685 260 570 498 815 1,345
Provision for income taxes(2)............ 249 98 234 176 95 562
--------- --------- --------- --------- --------- ---------
Net income............................... $ 436 $ 162 $ 336 $ 322 $ 720 $ 783
========= ========= ========= ========= ========= =========
Net earnings per share................... $ 0.21 $ 0.08 $ 0.16 $ 0.15 $ 0.30 $ 0.30
========= ========= ========= ========= ========= =========
Shares used in per share calculation..... 2,048,800 2,086,900 2,075,900 2,131,400 2,678,400 3,093,600
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1996
------------------------------
ACTUAL AS ADJUSTED(3)
----------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash...................................................................... $ 47 $ 10,447
Working capital........................................................... 357 13,955
Total assets.............................................................. 32,715 43,115
Bank line of credit....................................................... 3,198 --
Mortgage debt, less current portion....................................... 13,356 13,356
Long-term liabilities, excluding mortgage debt............................ 1,877 1,877
Mandatorily redeemable ESOP shares(4)..................................... 3,159 --
Total stockholders' equity................................................ 2,877 19,634
</TABLE>
- ---------------
(1) Most of the Company's research and development efforts are funded directly
under development contracts with the U.S. government and are included in
cost of revenues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Provision for income taxes in fiscal year 1994 includes a credit of $231
from a change in method of accounting for income taxes, as described in Note
1 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the sale by the Company of 1,300,000 shares of Class A
Common Stock offered hereby at an assumed initial public offering price of
$13.00 per share, after deduction of underwriting discounts and commissions
and estimated offering expenses and the application of the estimated net
proceeds therefrom (including the potential repurchase of 120,000 shares).
See "Use of Proceeds" and "Capitalization."
(4) Represents the Company's potential obligation prior to the closing of this
offering to repurchase shares of Class B Common Stock upon distribution by
the ESOP of vested shares to retiring or terminated plan participants due to
the fact that such shares are not readily tradeable. Following the closing
of this offering, this potential obligation may, at the Company's option, be
satisfied by the distribution from the ESOP of shares of Class A Common
Stock which are readily tradeable, and therefore such amount will be
reclassified to stockholders' equity. See "Management -- Benefit Plans" and
Notes 5 and 8 of Notes to Consolidated Financial Statements.
5
<PAGE> 8
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the Securities Act of 1933. Actual results could differ materially
from those projected in the forward-looking statements as a result of certain
risks and uncertainties set forth below and elsewhere in this Prospectus. An
investment in the shares of Class A Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the shares of Class A Common Stock offered
hereby.
RISKS ASSOCIATED WITH ENTERING COMMERCIAL MARKETS
Historically, the Company's business has been focused on providing advanced
technology products and services to the DoD and other government agencies. The
Company believes that its future growth and increased profitability are largely
dependent upon its success in commercial markets, especially in the computer
networking market, in which it has only recently begun to compete. The Company
believes that while the technologies used in its defense and commercial sectors
have similarities, the business aspects of operating in such sectors differ
significantly. As a result, the Company is subject to risks inherent in the
operation of a new business enterprise, including risks associated with
attracting and servicing a new customer base, developing and manufacturing
products in a cost-effective and profitable manner, managing the expansion of a
business operation, and attracting and retaining qualified engineering,
marketing and managerial personnel with industry experience. Any of such risks
could adversely affect the Company's business, operating results and financial
condition. See "-- Risks Associated with JNI."
DEPENDENCE ON GOVERNMENT MARKET
To date, nearly all of the Company's revenues have been derived from
contracts or subcontracts funded by agencies of the U.S. government, in
particular the DoD. Contracts or subcontracts with the DoD accounted for
approximately 90.5%, 89.4% and 86.5% of the Company's revenues during the years
ended January 31, 1995 and 1996, and during the nine months ended October 31,
1996, respectively. The Company expects, at least in the near term, to continue
to derive the majority of its revenues from its government contracts business.
As a result, the Company's revenues could be adversely impacted by a decrease in
defense spending by the U.S. government. Any failure by the Company to replace
revenues attributable to a significant defense program or contract at the end of
such program or contract, whether due to cancellation, spending cuts, budgetary
constraints or otherwise, could have an adverse effect upon the Company's
business, operating results and financial condition in future periods. See
"-- Risks Associated with Government Contracts."
RISKS ASSOCIATED WITH JNI
- Limited Operating History. Shipment of FibreStar adapters in limited
commercial quantities began in December 1996. Due in part to its lack of
operating history, JNI is unable to predict the level of demand for its
FibreStar adapters, or whether or not such products will be able to
achieve broad acceptance in the computer networking market. The likelihood
of success of JNI must be considered in light of the problems, expenses,
complications and delays frequently encountered by early-stage companies
and the competitive environment in which JNI intends to operate. Such
problems could have an adverse effect on JNI's business, operating results
and financial condition and, accordingly, on the Company's business and
future prospects.
- Dependence on Fibre Channel Standard. JNI's future financial performance
and, to a large extent, the Company's future prospects will depend on the
growth in the market for products designed to the Fibre Channel standard.
Because the market for Fibre Channel products is new and evolving, it is
difficult to assess or predict with any assurance its size or growth rate.
The development or emergence of standards which compete with or are
superior to Fibre Channel, whether on the basis of cost, speed,
flexibility or otherwise, could have an adverse effect on JNI's and,
accordingly, the Company's business, operating results and financial
condition. If the market for Fibre Channel products fails to develop as
rapidly as expected or if JNI's products fail to achieve market
acceptance, JNI's business,
6
<PAGE> 9
operating results and financial condition and, accordingly, the Company's
business and future prospects would be adversely affected.
- Management of Growth. Growth and expansion will place a strain on JNI's
management, administrative, operational and financial resources and will
impose increased demands on its systems, controls and personnel. In
particular, there can be no assurance that the Company will be able to
retain or recruit in a timely manner qualified engineering and managerial
personnel. There can be no assurance that JNI will be able to effectively
manage any future growth, and any failure to do so would have an adverse
effect on JNI's business, operating results and financial condition and,
accordingly, on the Company's business and future prospects. See
"Business -- Company Strategy" and "Management."
- Competition. The computer networking industry is intensely competitive,
subject to rapid change, and significantly affected by new product
introductions and other market activities of industry participants. JNI
competes with companies offering products based on the Fibre Channel
standard, as well as companies offering products based on competing
standards. Many of JNI's current and potential competitors have
significantly greater financial, technical, marketing and other resources,
and possess a larger installed base of customers than JNI. The computer
networking industry has witnessed many acquisitions pursuant to which
several large companies have emerged with comprehensive networking
solutions. These acquisitions may permit JNI's competitors to devote
significantly greater resources to the development and marketing of new
competitive products and the marketing of existing products to their
larger installed bases of customers. The Company expects that competition
will increase, in particular as companies that are well established in the
computer networking industry increase their focus on the emerging market
for Fibre Channel adapters. There can be no assurance that JNI will be
able to compete successfully in the future with existing or new
competitors or that competitive pressures faced by JNI will not adversely
affect its business, operating results and financial condition and,
accordingly, the Company's business and future prospects. See
"Business -- Fibre Channel Network Products -- Competition."
- Limited Source Components. Certain key components used in JNI's
products, such as application-specific integrated circuits ("ASICs") and
controller chips, are currently available only from a single source or a
limited number of sources. In particular, JNI has designed into its
products a Fibre Channel controller chip available only from
Hewlett-Packard. Future difficulty in obtaining any of these key
components could result in delays or reductions in product shipments
which, in turn, could have an adverse effect on JNI's business, operating
results and financial condition and, accordingly, on the Company's
business and future prospects.
- Contract Manufacturing. JNI's use of third-party manufacturers to
assemble and test its products involves certain risks, including the lack
of adequate capacity, the unavailability of access to certain process
technologies, and reduced control over delivery schedules, manufacturing
yields, quality and costs. In the event that any significant contractor
were to become unable or unwilling to continue to manufacture or test
JNI's products in required volumes, JNI would have to identify and qualify
acceptable replacements. This process of qualifying manufacturing
contractors and other suppliers could be lengthy, and no assurance can be
given that any additional sources would become available to JNI on a
timely basis, if at all. Any delay or reduction in component shipments or
delay or increase in costs of the assembly and testing of products by
contractors could adversely affect JNI's business, operating results and
financial condition and, accordingly, the Company's business and future
prospects.
- Dependence on OEMs and Resellers. JNI has developed and is dependent on
sales and marketing channels consisting primarily of resellers and
original equipment manufacturers ("OEMs"). Any failure of such OEMs and
resellers to adequately market, promote and sell JNI's products, whether
due to competition, insolvency, lack of attention to or understanding of
JNI's products, or otherwise, would have an adverse effect on JNI's
business, operating results and financial condition and, accordingly, on
the Company's business and future prospects. See "Business -- Fibre
Channel Network Products -- Sales and Marketing."
7
<PAGE> 10
- Rapid Technological Change. The computer networking industry is
characterized by rapidly changing technologies and frequent new product
introductions. The rapid development of new technologies increases the
risk that current or new competitors could develop products that would
reduce the competitiveness of JNI's products. JNI's success will depend
to a substantial degree upon its ability to respond to changes in
technology and customer requirements. This will require the timely
selection, development and marketing of new products and enhancements on
a cost-effective basis. There can be no assurance that JNI will be
successful in developing, introducing or managing the transition to new
or enhanced products, or that any such products will be responsive to
technological changes or will gain market acceptance. If JNI were to be
unsuccessful or to incur significant delays in developing and introducing
such new products or enhancements, JNI's business, operating results and
financial condition and, accordingly, the Company's business and future
prospects could be adversely affected. See "Business -- Fibre Channel
Network Products -- Research and Development."
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTS
- Early Termination. Jaycor's contracts with the U.S. government and its
subcontracts with government prime contractors are subject to
modification or termination at the convenience of the government.
Moreover, while many of Jaycor's government contracts and subcontracts
extend over several years, such contracts are typically funded for no
more than one year at a time. There can be no assurance any such
modifications or terminations will not have an adverse effect on the
Company's business, operating results and financial condition in the
future.
- Competition. The advanced technology products and services market is
competitive and is characterized by rapid technological change,
developments and advancements, as well as the evolving budgetary
priorities of the U.S. government. Jaycor's competitors are diverse and
generally differ among each of its core competencies. Many of Jaycor's
competitors have substantially greater technical, financial, marketing
and other resources than the Company, as well as superior name
recognition. The Company believes that the critical success factors in
the advanced technology government solutions market include developing
proprietary technology, demonstrating technological superiority,
maintaining customer satisfaction, adapting to evolving governmental
budgetary priorities, identifying future government problems, providing
cost-effective solutions for such problems, and recruiting and retaining
highly skilled personnel. No assurance can be given that these
competitors will not develop new technologies or introduce new solutions
that will offer superior pricing or performance features or that new
solutions or technologies will not impair the competitiveness of Jaycor's
solutions. See "Business -- Advanced Technology Products and Services --
Competition."
- Contract Costs Subject to Government Audits; Government Compliance. All
contract costs, including indirect costs, for services under contracts or
subcontracts funded by agencies of the U.S. government are subject to
audit, and the acceptance of such costs as allowable and allocable is
subject to federal regulatory guidelines. Contract revenues have been
recorded in amounts which the Company expects to be realized upon final
audit settlement. There can be no assurance, however, that audits and
adjustments will not result in decreased revenues and net income for
those years, and any disallowance of costs by the government could have
an adverse effect on the Company's business, operating results and
financial condition. Because of its participation in government
contracts, Jaycor is subject to audit from time to time for its
compliance with government regulations by various agencies, including the
Defense Contract Audit Agency, the Defense Investigative Service and the
Office of Federal Control Compliance Programs. These and other
governmental agencies may also, from time to time, conduct inquiries or
investigations that may cover a broad range of Company activity.
Responding to any such audits, inquiries or investigations may involve
significant expense and divert management attention. In addition, an
adverse finding in any such audit, inquiry or investigation could involve
penalties that may have an adverse effect on the Company's business,
operating results and financial condition.
- At-Risk Contract Costs. Certain revenues associated with services
performed prior to execution of a government contract or a modification
of such a contract have been recorded in the Company's financial
statements based upon the expectation that the costs of these services
will be fully recovered.
8
<PAGE> 11
These costs are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the U.S. government. As a result,
there can be no assurance that the underlying contracts or contract
modifications will be executed or that such costs will be recovered. Any
failure to recover such costs could have an adverse effect on the
Company's business, operating results and financial condition.
- Fixed-Price Contract Exposure. During the fiscal years ended January 31,
1995 and 1996, and during the nine-month period ended October 31, 1996,
17%, 11% and 13%, respectively, of the Company's revenues were derived
from fixed-price contracts. Because Jaycor assumes the risk of performing
such contracts at the stipulated price, any failure to accurately
estimate ultimate costs or to control costs during contract performance
could result in losses or reduced profits for particular fixed-price
contracts, which, in turn, could have an adverse effect on the Company's
business, operating results and financial condition. See "Business --
Advanced Technology Products and Services -- Procurement of Government
Contracts."
- Lengthy Sales Cycles. The decision-making process for government
agencies, which constitute the majority of Jaycor's customers, is often
complex and time-consuming. The period between initial discussions
concerning a particular project and the customer's purchase commitment
typically ranges from six to twelve months. In addition, follow-ons to
existing contracts are often subject to lengthy delays. These delays
could have an adverse effect on the Company's business, operating results
and financial condition and, in particular, could contribute to
significant fluctuations in its operating results on a quarterly basis.
See "Business -- Advanced Technology Products and Services -- Procurement
of Governmental Contracts."
- Dependence on Government Contract Coverage. To maintain competitive
overhead rates and historical levels of profitability, Jaycor typically
establishes budgets wherein 75% to 85% of the cost of its non-
administrative employees is anticipated to be directly billed to
customers through existing contracts, with the remaining amount allocated
to overhead. Given the lengthy government contract approval process and
associated uncertainty of the timing of contract modifications or awards,
Jaycor may be unable to meet such utilization goals. The long-term needs
of Jaycor may make it impractical to effect short-term work force
reductions when such under-utilization occurs. Accordingly, no assurance
can be given that Jaycor will meet its desired level of utilization, and
if any resulting increased overhead costs cannot be recovered within
Jaycor's overhead rates, the Company's business, operating results and
financial condition could be adversely affected.
RISK RELATED TO GROWTH THROUGH ACQUISITIONS
One of the Company's strategies is to increase its revenues and expand the
markets it serves through acquisitions. There can be no assurance, however, that
the Company will be able to identify, acquire or profitably manage suitable
acquisition candidates or successfully integrate such businesses, if acquired,
into its operations without substantial costs, delays or other problems. In
addition, there can be no assurance that any acquired businesses will be
profitable at the time of their acquisition or will achieve or maintain
profitability levels that justify the investment therein or that the Company
will be able to realize expected operating and economic efficiencies following
such acquisitions. Acquisitions may involve a number of special risks, including
adverse effects on the Company's reported operating results, diversion of
management's attention, increased burdens on the Company's management resources
and financial controls, dependence on the retention and hiring of key personnel,
risks associated with unanticipated problems or legal liabilities, and
amortization of acquired intangible assets. Any such risks could have an adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Company Strategy."
DEPENDENCE ON CERTAIN CUSTOMERS
For the nine months ended October 31, 1996, approximately 30% of the
Company's revenues were derived from approximately 30 contracts or subcontracts
funded by the Defense Special Weapons Agency ("DSWA"), an agency of the DoD, and
approximately 12% of the Company's revenues were derived from contracts with the
Air Force Sacramento Air Logistics Command ("SM-ALC"). While no individual
9
<PAGE> 12
contract with DSWA is material to the Company's business, the Company would be
materially affected if all or a substantial portion of the funding from DSWA or
SM-ALC were lost. There have been events in the past which have called into
question the continuation of government funding of DSWA. In November 1993,
Congress directed the Rand Corporation to evaluate alternative ways of
accomplishing the functions which were being performed by DSWA, which was then
called the Defense Nuclear Agency. Based in part on the recommendations in the
Rand Corporation's report, Congress elected to continue funding the agency at a
lower level. There can be no assurance that DSWA will continue to provide
funding to the Company at current levels, if at all, and a material decrease in
such funding could have an adverse effect on the Company's business, operating
results and financial condition. See "-- Risks Associated with Government
Contracts" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly operating results. The Company's
future operating results are dependent upon a number of factors, including, but
not limited to, the demand for its products and services, the number of
government contracts it successfully obtains, the size and timing of specific
contracts, the level of price competition that it encounters in the government
contract bidding process, the length of its sales cycles, the timing and
development of new solution proposals by the Company and its competitors,
acquisitions by the Company and its competitors, the timing of new hires, the
Company's ability to develop and market new solutions, technological changes and
economic conditions, both generally and in specific industry segments. In
particular, JNI does not expect to have a material backlog of unfilled orders,
so any shortfall in demand for FibreStar products in relation to the Company's
expectations, or any material delay in customer orders, could have an almost
immediate impact on the Company's business, operating results and financial
condition. The Company believes that quarterly comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY EMPLOYEES
The Company's success will depend in part on the continued services of its
key employees. The Company does not have employment agreements with any of its
key employees and does not maintain any key person life insurance, with the
exception of a $1.0 million policy on Eric P. Wenaas, the Company's Chairman,
President and Chief Executive Officer. The loss of one or more of the Company's
key employees could have an adverse effect on the Company's business, operating
results and financial condition. In particular, if any one or more of such key
employees were to join a competitor or form a competing company, any resulting
loss of existing or potential business to any such competitor would magnify the
adverse effect caused by the loss of such key employee or employees. In the
event of the loss of any such employee or employees, there can be no assurance
that the Company would be able to prevent the unauthorized disclosure or use of
the Company's or its customers' technical knowledge, practices or procedures by
such employee or employees, or that such disclosure or use would not have an
adverse effect on the Company's business, operating results and financial
condition. See "Management."
PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality procedures and certain
contractual provisions to establish and protect its proprietary rights. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy, design around or reverse engineer aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Under certain standard provisions in government contracts, the
government may retain certain rights, which are often limited, in technology
developed under or arising out of work performed under such contracts. In
addition, the laws of certain foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States.
Accordingly, there can be no assurance that
10
<PAGE> 13
unauthorized use of the Company's technology will not occur. In the future,
litigation may be necessary to protect trade secrets and other intellectual
property rights owned by the Company, to defend the Company against claimed
infringement of the rights of others, and to determine the scope and validity of
the proprietary rights of others. Any such litigation could be costly and result
in a diversion of management's attention and adverse determinations in any such
litigation could result in the loss of the Company's proprietary rights, subject
the Company to significant liabilities, require the Company to seek licenses
from third parties or prevent the Company from manufacturing or selling its
products, any of which could have an adverse effect on the Company's business,
operating results and financial condition.
ENVIRONMENTAL REGULATIONS AND RISKS
The Company is subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances. In
the conduct of the Company's business, certain solvents, cleaning agents,
paints, oils and chemicals, as well as certain other hazardous substances, are
handled on a regular basis. The failure to comply with current or future
regulations could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its processes or cessation of
operations, which, in turn, could have an adverse effect on the Company's
business, financial condition and operating results.
BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS
The Company intends to use the net proceeds of this offering primarily for
general corporate purposes, including product development and working capital.
The Company may use a portion of the net proceeds of the offering to acquire or
invest in businesses, technologies or products complementary to the Company's
business. As of January 31, 1997, the outstanding balance under the Company's
bank line of credit was approximately $4.3 million. Other than the repayment of
such outstanding balance and the anticipated use of $1.0 million to repurchase
shares of Common Stock held by a former executive of the Company, the Company
has no other specific plans to use the net proceeds of this offering.
Accordingly, management will retain broad discretion to allocate the net
proceeds of this offering. See "Use of Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Company's
Class A Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations among the Company and the
Representative and may not be indicative of the market price of the Class A
Common Stock after this offering. The trading price of the Class A Common Stock
is likely to be volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results;
announcements of technological innovations, new products or new contracts by the
Company or its competitors; developments with respect to patents, copyrights or
proprietary rights; conditions and trends in the Company's markets; changes in
financial estimates by securities analysts; general market conditions; and other
factors. In addition, the public equity markets have from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the stocks of technology companies. These broad
market fluctuations, as well as shortfalls in sales or earnings as compared with
public market analysts' expectations, changes in such analysts' recommendations
or projections and general economic and market conditions, may adversely affect
the market price of the Company's Class A Common Stock. See "Underwriting."
DILUTION
Purchasers of the Class A Common Stock offered hereby will incur immediate
substantial dilution in pro forma net tangible book value per share from the
initial offering price in the amount of $6.71. To the extent outstanding options
to purchase the Company's Common Stock are exercised, there will be further
dilution to such new investors. See "Dilution."
11
<PAGE> 14
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS
Immediately following this offering, the Company's executive officers and
directors will beneficially own approximately 34% of the outstanding shares of
the Company's Common Stock (including shares held by the ESOP), assuming no
exercise of the Underwriters' over-allotment option. As a result, such persons
will have the ability to exercise significant influence over matters regarding
the Company. Such influence may have a significant effect in delaying, deferring
or preventing a change in control of the Company. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company. In addition, certain provisions
of the Company's Certificate of Incorporation and Bylaws, as well as other
provisions of Delaware law, could have the effect of delaying, deferring or
preventing a change in control of the Company. See "Principal Stockholders" and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market
after this offering, or the possibility of such sales occurring, could adversely
affect prevailing market prices of the Class A Common Stock or the future
ability of the Company to raise capital through an offering of equity
securities. After this offering, the Company will have outstanding 1,648,309
shares of Class A Common Stock and 1,393,332 shares of Class B Common Stock,
after giving effect to the Company's repurchase, subject to certain conditions,
of 120,000 shares of Common Stock. Of such shares, the 1,300,000 shares of Class
A Common Stock offered hereby will be freely tradeable in the public market
without restriction under the Securities Act, unless such shares are held by
"affiliates" of the Company, as defined in Rule 144 under the Securities Act.
The remaining 348,309 shares of Class A Common Stock and the 1,393,332 shares of
Class B Common Stock outstanding upon completion of this offering will be
"restricted securities," as defined in Rule 144. All outstanding shares of the
Company's Class B Common Stock will convert into shares of the Company's Class A
Common Stock over a four-year period commencing upon the closing of this
offering at the rate of 348,309 shares on the closing of this offering and on
each of the first three anniversaries of such closing, and 348,405 shares on the
fourth anniversary of such closing. Subject to the lock-up agreements discussed
below, substantially all of the shares of Class A Common Stock issued upon
conversion of the Class B Common Stock will generally be freely tradeable,
subject in certain instances to the volume limitations imposed by Rule 144.
Pursuant to certain "lock-up" agreements, all of the executive officers and
directors of the Company, as well as certain other stockholders, who, following
the closing of this offering, will collectively hold an aggregate of
approximately shares of Class A Common Stock and shares of
Class B Common Stock, have agreed, subject to certain limited exceptions, not to
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any such shares for a period of one year from the date of this Prospectus.
Certain additional stockholders and optionholders of the Company, who, following
the closing of this offering, will collectively hold an aggregate of
approximately shares of Class A Common Stock and shares of Class B
Common Stock, have entered into similar lock-up agreements covering a period of
180 days following the date of this Prospectus. Such agreements provide that
Brean Murray & Co., Inc. may, in its sole discretion and at any time without
notice, release all or a portion of the shares subject to these lock-up
agreements. As of January 31, 1997, options to purchase 1,270,875 shares of
Class B Common Stock were outstanding under the Company's stock option plans,
984,150 of which were exercisable as of such date. The shares of Class B Common
Stock issuable upon exercise of such options convert into shares of Class A
Common Stock over a four-year period commencing on the closing of this offering.
The Company intends to file after the effective date of this offering
Registration Statements on Form S-8 to register an aggregate of 2,443,765 shares
of Class A Common Stock reserved for issuance under its stock option and stock
purchase plans or upon conversion of shares of Class B Common Stock issued under
such plans. See "Shares Eligible for Future Sale" and "Underwriting."
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,300,000 shares of
Class A Common Stock offered hereby by the Company are estimated to be
approximately $14,598,000 ($16,930,000 if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$13.00 per share (which is the mid-point of the filing range) and after
deducting underwriting discounts and commissions and estimated offering
expenses.
The Company intends to use the net proceeds of this offering primarily for
general corporate purposes, including product development and working capital.
The Company also intends to use a portion of the net proceeds of this offering
to repay indebtedness outstanding under the Company's bank line of credit,
which, as of January 31, 1997, was approximately $4,286,000 and accrued interest
at a rate of 9.125%. In addition, the Company has agreed to repurchase 120,000
shares of Class B Common Stock from Robert P. Sullivan, a retired Executive Vice
President of the Company, for $1,000,000 ($8.33 per share). Although the Company
is obligated to repurchase such shares within 30 days of the closing of this
offering, such obligation is postponed in the event that such repurchase would
impair the Company's ability to qualify for listing on the Nasdaq National
Market. The Company may also use a portion of the net proceeds to acquire or
invest in businesses, technologies or products complementary to the Company's
business. While from time to time the Company evaluates potential acquisitions
of such businesses, technologies or products, there are no present
understandings, commitments or agreements with respect to any such transaction.
Pending such uses, the Company intends to invest the net proceeds from the
offering in investment-grade, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. The Company
intends to retain future earnings, if any, to finance the development and
expansion of its business and, therefore, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. In addition, the
Company's bank line of credit contains certain restrictions with respect to the
payment of dividends.
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<PAGE> 16
CAPITALIZATION
The following table sets forth, as of October 31, 1996, the capitalization
of the Company on an actual basis and as adjusted to give effect to (i) the sale
and issuance of the 1,300,000 shares of Class A Common Stock offered by the
Company hereby (after deducting the estimated underwriting discounts and
commissions and estimated offering expenses) at an assumed public offering price
of $13.00 and the application of the net proceeds therefrom as described in "Use
of Proceeds," and (ii) the reclassification of the shares of Common Stock held
under the Company's ESOP to stockholders' equity. This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Bank line of credit.................................................... $ 3,198 $ --
======= =======
Long-term debt and capital lease obligations, less current portion..... $13,846 $13,846
------- -------
Mandatorily redeemable ESOP shares, at fair value; 487,241 shares
(actual) and no shares (as adjusted) issued and outstanding(1)....... 3,159 --
------- -------
Stockholders' equity:
Class A Common Stock, par value $0.001; 12,000,000 shares authorized,
no shares (actual) and 1,663,791 shares (as adjusted) issued and
outstanding(2).................................................... -- 2
Class B Common Stock, par value $0.001; 4,000,000 shares authorized,
1,451,808 shares (actual) and 1,455,258 shares (as adjusted)
issued and outstanding(2)......................................... 1 1
Additional paid-in capital........................................... 578 15,678
Retained earnings.................................................... 4,950 3,953
Adjustment for mandatorily redeemable ESOP shares(1)................. (2,652) --
------- -------
Total stockholders' equity........................................ 2,877 19,634
------- -------
Total capitalization......................................... $19,882 $33,480
======= =======
</TABLE>
- ---------------
(1) Represents the Company's potential obligation prior to the closing of this
offering to repurchase shares of Class B Common Stock upon distribution by
the ESOP of vested shares to retiring or terminated plan participants due to
the fact that such shares are not readily tradeable. Following the closing
of this offering, this potential obligation may, at the Company's option, be
satisfied by the distribution from the ESOP of shares of Class A Common
Stock which are readily tradeable, and therefore such amount will be
reclassified to stockholders' equity. See "Management -- Benefit Plans" and
Notes 5 and 8 of Notes to Consolidated Financial Statements.
(2) Includes 79,557 shares of Common Stock which were repurchased by the Company
from its stockholders subsequent to October 31, 1996. As adjusted shares of
Common Stock gives effect to the repurchase and retirement of 120,000 shares
which the Company has agreed to repurchase, subject to certain conditions.
Excludes (i) 1,147,875 shares of Class B Common Stock issuable upon the
exercise of stock options outstanding as of October 31, 1996 at a weighted
average exercise price of $4.80 per share, (ii) 575,000 shares of Class A
Common Stock and 531,390 shares of Class B Common Stock reserved for
issuance under the Company's stock option plans, (iii) 200,000 shares of
Class A Common Stock reserved for issuance under the Company's 1997 Employee
Stock Purchase Plan, (iv) 130,000 shares of Class A Common Stock reserved
for issuance upon exercise of the Representative's Warrants, (v) 10,928
shares of Common Stock reserved for issuance pursuant to the terms of an
acquisition which was completed in October 1995, (vi) 8,596 shares of Common
Stock potentially issuable pursuant to the terms of an Employment Agreement,
and (vii) 2,149 shares issued subsequent to October 31, 1996. See
"Management -- Benefit Plans," "Certain Transactions," "Underwriting" and
Note 9 of Notes to Consolidated Financial Statements.
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<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of October 31, 1996
was $6,036,000 or $3.11 per share of Common Stock. Pro forma net tangible book
value per share represents the amount of net tangible assets, less total
liabilities, divided by the number of shares of Common Stock outstanding
assuming reclassification of all mandatorily redeemable ESOP shares to
stockholders' equity. After giving effect to (i) the sale by the Company of
1,300,000 shares of Class A Common Stock offered hereby at an assumed initial
public offering price of $13.00 per share, (ii) repayment in full of the
Company's bank line of credit with an outstanding balance of $3,198,000 at
October 31, 1996, and (iii) the repurchase of 120,000 shares of Common Stock for
$8.33 per share which, subject to certain conditions, will occur within 30 days
of the closing of this offering, the pro forma net pro forma tangible book value
of the Company as of October 31, 1996 would have been $19,634,000, or $6.29 per
share. This represents an immediate increase in such net tangible book value of
$3.18 per share to existing stockholders and an immediate dilution of $6.71 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value per share at October 31,
1996................................................... $3.11
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 3.18
-----
Pro forma net tangible book value per share after this
offering.................................................. 6.29
------
Dilution per share to new investors......................... $ 6.71
======
</TABLE>
The following table summarizes, as of October 31, 1996, the differences in
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing and new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)...... 1,819,049 58% $ 1,083,000 6% $ 0.60
New investors.......... 1,300,000 42 16,900,000 94 $ 13.00
--------- ---- ----------- ----
Total........ 3,119,049 100% $17,983,000 100%
========= ==== =========== ====
</TABLE>
- ---------------
(1) All existing stockholders of the Company hold shares of Class B Common
Stock, which shares will convert into shares of Class A Common Stock over a
four-year period commencing upon the closing of this offering. Includes
487,241 mandatorily redeemable shares held by the ESOP. Excludes 120,000
shares which the Company will repurchase, subject to certain conditions,
within 30 days of the closing of this offering. See "Description of Capital
Stock."
The foregoing assumes no exercise of options after October 31, 1996. As of
October 31, 1996, there were outstanding options to purchase 1,147,875 shares of
Class B Common Stock at a weighted average exercise price of $4.80 per share. To
the extent outstanding options are exercised, there will be further dilution to
new investors. See "Capitalization," "Management -- Benefit Plans,"
"Compensation of Directors" and Note 5 of Notes to Consolidated Financial
Statements.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's consolidated statement of income for each of the years in the
three-year period ended January 31, 1996, and with respect to the consolidated
balance sheet at January 31, 1996 and 1995, are derived from the consolidated
financial statements audited by Price Waterhouse LLP, independent accountants,
which are included elsewhere in this Prospectus and are qualified by reference
to such consolidated financial statements. The consolidated statement of income
data for the year ended January 31, 1993 and the consolidated balance sheet data
at January 31, 1994 and 1993 are derived from audited consolidated financial
statements not included in this Prospectus. The consolidated statement of income
data for the nine months ended October 31, 1996 and 1995, and the consolidated
balance sheet data at October 31, 1996 are derived from unaudited consolidated
financial statements which are included elsewhere in this Prospectus. The
unaudited consolidated financial statement data includes all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of the consolidated financial position and
results of operations for such periods. Consolidated operating results for the
nine months ended October 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended January 31, 1997. The data set forth
below should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Result of Operations and the Consolidated Financial
Statements and related notes included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
--------------------- ---------------------------------------------
1996 1995 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................. $ 41,452 $ 38,733 $ 52,928 $ 57,656 $ 55,901 $ 57,695
Costs and expenses:
Cost of revenues....................... 34,233 32,095 43,803 47,846 46,656 48,684
Selling, general and administrative.... 4,797 4,555 5,977 7,363 6,592 6,733
Research and development............... 310 400 560 228 206 365
--------- --------- --------- --------- --------- ---------
39,340 37,050 50,340 55,437 53,454 55,782
--------- --------- --------- --------- --------- ---------
Operating income......................... 2,112 1,683 2,588 2,219 2,447 1,913
Interest expense......................... 1,427 1,423 2,018 1,721 1,632 568
--------- --------- --------- --------- --------- ---------
Income before income taxes............... 685 260 570 498 815 1,345
Provision for income taxes(1)............ 249 98 234 176 95 562
--------- --------- --------- --------- --------- ---------
Net income............................... $ 436 $ 162 $ 336 $ 322 $ 720 $ 783
========= ========= ========= ========= ========= =========
Net earnings per share................... $ 0.21 $ 0.08 $ 0.16 $ 0.15 $ 0.30 $ 0.30
========= ========= ========= ========= ========= =========
Shares used in per share calculation..... 2,048,800 2,086,900 2,075,900 2,131,400 2,678,400 3,093,600
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31,
AT OCTOBER 31, ----------------------------------------
1996 1996 1995 1994 1993
-------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash............................................... $ 47 $ 53 $ 134 $ 41 $ 8
Working capital (deficit).......................... 357 241 525 (56) (176)
Total assets....................................... 32,715 34,779 33,942 35,285 21,875
Bank line of credit................................ 3,198 4,953 2,552 3,411 2,928
Mortgage debt, less current portion................ 13,356 13,615 13,964 14,843 --
Long-term liabilities, excluding mortgage debt..... 1,877 2,137 2,027 2,462 3,765
Mandatorily redeemable ESOP shares(2).............. 3,159 2,579 2,149 2,108 2,310
Total stockholders' equity......................... 2,877 2,813 3,195 3,005 2,586
</TABLE>
- ---------------
(1) Provision for income taxes in fiscal year 1994 includes a credit of $231,000
from a change in method of accounting for income taxes. See Note 1 of Notes
to Consolidated Financial Statements.
(2) Represents the Company's potential obligation prior to the closing of this
offering to repurchase shares of Class B Common Stock upon distribution by
the ESOP of vested shares to retiring or terminated plan participants due to
the fact that such shares are not readily tradeable. Following the closing
of this offering, this potential obligation may, at the Company's option, be
satisfied by the distribution from the ESOP of shares of Class A Common
Stock which are readily tradeable, and therefore such amount will be
reclassified to stockholders' equity. See "Management -- Benefit Plans" and
Notes 5 and 8 of Notes to Consolidated Financial Statements.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
the Company's future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.
OVERVIEW
Jaymark provides advanced technology products and services to the DoD and
other government agencies, and commercializes selected government-funded
technologies following a disciplined evaluation of market size and
profitability. The Company's government contract business is performed through
Jaycor, its wholly owned subsidiary. The Company has recently formed a wholly
owned subsidiary, Jaycor Networks, to which it contributed its FibreStar
products and technology in order to capitalize on the commercial potential of
these products.
The Company operates and reports its results of operations on the basis of
52 or 53 week periods ending on the Friday closest to January 31. The Company's
fiscal quarters generally end on the Friday closest to the last day of the month
of the fiscal quarter. For presentation purposes, the Company has indicated its
fiscal year as ending on January 31 and its fiscal quarters as ending on April
30, July 31, and October 31.
The Company has historically derived over 90% of its revenues from
contracts or subcontracts funded by agencies of the U.S. government. Contract
costs reimbursed under government contracts include allocated indirect costs
which are subject to audit and adjustment by the U.S. government. Contract
revenues have been recorded in amounts which are expected to be realized upon
final audit.
Government contracts generally are one of three types: (i) cost plus fixed
fee ("CPFF"), (ii) time and materials ("T&M"), and (iii) fixed-price. CPFF
contracts provide for reimbursement for all of Jaycor's allowable costs and a
fixed profit. T&M contracts require Jaycor to provide a certain number of labor
hours at a rate prescribed by the contract. Jaycor is reimbursed for the hours
spent on T&M contracts at the prescribed labor rate for each category and all
materials utilized. The fee in a T&M contract is generally slightly higher than
for CPFF contracts. Fixed-price contracts require Jaycor to deliver the work
product described in the work statement at a fixed price, which has the largest
risk to Jaycor, but also generally has the largest potential profit margin. In
the nine months ended October 31, 1996, approximately 77%, 9% and 14% of
Jaycor's government contract revenues were derived from CPFF, T&M and
fixed-price contracts, respectively. Government contract revenues are generally
recognized as costs are incurred and include a portion of the total estimated
earnings to be realized based upon the relationship between contract costs
incurred to date and total estimated contract costs at completion.
Since the Company's inception in 1975 until the early 1990s, a significant
portion of the Company's revenues were associated with nuclear-related
government programs. Since fiscal year 1991, however, the Company's base of
nuclear-related revenues has decreased substantially. In the nine months ended
October 31, 1996, approximately 7% of total revenues ($3.1 million) were derived
from nuclear-related programs, as compared to over 43% ($24.6 million) in fiscal
year 1993. Growth of revenues over the last four years in other programs has
substantially offset the nuclear-related revenue decrease.
The Company's cost of revenues is comprised primarily of direct contract
costs and overhead expenses. Since a majority of the cost of revenues is
reimbursed by the Company's customers under cost-reimbursable contracts, the
cost of revenues element remains relatively constant from year to year as a
percentage of total revenues. Direct contract costs consist of labor and
non-labor costs. Overhead expenses consist primarily of operating division
administration, business development and proposal activities, and
facility-related expenses. Selling, general and administrative ("SG&A") costs
generally consist of corporate management and administrative support costs.
17
<PAGE> 20
Research and development ("R&D") costs are those associated with the
Company's R&D efforts which are not funded under specific contracts. A majority
of the Company's R&D efforts are funded directly under contracts, resulting in
relatively low company-expended R&D costs. The Company believes that the
company-expended R&D costs will increase in the future as the Company increases
its efforts to commercialize products.
The Company's accounting policies with respect to JNI are consistent with
industry standards applicable to manufacturers of computer networking products.
In addition, the Company anticipates that various costs and expenses applicable
to the generation of JNI's revenues will differ significantly from those
reflected in the Company's historical results of operations, and JNI's results
of operations will be more comparable to other computer networking companies at
a similar stage of development.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
consolidated income statement data for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
-------------- --------------------------------
1996 1995 1996 1995 1994 1993
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues.............................. 82.6 82.9 82.8 83.0 83.4 84.4
Selling, general and administrative........... 11.6 11.8 11.3 12.8 11.8 11.7
Research and development...................... 0.7 1.0 1.1 0.4 0.4 0.6
----- ----- ----- ----- ----- -----
94.9 95.7 95.2 96.2 95.6 96.7
----- ----- ----- ----- ----- -----
Operating income................................ 5.1 4.3 4.8 3.8 4.4 3.3
Interest expense................................ 3.4 3.6 3.8 2.9 2.9 1.0
----- ----- ----- ----- ----- -----
Income before income taxes...................... 1.7 0.7 1.0 0.9 1.5 2.3
Provision for income taxes, net(1).............. 0.6 0.3 0.4 0.3 0.2 0.9
----- ----- ----- ----- ----- -----
Net income...................................... 1.1% 0.4% 0.6% 0.6% 1.3% 1.4%
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Provision for income taxes in fiscal year 1994 includes a credit from a
change in method of accounting for income taxes. See Note 1 of Notes to
Consolidated Financial Statements.
NINE MONTHS ENDED OCTOBER 31, 1996 VS. NINE MONTHS ENDED OCTOBER 31, 1995
Revenues. Revenues increased by $2.8 million, or 7.0%, from $38.7 million
in the nine months ended October 31, 1995 to $41.5 million in the nine months
ended October 31, 1996. Approximately $2.0 million in increased revenue was
associated with scheduled hardware resales under communications engineering
contracts and $1.3 million in revenues was contributed by two additional
business lines which were added in the third quarter of the fiscal year ended
January 31, 1996 and the first quarter of the fiscal year ended January 31,
1997. These increases were partially offset by a $1.4 million decline in
revenues from decreased environmental remediation contract activity.
Cost of revenues. Cost of revenues increased from $32.1 million, or 82.9%
of revenues, in the nine months ended October 31, 1995 to $34.2 million, or
82.6% of revenues, in the nine months ended October 31, 1996. This increase in
cost of revenues of $2.1 million is associated primarily with scheduled hardware
resales under communications engineering contracts.
Selling, general and administrative expenses. SG&A remained relatively
constant at $4.6 million, or 11.8% of revenues, in the nine months ended October
31, 1995 compared to $4.8 million, or 11.6% of revenues, in the nine months
ended October 31, 1996.
18
<PAGE> 21
Research and development expenses. R&D expenses remained relatively
constant at $0.4 million, or 1.0% of revenues, in the nine months ended October
31, 1995 compared to $0.3 million, or 0.7% of revenues, in the nine months ended
October 31, 1996. Since most of the Company's research and development efforts
were funded directly under development contracts, company-expended R&D costs
represent a relatively minor portion of the Company's total costs.
Interest expense. Interest expense remained constant at $1.4 million in
the nine month periods ended October 31, 1995 and 1996. The Company's borrowing
levels and interest rates were generally constant over the two periods.
Provision for income taxes. The Company's effective tax rate was 37.7% for
the nine months ended October 31, 1995 and 36.4% for the nine months ended
October 31, 1996.
FISCAL YEAR ENDED JANUARY 31, 1996 VS. FISCAL YEAR ENDED JANUARY 31, 1995
Revenues. Revenues decreased by $4.8 million, or 8.2%, from $57.7 million
in the fiscal year ended January 31, 1995 to $52.9 million in the fiscal year
ended January 31, 1996. Revenues from nuclear-related programs declined by $2.0
million for the period, reflecting the continued decline in nuclear-related
defense spending in this area. Reduced scheduled hardware resales under the
Company's communications engineering contracts resulted in additional reductions
in revenues of $4.6 million. These reductions were partially offset by increased
revenues in other business areas within the Company.
Cost of revenues. Cost of revenues decreased from $47.8 million, or 83.0%
of revenues, in the fiscal year ended January 31, 1995, to $43.8 million, or
82.8% of revenues, in the fiscal year ended January 31, 1996. This reduction in
cost of revenues is consistent with the revenue decrease during the period.
Selling, general and administrative expenses. SG&A decreased from $7.4
million, or 12.8% of revenues, in the fiscal year ended January 31, 1995, to
$6.0 million, or 11.3% of revenues, in the fiscal year ended January 31, 1996.
This reduction is attributable in part to a one-time payment in the fiscal year
ended January 31, 1995 of $0.9 million relating to settlement of certain
contract disputes arising from events occurring prior to 1991. In addition, the
Company reduced the number of administrative support personnel during the fiscal
year ended January 31, 1996, resulting in a cost savings of approximately $0.5
million.
Research and development expenses. R&D expenses increased from $0.2
million, or 0.4% of revenues, in the fiscal year ended January 31, 1995 to $0.6
million, or 1.1% of revenues, in the fiscal year ended January 31, 1996. This
increase is due principally to increased development effort of the Company's
networking products.
Interest expense. Interest expense increased from $1.7 million in the
fiscal year ended January 31, 1995 to $2.0 million in the fiscal year ended
January 31, 1996. The increase of $0.3 million in interest expense reflects the
cost of higher working capital borrowings under the Company's bank line of
credit, partially due to the U.S. government's temporary shutdown.
Provision for income taxes. The Company's effective tax rate was 41.1% in
the fiscal year ended January 31, 1996, as compared to 35.3% for the fiscal year
ended January 31, 1995. The variation in the effective tax rate is primarily
attributable to a revision of prior years' tax estimates which reduced the
effective tax rate for the fiscal year ended January 31, 1995.
FISCAL YEAR ENDED JANUARY 31, 1995 VS. FISCAL YEAR ENDED JANUARY 31, 1994
Revenues. Revenues increased by $1.8 million, or 3.1%, from $55.9 million
in the fiscal year ended January 31, 1994 to $57.7 million in the fiscal year
ended January 31, 1995. The change in revenues includes an increase in revenues
associated with the Company's communications engineering and information systems
business areas, offset in part by reductions in revenues from nuclear-related
programs.
Cost of revenues. Cost of revenues increased from $46.7 million, or 83.4%
of revenues, in the fiscal year ended January 31, 1994 to $47.8 million, or
83.0% of revenues, primarily due to the increase in revenues.
19
<PAGE> 22
Selling, general and administrative expenses. SG&A expenses increased from
$6.6 million, or 11.8% of revenues, in the fiscal year ended January 31, 1994,
to $7.4 million, or 12.8% of revenues, in the fiscal year ended January 31,
1995. This increase was due entirely to a one-time payment of $0.9 million
relating to settlement of certain contract disputes arising from events
occurring prior to 1991.
Research and development expenses. R&D expenses were unchanged from the
fiscal year ended January 31, 1994 to the fiscal year ended January 31, 1995 at
$0.2 million, representing 0.4% of revenues in both years.
Interest expense. Interest expense was relatively unchanged at $1.7
million in the fiscal year ended January 31, 1995 as compared to $1.6 million in
the fiscal year ended January 31, 1994.
Provision for income taxes. The Company's effective tax rate was 35.3% in
the fiscal year ended January 31, 1995. During the fiscal year ended January 31,
1994, the Company adopted a change in method of accounting for income taxes as
required by Statement of Financial Accounting Standards ("SFAS") No. 109. The
adoption of this standard resulted in a credit to income of $0.2 million.
Without the effect of this one-time credit, the effective tax rate was 40.0% in
the fiscal year ended January 31, 1994. The variation in the effective tax rate
is primarily attributable to a revision of prior years' tax estimates which
reduced the effective tax rate for the fiscal year ended January 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, the Company had $47,000 of cash and $357,000 of
working capital. The Company finances its operations and the purchase of
property and equipment through borrowings under a short-term line of credit and
term loans and from generation of cash from operations. The Company has a bank
line of credit under which the Company may borrow up to $6.0 million, limited to
specified percentages of eligible accounts receivable, at 7/8% over the bank's
prime rate. As of January 31, 1997, the Company had $4.3 million outstanding
under such line of credit, which accrued interest at an annual rate of 9.125%,
and an additional $1.3 million was available for borrowing. The credit line
matures in October 1997, at which time the Company intends to seek renewal.
While the Company believes that the line will be fully renewed, there can be no
assurance that such renewal will occur. The Company has a zero-balance bank
account arrangement whereby the Company makes daily borrowings under the credit
line as necessary and all cash collections received are applied against the
credit line balance on a daily basis. See Note 3 of Notes to Consolidated
Financial Statements.
In addition to the working capital credit line which the Company intends to
fully repay using proceeds of the offering, the Company borrows from secondary
lenders for the acquisition of property and equipment. Such term debt is secured
by purchased property and equipment and is payable in monthly principal and
interest installments over a three-year term.
The Company also has a mortgage loan secured by its owned facility in San
Diego, California. The mortgage requires monthly payments of principal,
amortized over a 17-year period, and interest, which was payable at an annual
rate of 8.96% as of January 31, 1997. See Note 4 of Notes to Consolidated
Financial Statements.
In the nine months ended October 31, 1996, net cash provided by operating
activities was $3.6 million, including cash generated from a reduction in
accounts receivable of $3.1 million. During the same period, $2.8 million in
cash was used to repay short-term and long-term debt and $0.6 million was
expended for property and equipment.
Traditionally, the Company's primary need for working capital has been
driven only by the need to finance government accounts receivable. Because
government contracts generally provide for reimbursement of costs as they are
incurred, and the Company's contracting efforts have not typically required
significant investment in capital equipment, research and development, or
extensive marketing activities, there has not been a need for significant
amounts of working capital in the past. As the Company's commercialization
efforts increase and the need for additional personnel, equipment, inventory,
research and development and marketing efforts grows, additional working capital
beyond traditional levels will be required. Additionally, the Company's strategy
of acquiring complementary companies may require additional capital.
20
<PAGE> 23
The Company believes that the net proceeds of the offering, together with
the Company's capacity to borrow under existing working capital loan
arrangements and secondary borrowings for property and equipment, will be
sufficient for its working capital and capital expenditure needs for at least
the twelve-month period following this offering. Thereafter, if the Company's
spending plans change, the Company may find it necessary to seek to obtain
additional sources of financing to support its capital needs, but there can be
no assurance that such financing will be available on commercially reasonable
terms, if at all.
NEW ACCOUNTING PRONOUNCEMENT
Stock-Based Compensation. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for compensation costs
related to stock option plans and other forms of stock based compensation plans
as an alternative to the intrinsic value based method of accounting defined
under Accounting Principles Board Opinion No. 25. Companies that do not elect
the new method of accounting will be required to provide pro forma disclosures
as if the fair value based method had been applied. The Company has not elected
the fair value based method of accounting and will provide pro forma disclosures
as required, beginning with its annual financial statements for the fiscal year
ended January 31, 1997.
21
<PAGE> 24
BUSINESS
OVERVIEW
Jaymark provides advanced technology products and services to the DoD and
other government agencies, and commercializes selected government-funded
technologies following a disciplined evaluation of market size and
profitability. The Company's first products developed under this
commercialization strategy are high-speed digital communication adapters which
have been sold in production quantities since December 1996. These products,
marketed under the FibreStar brand, are designed to the ANSI Fibre Channel
standard. The Fibre Channel standard has become well supported in the industry
because of its high performance, which includes (i) the highest
commercially-available speed (2125 Mbps in full duplex), (ii) scalability (up to
126 nodes on a single loop), (iii) simplicity of installation and maintenance,
(iv) multiprotocol transport (simultaneously within both storage and network
environments), (v) long connection distance (up to six miles), and (vi) high
reliability of data reception and absence of congestion with multiple users.
FibreStar products provide essential hardware and software to reduce network
congestion, thereby delivering substantial performance improvement to users
requiring high-bandwidth data transmission capabilities, including multimedia,
in such applications as (i) business and scientific computing, (ii) high volume
database access for the financial and retail industries, and (iii) multistream
digital video transmission and editing for the entertainment and broadcast
industries.
With over twenty years of government-funded advanced technology
development, the Company has established several core competencies, including
(i) electronic and electro-optic system design, (ii) communications engineering,
(iii) electromagnetic effects, and (iv) nuclear and high-explosive weapon
effects (e.g., blast and shock effects on structures). In 1991, under the
leadership of new management, the Company began to target government contracts
involving the development of proprietary technologies with potential commercial
applications ("dual-use technologies").
The Company's objective is to increase profitability by leveraging its core
competencies and its advanced government-funded research through
commercialization of dual-use technologies. The key elements of the Company's
strategy are to:
- Establish FibreStar as a leading line of adapters in the emerging market
for networking and storage products utilizing the Fibre Channel standard.
- Selectively identify and commercialize additional dual-use technologies
and products with compelling market potential, and establish separate
business entities, when appropriate, to provide dedicated management and
focused business objectives.
- Maintain and expand core competencies to provide new proprietary
technologies, products and resources through the pursuit of
government-funded research and strategic acquisitions.
The Company has recently formed a wholly owned subsidiary, Jaycor Networks,
to which it contributed its FibreStar products and technology in order to
capitalize on the commercial potential of these products. The efficient and
rapid transfer of information throughout networks has become increasingly
critical to the daily operation of business. The annual market for Fibre Channel
adapters, such as the FibreStar products, is projected to grow from $68 million
in 1996 to over $200 million in 1997 and to exceed $1 billion by the year 2000,
according to an industry study by EMF Associates, a networking consulting group.
The Company believes that only a small portion of this market is currently
associated with independent suppliers of Fibre Channel adapters. In the future,
however, the Company believes that independent suppliers, such as JNI, will
supply a larger portion of the market. As an example of how widely the Fibre
Channel standard has been adopted, JNI and 35 other companies exhibited a
variety of their Fibre Channel product lines at the Comdex computer trade show
meeting in November 1996, including Adaptec, Ancor Communications, Box Hill
Systems, Digital Equipment Corporation, Emulex, Gadzoox Microsystems,
Hewlett-Packard, Intel, Interphase, LSI Logic, Philips, QLogic, Quantum, Seagate
Technology, Sun Microsystems, Texas Instruments, Unisys, Vitesse Semiconductor,
and XPoint Technology. In December 1996 and January 1997, JNI shipped over
$200,000 of FibreStar products.
22
<PAGE> 25
The Company's government contract business is performed through Jaycor, its
wholly owned subsidiary. Jaycor's objective is to maintain and expand its
advanced technology government research base, which in turn will provide both
the technology and resources for further product commercialization. Jaycor
intends to focus on areas in which government funding is likely to remain stable
or increase, while simultaneously identifying problems and providing solutions
to the government in areas in which its core competencies provide a competitive
advantage. Jaycor maintains active relationships with the Departments of
Defense, State, Justice, Transportation, and Energy, and had approximately 200
contracts or subcontracts that generated revenue during the fiscal year ended
January 31, 1997, which were funded by approximately 40 different government
agencies, most of which are within the DoD.
COMPANY STRATEGY
The Company's strategy is to commercialize emerging technologies by
leveraging its government-funded development efforts, which provide a source of
dual-use technologies and the resources to develop such technologies. The key
elements of this strategy are as follows:
Establish FibreStar as a Leading Line of Adapters. FibreStar is the first
technology to be commercialized by the Company from its government-funded
research after both internal and independent analysis indicated significant
market potential. The Company intends to establish JNI as a leading independent
supplier of Fibre Channel adapters by (i) developing additional OEM and reseller
arrangements, (ii) expanding and enhancing its product line, (iii) leveraging
its existing relationships with resellers and OEMs with respect to SBus-to-Fibre
Channel products to promote and market PCI-to-Fibre Channel products, (iv)
developing timely responses to new market needs, and (v) continuing its
commitment to product quality and customer service. See "-- Fibre Channel
Network Products -- Strategy."
Selectively Identify and Commercialize Dual-Use Technologies and
Products. In 1991, under the leadership of new management, the Company adopted
a strategy of developing dual-use technologies. As a result, the Company began
to target government contracts involving development of proprietary technologies
with commercial applications, and began to apply for patents to protect its
proprietary position. Over the past six years, the Company has developed
additional dual-use technologies which it believes have the potential for
successful commercial applications, including: (i) a bomb-resistant luggage
container designed for aircraft safety, (ii) an Auto-Arrestor to prevent or
terminate dangerous high-speed chases, (iii) several non-lethal weapon
applications for military and domestic security purposes, and (iv) several
weapon detection systems. The Company intends to commercialize its technologies,
but only after a disciplined evaluation of market size and profitability by both
the Company and independent market consultants indicates a high probability of
success. The Company will establish separate subsidiaries, when appropriate, to
commercialize proprietary technologies in order to provide dedicated management
and focused business objectives.
Maintain and Expand Core Competencies. The Company focuses on government
contracting opportunities in areas in which the Company's core competencies can
provide unique solutions and in which the Company's reputation and experience
provide a competitive advantage. The maintenance of its government services
business is vital to the Company as a source of new proprietary technologies and
products for commercialization, and the resources needed to successfully
commercialize such technologies and products. In order to expand its advanced
technology products and services business, the Company's strategy is to (i)
target contracting opportunities in areas of increased funding, (ii) focus on
high-technology contracting opportunities, and (iii) pursue acquisitions. To
implement this strategy, the Company intends to foster key government
relationships, retain key management and technical personnel, and remain cost
competitive. See "-- Advanced Technology Products and Services -- Strategy."
ADVANCED TECHNOLOGY PRODUCTS AND SERVICES
OVERVIEW
The Company provides advanced technology products and services to the DoD
and other government agencies through its wholly owned subsidiary, Jaycor, which
was founded in 1975. In 1991, under the leadership of new management, Jaycor
refocused its technology base to pursue problems and solutions
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relevant to the post-Cold War era and to emphasize, where possible, the
development of dual-use technologies.
Over 90% of Jaycor's revenues are generated through contracts funded by the
DoD budget categories of research, development, test and evaluation ("RDT&E")
and, to a lesser extent, operations and maintenance ("O&M"). While the overall
defense budget declined following the Cold War by 17% in constant dollars from
1990 to 1997, the RDT&E budget category declined by only 5% over the same
period. The RDT&E budget has stabilized at approximately $35 billion in 1995,
and is now increasing in certain areas relevant to Jaycor's core competencies.
Such areas include intelligence and communications, systems research and
development, electronic warfare, information systems, security, chemical and
biological defense, and Advanced Concept Test Demonstrations, which include,
among others, countermine, counterproliferation and cruise missile defense.
STRATEGY
Jaycor's objective is to maintain and expand its core competencies, which
will provide both the technology and resources for further product
commercialization. The key elements of Jaycor's strategy include the following:
Target Contracting Opportunities in Areas of Increased Funding. Jaycor
focuses marketing resources on areas in which government funding is likely to
remain stable or increase, both within and outside of the DoD. Jaycor remains
current on existing and emerging problems of interest in various government
agencies and follows the budgeting and funding allocation process through
Congress down to the agencies. As a result of this approach, Jaycor believes
that increased funding opportunities will be available in its areas of interest,
including: communications installation and maintenance, land mine warfare and
countermine systems, electronic and information warfare, aviation safety and
counterterrorism, law enforcement, chemical/ biological defense and the
environment.
Focus on Advanced Technology Opportunities. Jaycor pursues contracts in
areas in which its proprietary technologies or hardware provide: (i) innovative
solutions to government problems, (ii) a competitive advantage, and (iii)
opportunities for developing dual-use technologies. To maximize this advantage,
Jaycor often demonstrates the viability of proposed technical solutions as a
part of government-reimbursable internal research and development ("IR&D")
efforts, leading to either unsolicited or solicited proposals. For example,
Jaycor developed the Auto-Arrestor to safely stop fleeing vehicles with IR&D
funds as a part of a preproposal effort for the Department of Justice.
Pursue Acquisitions. Jaycor plans to broaden its contracting base and
enter new markets by acquiring other contracting companies that augment Jaycor's
government contracting activities. For example, in 1996 Jaycor enhanced its
ability to deliver complete microwave systems by acquiring the Power Systems
Design Group, which designs and manufactures specialty power supplies.
CORE COMPETENCIES AND CUSTOMER SOLUTIONS
Jaycor pursues contracting opportunities in areas in its core competencies,
which are:
Electronic and Electro-Optic System Design. Jaycor has expertise in the
design and manufacture of electronic and electro-optic systems, including
communications, surveillance and weapon detection sensors, mine detection
radars, directed-energy systems and electronic warfare. Jaycor uses these
capabilities in a wide variety of government contracts such as the design and
fabrication of radiation-hardened space-borne computers for potential use on
military satellites, and the design and manufacture of electronic power supplies
for use with directed-energy weapon systems.
Communications Engineering. Jaycor has significant experience in fixed and
mobile communication systems design, installation, maintenance, logistics
support and related personnel training. These systems include telephone,
microwave, VHF/UHF and satellite systems. For example, Jaycor currently provides
engineering, provisioning, testing, training, upgrades, repair, security,
equipment configuration management,
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and operations support at a facility for an Air Force agency. Jaycor is also
designing and installing upgraded telecommunications systems at various military
facilities around the world.
Electromagnetic Effects. Jaycor applies its understanding of
electromagnetic effects on the operation of electronic systems to design weapon
system concepts to defeat adversaries' electronic systems, and to develop design
techniques to protect U.S. systems from adverse effects resulting from natural
and man-made sources of RF energy. Jaycor has contracts to design and
demonstrate electromagnetic and electronic warfare weapon concepts, and to
develop design techniques to prevent degradation of system performance in
hostile electromagnetic environments.
Weapon Effects. Through 20 years of contracting for the DoD, Jaycor has
developed an understanding of the effects of a broad range of military weapons
on electronic systems and mechanical structures such as satellites, missiles,
missile silos and other structures. Jaycor has contracts to design and test
techniques that allow electronic and electro-optic systems to operate in hostile
radiation environments characteristic of post-Cold War weapon threats. Jaycor is
using this technology to develop non-military products for post-Cold War
applications such as bomb containment and weapon detection systems.
Other Core Competencies. Jaycor also maintains a depth of experience in
information systems database management, large-scale interactive computing,
security and counterterrorism, biological/chemical defense and environmental
remediation. These core competencies have supported a wide variety of contracts,
such as the management of a database for military personnel medical histories,
large-scale interactive computer simulations for war gaming, the design of
security systems for U.S. embassies and simulation of chemical/biological agent
dispersion.
POTENTIAL COMMERCIAL OPPORTUNITIES
As part of its government-funded research, Jaycor develops innovative
dual-use technologies and products. The Company's first commercial products, its
FibreStar adapters, were developed from Jaycor's experience in developing and
delivering specialized high-speed data transmission systems for the DoD. See
"-- Fibre Channel Network Products." Jaycor currently is involved in several
additional government-funded product development efforts that the Company
believes may lead to commercial applications.
Hardened Luggage Container. Current airport security equipment cannot
detect certain smaller explosive devices that are capable of causing significant
damage. Under a contract with the Federal Aviation Agency ("FAA"), Jaycor has
developed and successfully tested prototype units of a hardened luggage
container which is capable of containing the detonation and suppressing the
fires caused by such devices. This container conforms to International Air
Transport Association specifications for luggage containers and is designed to
provide greater durability than existing containers used in ordinary commercial
service. Because this hardened luggage container will cost more to purchase and
to operate due to its increased weight over existing luggage containers, Jaycor
believes that commercial airlines will not readily purchase the containers until
FAA regulations require the mandatory use of such a hardened luggage container.
The FAA has ordered two additional prototype units from the Company. In
addition, the FAA has issued a Request for Proposal ("RFP"), which Jaycor is
actively pursuing, to acquire up to 60 units over the next 12 months for test
and evaluation by the airlines. The resulting information will be used to
determine cost and reliability data as part of the regulatory process.
Handheld Acoustic Weapon Detector. Jaycor has developed an ultrasonic
imaging device under DoD contract that can detect small objects, including
concealed weapons, on individuals at distances from three to ten feet. Currently
there is no low-cost product to image concealed weapons in a nonintrusive
manner. The objective of the current contract is to fabricate a pre-prototype
system for test and evaluation. The Company plans to continue development under
government contract.
Auto-Arrestor. Using IR&D funds, Jaycor designed and tested the
Auto-Arrestor as part of its pre-proposal effort to the Department of Justice to
develop technologies to stop fleeing motor vehicles quickly and safely. Law
enforcement officials estimate that each year there are over 40,000 high-speed
chases between police and motorists on the roadways, resulting in approximately
400 deaths, millions of dollars in property
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damages, and personal injuries. The Auto-Arrestor uses an electromagnetic pulse
to disrupt the ignition of a motor vehicle, causing it to come to a controlled
stop. The Auto-Arrestor has been successfully tested on highways in Colorado, at
the border crossing in San Diego, California, and in safety and effectiveness
tests at the Army Research Laboratory in Adelphi, Maryland.
Non-Lethal Projectiles. Pursuant to a contract with the Defense Advanced
Research Projects Agency, Jaycor has developed and demonstrated a low-velocity
blunt prototype electrical projectile which can be used by the military and
police with existing weapons to subdue suspects with non-lethal force. Under
government IR&D funding, Jaycor has developed and demonstrated the ability to
deliver pepper spray at distances up to 50 feet quickly and accurately by
encapsulating the pepper spray in small spherical gel balls. The Company has
applied for a patent, and the military is planning to test and evaluate this
weapon in the coming year.
Ground-Penetration Radar for Buried Land Mine Detection. In 1996, Jaycor
completed a contract for a proof-of-principle standoff mine detection system.
Pursuant to a new contract issued by the DoD in August 1996, Jaycor is now
developing a prototype system to be used in an advanced technology development
program. Approximately $8 million in additional funding has been earmarked for
this contract, which will last a minimum of 27 months. Jaycor's proprietary
system is the only system known by the Company that can detect mines at ranges
up to approximately 100 feet.
CUSTOMERS
Jaycor maintains active relationships with the Departments of Defense,
State, Justice, Transportation, and Energy, and had approximately 200 contracts
or subcontracts that generated revenue during the fiscal year ended January 31,
1997 which were funded by approximately 40 different government agencies, most
of which are within the DoD. In addition, for the nine months ended October 31,
1996, approximately 30% of Jaycor's revenues were derived from approximately 30
contracts with DSWA and approximately 12% of Jaycor's revenues were derived from
contracts with SM-ALC. In those instances where Jaycor teams with other
companies to bid for contracts, it may become either the prime contractor or a
subcontractor under the contract. Jaycor's relationship with the funding
government agency frequently does not differ substantially between a prime
contractor and a subcontractor.
COMPETITION
Jaycor's competitors generally fall into three broad classes, including (i)
smaller companies which have a high degree of specialization in one government
contract segment (e.g., Mission Research Corporation), (ii)
medium-to-large-sized companies that compete with Jaycor for a broad range of
government contracts (e.g., Science Applications International Corporation, EG&G
and Kaman Sciences), and (iii) extremely large aerospace and defense contractors
that rarely compete with Jaycor except for certain prototype development
contracts which involve large-scale sophisticated technology or large multi-year
contracts (e.g., Hughes, Lockheed-Martin, TRW and Raytheon). Many of Jaycor's
competitors have substantially greater technical, financial, marketing and other
resources than Jaycor. No assurance can be given that Jaycor's competitors will
not bid for or deliver their solutions in a more effective or efficient manner,
which would significantly adversely affect Jaycor's potential market share.
Jaycor believes that the critical success factors in its market are the ability
to (i) develop proprietary technology, (ii) maintain technological superiority,
(iii) maintain customer satisfaction, (iv) adapt to changing budget priorities,
(v) identify and provide cost-effective solutions for government applications,
and (vi) continue to recruit and retain highly-skilled personnel.
PROCUREMENT OF GOVERNMENT CONTRACTS
Jaycor competes for most of its contracts in an open bidding process. RFPs
are generally advertised in The Commerce Business Daily, a government
publication. Bids are generally due from 30 to 60 days after the release of the
RFP, and the ensuing proposal evaluation process generally requires three to six
months.
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Jaycor typically bids on three types of government contracts: (i) CPFF,
(ii) T&M, and (iii) fixed-price. CPFF contracts provide for reimbursement for
all of Jaycor's allowable costs and a fixed profit. T&M contracts require Jaycor
to provide a certain number of labor hours at a rate prescribed by the contract.
Jaycor is reimbursed for the hours spent on T&M contracts at the prescribed
labor rate for each category and for all materials utilized. The fee in a T&M
contract is generally slightly higher than for CPFF contracts. Fixed-price
contracts require Jaycor to deliver the work product described in the work
statement at a fixed price, which has the largest risk to Jaycor, but generally
also has the largest potential profit margin. In the nine months ended October
31, 1996, approximately 77%, 9% and 14% of Jaycor's government contract revenues
were derived from CPFF, T&M and fixed-price contracts, respectively.
The nature of Jaycor's government contracts requires ongoing interaction
between Jaycor's key management and technical personnel and the various
government agencies. These interactions provide Jaycor with useful insight with
respect to its customers needs, and lead to opportunities to submit solicited or
unsolicited proposals to address these needs.
BACKLOG
Jaycor's total contract backlog was $55.4 million and $69.4 million as of
January 31, 1997 and 1996, respectively. The amount of backlog which had been
funded as of January 31, 1997 and 1996, was $21.7 million and $24.1 million,
respectively. Additionally, certain contracts contain provisions which allow the
government, under terms specified in the contract, to extend the period of
performance or to add additional work beyond the current contract scope. The
backlog value of these unexercised options as of January 31, 1997 and 1996 which
has been included in the total contract backlog was $31.9 million and $34.3
million, respectively.
Although there can be no assurance that full contractual funding will be
received, the Company expects, based on previous history, that substantially all
contracts which are not yet fully funded, including unexercised contract
options, will ultimately be funded.
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
Since 1991, Jaycor's strategy shifted to pursuing contracts with dual-use
technologies. Simultaneously, Jaycor began to patent technologies and products
with commercial potential. Jaycor has nine patents that have issued or been
allowed, and seven additional patent applications have been filed. Under certain
standard provisions in government contracts, the government may retain certain
rights, which are often limited, in technology developed under or arising out of
work performed under such contracts.
FIBRE CHANNEL NETWORK PRODUCTS
OVERVIEW
The Company, through its wholly owned subsidiary, Jaycor Networks, designs,
develops and markets high-speed digital communications adapters based on the
Fibre Channel standard adopted by the ANSI in 1993. FibreStar products provide
essential hardware and software to reduce network congestion through (i) the
highest commercially available speed, (ii) scalability, (iii) simplicity, (iv)
multiprotocol transport, (v) increased connection distance, and (vi) high
reliability of data reception and absence of congestion with multiple users.
FibreStar products provide significant opportunities for business solutions in
such applications as (i) business and scientific computing, (ii) high volume
database access for the financial and retail industries, and (iii) multistream
digital video transmission and editing for the entertainment and broadcast
industries. The annual market for Fibre Channel adapters, such as the FibreStar
products, is projected to grow from $68 million in 1996 to over $200 million in
1997 and to exceed $1 billion by the year 2000, according to an industry study
by EMF Associates, a networking consulting group.
Building on the Company's core competence in electronic and electro-optic
system design, FibreStar products were developed using the experience Jaycor
gained from 1991 through 1993 in designing specialized high-speed data
transmission systems for the DoD. After Jaycor's evaluation of the commercial
potential of
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the technology was confirmed by a market study conducted by the UCLA Graduate
School of Management, Jaycor began designing its initial prototype, an
SBus-to-Fibre Channel adapter, in 1993. Subsequently, two independent studies by
two high-technology consulting firms, TS&A Inc. and Eminent Technologies,
confirmed the commercial potential for Fibre Channel products and outlined
product development and marketing options.
INDUSTRY BACKGROUND
The Fibre Channel standard is a computer and data storage interface
specification adopted by the ANSI in 1993. When compared to existing standards,
Fibre Channel provides increased bandwidth for data communication, increased
distance over which data can be transmitted at high speeds, guaranteed data
delivery, and scalability to large numbers of network connections. The Fibre
Channel standard builds on industry experience to combine attractive features of
both network and storage protocols, and is the only standard that can transport
both network and storage protocols simultaneously over the same interface. Fibre
Channel provides 1063 Mbps transmission capabilities in half duplex and 2125
Mbps in full duplex. Additionally, the Fibre Channel standard permits connection
of a data warehouse to a network without a storage server, resulting in lower
costs of ownership and increased reliability. It is being used to improve
performance of computer networks and data storage systems in a wide variety of
applications.
The demand for and resulting application of Fibre Channel products is being
driven by three compelling market needs:
Increasing Requirements for Timely Retrieval and Archiving of Massive
Amounts of Data. In the past decade, organizations have become increasingly
aware that the ability to collect, analyze and distribute information in a
timely and efficient manner through computer networks is a key determinant of
their business success. However, business requirements to transmit increasing
volumes of information have grown beyond the capability of commonly employed
computer networks (e.g., Ethernet networks) to deliver data in a timely fashion.
During the past ten years, the amount of computing power commonly available in
personal computers has increased 200 times. During that same period, the amount
of disk storage available in the desktop computer has increased approximately
180 times, while enterprise system storage has increased hundreds of times
beyond that at the desktop. The connections to storage arrays (e.g., SCSI and
IDE) have not kept pace, and the various storage interfaces do not meet current
and future requirements for speed, distance and scalability. With the
introduction of high-speed Fibre Channel disc drives by Seagate Technology in
1996, and the availability of SBus-to-Fibre Channel adapters and PCI
Bus-to-Fibre Channel adapters, such as the FibreStar products, Fibre Channel is
emerging as a preferred solution to network storage bottlenecks by providing a
substantial increase in data transfer rates (up to 2125 Mbps in storage
connections using full duplex).
Increasing Requirements for Bandwidth in Computer Networks. During the
past decade, new and more complex applications, such as desktop publishing,
distributed database management and the processing requirements of multimedia
information, have strained the ability of many networks to reliably handle the
vastly increased volume and density of traffic. These networks, particularly
those based on Ethernet, Fast Ethernet or Token Ring technologies are
increasingly subject to traffic bottlenecks at the servers and congestion
between clients, frequently resulting in long response times and reduced
productivity. Products based on ATM offer slightly higher bandwidth than Fast
Ethernet, but when an ATM network becomes congested, data packets are discarded.
A recent survey in Storage Management, an industry magazine, concluded that
network performance and response time were the most frequently cited worries of
information system managers. The data transfer rates, low latency, scalability
and distance capability of Fibre Channel provide cost-effective solutions for
these information management problems.
Fibre Channel is the only solution that eliminates the connection as the
bandwidth-limiting element in both computing and storage networks at a
reasonable cost. Additional technologies and advanced networking protocols, such
as Gigabit Ethernet, are under development, but are not yet standardized and
have not yet been widely deployed commercially. In addition, Ethernet networks,
including the proposed Gigabit Ethernet, are based upon a collision-domain
access method that limits the usable bandwidth to an estimated 30% to 40%
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of the maximum rated bandwidth. In Ethernet networks, data reliability also
decreases as the number of users are increased. In contrast, Fibre Channel is
able to utilize nearly 100% of the maximum available bandwidth while maintaining
high data reliability as users are added to the network.
The figure below compares both common networking and storage interface
protocols with Fibre Channel, which alone can transport either or both network
and storage protocols simultaneously over the same interface.
FIBRE CHANNEL IS FASTER THAN OTHER
COMMON COMMERCIAL INTERFACE PROTOCOLS
[Bar graph comparing Fibre Channel to other network and storage protocols,
illustrating the following protocols and megabits per second: Ethernet (10),
Fast Ethernet (100), Token Ring (40), FDDI (100), ATM OCI (155), ATM OC3 (622),
SCSI (80), SCSI 2 (160), Ultra SCSI (320) and Fibre Channel (1063).]
Increased Use of Clustered PCs and Workstations. The increased computing
power of PCs and workstations and high-bandwidth links make it possible for
clustered PCs and workstations to fulfill functions formerly performed by
mainframe computers and at a lower cost of ownership. Clustering also allows
scalability, since computing power can be added incrementally as needs grow.
Fibre Channel, combining features of networking and computing channel standards,
provides a high bandwidth bidirectional link for communication among
workstations at internal bus speeds. As an open standard, Fibre Channel operates
with widely used workstations and PCs, and creates market opportunities for
high-speed digital communication adapters, such as the FibreStar products, that
are well suited for clustering applications.
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The following diagrams illustrate a network implemented with two different
technologies. In the first diagram, multiple disk drives, represented as
cabinets of RAIDs, communicate with a file server over the commonly used SCSI
type connection. The file server communicates to workstations over an FDDI
protocol. Multiple SCSI connections and multiple FDDI connections to the bridge
are necessary to deliver 100 Mbps to individual users.
FILE STREAMING WITH A SCSI/FDDI NETWORK REQUIRES MULTIPLE STORAGE
CONNECTIONS WHILE DELIVERING ONLY 100 MBPS TO USERS
[Schematic diagram illustrating a file streaming SCSI/FDDI network. Cabinets of
RAIDs communicate with a file server over a SCSI type connection (2 x 160 Mbps),
and the file server communicates to workstations over multiple FDDI connections
(4 x 100 Mbps) to a bridge.]
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In the following diagram, the RAIDs are connected with workstations in a
Fibre Channel loop configuration. Additionally, Fibre Channel permits direct,
common access to the disk drives over large distances, eliminating the need for
a file server. Communication to individual workstations is accomplished through
a Fibre Channel adapter, such as a FibreStar adapter, located in each
workstation, or two Fibre Channel adapters in each workstation for redundant
loops. Distribution of connectivity to individual workstations can be provided
by a Fibre Channel hub or switch. Workstations communicate with each other
through the hub or switch by using a network protocol and with the RAID cabinet
by using a storage protocol.
FILE STREAMING WITH A FIBRESTAR NETWORK
CAN DELIVER 1063 MBPS TO USERS OVER A SINGLE STORAGE CONNECTION
[SCHEMATIC DIAGRAM ILLUSTRATING A FILE STREAMING FIBRE CHANNEL NETWORK.
COMMUNICATION TO WORKSTATIONS IS ACCOMPLISHED THROUGH FIBRESTAR ADAPTERS
(1063 MBPS), AND COMMUNICATE WITH EACH OTHER THROUGH A HUB OR
SWITCH AND WITH A RAID CABINET]
FIBRE CHANNEL REPLACES A STANDARD
SCSI/FDDI NETWORK WITH HIGHER PERFORMANCE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SCSI/FDDI
----------------------------------
STORAGE NETWORK
FEATURE
FIBRE CHANNEL
-------------------------
STORAGE & NETWORK
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bandwidth 400 Mbps 100 Mbps 1063 Mbps
- ---------------------------------------------------------------------------------------------
Simultaneous Storage/Network No No Yes
Protocol Support (server is not required)
- ---------------------------------------------------------------------------------------------
Connections 15 per bus 1,000 maximum 126 per loop
(16,000,000 maximum)
- ---------------------------------------------------------------------------------------------
Maximum Cable Length 98 feet 25 miles 6 miles
- ---------------------------------------------------------------------------------------------
</TABLE>
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Fibre Channel networking devices, such as the FibreStar products, provide high
performance through:
- HIGHEST COMMERCIALLY AVAILABLE SPEED: Communication bandwidth of 1063
Mbps in half duplex and 2125 Mbps in full duplex is available today.
- HIGHEST RELIABILITY AND EFFECTIVE BANDWIDTH: Fibre Channel's
credit-based access method assures high data reliability and maximum
utilization of the network (as compared with a 30% to 40% utilization of
Ethernet's collision-based access method).
- SCALABILITY: Up to 126 nodes can be connected on a single loop;
approximately 16 million can be connected through cascaded switches.
- RELATIVE SIMPLICITY OF INSTALLATION AND MAINTENANCE: Fibre Channel uses
thin cables and connectors as opposed to SCSI, that requires cumbersome,
thick cables that operate over relatively short distances.
- MULTIPROTOCOL TRANSPORT: Storage and network protocols can be
transported over Fibre Channel simultaneously; SCSI, Ethernet, and FDDI
data frames are readily carried by Fibre Channel.
- CONNECTION DISTANCE: Connections at full bandwidth can extend up to 98
feet over copper wire and up to six miles over fiber optics without
repeaters.
- NETWORK ATTACHED STORAGE: As a consequence of multiprotocol transport
capability, arrays of disk drives can be connected directly to the
network.
- GROWTH PATH TO THE FUTURE: The Fibre Channel standard is designed to
allow data transmission bandwidths up to 4251 Mbps in half duplex and
8502 Mbps in full duplex, which is four times the capability of existing
Fibre Channel products.
Fibre Channel products are now being used in a number of industries for:
- Digital image processing in advertising, print and entertainment
industries
- Processing and sharing of medical images
- Storage and retrieval of imaged documents
- Financial and retail transaction processing
- Computer-aided design and design automation
- Scientific and engineering computing
The Fibre Channel standard is well supported in the data communications and
computer networking industry. Fibre Channel Association, an industry trade
group, has over 120 member companies, including: Sun Microsystems, Seagate
Technology, Digital Equipment Corporation, Hewlett-Packard, Unisys, Fujitsu,
Sony, EMC Corporation, Compaq Computer, NTT (Japan), Mitsubishi, Hitachi,
Matsushita, Amdahl Computer, Intel, LSI Logic, Motorola, Tektronix, Lucent
Technologies, Siemens Nixdorf, McDonnell Douglas, Panasonic and Electronic Data
Systems. Many companies have introduced Fibre Channel products for storage and
computing. At the Comdex computer trade show meeting in November 1996, Fibre
Channel products were exhibited by JNI and 35 other companies, including
Adaptec, Ancor Communications, Box Hill Systems, Digital Equipment Corporation,
Emulex, Gadzoox Microsystems, Hewlett-Packard, Intel, Interphase, LSI Logic,
Philips, QLogic, Quantum, Seagate Technology, Sun Microsystems, Texas
Instruments, Unisys, Vitesse Semiconductor, and XPoint Technology. JNI believes
that the introduction of additional Fibre Channel products in 1997 by OEMs, for
which JNI has been qualified as a supplier of adapters, should increase the
market for adapters in the near term.
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THE JNI SOLUTION
FibreStar products address the need for high-bandwidth communication
between networked computers, workstations and data storage units. Based upon the
following analysis of the market which was performed in 1993, JNI targeted its
initial product offerings for the SBus environment, before expanding to the PCI
bus environment:
- Fibre Channel will initially be used in high performance workstations and
servers and with large storage units. There will be many more
workstations sold than large storage units. Each Fibre Channel
workstation and server connection will require one or more Fibre Channel
adapters, resulting in a larger volume market for adapters.
- Unix-based SBus-compatible computers, principally from Sun Microsystems,
account for more than half of the servers and workstations sold
worldwide, dominating the high-end market.
- Computers using the PCI bus will provide a second market for FibreStar
adapters, and are expected to exceed the SBus market near the end of the
decade. By taking a position as a leading supplier of Fibre Channel
products for the SBus market and the Sun Solaris operating system, JNI
intends to integrate with an OEM customer base and then sell PCI bus
FibreStar adapters as those customers move their product to the PCI bus.
JNI believes that the OEM customer base can serve as a reference to
expand FibreStar product market share for PCI bus adapters.
JNI commenced designing and developing the FibreStar SBus-to-Fibre Channel
adapters in June 1993, resulting in a beta release in May 1995 to key OEMs
developing products that required a Fibre Channel interface. JNI has developed
FibreStar SBus-to-Fibre Channel adapters for installation in computers
compatible with the Sun Microsystems SBus specification, including some
manufactured by companies such as Hewlett-Packard, Fujitsu and Digital Equipment
Corporation. JNI first shipped commercial versions of these SBus-to-Fibre
Channel adapters in May 1995, and commenced volume production in December 1996.
JNI is currently a leading independent supplier of Fibre Channel adapters for
SBus platforms, supporting the Solaris operating system with software drivers
for networking and storage connections. Suppliers of SBus-compatible computers
running the Solaris operating system are expected to incorporate the PCI bus
into these computers in increasing numbers. JNI is developing enhancements to
the drivers for its FibreStar PCI Bus-to-Fibre Channel adapters to support the
migration to this platform.
For DEC Alpha, Power PC and Intel processor-based computers with the PCI
bus, JNI began supplying beta versions of its FibreStar PCI Bus-to-Fibre Channel
adapters in July 1996. JNI currently supports the Windows NT and Solaris X86
operating systems with networking and storage software drivers.
STRATEGY
JNI's objective is to continue to strengthen its position as a leading
independent supplier of Fibre Channel networking products. JNI seeks to achieve
this objective by implementing the following strategic elements:
Develop Additional OEM and Reseller Arrangements. JNI has developed
relationships with its resellers and several OEMs, and sells primarily through
those channels. JNI intends to capitalize on the increased demand for Fibre
Channel products by negotiating volume purchase agreements with other major
storage suppliers and integrators, as well as expanding relationships with
resellers and OEMs.
Expand and Enhance Product Line. JNI's plan for product development and
introduction is based on expected trends in the marketplace. For example, JNI
intends to extend the range of its hardware and software offerings to 64-bit
server systems and for the higher bandwidth Fibre Channel connections. JNI also
intends to capitalize on its understanding of the Fibre Channel technology to
enhance the competitive price and performance characteristics and the
functionality of its products.
Leverage OEM and Reseller Relationships for SBus Products to Promote PCI
Bus Products. OEM customers often prefer to purchase similar types of products
from a supplier with whom they have an established relationship because issues
associated with integration of OEM products and product plans,
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technical support, and reliability have already been successfully resolved.
Similarly, resellers tend to prefer selling products from companies with an
established product base backed by customer references. Since the architecture
and software for the FibreStar SBus and PCI bus products are similar, JNI seeks
to use its leverage as a leading supplier of FibreStar SBus-to-Fibre Channel
adapters to capitalize on these purchasing patterns in marketing PCI
Bus-to-Fibre Channel products.
Develop Timely Responses to New Market Needs. JNI intends to address
anticipated market demand for its products in the areas of clustered computers
and workstations, data storage and warehousing (including database storage and
digital video/multimedia applications), and in upgrades of existing networks.
JNI participates in special-interest working groups within the Fibre Channel
Association to keep abreast of developments in emerging and future markets.
Continue Commitment to Product Quality and Customer Service. JNI is
dedicated to ongoing quality improvement and intends to continue to provide the
high level of service and technical support that has distinguished JNI in the
current marketplace.
PRODUCTS
JNI products provide essential hardware and software to address existing
market needs for high-bandwidth network connections between computers and
between networked computers, workstations and data storage units. JNI designs,
develops and markets FibreStar adapters for installation in SBus and PCI bus
compatible computers. The current 32-bit adapters can be used in the common
switched and loop network architectures with copper cable connections of up to
98 feet and with fiber optic connections of up to six miles. The adapters are
offered in several versions to respond to various application needs.
FIBRESTAR SBUS-TO-FIBRE CHANNEL ADAPTERS
- Adapters are provided at bandwidths of either 266 Mbps or 1063 Mbps.
- The 266 Mbps version is provided with optical fiber input/output ports.
- The 1063 Mbps version is provided with input/output ports for connection
to either copper cables or to fiber optics.
- Communications software drivers for SCSI and TCP/IP protocols for the
Solaris operating system versions 2.4 and higher.
- FibreStar adapters have operated successfully in Sun Microsystems,
SparcStations 5, 10 and 20, UltraSparcs 1 and 2, and the Sun 1000E
Enterprise Server.
FIBRESTAR PCI BUS-TO-FIBRE CHANNEL ADAPTERS
- Adapters are provided at bandwidths of either 266 Mbps or 1063 Mbps.
- The 266 Mbps version is provided with optical fiber input/output ports.
- The 1063 Mbps version is provided with input/output ports for connection
through removable I/O modules to either copper cables or to fiber optics.
The 1063 Mbps versions with integrated I/O copper or optical connections
are also sold.
- Communications software drivers for SCSI and TCP/IP protocols for the
Windows NT operating system versions 3.51 and 4.0, and Solaris X86.
- FibreStar adapters have operated successfully in several PCI platforms
including Intel Pentium-based computers made by Dell, Micron, Packard
Bell, Compaq, Gateway and Digital Equipment Corporation (DEC Alpha).
The list prices for JNI's adapters range from approximately $1,500 to
$3,600 depending on configuration and volume. JNI also sells 266 Mbps Fibre
Channel switch products under an OEM agreement with Hewlett-
34
<PAGE> 37
Packard and 1063 Mbps eight-port stackable Fibre Channel hubs produced under an
OEM agreement with Gadzoox Microelectronics.
SALES AND MARKETING
JNI markets and sells its products primarily through resellers and OEMs.
JNI has developed and continues to develop its OEM relationships (frequently in
tandem with its resellers and sales representatives) by actively involving its
sales, marketing and engineering personnel, and senior management. In
particular, JNI has found that involving experienced engineers in the OEM sales
process enables close technical collaboration with the customer during the
evaluation and subsequent qualification of the product, often speeding the
process with timely problem solving, and establishing confidence in the
technical support that can be expected from JNI.
JNI has established strategic relationships with other Fibre Channel
product companies, including Hewlett-Packard and Gadzoox, pursuant to which such
companies provide switches and hubs under the FibreStar brand. These
relationships allow JNI to offer a suite of interoperable solutions.
In the United States, JNI sells FibreStar products primarily through direct
sales. To extend its geographic coverage, JNI has entered into reseller
agreements with Hucom to represent and sell FibreStar products in Japan, and
also with Computer Overseas Corporation for Western Europe. JNI supports both
its resellers and sales representatives through training seminars, direct sales
support and technical support.
CUSTOMERS
Through January 31, 1997, JNI has sold most of its adapters to Hucom for
resale to end users in Japan. JNI expects that its future customers will be
comprised primarily of OEMs and resellers. Since February 1996 JNI has also sold
adapters in initial evaluation orders to over 40 additional purchasers. Of those
purchasers, six have completed their evaluation phase and three have placed
orders in production quantities.
RESEARCH AND DEVELOPMENT
JNI plans to remain competitive through continued investment in product
enhancement and new product development. JNI intends to focus its product
development efforts on areas of perceived need as the Fibre Channel market
develops.
JNI believes that the near-term market demands will be driven by the need
for large storage arrays with maximum bandwidth, low latency and high
reliability, coupled with a desire to reduce the cost per connection.
Consequently, JNI is focusing on the requirement for increased bandwidth by
developing FibreStar Fibre Channel adapters and drivers for 64-bit PCI bus and
SBus platforms from Sun Microsystems, Inc., Digital Equipment Corporation,
Hewlett-Packard and others. To reduce cost, the proprietary designs will be
simplified with new ASICs.
JNI intends to evaluate future opportunities to develop products that will
address the needs of related markets for digital video transmission and video
conferencing. JNI also intends to develop additional products focused on
establishing its network products as a market leader in market segments where
the high bandwidth provided by Fibre Channel products offers compelling economic
advantages, such as high-volume data storage and transaction environments, video
on demand and multiple-user multimedia networking. These planned products are
intended to extend the range of applicability of JNI's hardware and software
offerings into high-end 64-bit server systems and into intranets. JNI also
intends to enhance the products for higher bandwidth (2125 and 4251 Mbps)
interconnects as standards and market needs develop.
COMPETITION
The computer networking industry is intensely competitive, subject to rapid
change, and significantly affected by new product introductions and other market
activities of industry participants. JNI competes with companies offering
products based on the Fibre Channel standard, as well as companies offering
products based on competing standards. JNI believes that the principal
competitive factors in the computer networking
35
<PAGE> 38
market include the completeness of product offerings, product quality, price and
performance, adherence to industry standards, the degree of interoperability
with other networking equipment, and time to market for new products. Many of
JNI's current and potential competitors have significantly greater financial,
technical, marketing and other resources and larger installed bases than JNI.
Increased competition could result in price reductions, reduced margins and loss
of market share, all of which would materially and adversely affect JNI's
business, operating results and financial condition. JNI's FibreStar adapters
compete with product offerings from other vendors. Ancor Communications and
Genroco currently provide SBus-to-Fibre Channel adapters and Emulex, Interphase,
Adaptec and QLogic provide, or have announced plans to introduce, PCI Bus-to-
Fibre Channel adapters. Additionally, the computer networking industry has
witnessed many acquisitions pursuant to which several large companies have
emerged with comprehensive networking solutions. These acquisitions may permit
JNI's competitors to devote significantly greater resources to the development
and marketing of new competitive products and the marketing of existing products
to their larger installed bases of customers. JNI expects that competition will
increase, in particular as companies that are well established in the computer
networking industry increase their focus on the emerging market for Fibre
Channel adapters. There can be no assurance that JNI will be able to compete
successfully in the future with existing or new competitors or that competitive
pressures faced by JNI will not adversely affect its business, operating results
and financial condition.
MANUFACTURING
JNI uses third-party manufacturers for assembly, test and quality control,
thereby avoiding the significant capital investment required to establish and
maintain manufacturing and assembly facilities and allowing JNI to concentrate
its resources on product design, development, and marketing. JNI qualifies
manufacturers using a selection program that assesses their capacity, quality
standards and manufacturing processes.
Certain key components used in JNI's products, such as ASICs and controller
chips, are currently available only from a single source or a limited number of
sources. In particular, JNI has designed into its adapters a Fibre Channel
controller chip available only from Hewlett-Packard. While JNI believes it would
be able to obtain alternative sources of supply for these components at its
election and has not experienced delays in the receipt of these items, any
future difficulty in obtaining any of these key components or ASICs could result
in delays or reductions in product shipments which, in turn, could have an
adverse effect on JNI's results of operations.
In the event that any significant manufacturers were to become unable or
unwilling to continue to manufacture or test JNI's products in required volumes,
JNI would have to identify and qualify acceptable replacements. This process of
qualifying manufacturers and other suppliers could be lengthy, and no assurances
can be given that any additional sources would become available to JNI on a
timely basis. A delay or reduction in component shipments or a delay or increase
in costs in the assembly and testing of products by manufacturers could
materially and adversely affect JNI's business, operating results and financial
condition.
PROPRIETARY RIGHTS AND LICENSES
JNI's ability to compete successfully depends to a considerable extent on
its proprietary firmware, software and circuit board design. The adapter cards
will not function without JNI proprietary firmware programmed into certain
parts. Each adapter card is furnished with a copy of compiled driver software
that functions only with the JNI hardware design. Thus, reverse engineering of
the hardware design does not result in a functioning product. While it is
possible that the software could be modified for use with products of other
companies, JNI believes that the amount of effort required to modify the source
code provides an economic barrier to such misuse. JNI also believes that because
of the rapid pace of technological change in this industry, patent protection is
less important than the knowledge, ability and experience of JNI's employees.
To date, JNI has relied principally upon copyrights and trade secrets to
protect its proprietary technology. JNI generally enters into confidentiality or
license agreements with its employees, distributors, customers, and potential
customers and limits access to and distribution of the source code to its
software and other proprietary information. There can be no assurance that the
steps taken by JNI in this regard will be adequate
36
<PAGE> 39
to prevent misappropriation of its technology or to provide adequate remedy in
the event of a breach by others. There can be no assurance that any intellectual
property rights held by JNI in the future will not be challenged, invalidated or
circumvented, or that any rights granted thereunder will provide competitive
advantages to JNI. The laws of some foreign countries may not permit the
protection of JNI's proprietary rights to the same extent as do the laws of the
United States.
There has been substantial litigation regarding patent and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect trade secrets and other intellectual
property rights owed by JNI, to defend JNI against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. Any such litigation could be costly and a diversion of
management's attention, which by themselves could have adverse effects on JNI's
results of operations and financial condition. Adverse determinations in such
litigation could result in the loss of JNI's proprietary rights, subject JNI to
significant liabilities, require JNI to seek licenses from third parties or
prevent JNI from manufacturing or selling its products, any of which could have
an adverse effect on JNI's business, financial condition and results of
operations.
OTHER CORPORATE INFORMATION
EMPLOYEES
As of January 31, 1997, Jaymark had approximately 490 employees, of which
12 were employed by JNI. None of the Company's employees are represented by a
labor union or are subject to a collective bargaining agreement. The Company has
never experienced a work stoppage and believes its current relationship with its
employees to be good.
The success of the Company depends in large part upon its ability to
recruit and retain exceptional employees, particularly highly-skilled product
developers and system consultants. The Company will likely experience
significant competition but has not yet experienced difficulties in recruiting
qualified personnel. The Company is able to offer competitive salaries and
benefits, and offers equity positions to key employees.
FACILITIES
The Company's principal business headquarters are located in San Diego,
California in 104,000 square feet of office and laboratory space which is owned
by the Company. As of January 31, 1997, the Company leased office space in 17
other locations, the largest of which include: McLean, Virginia (approximately
31,700 square feet); Albuquerque, New Mexico (approximately 68,400 square feet);
Colorado Springs, Colorado (approximately 19,000 square feet); Dayton, Ohio
(approximately 13,700 square feet); Reston, Virginia (approximately 11,800
square feet); and Huntsville, Alabama (approximately 7,200 square feet). JNI
uses approximately 4,000 square feet of office and engineering laboratory space
at the Company's corporate headquarters. The Company believes that these
facilities are adequate to meet its requirements for the foreseeable future.
GOVERNMENT REGULATIONS
Because of its participation in government contracts, the Company is
subject to audit from time to time for its compliance with government
regulations by various agencies, including the Defense Contract Audit Agency,
the Defense Investigative Service and the Office of Federal Control Compliance
Programs. These and other governmental agencies may also, from time to time,
conduct inquiries or investigations that may cover a broad range of Company
activity. Responding to any such audits, inquiries or investigations may involve
significant expense and divert management attention. In addition, an adverse
finding in any such audit, inquiry or investigation could involve penalties that
may have an adverse effect on the Company's business, financial condition or
results of operations.
The Company is also subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future
37
<PAGE> 40
regulations could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its manufacturing processes or cessation
of operations.
The Company believes that it operates its business in material compliance
with applicable government regulations.
COMPANY HISTORY
The Company was initially incorporated in California on January 27, 1975,
and will reincorporate in Delaware prior to the completion of this offering. The
Company recently reorganized into a holding company structure and conducts its
business through several wholly owned subsidiaries. Substantially all of the
Company's business efforts are conducted through its Jaycor, Inc. and Jaycor
Networks, Inc. subsidiaries. The Company's principal executive offices are
located at 9775 Towne Centre Drive, San Diego, California 92121, and its
telephone number at that location is (619) 535-3100.
38
<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company as of February 28, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Eric P. Wenaas, Ph.D.(1)............... 55 Chairman of the Board, Chief Executive Officer,
President and Director
James H. Stuhmiller, Ph.D.(1)(2)....... 53 Senior Vice President of Jaycor and Director
P. Randy Johnson....................... 46 Vice President, Finance and Chief Financial Officer
Terry M. Flanagan, Ph.D.(1)............ 59 President and Chief Executive Officer of JNI and
Director
John C. Stiska(3)...................... 55 Director
John S. Foster, Jr., Ph.D.(2)(3)....... 74 Director
David R. Heebner(2)(3)................. 69 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Eric P. Wenaas, Ph.D. Dr. Wenaas has been with the Company since 1976 and
has been a director of the Company since 1983. Dr. Wenaas became Chairman of the
Board, Chief Executive Officer and President of the Company in March 1991, and
was largely responsible for solving pressing fiscal problems and refocusing the
Company's technology base to emphasize the development of dual-use technologies.
Prior to 1991, Dr. Wenaas was a Senior Vice President of the Company, managing a
group of approximately 125 employees with approximately $30 million in annual
revenues. Dr. Wenaas received B.S. and M.S. degrees in electrical engineering
from Purdue University in 1963 and 1964, respectively, and received a Ph.D.
degree in engineering sciences from the State University of New York at Buffalo
in 1969.
James H. Stuhmiller, Ph.D. Dr. Stuhmiller has been with the Company since
its inception in 1975 and has been a director of the Company since June 1991.
Dr. Stuhmiller became a Senior Vice President of Jaycor in 1993. Dr. Stuhmiller
received a Ph.D. degree in theoretical physics from the University of Cincinnati
in 1973.
P. Randy Johnson. Mr. Johnson became Vice President, Finance and Chief
Financial Officer of the Company in December 1990. From 1989 to 1990, Mr.
Johnson served as Controller and a Vice President of the Company. Mr. Johnson
received a B.A. degree in economics in 1974 and an M.B.A. degree in finance from
Brigham Young University in 1976.
Terry M. Flanagan, Ph.D. Dr. Flanagan became President and Chief Executive
Officer of JNI and a director of the Company in February 1997. From 1993 to
1997, Dr. Flanagan was a Senior Vice President of the Company, where he managed
a group of approximately 40 employees with approximately $14 million in annual
revenues. He recognized the commercial potential for the Company's Fibre Channel
technology and assembled the team to develop and market the technology. Dr.
Flanagan also served as a Vice President of the Company from 1980 to 1992. Prior
to joining Jaycor in 1977, Dr. Flanagan was an Engineering Manager and Special
Projects Manager at Frequency and Time Systems, Inc., where he was responsible
for developing Global Positioning System standards for both commercial and
government applications. Dr. Flanagan served as a group leader at Gulf General
Atomic and IRT Corporation from 1969 to 1975. He received a B.S. degree in
physics from the University of Santa Clara in 1960 and M.S. and Ph.D. degrees
from Purdue University in 1963 and 1966, respectively.
39
<PAGE> 42
John C. Stiska. Mr. Stiska became a director of the Company in June 1991.
Mr. Stiska has been a Corporate Senior Vice President of Qualcomm Incorporated
since February 1996, and was given the additional responsibility of General
Manager of Qualcomm's Technology Applications Division in January 1997. From
1990 to January 1996, Mr. Stiska was with Triton Group Ltd., an
operating-holding company based in San Diego that emerged in 1993 from the
Chapter 11 bankruptcy proceedings of Triton Group Ltd. and Intermark, Inc., most
recently as its Chairman and CEO. Before that time he practiced law for 20
years, specializing in corporate law, mergers and acquisitions and securities
law. Mr. Stiska also serves as a director of several privately held companies.
He received his B.B.A. and J.D. degrees from the University of Wisconsin.
John S. Foster, Jr., Ph.D. Dr. Foster became a director of the Company in
June 1992. Dr. Foster is a consultant and former director of TRW Inc. He
previously served as Chairman of the Defense Science Board, a research and
engineering advisory board selected by the Secretary of Defense. Dr. Foster is
Chairman of the Board of Pilkington Aerospace and Technology Strategies and
Alliances and serves as a director of Arete Associates. Dr. Foster received a
B.S. degree from McGill University in Montreal, Quebec in 1948 and a Ph.D.
degree in physics from the University of California, Berkeley in 1952. In 1979,
he received an honorary Doctor of Science degree from the University of
Missouri.
David R. Heebner. Mr. Heebner became a director of the Company in
September 1994. Mr. Heebner is a member of the Defense Science Board and
Chairman of the National Academy of Sciences Naval Studies Board. During the
period from 1975 through 1993, Mr. Heebner was affiliated with Science
Applications International Corporation, serving as a director from July 1976
through June 1993, as Executive Vice President, as a General Manager, and as
Vice Chairman of the Board from 1980 until June 1993. Mr. Heebner received a
B.S. degree in electrical engineering from Newark College of Engineering in 1950
and a M.S. degree in electrical engineering from the University of Southern
California in 1955.
All directors hold office until the next annual meeting of the stockholders
of the Company and until their successors have been duly elected and qualified.
The Company's Bylaws provide that the Board of Directors will consist of between
five and nine members, and the number of directors is currently set at six.
Officers are elected by and serve at the discretion of the Board of Directors.
There are no family relationships among the directors or officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is responsible for reviewing
with management the financial controls, accounting, credit and reporting
activities of the Company. The Audit Committee reviews the qualifications of the
Company's independent accountants, makes recommendations to the Board of
Directors regarding the selection of independent accountants, reviews the scope,
fees and results of any audit and reviews non-audit services and related fees
provided by the independent accountants. During the year ended January 31, 1997,
the members of the Audit Committee were initially Robert P. Sullivan, a retired
Executive Vice President of the Company, Dr. Stuhmiller and Mr. Stiska. In June
1996, Mr. Heebner replaced Mr. Stiska as a member of the Audit Committee. On
February 25, 1997, the Board of Directors appointed a new Audit Committee,
consisting of Dr. Stuhmiller, Dr. Foster and Mr. Heebner.
The Compensation Committee of the Board of Directors is responsible for the
administration of all salary and incentive compensation plans for the officers
and key employees of the Company, including bonuses. The Compensation Committee
also administers the Company's stock option and stock purchase plans. During the
year ended January 31, 1997, the members of the Compensation Committee were Dr.
Wenaas, Dr. Foster, Mr. Stiska and Mr. Heebner. On February 25, 1997, the Board
of Directors appointed a new Compensation Committee, consisting of Mr. Stiska,
Mr. Heebner and Dr. Foster.
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<PAGE> 43
The Executive Committee of the Board of Directors consists of Dr. Wenaas,
Dr. Stuhmiller and Dr. Flanagan. The Board of Directors does not have a
nominating committee. The selection of nominees for the Board of Directors is
made by the entire Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 1997, Eric P. Wenaas, the
Company's President and Chief Executive Officer, served on the Compensation
Committee of the Company's Board of Directors, but, as of February 25, 1997, Dr.
Wenaas no longer serves on such committee. No member of the Board of Directors
of the Company, its current Compensation Committee or the Compensation Committee
that served during the fiscal year ended January 31, 1997 serves as a member of
the board of directors or compensation committee of an entity that has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive a fee of $3,750 on a
quarterly basis for serving as a director and receive a fee of $1,000 for
attendance at meetings of the Board of Directors and any committees thereof, as
well as being reimbursed for out-of-pocket expenses incurred with respect to
attendance at such meetings. From time to time, the Company has granted stock
options to directors of the Company with exercise prices equal to the fair value
of the Common Stock on the date of grant. Following the effectiveness of the
Company's 1997 Outside Directors Stock Option Plan (the "Directors Plan"),
non-employee directors of the Company will receive annual grants of options to
purchase shares of Class A Common Stock under such plan. See "-- Benefit Plans."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law, and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company intends
to enter into indemnification agreements with its directors and officers which
may, in some cases, be broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements may require the Company, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
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<PAGE> 44
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company during
the fiscal year ended January 31, 1997 to the Company's Chief Executive Officer
and each of the Company's four other most highly compensated executive officers
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
----------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY OTHER UNDERLYING OPTIONS COMPENSATION
- -------------------------------------- -------- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Eric P. Wenaas........................ $376,300 $51,480(1) 17,400 $ 2,520(2)
President and Chief Executive
Officer
Robert P. Sullivan(3)................. 337,822 45,452(4) 10,800 212,067(5)
Executive Vice President
James H. Stuhmiller................... 234,675 29,028(6) 3,600 2,112(2)
Senior Vice President
Terry M. Flanagan..................... 186,000 29,930(8) 10,200 672(2)
Senior Vice President(7)
P. Randy Johnson...................... 153,300 30,516(9) 22,200 552(2)
Vice President, Finance and Chief
Financial Officer
</TABLE>
- ---------------
(1) Consists of an $18,800 payment in lieu of raise, a $3,094 housing allowance
for a residence in the Washington, D.C. area, $6,375 for use of a Company
automobile, $10,047 in contributions to the Company's Money Purchase Pension
Plan (the "Pension Plan"), $8,584 in deferred compensation, $1,131 in
contributions to the ESOP, $2,864 in premiums with respect to the Company's
executive medical insurance and $585 for personal tax planning.
(2) Consists of life insurance premiums.
(3) Dr. Sullivan retired from the Company effective January 31, 1997 and entered
into a Retirement Agreement with the Company on such date. See "Certain
Transactions."
(4) Consists of a $16,900 payment in lieu of raise, $1,950 for use of a Company
automobile, $11,865 in contributions to the Pension Plan, $8,584 in deferred
compensation, $1,289 in contributions to the ESOP, $2,864 in premiums with
respect to the Company's executive medical insurance and $2,000 for personal
tax planning.
(5) Consists of $16,000 for the transfer of ownership of an automobile, $155,225
in deferred compensation accrued over prior years, $38,322 in accrued
vacation pay and $2,520 in life insurance premiums. See "Certain
Transactions."
(6) Consists of an $8,400 automobile allowance, $8,729 in contributions to the
Pension Plan, $8,016 in deferred compensation, $1,019 in contributions to
the ESOP and $2,864 in premiums with respect to the Company's executive
medical insurance.
(7) Dr. Flanagan currently serves as President and Chief Executive Officer of
JNI.
(8) Consists of a $4,700 payment in lieu of raise, a $5,400 automobile
allowance, $11,865 in contributions to the Pension Plan, $3,712 in deferred
compensation, $1,289 in contributions to the ESOP, $2,864 in premiums with
respect to the Company's executive medical insurance and $100 for personal
tax planning.
(9) Consists of a $7,700 payment in lieu of raise, a $6,000 automobile
allowance, $11,865 in contributions to the Pension Plan, $798 in deferred
compensation, $1,289 in contributions to the ESOP and $2,864 in premiums
with respect to the Company's executive medical insurance.
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<PAGE> 45
The following table provides information concerning grants of options to
purchase Class B Common Stock during the fiscal year ended January 31, 1997 to
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
NUMBER OF PERCENT OF APPRECIATION FOR
SECURITIES TOTAL EXERCISE OPTION TERM(1)
UNDERLYING OPTIONS GRANTED PRICE EXPIRATION ------------------
NAME OPTIONS GRANTED TO EMPLOYEES PER SHARE(2) DATE 5% 10%
- --------------------------- --------------- --------------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Eric P. Wenaas............. 17,400 6.6% $ 5.57 3/4/04 $46,274 $110,834
Robert P. Sullivan......... 10,800 4.1 5.57 3/4/04 28,722 68,794
James H. Stuhmiller........ 3,600 1.4 5.57 3/4/04 9,574 22,931
Terry M. Flanagan.......... 10,200 3.9 5.57 3/4/04 27,126 64,972
P. Randy Johnson........... 4,200 1.6 5.57 3/4/04 11,170 26,753
18,000 6.8 6.48 12/2/04 55,690 133,388
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
the 10% assumed annual compound rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
(2) All such options were granted under the Company's 1996 Nonstatutory Stock
Option Plan and vest in full on the first anniversary of the date of grant.
All such options were granted at fair market value as determined on the date
of grant by the Board of Directors of the Company. The Company's Common
Stock was not traded publicly at the time of such option grants to the Named
Executive Officers. See "-- Benefit Plans."
The following table provides information concerning the number of shares
issued upon exercise of options by the Named Executive Officers during the
fiscal year ended January 31, 1997 and the value realized by the Named Executive
Officers. The table also provides information concerning unexercised options
held by the Named Executive Officers as of January 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 1/31/97 AT 1/31/97(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric P. Wenaas................................... 261,000 17,400 $ 750,750 $15,834
Robert P. Sullivan............................... 181,800 10,800 362,250 9,828
James H. Stuhmiller.............................. 5,850 5,550 2,399 4,076
Terry M. Flanagan................................ 72,000 10,200 58,320 9,282
P. Randy Johnson................................. 36,000 22,200 75,600 3,822
</TABLE>
- ---------------
(1) "Value Realized" represents the fair value of the underlying securities on
the exercise date minus the aggregate exercise price of such options. For
purposes of this calculation, a fair value of $6.48 per share was used, the
fair value of the securities as determined by the Board of Directors of the
Company as of January 31, 1997.
No options to purchase shares of the Company's Common Stock were exercised
by the Named Executive Officers during the fiscal year ended January 31, 1997.
No compensation intended to serve as incentive for
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<PAGE> 46
performance to occur over a period longer than one fiscal year was paid pursuant
to a long-term incentive plan during the last fiscal year to any of the Named
Executive Officers.
BENEFIT PLANS
1996 STOCK OPTION PLAN
The Board of Directors has reserved 435,000 shares of Class B Common Stock
and 500,000 shares of Class A Common Stock for issuance under the Company's 1996
Stock Option Plan (the "1996 Option Plan"). Originally adopted in 1996 as the
Company's 1996 Nonstatutory Stock Option Plan, the 1996 Option Plan was amended
on February 25, 1997 to provide for the grant of "incentive stock options"
intended to qualify for certain tax treatment and to provide for the grant of
options to purchase shares of Class A Common Stock following the effective date
of this offering. At January 31, 1997, 186,300 shares of Class B Common Stock
were subject to outstanding options, and 248,700 shares remained reserved for
issuance with respect to future grants under the 1996 Option Plan. The 1996
Option Plan, which is administered by the Compensation Committee of the Board of
Directors, provides for the grant of non-qualified stock options and incentive
stock options to employees, consultants and directors of the Company. Options
granted under the 1996 Option Plan generally terminate after eight years and are
subject to individual vesting schedules, but options previously granted under
such plan generally vest in full one year from the date of grant.
1997 OUTSIDE DIRECTORS STOCK OPTION PLAN
A total of 75,000 shares of Class A Common Stock has been reserved for
issuance under the Directors Plan. Prior to the effective date of this offering,
no options have been granted under the Directors Plan. The Directors Plan
provides for automatic grants of non-qualified stock options to certain
directors of the Company who are not employees of the Company ("Outside
Directors"). Under the Directors Plan, each Outside Director elected or
appointed as a director following the effective date of this offering will
automatically be granted an option to purchase 10,000 shares of Class A Common
Stock on the date of his or her initial election or appointment. In addition,
each Outside Director will thereafter automatically be granted an option to
purchase up to 3,000 shares of Class A Common Stock following each annual
meeting of the Company's stockholders at which such Outside Director is
re-elected. The exercise price of all such options will be equal to the fair
market value of the Class A Common Stock on the date of grant. Initial options
granted under the Directors Plan generally vest over a four-year period, and
annual options generally vest in full four years from the date of grant. All
such options must be exercised within ten years from the date of grant.
1997 EMPLOYEE STOCK PURCHASE PLAN
A total of 200,000 shares of the Company's Class A Common Stock has been
reserved for issuance under the Company's 1997 Employee Stock Purchase Plan (the
"Purchase Plan"), none of which have been issued. The Purchase Plan permits
eligible employees to purchase shares of Class A Common Stock at a discount
through payroll deductions during sequential 24-month offering periods. Each
such offering period is divided into four consecutive six-month purchase
periods. Unless otherwise provided by the Board of Directors prior to the
commencement of an offering period, the price at which shares are purchased
under the Purchase Plan for such offering period is equal to 85% of the lesser
of the fair market value of the Class A Common Stock on the first day of such
offering period or the last day of the purchase period of such offering period.
The initial offering period will commence on the effective date of this
offering.
JNI 1997 STOCK OPTION PLAN
JNI has adopted a subsidiary-level option plan known as the Jaycor
Networks, Inc. 1997 Stock Option Plan (the "JNI Plan"), which provides for the
grant to employees of JNI of incentive stock options and non-qualified stock
options to purchase shares of common stock of JNI. For a nine-year period
following the date of grant, such options are only exercisable in the event that
JNI undergoes a "change in control" (generally defined as a sale of assets,
merger or public offering of equity securities). Following such nine-year
period, but prior to the termination of such option (the options terminate ten
years from the date of grant), the option
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<PAGE> 47
may be exercised, but, in such event, JNI has a right to repurchase such shares
at the greater of the exercise price or the fair market value of such shares.
All options are exercisable at the fair market value on the date of grant of the
common stock of JNI. In the event that an optionee under the JNI Plan exercises
an option to purchase shares of the Company's Common Stock granted subsequent to
the adoption of the JNI Plan to such optionee under one of the Company's stock
option plans, all options granted under the JNI Plan terminate immediately.
Similarly, in the event that an optionee under the JNI Plan exercises an option
granted under the JNI Plan, all options granted subsequent to the adoption of
the JNI Plan under the Company's existing stock option plans terminate
immediately. In the event of a change of control of JNI, the vesting of such
options accelerates as follows: (i) 25% if the change of control occurs within
one year of the date of grant, (ii) 33 1/3% if the change in control occurs
within two years of the date of grant, (iii) 75% if the change of control occurs
within three years of the date of grant, and (iv) 100% if the change of control
occurs more than three years following the date of grant.
PRIOR STOCK OPTION PLANS
The Board of Directors has reserved a total of 3,015,000 shares of Class B
Common Stock for issuance under the Company's 1980 Stock Option Plan (the "1980
Option Plan"), 1990 Incentive Stock Option Plan (the "1990 Option Plan") and
1991 Stock Option Plan (the "1991 Option Plan" and, collectively with the 1980
Option Plan and the 1990 Option Plan, the "Prior Option Plans"). At January 31,
1997, 430,612 shares of Class B Common Stock had been issued upon exercise of
options granted under the Prior Option Plans, an aggregate of 1,084,575 shares
remained reserved for issuance upon the exercise of outstanding options and
149,190 shares were available for future grant. The Prior Option Plans are
administered by the Compensation Committee of the Board of Directors and provide
in certain cases for the grant of incentive stock options as well as
non-qualified stock options. Options granted under the 1980 Option Plan and the
1990 Option Plan generally vest over a four-year period and generally terminate
after ten years. The options granted under the 1991 Option Plan are immediately
exercisable and terminate after ten years.
In accordance with the terms of the Class B Common Stock, 20% of the
aggregate number of shares of Class B Common Stock issuable upon exercise of
options granted under the Prior Option Plans and the 1996 Option Plan convert
into shares of Class A Common Stock upon the closing of this offering, and an
additional 20% of such shares of Class B Common Stock underlying the options
will convert into shares of Class A Common Stock upon each anniversary of such
closing, whether or not the options have been exercised. All shares underlying
outstanding options, as well as outstanding shares issued upon exercise of
options, will have fully converted into shares of Class A Common Stock upon the
fourth anniversary of the closing of this offering. Upon each exercise of such
options, the shares of Class A Common Stock and Class B Common Stock issuable
will be in proportion to the Class A Common Stock and each series of Class B
Common Stock that has not yet converted. See "Description of Capital Stock."
401(K) PLAN
The Company adopted its 401(k) Plan effective January 1, 1987 and
subsequently amended the 401(k) Plan on several occasions. Participation in the
401(k) Plan is restricted to employees of Jaycor and JNI who meet certain
service requirements. Under the 401(k) Plan, employees may contribute, as
pre-tax contributions, up to 15% of their compensation, subject to certain
discrimination rules and the Internal Revenue Service annual limit on employee
deductible contributions, which limit is currently $9,500 for 1997. No
contributions to the 401(k) Plan are made by the Company. Participants are
entitled to direct the investment of their accounts among various investment
funds. The 401(k) Plan is intended to qualify under Sections 401(a) and 401(k)
of the Internal Revenue Code so that salary deferral contributions to the 401(k)
Plan and income earned on such salary deferral contributions are not currently
taxable to participants until distributed and contributions made by participants
pursuant to the 401(k) Plan are non-taxable to participants. The Company's plan
committee, which consists of P. Randy Johnson, the Company's Vice President,
Finance and Chief Financial Officer, Dorothy K. Bidwell, the Company's
Secretary, and Carol McHenry, Jaycor's Vice President, Corporate Resources (the
"Plan Committee"), administers the 401(k) Plan and Fidelity Management Trust
Company serves as trustee of the 401(k) Plan.
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<PAGE> 48
EMPLOYEE STOCK OWNERSHIP PLAN
The Company originally adopted the ESOP effective May 5, 1983 and
subsequently amended the ESOP on several occasions. Effective upon the closing
of this offering, the ESOP will convert into a stock bonus plan which, although
it retains substantially all of the features of an employee stock ownership
plan, does not require the ESOP to own publicly traded stock of the Company.
Participation in the ESOP is limited to employees of Jaycor who meet certain
service requirements. All contributions to the ESOP are made by the Company at
the discretion of the Board of Directors, and annual contributions are not
required. Employer contributions are allocated to the accounts of eligible
participants in accordance with relative compensation. The interests of
participants in the ESOP generally vest upon the completion of five years of
service. Substantially all contributions to the ESOP are invested in Class B
Common Stock of the Company. Shares of Common Stock held by the ESOP are
generally distributed to participants either (i) the end of the plan year
following the year of retirement, or (ii) the end of the fifth plan year
following the year of termination. Prior to the closing of this offering, the
Company may be required under certain circumstances to repurchase shares of
Common Stock distributed by the ESOP to retired and terminated participants.
Upon the closing of this offering, the Company may, at its option, satisfy
obligations for distributions of shares with Class A Common Stock. To the extent
that the ESOP does not hold sufficient shares of Class A Common Stock to meet
its obligations to distribute shares to participants following retirement or
termination, the Company has agreed to exchange shares of Class A Common Stock
for shares of Class B Common Stock held by the ESOP to distribute to such
participants. The ESOP is intended to qualify under Section 401(a) of the
Internal Revenue Code so that contributions to the ESOP and income earned on the
contributions are not currently taxable to participants until distributed and
contributions to the plan are currently deductible by the Company. The ESOP is
administered by the Plan Committee.
MONEY PURCHASE PENSION PLAN
The Company adopted the Pension Plan effective July 1, 1981 and
subsequently amended the Pension Plan on several occasions. Participation in the
Pension Plan is limited to employees of Jaycor who meet certain service
requirements. All contributions to the Pension Plan are made by the Company. In
order to receive an allocation of the Company's contribution to the Pension
Plan, an eligible employee must be employed on the last day of the calendar year
and have completed at least 1,000 hours of service during such year, except
during the first year of participation when participants automatically receive a
contribution. Employer contributions are allocated to eligible participants in
accordance with a formula that takes into account relative compensation of all
eligible participants and social security contributions by the Company. The
amounts allocated to the accounts of participants under the Pension Plan vest
upon completion of five years of service with the Company. The Pension Plan is
intended to qualify under Section 401(a) of the Internal Revenue Code so that
contributions to the Pension Plan and income earned on such contributions are
not currently taxable to participants until distributed and contributions to the
Pension Plan are currently deductible by the Company. The Plan Committee
administers the Pension Plan and Fidelity Management Trust Company serves as
trustee of the Pension Plan.
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<PAGE> 49
CERTAIN TRANSACTIONS
In consideration for relinquishing stock options previously granted to Dr.
Wenaas, Jaymark has entered into an agreement, as amended, with Dr. Wenaas
whereby the Company will credit a total of $160,000 in deferred compensation for
the benefit of Dr. Wenaas in four equal annual installments commencing January
15, 1998. Each installment is subject to Dr. Wenaas' employment by the Company
on such date. Interest accrues on the amount credited at the prime rate
published by Wells Fargo Bank. In the event of Dr. Wenaas' death, disability or
termination other than for cause, Dr. Wenaas or his heirs will receive the full
amount.
Effective January 31, 1997, the Company entered into a Retirement Agreement
(the "Retirement Agreement") with Robert P. Sullivan, who served as a director
of the Company and as Executive Vice President of the Company until such date.
The Retirement Agreement provides that Dr. Sullivan will provide services to the
Company at a rate of $100 per hour, as directed from time to time by the
President or Board of Directors of the Company. Dr. Sullivan agreed to provide
such services until the earlier to occur of (i) one year after the closing of
this offering, or (ii) June 30, 1998. Pursuant to the Retirement Agreement, on
January 31, 1997, the Company repurchased 23,392 shares of Class B Common Stock
from Dr. Sullivan at a price of $6.48 per share. In addition, the Company agreed
to repurchase 120,000 shares of Class B Common Stock from Dr. Sullivan at a
price per share of $8.33 per share, which price is subject to adjustment if the
closing of this offering does not occur during 1997. The Company is obligated to
repurchase such shares within 30 days of the closing of this offering, but such
obligation is postponed as specified in the Retirement Agreement in the event
that such repurchase would impair the Company's ability to qualify for listing
of its Class A Common Stock on the Nasdaq National Market. Concurrent with Dr.
Sullivan's resignation as an officer and director of the Company, the Company
paid $38,322 owed to Dr. Sullivan for accrued vacation pay, paid $155,255 to Dr.
Sullivan pursuant to the terms of a Deferred Compensation Agreement between the
Company and Dr. Sullivan, dated June 14, 1991, and agreed to transfer an
automobile valued at $16,000 to Dr. Sullivan.
The spouses of Dr. Wenaas and Dr. Stuhmiller are employed by Jaycor on
terms that the Company believes are customary for individuals with similar
backgrounds and responsibilities.
The Company offers a deferred compensation arrangement to certain of its
employees, including its officers. The agreement allows the employee to defer up
to 100% of earnings with annual interest earned at a specified rate, currently
8% to 9%. Distributions commence upon retirement or termination for a period
which varies depending upon the number of years over which deferrals have
accrued.
The Company's Delaware Certificate of Incorporation provides for
indemnification of the Company's officers and directors in certain
circumstances. The Company intends to enter into Indemnification Agreements with
each of its directors and executive officers. See "Management -- Limitation of
Liability and Indemnification Matters."
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 1, 1997, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by: (i) each
of the Named Executive Officers, (ii) each of the Company's directors, (iii) all
directors and executive officers of the Company as a group, and (iv) each other
person known by the Company to own beneficially more than 5% of the Company's
Common Stock. Except as otherwise noted, the person or entities in this table
have sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED (1)
NUMBER OF SHARES OF ------------------------
COMMON STOCK BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
- ----------------------------------------------------- --------------------- ---------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS AND FORMER OFFICER:
PAUL I. NAKAYAMA..................................... 96,278 5.2% 3.0%
1425 Luneta Drive
Del Mar, California 92014
POLL FAMILY TRUST, DATED SEPTEMBER 14, 1990,
ROBERT POLL AND GAIL POLL, TRUSTEES.................. 135,096 7.3 4.3
1309 Georgina Avenue
Santa Monica, California 90402
LOUISE STUHMILLER(3)(4).............................. 126,104 6.7 4.0
WELLS FARGO BANK(5).................................. 487,241 26.2 15.4
707 Wilshire Boulevard
MAC 2818-101
Los Angeles, California 90017
ROBERT P. SULLIVAN(6)................................ 318,621 15.5 9.5
4202 Maple Tree Court
Alexandria, Virginia 22304
EXECUTIVE OFFICERS AND DIRECTORS:
ERIC P. WENAAS(4)(7)................................. 412,532 19.3 12.0
JAMES H. STUHMILLER(4)(8)............................ 126,104 6.7 4.0
P. RANDY JOHNSON(9).................................. 45,862 2.4 1.4
TERRY M. FLANAGAN(4)(10)............................. 116,203 6.0 3.6
JOHN C. STISKA(11)................................... 20,400 1.1 *
JOHN S. FOSTER, JR.(12).............................. 20,400 1.1 *
DAVID R. HEEBNER(13)................................. 20,400 1.1 *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (7
PERSONS)(14)....................................... 761,901 32.7 21.0
</TABLE>
- ---------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) Shares beneficially owned and percentage of ownership are based on
1,859,492 shares of Class B Common Stock outstanding before this offering
and 3,159,492 shares of Common Stock to be outstanding after the closing of
this offering, as of February 1, 1997 and assuming no exercise of the
Underwriters' over-allotment option. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or disposition power with respect to such shares.
(2) The percentages indicated in the "Shares Beneficially Owned After the
Offering" column do not take into account the Company's agreement, subject
to certain conditions, to repurchase 120,000 shares of Common Stock from
Robert P. Sullivan within 30 days of the closing of this offering. See
"Certain Transactions" and footnote 6.
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<PAGE> 51
(3) Ms. Stuhmiller is the wife of James H. Stuhmiller, Senior Vice President of
Jaycor and a director of the Company. Includes 11,400 shares issuable upon
exercise of options held by Dr. Stuhmiller that are exercisable within the
60-day period following January 31, 1997, approximately 6,158 shares held
by the ESOP on behalf of Dr. Stuhmiller, and approximately 546 shares held
by the ESOP on behalf of Ms. Stuhmiller. See footnote 8.
(4) The address of such stockholder is: c/o the Company, 9775 Towne Centre
Drive, San Diego, California 92121.
(5) Consists of 487,241 shares held as trustee of the ESOP. Wells Fargo Bank
disclaims beneficial ownership of all such shares. See
"Management -- Benefit Plans."
(6) Includes 192,600 shares issuable upon exercise of options held by Dr.
Sullivan that are exercisable within the 60-day period following January
31, 1997 and approximately 6,021 shares held by the ESOP on behalf of Dr.
Sullivan. Also includes 120,000 shares which the Company has agreed to
repurchase, subject to certain conditions, within 30 days of the closing of
this offering. Excludes 23,392 shares which were repurchased by the Company
on January 31, 1997. See "Certain Transactions."
(7) Includes 278,400 shares issuable upon exercise of options held by Dr.
Wenaas that are exercisable within the 60-day period following January 31,
1997, approximately 6,973 shares held by the ESOP on behalf of Dr. Wenaas,
and approximately 1,091 shares held by the ESOP on behalf of Karen M.
Wenaas, the wife of Dr. Wenaas. Also includes 126,068 held as co-trustee of
the Revocable Trust of Eric P. and Karen M. Wenaas.
(8) Includes 108,000 shares held by Louise Stuhmiller, the wife of Dr.
Stuhmiller. Also includes 11,400 shares issuable upon exercise of options
held by Dr. Stuhmiller that are exercisable within the 60-day period
following January 31, 1997, approximately 6,158 shares held by the ESOP on
behalf of Dr. Stuhmiller, and approximately 546 shares held by the ESOP on
behalf of Ms. Stuhmiller. See footnote 3.
(9) Includes 40,200 shares issuable upon exercise of options held by Mr.
Johnson that are exercisable within the 60-day period following January 31,
1997 and approximately 3,862 shares held by the ESOP on behalf of Mr.
Johnson. Excludes 18,000 shares issuable upon exercise of options held by
Mr. Johnson that are exercisable subsequent to April 1, 1997.
(10) Includes 82,200 shares issuable upon exercise of options held by Dr.
Flanagan that are exercisable within the 60-day period following January
31, 1997 and approximately 5,203 shares held by the ESOP on behalf of Dr.
Flanagan.
(11) Consists of 20,400 shares issuable upon exercise of options held by Mr.
Stiska that are exercisable within the 60-day period following January 31,
1997. Excludes 4,500 shares issuable upon exercise of options held by Mr.
Stiska that are exercisable subsequent to April 1, 1997.
(12) Consists of 20,400 shares issuable upon exercise of options held by Dr.
Foster that are exercisable within the 60-day period following January 31,
1997. Excludes 4,500 shares issuable upon exercise of options held by Dr.
Foster that are exercisable subsequent to April 1, 1997.
(13) Consists of 20,400 shares issuable upon exercise of options held by Mr.
Heebner that are exercisable within the 60-day period following January 31,
1997. Excludes 4,500 shares issuable upon exercise of options held by Mr.
Heebner that are exercisable subsequent to April 1, 1997.
(14) Includes 473,400 shares issuable upon exercise of options that are
exercisable within the 60-day period following January 31, 1997 and
approximately 23,833 shares owned by the ESOP on behalf of such
stockholders.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 12,000,000 shares
of Class A Common Stock, par value $0.001 per share, and 4,000,000 shares of
Class B Common Stock, par value $0.001 per share. The Class B Common Stock
consists of five series, and each such series consists of 800,000 shares. Other
than the conversion of all shares of Class B Common Stock into shares of Class A
Common Stock over a four-year period commencing upon the closing of this
offering, the rights, preferences and privileges of each class of Common Stock
are identical in all respects. The following summary of certain provisions of
the Common Stock of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the Certificate of Incorporation of the
Company to be in effect following the Company's reincorporation in Delaware and
the Bylaws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part, as well as the provisions of
applicable law.
COMMON STOCK
As of January 31, 1997, there were no shares of Class A Common Stock
outstanding and 1,859,492 shares of Class B Common Stock outstanding, which
shares were held of record by approximately 63 stockholders. Upon the closing of
this offering, 20% of the outstanding shares of Class B Common Stock will
automatically convert into shares of Class A Common Stock. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the holders of Common Stock and are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. Holders of Common
Stock have no preemptive or subscription rights, and there are no redemption or
conversion rights with respect to such shares. All outstanding shares of Common
Stock are fully paid and non-assessable.
The Class B Common Stock consists of five series, which are designated and
known as Series B-1 Common Stock, Series B-2 Common Stock, Series B-3 Common
Stock, Series B-4 Common Stock and Series B-5 Common Stock. The outstanding
shares of Class B Common Stock are comprised of approximately 20% of each such
series. To the extent that the shares of Class B Common Stock held by a
stockholder do not divide evenly among the series of Class B Common Stock, such
stockholder may hold from one to four additional shares of Series B-5 Common
Stock. Accordingly, 371,972 shares of Series B-5 Common Stock were outstanding
as of January 31, 1997, as opposed to 371,880 shares of each of the other series
of Class B Common Stock. Upon the closing of this offering, all shares of Series
B-1 Common Stock will automatically convert into shares of Class A Common Stock.
Upon the first anniversary of the closing of this offering, all shares of Series
B-2 Common Stock will automatically convert into shares of Class A Common Stock.
Upon the second anniversary of the closing of this offering, all shares of
Series B-3 Common Stock will automatically convert into shares of Class A Common
Stock. Upon the third anniversary of the closing of this offering, all shares of
Series B-4 Common Stock will automatically convert into shares of Class A Common
Stock. Upon the fourth anniversary of the closing of this offering, all
outstanding shares of Series B-5 Common Stock will automatically convert into
shares of Class A Common Stock. Accordingly, on the fourth anniversary of the
closing of this offering, all shares of Class B Common Stock will have converted
into shares of Class A Common Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Following its proposed reincorporation in Delaware, the Company will be a
Delaware corporation and will be subject to Section 203 of the Delaware General
Corporation Law (the "Delaware Law"), an anti-takeover law. In general, Section
203 of the Delaware Law prevents an "interested stockholder" (defined generally
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined therein) with a Delaware
corporation for three years following the date such person became an interested
stockholder, subject to certain exceptions, such as the approval of the Board of
Directors and of the holders of at least two-thirds of the outstanding shares of
voting stock not owned by such interested stockholder. The existence of such
provision would be expected to have an anti-takeover effect, including with
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<PAGE> 53
respect to attempts that might result in a premium over the market price for the
shares of Common Stock held by the stockholders.
The Company's Certificate of Incorporation does not provide for cumulative
voting in the election of directors. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of the Company. The amendment of any of these provisions would
require approval by holders of at least two-thirds or more of the outstanding
shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation. Its telephone number in Glendale, California is (818)
502-1404.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Class
A Common Stock and there can be no assurance that a significant public market
for the Class A Common Stock will be developed or sustained after this offering.
Sales of substantial amounts of Class A Common Stock in the public market after
this offering, or the possibility of such sales occurring, could adversely
affect prevailing market prices of the Class A Common Stock or the future
ability of the Company to raise capital through an offering of equity
securities.
After this offering, the Company will have outstanding 1,648,309 shares of
Class A Common Stock and 1,393,332 shares of Class B Common Stock, after giving
effect to the Company's repurchase, subject to certain conditions, of 120,000
shares of Common Stock. Of such shares, the 1,300,000 shares of Class A Common
Stock offered hereby will be freely tradeable in the public market without
restriction under the Securities Act, unless such shares are held by
"affiliates" of the Company, as defined in Rule 144 under the Securities Act.
The remaining 348,309 shares of Class A Common Stock and the 1,393,332
shares of Class B Common Stock outstanding upon completion of this offering will
be "restricted securities," as defined in Rule 144 (the "Restricted Shares").
The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules 144
or 701 under the Securities Act, which are summarized below.
All shares of the Company's Class B Common Stock will convert into shares
of the Company's Class A Common Stock over a four-year period commencing upon
the closing of this offering at the rate of approximately 348,309 shares on the
closing of this offering and on each of the first three anniversaries of such
closing, and 348,405 shares on the fourth anniversary of such closing. Subject
to the lock-up agreements discussed below, substantially all of the shares of
Class A Common Stock issued upon conversion of the Class B Common Stock will
generally be freely tradeable, subject in certain instances to the volume
limitations imposed by Rule 144.
Pursuant to certain "lock-up" agreements, all of the executive officers and
directors of the Company, as well as certain other stockholders, who, following
the closing of this offering, will collectively hold an aggregate of
approximately shares of Class A Common Stock and shares of Class B
Common Stock, have agreed, subject to certain limited exceptions, not to offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
such shares for a period of one year from the date of this Prospectus. Certain
additional stockholders and optionholders of the Company, who, following the
closing of this offering, will collectively hold an aggregate of approximately
shares of Class A Common Stock and shares of Class B Common
Stock, have entered into similar lock-up agreements covering a period of 180
days following the date of this Prospectus. Such agreements provide that Brean
Murray & Co., Inc. may, in its sole discretion and at any time without notice,
release all or a portion of the shares subject to these lock-up agreements. The
Company has also entered into an agreement with Brean Murray & Co., Inc. that it
will not
51
<PAGE> 54
offer, sell or otherwise dispose of shares of Common Stock for a period of 180
days from the date of this Prospectus, other than pursuant to its existing stock
option and stock purchase plans.
Following the expiration of such lock-up periods, certain shares issued
upon exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to Rule
701 under the Securities Act as such shares convert into shares of Class A
Common Stock. Rule 701 permits resales of such shares in reliance upon Rule 144
but without compliance with certain restrictions, including the holding period
requirement, imposed under Rule 144. In general, under Rule 144, as amended,
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares of the Company are aggregated) who has beneficially owned Restricted
Shares for at least one year (including the holding period of any prior owner
who is not an affiliate of the Company) would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Class A Common Stock
(approximately 16,483 shares following this offering), or (ii) the average
weekly trading volume of the Class A Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner who is not an affiliate or the Company) is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
The ESOP holds 487,241 of the Restricted Shares, which shares will only be
eligible for resale in the public market following distribution to ESOP
participants. In certain circumstances, the Company is obligated to exchange
shares of Class A Common Stock for shares of Class B Common Stock held by the
ESOP. See "Management -- Benefit Plans."
As of January 31, 1997, options to purchase 1,270,875 shares of Class B
Common Stock were outstanding under the Company's stock option plans, 984,150 of
which were exercisable as of such date. The shares of Class B Common Stock
issuable upon exercise of such options convert into shares of Class A Common
Stock over a four-year period commencing on the closing of this offering. The
Company intends to file after the effective date of this offering Registration
Statements on Form S-8 to register an aggregate of 2,443,765 shares of Class A
Common Stock reserved for issuance under its stock option and stock purchase
plans or upon conversion of shares of Class B Common Stock issued under such
plans. Such Registration Statements will become effective automatically upon
filing. Shares of Class A Common Stock issued under such plans or issued upon
conversion of shares of Class B Common Stock issued under such plans, after the
filing of such Registration Statements on Form S-8, may be sold in the open
market, subject, in the case of certain holders, to the Rule 144 limitations
applicable to affiliates, the above-referenced lock-up agreements and vesting
restrictions imposed by the Company. See "Management -- Benefit Plans."
52
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), for which Brean Murray & Co.,
Inc. is acting as representative (the "Representative"), and each of the
Underwriters severally has agreed to purchase from the Company the aggregate
number of shares of Class A Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Brean Murray & Co., Inc. ............................................
---------
Total........................................................... 1,300,000
=========
</TABLE>
Upon the terms and subject to the conditions of the Underwriting Agreement,
the Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Class A Common Stock set forth in the above table
if any of the shares of Class A Common Stock are purchased.
The Underwriters propose to offer the shares of Class A Common Stock to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to selected dealers at such public offering price less a
concession not to exceed $ per share. The Underwriters or such dealers
may reallow a commission to certain other dealers not to exceed $ per
share. After the offering to the public, the offering price, the concessions to
selected dealers and the reallowance to other dealers may be changed by the
Representative.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 195,000 additional
shares of Class A Common Stock to cover over-allotments, if any, at the initial
public offering price, less underwriting discounts and commissions, as set forth
on the cover page of this Prospectus. If the Underwriters exercise this option,
then each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriters' initial commitment as indicated in the table above. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Class A Common Stock offered hereby.
The Company, its officers, directors and certain of its stockholders (who
beneficially hold in the aggregate shares of Common Stock, including shares of
Common Stock issuable upon exercise of outstanding options beneficially owned by
them) have agreed not to sell, offer to sell, issue, distribute or otherwise
dispose of any shares of Common Stock of the Company for a period of 180 days
from the date of this Prospectus (subject to certain limited exceptions) without
the prior written consent of the Representative.
In connection with the offering made hereby, the Company has agreed to sell
to the Representative, for nominal consideration, the Representative's Warrants
to purchase 130,000 shares of Class A Common Stock from the Company (10% of the
number of shares issued in this offering). The Representative's Warrants are
exercisable, in whole or in part, at an exercise price equal to 120% of the
public offering price set forth on the cover page of this Prospectus at any time
during the four-year period commencing one year after the effective date of the
Registration Statement of which this Prospectus is a part. The warrant agreement
pursuant to which the Warrants will be issued will contain provisions providing
for adjustment of the exercise price and the number and type of securities
issuable upon exercise of the Representative's Warrants should any one or more
of certain specified events occur. The Representative's Warrants grant to the
holders thereof certain rights of registration for the securities issuable upon
exercise of the Representative's Warrants.
53
<PAGE> 56
The Company, its officers and directors, and certain of its existing
stockholders and optionholders have agreed not to sell, offer to sell, issue,
distribute or otherwise dispose of any shares of Common Stock of the Company for
a period of 180 days from the date of this Prospectus, subject to certain
limited exceptions, without the prior written consent of the Representative.
The Company has agreed to reimburse the Underwriters for up to $250,000 of
the Underwriters' out-of-pocket expenses (including fees of their counsel) in
connection with the sale of the Class A Common Stock offered hereby. The Company
has also agreed to indemnify the Underwriters or contribute to losses arising
out of certain liabilities that may be incurred in connection with this
offering, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Gray Cary Ware & Freidenrich, A Professional Corporation, San
Diego, California. Certain legal matters relating to the offering will be passed
upon for the Underwriters by Stroock & Stroock & Lavan LLP, Los Angeles,
California.
EXPERTS
The financial statements as of January 31, 1996 and 1995 and for each of
the three years in the period ended January 31, 1996 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Class A Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. Statements made in this Prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including the exhibits thereto
and the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Commission, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Commission upon the payment of certain fees prescribed by the Commission.
Such reports and other information may also be inspected without charge at a Web
site maintained by the Commission. The address of such site is
http://www.sec.gov.
The Company will furnish its stockholders with annual reports containing
financial statements audited by independent accountants and make available
quarterly reports for the first three quarters of each year containing unaudited
financial statements.
54
<PAGE> 57
GLOSSARY
As used in this Prospectus, the following terms have the meanings set forth
below.
ANSI (AMERICAN NATIONAL STANDARDS INSTITUTE): The administrator and
coordinator of the U.S. private sector voluntary standardization system. ANSI
promotes the use of U.S. standards internationally, advocates U.S. policy and
technical positions in international and regional standards organizations, and
encourages the adoption of international standards as national standards where
these meet the needs of the user community.
ARBITRATED LOOP: A ring topology for connection of up to 126 Fibre Channel
nodes (e.g., computers and disk drives with Fibre Channel interfaces) without a
switch. A request for control of the loop can come from any node, and the Fibre
Channel protocol assures fair access to each node.
ASIC (APPLICATION SPECIFIC INTEGRATED CIRCUIT): An integrated circuit
designed for a specific, usually proprietary, purpose.
ATM (ASYNCHRONOUS TRANSFER MODE): A high-bandwidth, controlled-delay
fixed-size packet switching and transmission system that uses fixed-size packets
also known as "cells."
BRIDGE: A device or setup that connects and passes data, voice or video
between two network segments, based on the destination field in the packet
header.
COLLISION-DOMAIN ACCESS METHOD: A link-level access method sometimes
referred to as Carrier Sense Multiple Access with Collision Detection (CSMA/CD)
allowing multiple simultaneous data transmissions to collide with each other
requiring retransmissions after a variable quite-time period. Such methods
rarely exceed 30% to 40% of the available link-level bandwidth due to increasing
collisions as data traffic increases.
CPFF (COST PLUS FIXED FEE): A contract that provides for reimbursement of
allowable costs and a fixed profit.
CREDIT-BASED ACCESS METHOD: A link-level access method whereby the sender
and receiver have prearranged the available space for the incoming data
receptions. Credit-based methods can utilize nearly 100% of the available
link-level bandwidth.
ELECTRONIC AND ELECTROMAGNETIC WARFARE: Actions involving the use of
electromagnetic energy to determine, exploit, reduce or prevent hostile use of
the electromagnetic spectrum, and actions which retain the friendly use of the
electromagnetic spectrum.
ELECTRO-OPTIC SYSTEMS: A generic term for systems that involve both
optical and electronic components (e.g., video cameras, systems for enhanced
night vision and sensors using optical detectors).
ETHERNET: A local area network that connects devices such as computers,
printers and terminals based on IEEE standard 802.3. Standard Ethernet transmits
data in up to 1514 byte packets at bandwidths 10 Mbps (standard Ethernet or
10BaseT) and 100 Mbps (fast Ethernet or 100BaseT). Gigabit per second Ethernet
devices are in development.
FDDI (FIBER DISTRIBUTED DATA INTERFACE): An ANSI standard, fiber optic,
token-passing local area network with transport speeds up to 100 Mbps. A node
gains control of the network by removing a circulating packet called a "token"
from the network and releases control by putting the token back into
circulation.
FIBRE CHANNEL ADAPTER: A circuit card that plugs into a computer bus slot
and provides the hardware and software to allow the computer to send and receive
data over a Fibre Channel connection or network.
FIBRE CHANNEL STANDARD: An ANSI standard that defines a high-speed data
transfer interface that can be used to connect together workstations,
mainframes, supercomputers, storage devices and displays in frames up to 2148
bytes in length. The Fibre Channel standard defines the connections for
implementation of Fibre Channel connections, the data transmission protocol
including error control, data frame structure and sequences, a set of services
that are common across multiple ports of a node, and the mapping between Fibre
Channel and other protocols such as IP and SCSI command sets.
55
<PAGE> 58
FIXED-PRICE CONTRACT: A contract that requires the contractor to deliver
the work product described in the work statement at a fixed price.
FULL DUPLEX: In full duplex communication, data streams can be transmitted
and received simultaneously (i.e., sent in both directions) without loss of
data.
HALF DUPLEX: In half duplex communication, data transmitted must be
alternated with data received.
HUB: A multi-port networking device that rebroadcasts data frames received
at any port to all other ports. A hub is often used to connect disk arrays and
computers in a Fibre Channel arbitrated loop topology.
IDE (INTEGRATED DRIVE ELECTRONICS): An inexpensive desktop storage
interface.
IEEE (INSTITUTE OF ELECTRICAL AND ELECTRONICS ENGINEERS): An international
professional engineering society that maintains certain communications
standards.
INFORMATION WARFARE: Actions involving methods to intercept, exploit or
prevent hostile use of information systems (e.g., communications and sensors),
and actions which protect the friendly use of information systems.
IP (INTERNET PROTOCOL): The network layer of the internet communications
protocol that specifies the rules by which blocks of information, called IP
packets, may be exchanged across the local or wide area networks.
LAN (LOCAL AREA NETWORK): A network that interconnects devices over a
geographically small area, typically within one building or part of a building.
LATENCY: The time delay between issuance of a request and the initiation
of the requested action.
NODE: Any device connected to a network.
PCI BUS (PERIPHERAL CONNECT INTERFACE BUS): The PCI local bus is a
high-performance 32-bit or 64-bit bus intended for use as an interconnect
mechanism between highly integrated peripheral controller components, boards and
processor/memory systems.
PCI BUS-TO-FIBRE CHANNEL ADAPTER: A Fibre Channel adapter that plugs into
a slot in a computer with a PCI bus to effect communication between the computer
bus and other devices, such as workstations and storage arrays that are equipped
with Fibre Channel interfaces.
RAID (REDUNDANT ARRAY OF INEXPENSIVE DISKS): A technology developed in
1987 to reduce the cost of mass storage by combining small inexpensive disks to
replace larger expensive disks. Bits of a data word are written on different
disks (data striping), so that data can be reconstructed in the event of a
single disk failure. RAID technology provides greater performance, data
integrity and data availability than standard disk storage.
SBUS: The common name for a computer bus specification (IEEE Standard
1496-1993) used in computers manufactured by Sun Microsystems and other
companies running a UNIX operating system.
SBUS-TO-FIBRE CHANNEL ADAPTER: A Fibre Channel adapter that plugs into a
slot in an SBus computer to effect communication between the computer bus and
other devices, such as workstations and storage arrays that are equipped with
Fibre Channel interfaces.
SCALABILITY: The capability to add larger numbers of devices connected to
a network.
SCSI (SMALL COMPUTER SYSTEMS INTERFACE): An ANSI standard input and output
interface primarily used for attachment of data storage devices to processors,
via a standard hardware interface, which uses standard SCSI commands.
SWITCH: A networking and telecommunication component that establishes an
exclusive connection between two network devices. Switches usually have many
ports and connect any two ports to establish communication, managing multiple
communications simultaneously.
56
<PAGE> 59
TCP (TRANSMISSION CONTROL PROTOCOL): The transport layer of the internet
communications protocol that it defines the rules by which two data ports
establish a connection and how messages are exchanged between the two ports. It
provides reliable, full duplex connection service and allows arbitrarily long
streams of data to be transmitted, it typically using the IP protocol to
transmit data.
TCP/IP: A designation for a common networking protocol consisting of TCP
for connection-oriented transport and IP for messaging.
T&M (TIME AND MATERIALS): A contract that requires the contractor to
provide a certain number of labor hours at a prescribed rate and provides for
reimbursement for hours spent at such rate and for all materials utilized.
TOKEN RING: A 16 Mbps protocol for a ring topology LAN invented by IBM. A
data frame called a "token" circulates around the ring. Each device on the LAN
gains control of the network by removing and holding the token, releasing it
when transmission is completed.
57
<PAGE> 60
JAYMARK, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS..................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of October 31, 1996 (unaudited) and as of January
31, 1996 and 1995............................................................... F-3
Consolidated Statement of Income for the Nine Months Ended October 31, 1996 and
1995 (unaudited) and for the Years Ended January 31, 1996, 1995 and 1994........ F-4
Consolidated Statement of Stockholders' Equity for the Nine Months Ended October
31, 1996 (unaudited) and for the Years Ended January 31, 1996, 1995 and 1994.... F-5
Consolidated Statement of Cash Flows for the Nine Months Ended October 31, 1996
and 1995 (unaudited) and for the Years Ended January 31, 1996, 1995 and 1994.... F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Jaymark, Inc.
The reincorporation described in Note 1 to the consolidated financial statements
has not been consummated at March 6, 1997. When it has been consummated, we will
be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position
of Jaymark, Inc. and its subsidiaries at January 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994."
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Diego, California
May 8, 1996
F-2
<PAGE> 62
JAYMARK, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -------------------
1996 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 47 $ 53 $ 134
Accounts receivable........................................ 10,921 13,008 12,411
Inventories................................................ 255 131.... 26
Prepaid expenses and other current assets.................. 580 684 561
------- ------- -------
Total current assets.................................... 11,803 13,876 13,132
Property and equipment, net.................................. 19,548 19,874 20,030
Other assets................................................. 1,364 1,029 780
------- ------- -------
$32,715 $34,779 $33,942
======= ======= =======
LIABILITIES, MANDATORILY REDEEMABLE ESOP SHARES
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................... $ 6,410 $ 6,002 $ 6,501
Bank line of credit........................................ 3,198 4,953 2,552
Current portion of long-term debt and capital lease
obligations............................................. 1,117 1,380 2,102
Deferred income taxes...................................... 721 1,300 1,452
------- ------- -------
Total current liabilities............................... 11,446 13,635 12,607
------- ------- -------
Long-term debt and capital lease obligations, less current
portion.................................................... 13,846 14,457 14,861
Deferred compensation........................................ 1,024 917 805
Other liabilities............................................ 363 378 325
------- ------- -------
Total long-term liabilities............................. 15,233 15,752 15,991
------- ------- -------
Commitments (Note 7)
Mandatorily redeemable ESOP shares (Note 5), at fair value,
487,241, 463,380, and 413,280 shares issued and
outstanding................................................ 3,159 2,579 2,149
------- ------- -------
Stockholders' equity:
Class A Common Stock, par value $0.001, 12,000,000 shares
authorized; no shares issued or outstanding
Class B Common Stock, par value $0.001, 4,000,000 shares
authorized; 1,451,808, 1,425,721, and 1,527,624 shares
issued and outstanding.................................. 1 1 2
Additional paid-in capital................................. 578 378 448
Retained earnings.......................................... 4,950 4,516 4,418
Adjustment for mandatorily redeemable ESOP shares.......... (2,652) (2,082) (1,673)
------- ------- -------
Total stockholders' equity.............................. 2,877 2,813 3,195
------- ------- -------
$32,715 $34,779 $33,942
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 63
JAYMARK, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
----------------------- ------------------------------------
1996 1995 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 41,452 $ 38,733 $ 52,928 $ 57,656 $ 55,901
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues................... 34,233 32,095 43,803 47,846 46,656
Selling, general and
administrative.................. 4,797 4,555 5,977 7,363 6,592
Research and development........... 310 400 560 228 206
---------- ---------- ---------- ---------- ----------
39,340 37,050 50,340 55,437 53,454
---------- ---------- ---------- ---------- ----------
Operating income..................... 2,112 1,683 2,588 2,219 2,447
Interest expense..................... 1,427 1,423 2,018 1,721 1,632
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle............... 685 260 570 498 815
Provision for income taxes........... 249 98 234 176 326
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle..... 436 162 336 322 489
Cumulative effect of change in method
of accounting for income taxes..... 231
---------- ---------- ---------- ---------- ----------
Net income........................... $ 436 $ 162 $ 336 $ 322 $ 720
========== ========== ========== ========== ==========
Net earnings per share:
Income before cumulative effect of
change in accounting
principle....................... $ 0.21 $ 0.08 $ 0.16 $ 0.15 $ 0.21
Cumulative effect of change in
method of accounting for income
taxes........................... 0.09
---------- ---------- ---------- ---------- ----------
Net earnings per share............. $ 0.21 $ 0.08 $ 0.16 $ 0.15 $ 0.30
========== ========== ========== ========== ==========
Shares used in per share
calculation........................ 2,048,800 2,086,900 2,075,900 2,131,400 2,678,400
========== ========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 64
JAYMARK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADJUSTMENT
FOR MANDATORILY
CLASS B ADDITIONAL REDEEMABLE
------------------ PAID-IN RETAINED ESOP SHARES
SHARES AMOUNT CAPITAL EARNINGS (NOTE 5)
--------- ------ ---------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1993................. 1,701,528 $ 2 $442 $3,989 $(1,847)
Exercise of stock options................. 3,375 16
Repurchases of common stock............... (105,232) (14) (505)
Mandatorily redeemable ESOP shares
adjustment............................. (13,333) (5) 207
Net income................................ 720
--------- --- ---- ------ -------
Balance at January 31, 1994................. 1,586,338 2 439 4,204 (1,640)
Exercise of stock options................. 4,410 18
Repurchases of common stock............... (43,905) (1) (108)
Mandatorily redeemable ESOP shares
adjustment............................. (19,219) (8) (33)
Net income................................ 322
--------- --- ---- ------ -------
Balance at January 31, 1995................. 1,527,624 2 448 4,418 (1,673)
Repurchases of common stock............... (51,803) (1) (49) (238)
Mandatorily redeemable ESOP shares
adjustment............................. (50,100) (21) (409)
Net income................................ 336
--------- --- ---- ------ -------
Balance at January 31, 1996................. 1,425,721 1 378 4,516 (2,082)
Issuances of common stock (unaudited)..... 50,443 211
Repurchase of common stock (unaudited).... (495) (1) (2)
Mandatorily redeemable ESOP shares
adjustment (unaudited)................. (23,861) (10) (570)
Net income (unaudited).................... 436
--------- --- ---- ------ -------
Balance at October 31, 1996 (unaudited)..... 1,451,808 $ 1 $578 $4,950 $(2,652)
========= === ==== ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 65
JAYMARK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
----------------- ----------------------------
1996 1995 1996 1995 1994
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 436 $ 162 $ 336 $ 322 $ 720
------- ------- ------- ------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 1,268 1,388 1,837 2,054 2,184
Loss (gain) on disposal of assets.................... 1 (9) (14) 11 10
Increase (decrease) in cash, net of the effects of
acquisitions, due to changes in:
Accounts receivable................................ 2,192 (570) (481) (501) 245
Inventories........................................ (88) (102) (105) 57 118
Prepaid expenses and other current assets.......... 111 (37) (145) (51) 128
Other assets....................................... (226) 60 (195) (125) (367)
Accounts payable and accrued liabilities........... 391 218 (670) (191) (1,614)
Deferred income taxes.............................. (579) (1,115) (152) 149 279
Deferred compensation.............................. 107 62 108 114 53
Other liabilities.................................. 15 (12) (8) 33 49
------- ------- ------- ------- --------
Total adjustments............................... 3,192 (117) 175 1,550 1,085
------- ------- ------- ------- --------
Net cash provided by operating activities..... 3,628 45 511 1,872 1,805
------- ------- ------- ------- --------
Cash flows from investing activities:
Proceeds from sale of assets........................... 1 29 31 7 6
Expenditures for property and equipment................ (580) (437) (623) (676) (17,514)
Acquisition of certain business assets................. (246) (606)
Payments received on notes receivable.................. 4 22 782 229
------- ------- ------- ------- --------
Net cash (used in) provided by investing
activities.................................. (825) (404) (1,176) 113 (17,279)
------- ------- ------- ------- --------
Cash flows from financing activities:
Changes in net borrowings under bank line of credit.... (1,755) 1,859 2,401 (895) 517
Principal payments under capital lease obligations..... (264) (225) (376) (341) (422)
Repayment of long-term debt............................ (823) (1,451) (1,795) (1,207) (982)
Proceeds from issuance of long-term debt............... 328 642 642 16,897
Repurchases of Class B Common Stock.................... (3) (269) (288) (109) (519)
Proceeds from issuances of Class B Common Stock........ 36 18 16
------- ------- ------- ------- --------
Net cash (used in) provided by financing
activities.................................. (2,809) 242 584 (1,892) 15,507
------- ------- ------- ------- --------
Net (decrease) increase in cash.......................... (6) (117) (81) 93 33
Cash at beginning of period.............................. 53 134 134 41 8
------- ------- ------- ------- --------
Cash at end of period.................................... $ 47 $ 17 $ 53 $ 134 $ 41
======= ======= ======= ======= ========
Supplemental disclosure of cash paid during the year for:
Interest............................................... $ 1,289 $ 1,289 $ 2,016 $ 1,825 $ 1,532
Income taxes........................................... 395 1,073 1,075 225 639
Supplemental non-cash investing and financing activities:
Capital lease obligations originated................... $ 213 $ 403 $ 403 $ 87 $ 340
Issuance of Class B Common Stock....................... 175
Acquisition of certain business assets in exchange for
liability............................................ 91
Notes receivable exchanged for property and
equipment............................................ 1,300
Deposit exchanged for property and equipment........... 825
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 66
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company
Jaymark, Inc. provides advanced technology products and services to
government and commercial customers with primary business in the areas of
electronic and electro-optic system design, communications engineering,
electromagnetic effects, nuclear and high-explosive weapon effects, and
high-speed computer networking products.
Reincorporation
During March 1997, the Company will merge with and into a newly
incorporated Delaware corporation, Jaymark, Inc., a wholly owned subsidiary,
which will be the surviving corporation. In conjunction with the merger, each
outstanding share of the Company's common stock will be exchanged for
three-fifths of one share of the Class B Common Stock of Jaymark, Inc. In
addition, each outstanding option to purchase a share of the Company's common
stock will be exchanged for an option to purchase three-fifths of one share of
the Class B Common Stock of Jaymark, Inc. at five-thirds of its exercise price.
All references to share and per share amounts and other data in these
financial statements have been retroactively restated to reflect the
reincorporation.
Consolidation
The consolidated financial statements present the accounts of Jaymark, Inc.
and its wholly owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
Acquisitions
The Company recorded at fair value certain immaterial business assets
purchased with cash and issuances of Class B Common Stock during the nine months
ended October 31, 1996 and fiscal year 1996.
Fiscal Year
The Company operates and reports its results of operations on the basis of
52 or 53 week periods ending on the Friday closest to January 31. Fiscal years
1996, 1995 and 1994 ended on February 2, 1996, February 3, 1995, and January 28,
1994, and consisted of 52, 53, and 52 weeks, respectively. For presentation
purposes, the Company has indicated its fiscal year as ending on January 31.
Interim Periods
The consolidated balance sheet as of October 25, 1996, the consolidated
statements of income and of cash flows for the nine months ended October 25,
1996 and October 27, 1995, and the consolidated statement of stockholders'
equity for the nine months ended October 25, 1996 are unaudited, but, in the
opinion of management of the Company, include all adjustments necessary to
present fairly, in all material respects, the financial position as of October
25, 1996 and the results of operations and cash flows for the Company for the
nine months ended October 25, 1996 and October 27, 1995. All data as of such
date and for such periods included herein is unaudited. Operating results for
the nine months ended October 25, 1996 are not necessarily indicative of the
results that may be expected for the year ended January 31, 1997. For
presentation purposes, the Company has indicated its fiscal third quarter as
ending on October 31.
F-7
<PAGE> 67
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company's revenues are derived primarily from the performance of
services for various agencies of the U.S. government, through prime government
contracts or through subcontracts issued by U.S. government prime contractors.
Contracts generally are in the form of (i) reimbursement of costs under
cost-plus fixed fee, (ii) time and materials, or (iii) fixed price. Revenues are
generally recognized as costs are incurred and include a portion of the total
estimated earnings to be realized based upon the relationship between contract
costs incurred to date and total estimated contract costs at completion.
Provision is made for any expected losses on contracts by a charge to income
during the period in which the losses are first identified.
Inventories
Inventories, consisting primarily of raw materials and spare parts, are
stated at the lower of average cost (determined on a first-in, first-out basis)
or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated over their
estimated useful lives, primarily using the straight-line method. Useful lives
range from three to five years for equipment, thirty-one to forty years for
buildings and the shorter of the useful lives or the terms of the leases (three
to nine years) for leased assets and leasehold improvements. Upon sale or
disposal, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in cost of revenues.
Maintenance and repair costs are charged to expense as incurred.
Research and Development Costs
Company-sponsored research and development costs to develop new concepts
and proprietary systems and products are charged to operations as incurred.
Income Taxes
Current income tax expense or benefit represents the amount of income taxes
expected to be payable or refundable for the current year. A deferred income tax
liability or asset is established for the expected future tax consequences of
temporary differences between the financial reporting and income tax bases of
assets and liabilities. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be "more likely than not"
realized in future tax returns. Deferred income tax expense or benefit
represents the net change during the year in the deferred income tax liabilities
or assets.
The Company's previous method of accounting for income taxes did not permit
the anticipation of future income in determining the value of temporary
differences and carryforwards. The implementation of the Company's current
method of accounting for income taxes resulted in a credit to operations of $231
in fiscal year 1994.
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.
F-8
<PAGE> 68
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The fair value of the Company's long-term debt, capital lease and deferred
compensation obligations approximate fair value as the nominal rates of interest
for these instruments approximate market rates of interest currently available
to the Company for similar instruments. The carrying amounts of the Company's
accrued and other liabilities and its bank line of credit approximate their fair
values due to their short-term maturities.
Concentrations of Credit Risk
Concentrations of credit risk with respect to receivables are limited
because the Company's primary customers are various agencies of the U.S.
government as well as commercial customers engaged in work for the U.S.
government. As of January 31, 1996, there were no significant concentrations of
receivables with these commercial customers. During fiscal years 1996, 1995, and
1994, approximately 97%, 98% and 98%, respectively, of the Company's revenues
were attributable to U.S. government prime contracts or subcontracts.
Long-Lived Assets
The Company investigates potential impairments of long-lived assets,
identifiable intangibles, and any associated goodwill when events or changes in
circumstances indicate that an asset's carrying value may not be recoverable. An
impairment loss is recognized when the sum of the expected future undiscounted
net cash flows is less than the carrying amount of the asset. No such losses
have been identified by the Company.
Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
compensation costs related to stock option plans and other forms of stock based
compensation plans as an alternative to the intrinsic value based method of
accounting defined under Accounting Principles Board Opinion No. 25. Companies
that do not elect the new method of accounting will be required to provide pro
forma disclosures as if the fair value based method had been applied. The
Company has not elected the fair value based method of accounting and will
provide pro forma disclosures as required, beginning with its fiscal year 1997
financial statements.
Net Earnings Per Share
Net earnings per share is computed based on the weighted average number of
common shares and common stock equivalents, using the treasury stock method,
outstanding during the respective periods. All stock issued and stock options
granted since March 6, 1996 have been included as outstanding for all periods
using the treasury stock method, modified if necessary, and the $13.00 price per
share which is estimated to be the price of the Company's proposed initial
public offering (the "Offering"). Common stock equivalents include the dilutive
effect of stock options. Supplemental net earnings per share, retroactively
reflecting the impact of the repayment of the bank line of credit contemplated
in the Offering, is not presented as the impact is antidilutive.
F-9
<PAGE> 69
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
Accounts receivable:
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -------------------
1996 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Contract receivables:
Billed............................................. $ 6,968 $ 7,391 $ 6,006
Unbilled, net of progress payments of $1,123,
$2,057 and $3,234............................... 3,743 4,743 6,084
------- ------- -------
10,711 12,134 12,090
Income taxes receivable.............................. 97 688 134
Other receivables.................................... 113 186 187
------- ------- -------
$10,921 $13,008 $12,411
======= ======= =======
</TABLE>
Contract receivables are primarily derived from contracts and subcontracts
with various agencies of the U.S. government. Reimbursable costs incurred under
U.S. government contracts and subcontracts, including allocated indirect
expenses, are subject to audit and adjustment by negotiations between the
Company and U.S. government representatives. Contract revenues have been
recorded in amounts which are expected to be realized upon final audit. Unbilled
receivables are stated at their estimated realizable value and consist primarily
of amounts billed subsequent to the balance sheet date or which are billable
upon the occurrence of specified events, as well as contract retentions and
unreimbursed costs subject to contract execution or modification. Contract
retentions of $1,725 at January 31, 1996 are collectible upon contract
completion, final customer approval and final indirect rate settlement, and the
majority thereof is expected to be collected within one year. Unbilled contract
receivables at January 31, 1996 included $1,308 related to costs incurred on
projects in advance of receiving formal funding authorization from customers.
The Company anticipates receiving contracts or modifications to fully fund this
balance.
Property and equipment, net:
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, ---------------------
1996 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................... $ 3,300 $ 3,300 $ 3,300
Buildings.......................................... 14,816 14,816 14,529
Computer and test equipment........................ 10,406 10,533 9,426
Leasehold improvements............................. 1,699 2,673 2,646
Office furniture and equipment, vehicles and other
equipment........................................ 2,353 2,078 2,021
-------- -------- --------
32,574 33,400 31,922
Less accumulated depreciation and amortization..... (13,026) (13,526) (11,892)
-------- -------- --------
$ 19,548 $ 19,874 $ 20,030
======== ======== ========
</TABLE>
Included in property and equipment above is $1,039, $1,117, and $1,291 of
assets under capital leases with $581, $493, and $448 of accumulated
amortization on October 31, 1996, January 31, 1996 and 1995, respectively.
Depreciation expense recorded during fiscal years 1996, 1995 and 1994 was
$1,417, $1,623, and $1,638, respectively.
F-10
<PAGE> 70
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -----------------
1996 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable....................................... $ 2,942 $3,220 $3,112
Accrued salaries, benefits and payroll taxes........... 1,479 1,041 1,320
Accrued vacation....................................... 1,025 1,024 1,132
Accrued retirement plan................................ 207 207 342
Other.................................................. 757 510 595
------ ------ ------
$ 6,410 $6,002 $6,501
====== ====== ======
</TABLE>
NOTE 3 -- BANK LINE OF CREDIT
The Company has a bank line of credit which is renegotiated on an annual
basis and expires on October 1, 1997. Under terms of the credit agreement, the
Company may borrow up to $6,000, limited to specified percentages of eligible
accounts receivable, at 7/8% over the bank's prime rate. The Company's interest
rate was 9.125% at January 31, 1996, and it had $1,047 of additional funds
available under the bank line of credit. In addition, the Company pays a
quarterly commitment fee of 5/8% per annum on the average daily unused amount of
the line of credit. Borrowings under the line of credit agreement are secured by
the Company's accounts receivable, inventories and unencumbered property and
equipment. The credit arrangement surrounding the line of credit and the primary
bank term loans described in Note 4 require the Company to maintain certain
financial ratios and among other things, limits the amount of dividends that the
Company may pay. At January 31, 1996, the Company was in compliance with all
covenants.
NOTE 4 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -------------------
1996 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Building mortgage.................................... $13,756 $14,015 $14,828
Term loans with secondary lenders.................... 672 1,222 1,395
Term loans with primary bank......................... 14 181
Capital lease obligations............................ 535 586 559
------- ------- -------
14,963 15,837 16,963
Less current portion................................. (1,117) (1,380) (2,102)
------- ------- -------
$13,846 $14,457 $14,861
======= ======= =======
</TABLE>
The building mortgage is secured by a first deed of trust on the land and
building, and is amortized over a 17 year period. Interest under the mortgage,
which was fixed at 8.96%, 7.31% and 7.0% during fiscal years 1996, 1995 and
1994, respectively, varies according to options available to the Company.
Borrowings from secondary lenders are secured by the Company's property and
equipment and are payable in monthly principal and interest installments over a
three year term with fixed interest rates ranging from 6.89% to 9.45%.
Borrowings from the primary bank were secured by the Company's accounts
receivable, inventories and unencumbered property and equipment, and are payable
in monthly principal installments plus accrued interest at the bank's prime rate
plus 1 1/2% over a three year term. At October 31, 1996, there were no
borrowings outstanding under this facility.
F-11
<PAGE> 71
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At January 31, 1996, scheduled maturities are as follows:
<TABLE>
<CAPTION>
PRIMARY AND CAPITAL
BUILDING SECONDARY LEASE
FISCAL YEAR MORTGAGE LENDERS OBLIGATIONS TOTAL
-------------------------------------------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C>
1997........................................ $ 400 $ 715 $ 298 $ 1,413
1998........................................ 438 355 201 994
1999........................................ 480 166 114 760
2000........................................ 525 41 566
2001........................................ 575 575
Thereafter.................................. 11,597 11,597
------- ------ ---- -------
$14,015 $ 1,236 654 15,905
======= ======
Less imputed interest....................... (68) (68)
---- -------
$ 586 $15,837
==== =======
</TABLE>
NOTE 5 -- BENEFIT PLANS
The Company has a Money Purchase Pension Plan (the "Pension Plan") which
covers substantially all employees. Annual contributions, as defined in the
Pension Plan, are determined by specified percentages of each employee's annual
earnings. During fiscal years 1996, 1995 and 1994, the charges to operations
under this plan were $1,231, $1,115, and $1,413, respectively.
The Company has a defined contribution Employee Stock Ownership Plan (the
"ESOP") which covers substantially all employees to enable employees to acquire
stock ownership interests in the Company. At January 31, 1996 and 1995, all
shares of Class B Common Stock were allocated to participants. Plan
contributions are discretionary. During fiscal years 1996, 1995, and 1994,
charges to operations were $200, $350, and $250, respectively. The Company has
fully funded the contributions with $370, $270, and $160 being contributed
during fiscal years 1996, 1995, and 1994, respectively. Distribution of ESOP
shares to a retiring or terminated participant occurs within five years from
separation. Within 15 months from distribution, the participant may exercise a
put option, or the ESOP may exercise a call option, at fair value, for any
portion of the shares distributed. Accordingly, the shares of Class B Common
Stock held by the ESOP are reflected at their aggregate fair values, as
determined by an annual independent appraisal. At January 31, 1996 and 1995,
ESOP shares outstanding with aggregate fair values of $2,579 and $2,149,
respectively, are separately classified in the consolidated balance sheet. The
adjustment for mandatorily redeemable ESOP shares represents the difference
between the aggregate historical issuance price of such shares and their
aggregate fair value at year end. Following the closing of the Offering, the
Company may, at its option, satisfy obligations for distributions of shares with
Class A Common Stock, which will be readily tradeable. To the extent that the
ESOP does not hold a sufficient number of shares of Class A Common Stock to meet
its obligations to distribute shares to participants following retirement or
termination (Note 8), the Company has agreed to exchange shares of Class A
Common Stock for shares of Class B Common Stock held by the ESOP to distribute
to such participants. Consequently, these shares will be reported at their
aggregate historical issuance price as a component of stockholders' equity
subsequent to the Offering.
The Company offers deferred compensation arrangements to certain of its
employees. The agreements allow the employees to defer up to 100% of their
salaries, net of certain payroll withholdings, with interest accruing thereon at
specified rates, currently ranging from 8% to 9%. Distributions commence upon
retirement or termination and continue for a period as prescribed in the
respective agreements.
The Company has an Incentive Stock Option Plan (the "1990 Option Plan")
which provides for the issuance of up to 900,000 shares of the Company's Class B
Common Stock at prices not less than 100% of its
F-12
<PAGE> 72
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value, as determined by the Company's Board of Directors, or 110% for
persons controlling more than 10% of the voting rights, at the date of grant.
Stock options are generally exercisable in four equal installments commencing
one year after the date of grant and expire in ten years. At January 31, 1996,
options for 183,090 shares were available for future grant.
The Company has a non-qualified stock option plan (the "1991 Option Plan"),
which provides for the issuance of up to 315,000 shares of the Company's Class B
Common Stock at prices not less than 100% of its fair value, as determined by
the Company's Board of Directors, at the date of grant and expire in ten years.
At January 31, 1996, options for 34,200 shares were available for future grant.
During fiscal year 1996, the Company adopted a non-qualified stock option
plan (the "1996 Option Plan") which provides for the issuance of up to 435,000
shares of the Company's Class B Common Stock at prices determined by the Board
of Directors (Note 9). The expiration date and the vesting schedule are also
determined by the Board of Directors. At January 31, 1996, options for 435,000
shares were available for future grant.
At January 31, 1996, options to purchase 995,085 shares of Class B Common
Stock were exercisable under various agreements. Transactions during each of the
three fiscal years ended January 31, 1996 and the nine months ended October 31,
1996 were as follows:
<TABLE>
<CAPTION>
PRICE PER SHARE NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
Outstanding at January 31, 1993...................... $4.03 to $6.07 1,222,200
Granted............................................ $5.35 to $6.07 102,300
Exercised.......................................... $4.03 to $5.55 (3,375)
Cancelled.......................................... $4.03 to $6.07 (100,200)
---------
Outstanding at January 31, 1994...................... $4.03 to $6.07 1,220,925
Granted............................................ $5.20 to $5.35 39,000
Exercised.......................................... $4.03 to $4.74 (4,410)
Cancelled.......................................... $4.74 to $6.07 (172,800)
---------
Outstanding at January 31, 1995...................... $4.03 to $6.07 1,082,715
Granted............................................ $5.20 to $5.57 29,700
Cancelled.......................................... $4.03 to $4.74 (46,440)
---------
Outstanding at January 31, 1996...................... $4.03 to $6.07 1,065,975
Granted (unaudited)................................ $5.57 to $6.48 144,600
Exercised (unaudited).............................. $4.03 (45,000)
Cancelled (unaudited).............................. $4.03 to $6.07 (17,700)
---------
Outstanding at October 31, 1996 (unaudited).......... $4.03 to $6.48 1,147,875
=========
</TABLE>
F-13
<PAGE> 73
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
----------------- -----------------------
1996 1995 1996 1995 1994
----- ------- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $ 800 $ 919 $ 411 $147 $191
State.................................. 182 217 95 27 50
----- ------- ---- ---- ----
982 1,136 506 174 241
----- ------- ---- ---- ----
Deferred:
Federal................................ (611) (854) (223) 3 54
State.................................. (122) (184) (49) (1) 31
----- ------- ---- ---- ----
(733) (1,038) (272) 2 85
----- ------- ---- ---- ----
$ 249 $ 98 $ 234 $176 $326
===== ======= ==== ==== ====
</TABLE>
The balance sheet classification of the net deferred tax asset (liability)
is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -------------------
1996 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Non-current deferred asset........................... $ 792 $ 638 $ 518
Current deferred liability........................... (721) (1,300) (1,452)
------- ------- -------
$ 71 $ (662) $ (934)
======= ======= =======
</TABLE>
The deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, -------------------
1996 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Unbilled receivables................................. $(1,169) $(1,645) $(1,913)
Accrued compensation and benefits.................... 418 301 392
Deferred compensation................................ 511 402 356
Depreciation......................................... 405 359 303
Retirement plan...................................... (159) (138) (175)
State income taxes................................... 30 60 69
Other................................................ 35 (1) 34
------- ------- -------
$ 71 $ (662) $ (934)
======= ======= =======
</TABLE>
F-14
<PAGE> 74
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED JANUARY
ENDED 31,
OCTOBER 31, -------------------
1996 1996 1995 1994
----------- --- --- ---
(UNAUDITED)
<S> <C> <C> <C> <C>
Amount computed at statutory rate........................... 34% 34% 34% 34%
State income taxes, net of federal tax benefit.............. 5 5 5 5
Non-deductible meals and entertainment...................... 4 5 7 1
Research and development tax credit......................... (2) (4) (5) (2)
Revision of prior years' tax estimates...................... (5) (1) (4)
Other....................................................... 2 (2) 2
--- --- --- ---
36% 41% 35% 40%
=== === === ===
</TABLE>
NOTE 7 -- COMMITMENTS
The Company has committed to pay minimum rentals under leases for office
facilities and equipment at January 31, 1996, as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
--------------------------------------------------------- ---------
<S> <C>
1997..................................................... $ 1,411
1998..................................................... 826
1999..................................................... 765
2000..................................................... 714
2001..................................................... 570
Thereafter............................................... 1,232
------
Total minimum payments................................... $ 5,518
======
</TABLE>
Rental expense for nine months ended October 31, 1996 and October 31, 1995
was $1,549 and $2,145, respectively, and rental expense for fiscal years 1996,
1995, and 1994 was $2,875, $2,968, and $3,112, respectively.
NOTE 8 -- COMMON STOCK
The Company has two classes of Common Stock, Class A and Class B
(collectively, "Common Stock"). The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
holders of Common Stock. Holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor.
As of October 31, 1996, there were no shares of Class A Common Stock
outstanding. Upon the closing of the Offering, 20% of the outstanding shares of
Class B Common Stock will automatically convert into shares of Class A Common
Stock.
The Class B Common Stock consists of five series, divided evenly among each
such series. Upon the closing of the Offering, all shares of the first series
will automatically convert into shares of Class A Common Stock. Upon the annual
anniversary of the closing of the Offering, the next series will automatically
convert into shares of Class A Common Stock. Accordingly, on the fourth
anniversary of the closing of the Offering, all shares of Class B Common Stock
will have converted into shares of Class A Common Stock.
F-15
<PAGE> 75
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- SUBSEQUENT EVENTS (UNAUDITED)
During November 1996, 56,165 shares of Class B Common Stock were
repurchased from 19 stockholders at a purchase price of $6.48 per share.
Officers and directors of the Company and the company-directed ESOP were
ineligible to participate in such repurchase.
Effective January 31, 1997, the Company entered into a retirement agreement
with one of its officers and directors. Pursuant to the retirement agreement, on
January 31, 1997, the Company repurchased 23,392 shares of Class B Common Stock
from the former employee at a price of $6.48 per share. In addition, the Company
agreed to repurchase 120,000 shares of Common Stock from the former employee at
a price of $8.33 per share, subject to adjustment if the closing of the Offering
does not occur during 1997. The Company is obligated to repurchase such shares
within 30 days of the closing of the Offering, subject to certain conditions.
During February 1997, the Company's 1996 Option Plan was amended to provide
for the grant of incentive stock options and the issuance of up to 500,000
shares of Class A Common Stock following the effective date of the Offering.
During February 1997, the Company established the 1997 Outside Directors
Stock Option Plan (the "Directors Plan"), the 1997 Employee Stock Purchase Plan
(the "Purchase Plan"), and the Jaycor Networks, Inc. 1997 Stock Option Plan (the
"JNI Plan").
A total of 75,000 shares of Class A Common Stock have been reserved for
issuance under the Directors Plan. Prior to the effective date of this offering,
no options have been granted under the Directors Plan. The Directors Plan
provides for automatic grants of non-qualified stock options to certain
directors of the Company who are not employees of the Company ("Outside
Directors"). Under the Directors Plan, each Outside Director elected or
appointed as a director following the effective date of this offering will
automatically be granted an option to purchase 10,000 shares of Class A Common
Stock on the date of his or her initial election or appointment. In addition,
each Outside Director will thereafter automatically be granted an option to
purchase up to 3,000 shares of Class A Common Stock following each annual
meeting of the Company's stockholders at which such Outside Director is
re-elected. The exercise price of all such options will be equal to the fair
market value of the Class A Common Stock on the date of grant. Initial options
granted under the Directors Plan generally vest over a four year period, and
annual options generally vest in full four years from the date of grant. All
such options must be exercised within ten years from the date of grant.
A total of 200,000 shares of the Company's Class A Common Stock have been
reserved for issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to purchase shares of Class A Common Stock at a fifteen
percent (15%) discount through payroll deductions during sequential 24-month
offering periods. Each such offering period is divided into four consecutive
six-month purchase periods. The price at which shares are purchased under the
Purchase Plan for such offering period is equal to 85% of the lesser of the fair
market value of the Class A Common Stock on the first day of such offering
period or the last day of the purchase period of such offering period. The
initial offering period will commence on the effective date of the Offering.
JNI, a wholly owned subsidiary of the Company, has adopted the JNI Plan
which provides for the grant to employees of JNI of non-qualified stock options
to purchase shares of common stock of JNI. For a nine-year period following the
date of grant, such options are only exercisable in the event that JNI undergoes
a "change in control" (generally defined as a sale of assets, merger or public
offering of equity securities). Following such nine-year period, but prior to
the termination of such option (the options terminate ten years from the date of
grant), the option may be exercised, but, in such event, JNI has a right to
repurchase such shares at the greater of the exercise price or the fair market
value of such shares. All options are exercisable at the fair market value on
the date of grant of the common stock of JNI. In the event that an optionee
under the JNI Plan exercises an option to purchase shares of the Company's
Common Stock granted subsequent to the
F-16
<PAGE> 76
JAYMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adoption of the JNI Plan under one of the Company's stock option plans, all
options granted under the JNI Plan terminate immediately. Similarly, in the
event that an optionee under the JNI Plan exercises an option granted under the
JNI Plan, all options granted subsequent to the adoption of the JNI Plan under
the Company's existing stock option plans terminate immediately. Options granted
under the JNI Plan are subject to individual vesting schedules, but must vest at
a rate of not less than 20% annually. In the event of a change of control of
JNI, the vesting of such options accelerates as follows: (i) 25% if the change
of control occurs within one year of the date of grant; (ii) 33 1/3% if the
change in control occurs within two years of the date of grant; (iii) 75% if the
change of control occurs within three years of the date of grant; and (iv) 100%
if the change of control occurs more than three years following the date of
grant.
F-17
<PAGE> 77
JAYCOR DEVELOPS DUAL-USE TECHNOLOGIES WITH COMMERCIAL OPPORTUNITIES
[Picture of two individuals wearing hardhats standing and kneeling,
respectively, in front of two luggage containers. A box labelled "explosives"
sits between the two luggage containers, and an airplane flies overhead. The
luggage container in the left displays damage from an internal explosion, while
the luggage container on the right, labelled "Jaycor," appears undamaged.]
BOMB-RESISTANT LUGGAGE CONTAINER
<TABLE>
<S> <C>
[Picture of an automobile passing over the [Picture illustrating an artist's rendition of an
Company's Auto-Arrestor, which is spread across ultrasound image of a handgun.]
a highway. A spark appears underneath the ACOUSTIC IMAGING DEVICE
automobile.]
AUTO-ARRESTOR
[Picture of a pepper spray gun and three
spherical gel balls.]
[Picture of a Jeep equipped with horn antennas [Picture of an electrical projectile attached to
for the detection of buried land mines.] a piece of clothing.]
GROUND PENETRATING MINE RADAR NON-LETHAL PROJECTILES
</TABLE>
<PAGE> 78
[JAYMARK LOGO]
[Jaycor Logo] [Jaycor Networks, Inc. Logo]
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....... $ 6,343
NASD filing fee........................................... 2,593
Nasdaq National Market fee................................ 20,800
Accounting fees and expenses.............................. 125,000
Legal fees and expenses................................... 250,000
Printing and engraving expenses........................... 120,000
Transfer agent and registrar fees......................... 6,000
Blue Sky fees and expenses................................ 15,000
Underwriter's expense allowance........................... 250,000
Directors' and Officers' Insurance........................ 100,000
Miscellaneous expenses.................................... 54,264
--------
Total................................................ $950,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Restated Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including the circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnity agreements with its
directors and executive officers that require the Registrant, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status or service (other than liabilities arising from willful
misconduct of a culpable nature) and to maintain directors' and officers'
liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnity agreements to be entered
into between the Registrant and its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 31, 1994, the Registrant has issued and sold the following
unregistered securities:
(a) Issuances of Shares of Common Stock.
On October 24, 1996, pursuant to the terms of an Agreement for Purchase and
Sale of Assets by and among the Company, Long John Productions, Inc. ("LJPI")
and John Biffar ("Biffar"), the registrant issued and sold a total of 5,464
shares of Class B Common Stock to LJPI in Biffar's name, as partial
consideration for the acquisition of certain assets in October 1995.
II-1
<PAGE> 80
On February 28, 1997, pursuant to the terms of an Employment Agreement by
and between the Company and Robert M. Howell ("Howell"), the registrant issued
and sold a total of 2,149 shares of Class B Common Stock to Howell as partial
consideration for services rendered thereunder.
On January 31, 1997, the registrant reorganized into a holding company
structure under the name Jaycor Emerging Technologies, Inc., and issued
1,859,492 shares of Class B Common Stock in an exchange pursuant to an Agreement
and Plan of Merger.
(b) Option Issuances to, and Exercises by, Employees and Directors.
From January 31, 1994 to the present, the registrant issued options to
purchase a total of 578,000 shares of Class B Common Stock at exercise prices
ranging from $1.95 to $6.48 per share to 34 employees and three non-employee
directors. No consideration was paid to the registrant by any recipient of any
of the foregoing options for the grant of any such options. From January 31,
1994 to the present, the registrant issued a total of 75,000 shares of Class B
Common Stock to two employees upon exercise of stock options at an exercise
price of $4.03 per share.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 15(b) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1+* Asset Purchase Agreement dated March 4, 1996 by and between the Company and
Howell Intelligence Service.
2.2+ Agreement for Purchase and Sale of Assets dated October 24, 1995 by and among the
Company, Long John Productions, Inc. and John Biffar.
2.3+ Agreement for Purchase and Sale of Assets dated March 22, 1996 by and between the
Company and Robert L. Ritter.
2.4 Agreement and Plan of Reorganization dated January 30, 1997 by and among Jaycor,
a California corporation, Jaycor Acquisition Company, a California corporation,
and Jaycor Emerging Technologies, Inc., a California corporation.
2.5* Form of Agreement and Plan of Merger by and between Jaycor Emerging Technologies,
Inc., a California corporation, and Jaymark, Inc., a Delaware corporation.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1* Specimen Class A Common Stock Certificate.
4.2* Specimen Class B Common Stock Certificates.
5.1* Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1 Form of Indemnity Agreement.
10.2 1980 Stock Option Plan and forms of agreements thereunder.
10.3 1990 Incentive Stock Option Plan and form of agreement thereunder.
10.4 1991 Non-Qualified Stock Option Plan and form of agreement thereunder.
10.5 1996 Stock Option Plan, as amended, and forms of agreement thereunder.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <S>
10.6 1997 Outside Directors Stock Option Plan and forms of agreement thereunder.
10.7* Jaycor Networks, Inc. 1997 Stock Option Plan and forms of agreement thereunder.
10.8 Employee Stock Ownership Plan, as amended.
10.9 1997 Employee Stock Purchase Plan and form of agreement thereunder.
10.10 401(k) Plan dated October 22, 1993, as amended.
10.11 Money Purchase Pension Plan, dated October 22, 1993, as amended.
10.12 Credit Agreement dated October 1, 1996 by and between the Company and Wells Fargo
Bank.
10.13 Assignment, Modification and Assumption Agreement and Consent dated February 3,
1993 by and among the Company, Union Bank and Westerra Pacific Associates, and
the underlying Building Loan Agreement, Note, Deed of Trust, Security Agreement
and related modification agreements.
10.14 Lease Agreement dated December 31, 1994 by and between the Company and Loup
Management Company (Colorado Springs, Colorado).
10.15 Lease Agreement dated April 17, 1996 by and between the Company and APA
Properties No. 6,
10.16 Deed of Lease dated December 6, 1995 by and between the Company and Advent Realty
Limited Partnership II (McLean, Virginia).
10.17 Retirement Agreement dated January 31, 1997 by and between the Company and Robert
P. Sullivan, as amended.
10.18 Form of Warrant Agreement by and between the Company and Brean Murray & Co., Inc.
10.19 Deferred Compensation Agreement dated February 25, 1997 by and between the
Company and Eric P. Wenaas.
10.20 Forms of Deferred Compensation Plan Agreement.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (See page II-6).
23.2* Consent of Gray Cary Ware & Freidenrich, a Professional Corporation (included in
Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Exhibits and schedules to this exhibit not filed herewith are identified
therein. Upon request, the registrant will furnish supplementally to the
Commission any such omitted exhibit or schedule.
(b) Financial Statement Schedules
All required information is set forth in the Consolidated Financial
Statements included in the Prospectus constituting part of this Registration
Statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 provisions referenced in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of
II-3
<PAGE> 82
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Registrant pursuant to Rule 424 (b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
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 San Diego, State of
California, on the 7th day of March, 1997.
JAYMARK, INC.
By: /s/ ERIC P. WENAAS
------------------------------------
Eric P. Wenaas
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Eric P. Wenaas and P. Randy Johnson, or
either of them, as his attorney-in-fact, each with full power of substitution
for him in any and all capacities, to sign any and all amendments to this
Registration Statement, including post-effective amendments and any and all new
registration statements filed pursuant to Rule 462 under the Securities Act of
1933 in connection with or related to the offering contemplated by this
Registration Statement, as amended, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney-in-fact
or his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<S> <C> <C>
/s/ ERIC P. WENAAS President, Chief Executive March 7, 1997
- ------------------------------------------ Officer, Chairman of the Board
Eric P. Wenaas and Director (Principal
Executive Officer)
/s/ P. RANDY JOHNSON Vice President, Finance and March 7, 1997
- ------------------------------------------ Chief Financial Officer
P. Randy Johnson (Principal Financial and
Accounting Officer)
/s/ JAMES H. STUHMILLER Director March 7, 1997
- ------------------------------------------
James H. Stuhmiller
/s/ TERRY M. FLANAGAN Director March 7, 1997
- ------------------------------------------
Terry M. Flanagan
/s/ JOHN C. STISKA Director March 7, 1997
- ------------------------------------------
John C. Stiska
/s/ JOHN S. FOSTER, JR. Director March 7, 1997
- ------------------------------------------
John S. Foster, Jr.
/s/ DAVID R. HEEBNER Director March 7, 1997
- ------------------------------------------
David R. Heebner
</TABLE>
II-5
<PAGE> 84
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 8, 1996, relating to
the financial statements of Jaymark, Inc., which appears in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
San Diego, California
March 6, 1997
II-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1+* Asset Purchase Agreement dated March 4, 1996 by and between the Company and
Howell Intelligence Service.
2.2+ Agreement for Purchase and Sale of Assets dated October 24, 1995 by and among the
Company, Long John Productions, Inc. and John Biffar.
2.3+ Agreement for Purchase and Sale of Assets dated March 22, 1996 by and between the
Company and Robert L. Ritter.
2.4 Agreement and Plan of Reorganization dated January 30, 1997 by and among Jaycor,
a California corporation, Jaycor Acquisition Company, a California corporation,
and Jaycor Emerging Technologies, Inc., a California corporation.
2.5* Form of Agreement and Plan of Merger by and between Jaycor Emerging Technologies,
Inc., a California corporation, and Jaymark, Inc., a Delaware corporation.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1* Specimen Class A Common Stock Certificate.
4.2* Specimen Class B Common Stock Certificates.
5.1* Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1 Form of Indemnity Agreement.
10.2 1980 Stock Option Plan and forms of agreements thereunder.
10.3 1990 Incentive Stock Option Plan and form of agreement thereunder.
10.4 1991 Non-Qualified Stock Option Plan and form of agreement thereunder.
10.5 1996 Stock Option Plan, as amended, and forms of agreement thereunder.
10.6 1997 Outside Directors Stock Option Plan and forms of agreement thereunder.
10.7* Jaycor Networks, Inc. 1997 Stock Option Plan and forms of agreement thereunder.
10.8 Employee Stock Ownership Plan, as amended.
10.9 1997 Employee Stock Purchase Plan and form of agreement thereunder.
10.10 401(k) Plan dated October 22, 1993, as amended.
10.11 Money Purchase Pension Plan, dated October 22, 1993, as amended.
10.12 Credit Agreement dated October 1, 1996 by and between the Company and Wells Fargo
Bank.
10.13 Assignment, Modification and Assumption Agreement and Consent dated February 3,
1993 by and among the Company, Union Bank and Westerra Pacific Associates, and
the underlying Building Loan Agreement, Note, Deed of Trust, Security Agreement
and related modification agreements.
10.14 Lease Agreement dated December 31, 1994 by and between the Company and Loup
Management Company (Colorado Springs, Colorado).
10.15 Lease Agreement dated April 17, 1996 by and between the Company and APA
Properties No. 6,
10.16 Deed of Lease dated December 6, 1995 by and between the Company and Advent Realty
Limited Partnership II (McLean, Virginia).
10.17 Retirement Agreement dated January 31, 1997 by and between the Company and Robert
P. Sullivan, as amended.
10.18 Form of Warrant Agreement by and between the Company and Brean Murray & Co., Inc.
10.19 Deferred Compensation Agreement dated February 25, 1997 by and between the
Company and Eric P. Wenaas.
10.20 Forms of Deferred Compensation Plan Agreement.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (See page II-6).
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <S>
23.2* Consent of Gray Cary Ware & Freidenrich, a Professional Corporation (included in
Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Exhibits and schedules to this exhibit not filed herewith are identified
therein. Upon request, the registrant will furnish supplementally to the
Commission any such omitted exhibit or schedule.
<PAGE> 1
EXHIBIT 1.1
DRAFT
1,300,000 Shares
Jaymark, Inc.
Class A Common Stock
(Par Value $0.001 Per Share)
UNDERWRITING AGREEMENT
_____________, 1997
BREAN MURRAY & CO., INC.
As Representative of the
several Underwriters
570 Lexington Avenue
New York, New York 10022-6822
Ladies and Gentlemen:
Jaymark, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 1,300,000 shares (the "Firm Shares")
of the Company's Class A Common Stock, par value $0.001 per share (the "Class A
Common Stock"), to you and the other underwriters named in Schedule I hereto
(collectively, the "Underwriters"), for whom you are acting as representative
(the "Representative"). The Company also has agreed to grant to you and the
other Underwriters an option ("the Option") to purchase up to an additional
195,000 shares of Class A Common Stock (the "Option Shares"), on the terms and
for the purposes set forth in Section 1(b) hereto. The Firm Shares and the
Option Shares are collectively referred to herein as the "Shares." The Company
has also agreed to issue and sell to you Warrants (as defined below) to purchase
up to 130,000 shares of Class A Common Stock. The words "you" and "your" refer
to the Representative of the Underwriters.
The Company hereby confirms as follows its agreements with the
Representative and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained and subject to all the terms and conditions of this
Underwriting Agreement (the
<PAGE> 2
"Agreement"), the Company agrees to sell to each Underwriter and each
Underwriter, severally and not jointly, agrees to purchase from the Company at a
purchase price of $[ ] per Share, the number of Firm Shares set forth opposite
the name of such Underwriter on Schedule I hereto, plus such additional number
of Firm Shares which such Underwriter may become obligated to purchase pursuant
to Section 11 hereof.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, the Option Shares at the same price per share as the Underwriters
shall pay for the Firm Shares. The Option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and may be
exercised in whole or in part at any time and from time to time on or before the
30th day after the date of this Agreement (or on the next business day if the
30th day is not a business day), upon notice (the "Option Shares Notice") in
writing or by telephone (confirmed in writing) by the Representative to the
Company no later than 5:00 p.m., New York City time, at least two and no more
than five business days before the date specified for closing in the Option
Shares Notice (the "Option Closing Date") setting forth the aggregate number of
Option Shares to be purchased and the time and date for such purchase. On the
Option Closing Date, the Company will issue and sell to the Underwriters the
number of Option Shares set forth in the Option Shares Notice and each
Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of Firm Shares that such Underwriter is purchasing, as adjusted
by the Representative in such manner as it deems advisable to avoid fractional
shares.
(c) Subject to the terms and conditions of this Agreement, the
Company will, at the Closing Date (as defined below), further issue and sell to
you or, at your direction, to your bona fide officers, for a total purchase
price of $100, warrants entitling the holders thereof to purchase up to an
aggregate of 130,000 shares of Class A Common Stock (the "Warrant Shares") at a
price of $____ per share (120% of the initial per share public offering price on
the Effective Date of the Registration Statement, as defined below) (the
"Warrants") for a period of four years, such period to commence one year after
the effective date of the Registration Statement. Such Warrants shall contain
such other terms and provisions as may be set forth in an agreement with respect
thereto (the "Warrant Agreement") executed and delivered by the Company and you
simultaneously with the execution and delivery of this Agreement. As provided in
the Warrant Agreement, you may designate that the Warrants be issued in varying
amounts directly to your bona fide officers and not to you. Such designation
will be made by you only if you determine that such issuances would not violate
the interpretations of the National Association of Securities Dealers, Inc. (the
"NASD")
- 2 -
<PAGE> 3
relating to the review of corporate financing arrangements. As further provided
in the Warrant Agreement, no sale, transfer, assignment or hypothecation of the
Warrants shall be made for a period of five (5) years from the effective date of
the Registration Statement except to bona fide officers of the Representative
and officers or partners of selected dealers. The holders of the Warrants will
be entitled to the registration rights set forth in the Warrant Agreement.
2. Delivery and Payment.
(a) Delivery of the Firm Shares shall be made to the Representative for
the accounts of the Underwriters against payment of the purchase price by
certified or official bank checks payable in New York Clearing House funds drawn
to the order of the Company (the "Closing") at the office of Brean Murray & Co.,
Inc. at 570 Lexington Avenue, New York, New York 10022, or such other location
as shall be agreed upon by the Company and the Representative. Such payment
shall be made at 10:00 a.m., New York City time, on the third full business day
following the date of this Agreement, or at such other time and date not more
than seven business days after the date of this Agreement, as may be agreed upon
by the Representative and the Company (such date is hereinafter referred to as
the "Closing Date"). Time shall be of the essence and delivery at the time and
place specified in this Agreement is a further condition of the obligation of
each Underwriter hereunder.
(b) To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
(c) Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representative shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
(d) The cost of original issue tax stamps, if any, in connection with the
issuance, sale and delivery of the Firm Shares, the Option Shares and the
Warrant Shares by the Company to the respective Underwriters shall be borne by
the Company. The Company will pay and save each Underwriter and any subsequent
holder of the Shares harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying Federal or state stamp and other
transfer taxes, if any, which
- 3 -
<PAGE> 4
may be payable or determined to be payable in connection with the original
issuance, sale or delivery to such Underwriter of the Firm Shares, the Option
Shares and the Warrant Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement on Form S-1 (No. 333-[ ]) relating to the
Shares and the Warrants (collectively, the "Securities"), including a
preliminary prospectus relating to the Securities and such amendments to such
registration statement as may have been required to the date of this Agreement,
has been prepared by the Company under the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (collectively referred to as the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The Commission
has not issued any order preventing or suspending the use of the Prospectus (as
defined below) or any Preliminary Prospectus (as defined below) or instituted
or, to the knowledge of the Company, threatened any proceeding for that purpose.
The term "Preliminary Prospectus" as used herein means a preliminary prospectus
relating to the Securities included at any time as part of the foregoing
registration statement or any amendment thereto before it became effective under
the Act and any prospectus filed with the Commission by the Company pursuant to
Rule 424(a) of the Rules and Regulations. Copies of such registration statement
and amendments and of each related Preliminary Prospectus have been delivered to
the Representative. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus relating to the Securities
containing information permitted to be omitted at the time of effectiveness by
Rule 430A will be filed by the Company with the Commission in accordance with
Rule 424(b) of the Rules and Regulations promptly after execution and delivery
of this Agreement. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including all financial statements and schedules and all exhibits,
documents incorporated therein by reference and all information contained in any
final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or in a term sheet described in Rule 434 of the Rules and
Regulations in accordance with Section 5 hereof and deemed to be included
therein as of the Effective Date by Rule 430A of the Rules and Regulations. The
term "Prospectus" means the prospectus relating to the Shares as first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no such filing is required, the form of final prospectus
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<PAGE> 5
relating to the Shares included in the Registration Statement at
the Effective Date.
(b) On the date that any Preliminary Prospectus was filed with the
Commission, the date the Prospectus is first filed with the Commission pursuant
to Rule 424(b) (if required), at all times subsequent to and including the
Closing Date and, if later, the Option Closing Date and when any post-effective
amendment to the Registration Statement becomes effective or any amendment or
supplement to the Prospectus is filed with the Commission, the Registration
Statement, each Preliminary Prospectus and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did or will comply with all applicable provisions of the Act and the
Rules and Regulations and did or will contain all statements required to be
stated therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not or will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representative specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto.
(c) At or prior to the Closing Date, the Company will complete a series of
transactions as referred to under the caption "Business - Company History" in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), including the following:
The transactions contemplated under the caption "Business Company History"
in the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) are collectively referred to as the "Reorganization
Transactions." All agreements entered into or to be entered into by the Company
or the Subsidiaries (as defined below) in connection with the Reorganization
Transactions are collectively referred to as the "Reorganization Agreements."
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<PAGE> 6
(d) The only subsidiaries of the Company are listed on Exhibit A hereto
(each, a "Subsidiary," and, collectively, the "Subsidiaries"). The Company and
each of its Subsidiaries are, and at the Closing Date and the Option Closing
Date will be, duly organized, validly existing corporation and in good standing
under the laws of their respective jurisdictions of incorporation or
organization. The Company and each Subsidiary have, and at the Closing Date and
the Option Closing Date will have, full power and authority to conduct all the
activities conducted by them, to own or lease all the assets owned or leased by
them and to conduct their respective businesses as described in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). The Company and each of the Subsidiaries
are, and at the Closing Date and the Option Closing Date will be, duly licensed
or qualified to do business as a foreign corporation and are in good standing in
all jurisdictions in which the nature of the activities conducted by them or the
character of the assets owned or leased by them makes such licensing or
qualification necessary, except where the failure to be so qualified does not
and, upon consummation of the Reorganization Transactions will not, have a
material adverse effect, singly or in the aggregate, on the business,
properties, prospects, assets, condition (financial or otherwise), net worth or
results of operations of the Company and its Subsidiaries taken as a whole (a
"Material Adverse Effect"). Except as described in the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus), the
Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. Complete and correct copies of the
articles (or certificates) of incorporation and the bylaws, operating agreements
or partnership agreements or other governing documents of the Company and each
Subsidiary, and all amendments thereto, have been delivered to the
Representative or its counsel, and no changes therein will be made subsequent to
the date hereof and prior to the Closing Date or, if later, the Option Closing
Date, except as contemplated by the Reorganization Transactions or the
Registration Statement.
(e) The outstanding shares of capital stock of each of the Company
and its Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are not subject to any preemptive or similar rights.
The issued shares of the Subsidiaries are owned by the Company free and clear of
any perfected security interest or any liens, encumbrances, claims or other
security interests, other than as described in the Registration Statement. The
Shares and the Warrant Shares to be issued and sold by the Company will be, upon
such issuance and payment therefor, duly authorized, validly issued, fully paid
and nonassessable and will not be subject to any preemptive or
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<PAGE> 7
similar rights. The Company has, and, upon completion of the sale of the Shares
and the Reorganization Transactions, will have, a duly authorized, issued and
outstanding capitalization as set forth under the caption "Capitalization" in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) as of the date of the table thereunder and on the
Closing Date and the Option Closing Date will have the adjusted capitalization
set forth therein as of the date of the table thereunder, based on the
assumptions set forth therein. The securities of the Company conform in all
material respects to the descriptions thereof contained in the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
Except as set forth or contemplated in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), the Company does not have outstanding, and at the
Closing Date and, if later, the Option Closing Date will not have outstanding,
any options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any shares of its capital stock or any such warrants, convertible
securities or obligations.
(f) The consolidated financial statements and the related notes and
schedules thereto included in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present the consolidated financial condition, results of operations,
shareholders' equity and cash flows of the Company and its Subsidiaries at the
dates and for the periods specified therein. Such financial statements and the
related notes and schedules thereto have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein) and such financial
statements as are audited have been examined by Price Waterhouse LLP who are
independent public accountants within the meaning of the Act and the Rules and
Regulations, as indicated in their reports filed therewith. The selected
financial information and statistical data set forth under the captions
"Prospectus Summary - Summary Consolidated Financial Information" and "Selected
Consolidated Financial Data" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) have been prepared on a basis
consistent with the financial statements of the Company and its Subsidiaries.
(g) Each of the Company and the Subsidiaries maintains a system of
internal accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets,
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<PAGE> 8
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(h) The Company is not required to be registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(i) Except as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there are no actions, suits, arbitrations, claims,
governmental or other proceedings pending or threatened against or affecting the
Company, any Subsidiary or any respective directors, officers, or, to the
Company's knowledge, stockholders of any of the foregoing in their capacity as
such before or by any court, regulatory body or administrative agency or any
other governmental agency or body, domestic or foreign (collectively,
"Governmental Body"), wherein an unfavorable ruling, decision or finding might
have a Material Adverse Effect. Neither the Company nor its Subsidiaries is in
violation of, or in default with respect to, any law, rule, or regulation, or
any order, judgment, or decree, except as described in the Prospectus (or if the
Prospectus is not in existence, in the most recent Preliminary Prospectus) or
such as in the aggregate do not now have and can reasonably be expected in the
future not to have a Material Adverse Effect; nor is the Company or its
Subsidiaries presently required under any order, judgment or decree to take any
action in order to avoid any such violation or default.
(j) Each of the Company and the Subsidiaries has, and at the Closing
Date, the Option Closing Date (if any) and upon consummation of the
Reorganization Transactions will have, all governmental licenses, permits,
consents, orders, approvals, franchises, certificates and other authorizations
(collectively, "Licenses") necessary to carry on its business and lease or own
its properties as contemplated in the Prospectus (or, if the Prospectus is not
in existence, in the most recent Preliminary Prospectus), except in such case
where the failure to have such Licenses will not have a Material Adverse Effect.
Each of the Company and the Subsidiaries has, and at the Closing Date and the
Option Closing Date (if any) and upon consummation of the Reorganization
Transactions will have, complied in all material respects with all laws,
regulations and orders applicable to it or its business and properties, except
where the failure to so comply will not have a Material Adverse Effect. None of
the Company or the Subsidiaries is, and, at the Closing Date and the Option
Closing Date (if any), none of them will be, in default (nor has any event
occurred which, with notice or lapse of time or both, would constitute a
default) in the due performance and
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<PAGE> 9
observation of any term, covenant or condition of any indenture, mortgage, deed
of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument (collectively, a "contract or other agreement") to which any of
them is, or will be, a party or by which any of their respective properties is,
or will be, bound or affected, which default would have a Material Adverse
Effect. To the best knowledge of the Company, no other party under any such
contract or other agreement is, or will be, in default in any material respect
thereunder. There are no governmental proceedings or actions pending or overtly
threatened in writing for the purpose of suspending, modifying or revoking any
License held, or to be held, by the Company or any Subsidiary. None of the
Company or the Subsidiaries is in violation of any provision of its articles of
incorporation or bylaws, operating agreement or other governing instrument,
except where such violation will not have a Material Adverse Effect.
(k) No consent, approval, authorization or order of, or any filing
or declaration with, any Governmental Body is required for the performance of
this Agreement, the Warrant Agreement or the Reorganization Agreements or the
consummation of the transactions contemplated hereby or thereby, except such as
have been obtained under the Act or the Rules and Regulations and such as may be
required under state securities or Blue Sky laws or the bylaws and rules of the
NASD in connection with the purchase and distribution by the Underwriters of the
Shares or the Warrant Shares. All approvals of the stockholders of the Company
and any Subsidiaries required for the consummation of the Reorganization
Transactions were duly and validly obtained at meetings held for that purpose
prior to ____________, 1997, have not been revoked and remain in full force and
effect; such approvals were solicited on the basis of information supplied by
such entities, and such information did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which they were made, not misleading.
(l) Neither the Company nor any Subsidiary has received from a
Governmental Body any of the following written instruments with regard to
matters that have not been finally resolved: (i) any cure or show cause notice
or notice of default; (ii) any notice of contract termination of any kind
(exclusive of expiration and non-renewal); (iii) any final decision subject to
any applicable disputes clause or unilateral contract modification assessing a
material penalty or material damages; (iv) any assertion of a claim of
violations of the Cost Accounting Standards ("CAS") at 48 Code of Federal
Regulations ("CFR") 9900 et seq. or defective pricing; (v) any notice of a
proposed disallowance of indirect cost claims in excess of reserves therefor;
(vi) any subpoena or notice signifying the
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<PAGE> 10
initiation of an investigation by a governmental investigative or enforcement
agency or body other than normal audits in the ordinary course of business; or
(vii) with respect to contracts with any Governmental Body, whether direct or
indirect, any other notice from a government contracting officer alleging the
failure by the Company or any Subsidiary to provide goods or services fully in
conformity to, or otherwise to comply in any material way with, any applicable
contract provision, specification or regulation. The Company is not aware that
any Governmental Body has initiated a debarment or suspension proceeding against
the Company or any Subsidiary and has not received any written notice of such a
proceeding or proposed proceeding. Neither the Company nor any Subsidiary has
made disclosures to a Governmental Body pursuant to any voluntary disclosure
agreement. The Company and its Subsidiaries have, and will have, made all
material payments which are required to have been made through the Closing Date
to any lower-tier subcontractors.
In connection with each proposal relating to goods and/or services
proposed to be provided to any Governmental Body by the Company or any
Subsidiary: (i) as to any such proposal which would result in a contract which
would contain a clause relating to CAS and for which the Company or a Subsidiary
has secured price quotations from lower-tier subcontractors, the Company will,
to the extent required by the Governmental Body, cause such clause to flow down
to all lower-tier non-exempt subcontractors; (ii) to the best of the Company's
knowledge all cost or pricing data submitted by the Company or any of its
Subsidiaries will be accurate, complete and current as of the date of the final
agreement on price with the contracting agency if such final agreement is or has
been reached prior to the Closing Date; and (iii) in all cases where the Company
or any of its Subsidiaries secured cost or pricing data for such proposals from
lower-tier subcontractors, to the extent required by the Governmental Body, the
Company or any of its Subsidiaries secured a certificate of current cost and
pricing data from such lower-tier subcontractors.
(m) The Company and its Subsidiaries are in compliance in all material
respects with applicable government regulations regarding the disclosure of
their cost accounting practices and procedures, including without limitation the
submission of disclosure statements pursuant to Federal Acquisition Regulation,
Subpart 30.2 et seq. (48 CFR Exhibit 30.201 et seq.) or comparable regulations;
the accounting practices and procedures of the Company and its Subsidiaries were
at the time of submission, are as of the date hereof and will be on the
Effective Date in accordance with its disclosure statements in all material
respects; and neither the Company nor any Subsidiary believes that any
governmental agency or body has a justifiable basis to (i) challenge or seek
material modifications of such accounting practices and procedures or (ii) seek
recovery of
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<PAGE> 11
amounts paid or payable to the Company or any Subsidiary materially in excess of
reserves therefor by reason of changes to such accounting practices and
procedures or otherwise.
(n) The Company has full power (corporate and other) and authority
to enter into and consummate the transactions provided for in this Agreement,
the Reorganization Agreements and the Warrant Agreement. Each of this Agreement
and the Warrant Agreement has been duly authorized, executed and delivered by
the Company and, assuming that each of this Agreement and the Warrant Agreement
is a binding agreement of yours, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles relating to the availability of remedies and
except as rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws).
None of the Company's execution, delivery or performance of this Agreement
or the Warrant Agreement, its consummation of the Reorganization Transactions
and the transactions contemplated herein, its application of the net proceeds of
the offering in the manner set forth under the caption "Use of Proceeds" or the
conduct of its business as described in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), does now or will in
the future conflict with, result in any breach or violation of any of the terms
or provisions of, or constitute a default under, cause (or permit) the
maturation or acceleration of any liability or obligation or the termination of
any right under, or result in the creation or imposition of any lien, charge, or
encumbrance upon, any property or assets of the Company or its Subsidiaries
pursuant to the terms of (A) the charter or by-laws of the Company or its
Subsidiaries (B) any indenture, mortgage, deed of trust, voting trust agreement,
shareholders' agreement, note agreement or other agreement or instrument to
which the Company or its Subsidiaries is a party or by which any of them may be
bound or to which any of their property is or may be subject or (C) any statute,
judgment, decree, order, rule or regulation applicable to the Company or its
Subsidiaries of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or its Subsidiaries, or any of their
activities or properties.
(o) All executed agreements or copies of executed agreements,
including but not limited to the Reorganization Agreements, filed as exhibits to
the Registration Statement to which the Company or any of its Subsidiaries is a
party or by which any of them is or may be bound or to which any of their
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<PAGE> 12
assets, properties or businesses are or may be subject have been duly and
validly authorized, executed and delivered by the Company or any such
Subsidiary, as the case may be, and constitute the legal, valid and binding
agreements of the Company or such Subsidiaries, as the case may be, enforceable
against each in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally, and general equitable principles relating to the availability
of remedies, and except as rights to indemnity or contribution may be limited by
federal or state securities laws and the public policy underlying such laws).
The descriptions in the Registration Statement of the Reorganization
Transactions, contracts and other documents are accurate in all material
respects and fairly present the information required to be shown with respect
thereto by the Act and the Rules and Regulations, and there are no transactions,
contracts or other documents which are required by the Act or the Rules and
Regulations to be described in the Registration Statement or filed as exhibits
to the Registration Statement which are not described or filed as required, and
the exhibits which have been filed are complete and correct copies of the
documents of which they purport to be copies.
(p) Except as set forth in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
including the section therein describing the Reorganization Transactions,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and prior to the Closing Date
and, if later, the Option Closing Date: (i) there has not been, and will not
have been, any change in the capitalization of the Company or any material
adverse change in the business, properties, prospects, condition (financial or
otherwise), net worth or results of operations of the Company arising for any
reason whatsoever; (ii) the Company has not incurred, and will not have incurred
any material liabilities or obligations, direct or contingent; (iii) the Company
has not and will not have entered into any material transactions other than
pursuant to this Agreement; (iv) the Company has not and will not have paid or
declared any dividends or other distributions of any kind on any class of its
capital stock; (v) there has not and will not have been any change in the
capitalization of any Subsidiary or any material adverse change in the business,
properties, prospects, condition (financial or otherwise), net worth or results
of operations of any of them, in any case arising for any reason whatsoever;
(vi) none of the Subsidiaries has or will have incurred any material liabilities
or obligations, direct or contingent, (vii) none of the Subsidiaries has or will
have entered into any material transactions other than as contemplated by this
Agreement; and (viii) none of the
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<PAGE> 13
Subsidiaries has or will have paid or declared any dividends or other
distributions of any kind on any class of its capital stock, partnership
interests or other equity securities.
(q) No labor disturbance by the employees of the Company or any of
its Subsidiaries exists or, to the Company's knowledge, is imminent which may
have a Material Adverse Effect.
(r) Since its inception, neither the Company nor any of its
Subsidiaries has incurred any material liability arising under or as a result of
the application of the provisions of the Act or any state securities or Blue Sky
laws.
(s) Each of the Company and its Subsidiaries owns, or is licensed or
otherwise has sufficient right to use, the proprietary knowledge, inventions,
patents, trademarks, service marks, trade names, logo marks and copyrights used
in or necessary for the conduct of its business (collectively "Rights") as
described in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). No claims have been asserted against the Company
or its Subsidiaries by any person with respect to the use of any such Rights or
challenging or questioning the validity or effectiveness of any such Rights. The
use, in connection with the business and operations of the Company of such
Rights does not, to the Company's best knowledge, infringe on the rights of any
person.
(t) There are no contracts, agreements or understandings between the
Company or any of its Subsidiaries and any person granting such person the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities under the Registration
Statement (other than those that have been disclosed in the Prospectus or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
that have not been waived with respect to the Registration Statement.
(u) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) has taken, directly
or indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might in the future
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of the Company, to facilitate the sale or resale of
the Shares or otherwise.
(v) Each of the Company and its Subsidiaries has good and marketable
title to, or valid and enforceable leasehold interests in, all properties and
assets owned or leased by it, free and clear of all liens, encumbrances,
security interests,
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<PAGE> 14
claims, restrictions, equities, claims and defects, except (A) such as are
described in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), or such as do not
materially adversely affect the value of any of such properties or assets taken
as a whole and do not materially interfere with the use made and proposed to be
made of any of such properties or assets, and (B) liens for taxes not yet due
and payable as to which appropriate reserves have been established and reflected
in the financial statements included in the Registration Statement. The Company
and its Subsidiaries own or lease all such properties as are necessary to its
operations as now conducted, and as proposed to be conducted as set forth in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus); and the properties and
business of the Company and its Subsidiaries conform in all material respects to
the descriptions thereof contained in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All the material leases and subleases of the Company
and its Subsidiaries and under which the Company or its Subsidiaries holds
properties or assets as lessee or sublessee, constitute valid leasehold
interests of the Company or such Subsidiaries free and clear of any lien,
encumbrance, security interest, restriction, equity, claim or defect, are in
full force and effect, and neither the Company nor any of its Subsidiaries is in
default in respect of any of the terms or provisions of any such material leases
or subleases, and neither the Company nor any of its Subsidiaries has notice of
any claim which has been asserted by anyone adverse to the Company's or any of
its Subsidiaries' rights as lessee or sublessee under either the material lease
or sublease, or affecting or questioning the Company's or any of its
Subsidiaries' right to the continued possession of the leased or subleased
premises under any such material lease or sublease, which may have a Material
Adverse Effect.
(w) The Class A Common Stock and the Shares have been accepted for
listing, subject only to notice of issuance, on The Nasdaq Stock Market National
Market ("NMS").
(x) None of the Subsidiaries are currently, and after giving effect
to the Reorganization Transactions will not be, prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on any such Subsidiary's capital stock from repaying to the Company
any loans or advances to such Subsidiaries from the Company or from transferring
any of such Subsidiaries's property or assets to the Company, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
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<PAGE> 15
(y) Neither the Company nor any of its Subsidiaries nor any of their
respective employees or agents has made any payment of funds of the Company or
any of its Subsidiaries or received, or retained any funds in violation of any
law, rule or regulation of a character required to be disclosed in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(z) The business, operations and facilities of the Company and the
Subsidiaries have been, are being and, upon consummation of the Reorganization
Transactions, will be conducted in compliance with all applicable laws,
ordinances, rules, regulations, licenses, permits, approvals, plans,
authorizations or requirements relating to occupational safety and health, or
pollution, or protection of health or the environment (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances, materials
or wastes into ambient air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous or
liquid in nature) of any governmental department, commission, board, bureau,
agency or instrumentality of the United States, any state or political
subdivision thereof, or any foreign jurisdiction, and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto; and none of the Company or the Subsidiaries has received any
notice from any governmental instrumentality or any third party alleging any
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances and/or damages to natural resources).
(aa) Each of the Company and its Subsidiaries has filed all
necessary federal, state and local and other material tax returns that are
required to be filed or has requested extensions thereof and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable.
(ab) Each of the Company and the Subsidiaries is insured by insurers
of recognized financial responsibility against such losses and risks as are
prudent and customary in the business in which the Company or such Subsidiary is
engaged; none of the Company or the Subsidiaries has been refused any insurance
coverage sought or applied for; and the Company has no reason to believe that it
will not be able to renew its existing insurance coverage (or such coverage as
will be in effect upon consummation of the Reorganization Transactions) as and
when such coverage expires.
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<PAGE> 16
(ad) Each certificate signed by any officer of the Company and
delivered to the Representative or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(ae) The Company has prepared and filed with the Commission pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") an appropriate registration statement form to register the Class
A Common Stock under the Exchange Act effective upon the effectiveness of the
Registration Statement.
4. Public Offering of the Shares. It is understood that the Underwriters
will make a public offering of the Shares and at the price and upon the other
terms set forth in the Prospectus and subject to the terms and conditions
hereunder.
5. Agreements of the Company. The Company covenants and agrees with each
of the Underwriters as follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
practicable. If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. During any
time when a prospectus relating
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<PAGE> 17
to the Shares is required to be delivered under the Act, the Company (A)
will comply with all requirements imposed upon it by the Act and the Rules
and Regulations to the extent necessary to permit the continuance of sales
of or dealings in the Shares in accordance with the provisions hereof and
of the Prospectus, as then amended or supplemented, and (B) will not file
with the Commission the prospectus, any amendment or supplement to such
prospectus or any amendment to the Registration Statement of which the
Representative shall not previously have been advised and furnished with a
copy a reasonable period of time prior to the proposed filing and as to
which filing the Representative shall not have given its consent, such
consent to not be unreasonably withheld.
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative (A) when the
Registration Statement, as amended, has become effective; if the
provisions of Rule 430A promulgated under the Act will be relied upon,
when the Prospectus has been filed in accordance with said Rule 430A and
when any post-effective amendment to the Registration Statement becomes
effective; (B) of any request made by the Commission for amending the
Registration Statement, for supplementing any Preliminary Prospectus or
the Prospectus or for additional information, or (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or any
order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto or the institution
or threat of any investigation or proceeding for that purpose, and will
use its best efforts to prevent the issuance of any such order and, if
issued, to obtain the lifting thereof as soon as possible.
(iii) The Company will (A) take or cause to be taken all such
actions and furnish all such information as the Representative may
reasonably require in order to qualify the Shares for offer and sale under
the state securities or Blue Sky laws of such jurisdictions as the
Representative may designate, (B) continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Shares
but not to exceed one year from the date of this Agreement, and (C) make
such applications, file such documents and furnish such information as may
be required for the purposes set forth in clauses (A) and (B); provided,
however, that the Company shall not be required to qualify as a foreign
corporation or file a general or unlimited consent to service of process
in any such jurisdiction.
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<PAGE> 18
(iv) The Company consents to the use of the Prospectus (and
any amendment or supplement thereto) by the Underwriters and all dealers
to whom the Shares may be sold, in connection with the offering or sale of
the Shares and for such period of time thereafter as the Prospectus is
required by law or the Rules and Regulations to be delivered in connection
therewith. If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act or the Rules and Regulations, any
event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Company promptly will so notify the Representative and, subject to Section
5(i) hereof, will prepare and file with the Commission an amendment to the
Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance.
(v) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date
of the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
will make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act or the Rules and Regulations,
covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(vi) The Company will timely file all such reports, forms or
other documents as may be required from time to time under the Act
(including a report on Form SR), the Rules and Regulations, the Exchange
Act, and the rules and regulations thereunder, and all such reports, forms
and documents filed will comply in all material respects as to form and
substance with the applicable requirements under the Act, the Rules and
Regulations, the Exchange Act and the rules and regulations thereunder.
(vii) During a period of five years after the date hereof, the
Company will furnish to its shareholders, as soon as practicable, annual
reports (including financial
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<PAGE> 19
statements audited by independent public accountants) and unaudited
quarterly reports of earnings, and will deliver to the Representative:
(A) concurrently with furnishing such quarterly reports
to its shareholders, statements of income of the Company for each
quarter in the form furnished to the Company's shareholders and
certified by the Company's principal financial or accounting
officer;
(B) concurrently with furnishing such annual reports to
its shareholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of operations,
shareholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
public accountants;
(C) as soon as they are available, copies of
all information (financial or other) mailed to
shareholders;
(D) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the NASD or any securities exchange;
(E) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by the
Company; and
(F) any additional information of a public nature
concerning the Company or its business which the Representative may
reasonably request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries
are consolidated, and will be accompanied by similar financial statements
for any significant subsidiary which is not so consolidated.
(viii) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Class A Common Stock.
(ix) The Company will furnish, without charge, to
the Representative or on the Representative's order, at such
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<PAGE> 20
place as the Representative may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and
will include all financial statements and exhibits) and the Prospectus,
and all amendments and supplements thereto, in each case as soon as
available and in such quantities as the Representative may reasonably
request.
(x) The Company will not, directly or indirectly, without the
prior written consent of the Representative, offer, sell, grant any option
to purchase or otherwise dispose (or announce any offer, sale, grant of
any option to purchase or other disposition) of any shares of Class A
Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Class A Common Stock for a period of 180 days
after the date hereof, except pursuant to this Agreement and except as
contemplated by the Prospectus.
(xi) Neither the Company nor any of its officers or directors,
nor affiliates of any of them (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the
Company.
(xii) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
6. Expenses.
(a) Whether or not the transactions contemplated in this Agreement
are consummated, or for any reason this Agreement is terminated, the Company
will pay, or reimburse if paid by the Representative, all fees and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, (i) the preparation, printing and
filing of the Registration Statement and exhibits thereto, each Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (ii) the preparation and delivery of certificates
representing the Shares, (iii) the printing of this Agreement, the Warrant
Agreement, the Agreement among Underwriters, any Dealer Agreements and any
Underwriters' Questionnaire, (iv) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
Preliminary Prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be
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<PAGE> 21
sold, (v) the quotation of the Shares on the NMS, (vi) any filings required to
be made by the Underwriters with the NASD, (vii) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions designated pursuant to Section 5(g), including the
reasonable fees, disbursements and other charges of counsel to the Underwriters
in connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (viii) counsel and accountants to the
Company and (ix) the transfer agent for the Shares.
(b) Whether or not the transactions contemplated by this Agreement
are consummated or if this Agreement shall be terminated by the Company pursuant
to any of the provisions hereof, the Company will reimburse the Representative
for all of its accountable out-of-pocket fees and expenses (including the fees,
disbursements and other charges of its counsel) incurred by it in connection
herewith, up to an aggregate amount of $250,000, which amount excludes the
expenses to be paid by the Company relating to sub-sections (vi) and (vii) of
paragraph (a) above.
7. Conditions of the Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Shares set forth opposite the name of
such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date as if they had been made on and as of the Closing Date;
the accuracy on and as of the Closing Date of the statements of officers of the
Company made pursuant to the provisions hereof; the performance by the Company
on and as of the Closing Date of its covenants and agreements hereunder; and the
following additional conditions:
(a) If the Company has elected to rely on Rule 430A under the Act,
the Registration Statement shall have been declared effective, and the
Prospectus (containing the information omitted pursuant to Rule 430A) shall have
been filed with the Commission not later than the Commission's close of business
on the second business day following the date hereof or such later time and date
to which the Representative shall have consented; if the Company does not elect
to rely on Rule 430A, the Registration Statement shall have been declared
effective not later than 9:00 A.M., New York time, on the date hereof or such
later time and date to which the Representative shall have consented; if
required, in the case of any changes in or amendments or supplements to the
Prospectus in addition to those contemplated above, the Company shall have filed
such Prospectus as amended or supplemented with the Commission in the manner and
within the time period required by Rule 424(b) under the Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no
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<PAGE> 22
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representative, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Company shall not have advised the Representative that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representative reasonably may
request and such counsel shall have received such documents and other
information as they reasonably request to enable them to pass upon such matters.
(d) On the Closing Date the Underwriters shall have received the
opinion, dated the Closing Date, of Gray Cary Ware & Freidenrich, counsel to the
Company ("Company Counsel"), to the effect set forth below:
(i) Each of the Company and its Subsidiaries is a duly
incorporated and validly existing corporation in good standing under the
laws of its jurisdiction of incorporation with the corporate power and
authority to own or lease its properties and to conduct its business as
described in the Prospectus. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the ownership or leasing of
property or conduct of its business requires such qualification (except
for those jurisdictions in which the failure so to qualify can be cured
without having a Material Adverse Effect);
(ii) The Company has authorized capital stock as set forth in
the Prospectus; the securities of the Company conform in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Class
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<PAGE> 23
A and Class B Common Stock have been duly authorized and validly issued by
the Company, are fully paid and non-assessable, and are free of any
preemptive or, to the knowledge of such counsel, other rights to subscribe
for any of the Shares; the Company has duly authorized the issuance and
sale of the Shares to be sold by it hereunder; the Shares, when issued by
the Company and paid for in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform in all
material respects to the description thereof contained in the Prospectus
and will not be subject to any preemptive or, to the knowledge of such
counsel, subscription or other similar rights; and the Shares have been
duly authorized for quotation, subject only to notice of issuance, on the
NMS;
(iii) The Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto has
been issued, and no proceedings for that purpose have been instituted or
are pending or, to the knowledge of such counsel, are threatened or
contemplated under the Act; the Registration Statement, as of the
effective date, and the Prospectus, as of the date thereof, and, if any,
each amendment and supplement thereto (except for the financial and
statements, schedules and other financial and statistical data included
therein, as to which such counsel need not express any opinion), complied
as to form in all material respects with the requirements of the Act and
the Rules and Regulations; the descriptions contained in the Registration
Statement and the Prospectus of contracts and other documents are accurate
and fairly represent in all material respects the information required to
be shown by the Act and the Rules and Regulations; to the knowledge of
such counsel, there are no contracts or documents which are required by
the Act to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement which are not
described or filed as required by the Act and the Rules and Regulations;
to the knowledge of such counsel, there is not pending or threatened
against the Company any action, suit, proceeding or investigation before
or by any court, regulatory body, or administrative agency or any other
governmental agency or body, domestic or foreign, of a character required
to be disclosed in the Registration Statement or the Prospectus which is
not so disclosed therein; and the statements set forth under the headings
"Business - Company History," "Proprietary Rights and Licenses," "-
Government Regulations," "- Litigation," "Management - Limitation of
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<PAGE> 24
Liability and Indemnification," "- Benefit Plans," "Certain Transactions,"
"Shares Eligible for Future Sale," and "Description of Capital Stock," in
the Prospectus, insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein, provide an accurate
summary in all material respects of such legal matters, documents and
proceedings;
(iv) The Company has full corporate right, power, and
authority to enter into this Agreement and the Warrant Agreement and to
consummate the transactions provided for herein and therein; each of this
Agreement and the Warrant Agreement has been duly authorized, executed and
delivered by the Company; and each of this Agreement and the Warrant
Agreement, assuming due authorization, execution and delivery by each
other party hereto, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws now or
hereafter in effect relating to or affecting creditors' rights generally
or by general principles of equity relating to the availability of
remedies and except as rights to indemnity and contribution may be limited
by federal or state securities laws or the public policy underlying such
laws. None of the Company's execution, delivery or performance of each of
this Agreement and the Warrant Agreement, its consummation of the
transactions contemplated herein and therein, conflicts or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon, any
property or assets of the Company or any of its Subsidiaries pursuant to
the terms of the charter or by-laws of the Company or any of its
Subsidiaries; the terms of any indenture, mortgage, deed of trust, voting
trust agreement, stockholder's agreement, note agreement or other
agreement or instrument filed as an exhibit to the Registration Statement
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is or may be bound or to which any of
its properties may be subject; any statute, rule or regulation of any
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its Subsidiaries any of their respective activities or properties; or any
judgment, decree or order, known to such counsel after reasonable
investigation, of any Governmental Body; and no consent, approval,
authorization or order of any Governmental Body, has been or is required
for the Company's performance of this Agreement or the consummation of the
transactions contemplated hereby, except under the
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<PAGE> 25
Act or as may be required under state securities or Blue Sky
laws;
(v) To the best of such counsel's knowledge, except as
described in the Prospectus, no claims have been asserted against the
Company or any of its Subsidiaries by any person to the use of any rights
or challenging or questioning the validity or effectiveness of any such
rights. The use, in connection with the business and operations of the
Company and its Subsidiaries of such rights does not, to the best of such
counsel's knowledge, infringe on the rights of any person;
(vi) Each of the Company and the Subsidiaries has full legal
right, power, and authority to enter into the agreements that it has
entered, or will enter, into in connection with the Reorganization
Transactions (collectively, the "Reorganization Agreements") to which it
is a party and to consummate the transactions provided for in each
thereof. Each Reorganization Agreement has been duly authorized, executed
and delivered by the Company and each other party thereto; each
Reorganization Agreement is a valid and binding agreement of the Company
and each other party thereto, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to or
affecting creditors' rights generally or by general principles of equity
relating to the availability of remedies. None of the execution or
delivery of any Reorganization Agreement by any party thereto, the
performance by any thereof of its obligations thereunder, the consummation
by any thereof of the transactions contemplated therein or of any other
Reorganization Transaction, conflicts or will conflict with or results or
will result in any breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon, any property or assets of any of
them pursuant to (A) the terms of the articles of incorporation or bylaws
or partnership or operating agreement or other governing instruments or
documents of any of them; (B) the terms of any contract or other agreement
known to such counsel after reasonable investigation to which any of them
is (or, upon consummation of the Reorganization Transactions, will be) a
party or by which any of them is or may be bound or to which any of their
respective properties is or may be subject; (C) any statute, rule or
regulation of any Governmental Body having jurisdiction over any of them
or any of their respective activities or properties; or (D) the terms of
any judgment, decree or order, known to such counsel after reasonable
investigation, of any arbitrator or Governmental Body having such
jurisdiction. No consent,
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<PAGE> 26
approval, authorization or order of any Governmental Body has been or is
required for the performance of any Reorganization Agreement or the
consummation of the transactions contemplated thereby or the consummation
of any other Reorganization Transaction in each case by any of the Company
or the Subsidiaries, except such as have been obtained. All of the
Reorganization Transactions have been consummated to the full extent
contemplated by the Reorganization Agreements as of the date of this
Agreement;
(vii) The Company is not required to be registered
under the Investment Company Act;
(viii) The outstanding shares of capital stock of the
Subsidiaries are duly authorized, validly issued and fully paid; such
shares are owned by the Company free and clear of any perfected security
interest or, to such counsel's knowledge, any other liens, encumbrances,
claims or security interests. No Subsidiary of the Company is currently
prohibited, directly or indirectly, by its charter documents or, to such
counsel's knowledge, any contract or agreement to which such subsidiary is
a party from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the
Company or from transferring any of such Subsidiary's property or assets
to the Company or any other Subsidiary of the Company, except as described
or contemplated by the Prospectus.
In addition, such counsel shall state that in the course of
the preparation of the Registration Statement and the Prospectus, such counsel
has participated in conferences with officers and representatives of the
Company, with the Representative and its counsel and with the Company's
independent public accountants, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed and
(without taking any further action to verify independently the statements made
in the Registration Statement and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that either the Registration
Statement as of the date it is declared effective and as of the Closing Date and
any Option Closing Date or the Prospectus as of the date thereof and as of the
Closing Date and any Option Closing Date contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need not express any opinion
with respect to the financial statements, schedules and other financial or
statistical data included in the Registration Statement or the Prospectus).
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<PAGE> 27
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
References to the Registration Statement and the Prospectus in
this paragraph (d) shall include any amendment or supplement thereto at the date
of such opinion.
(e) On or prior to the Closing Date, counsel to the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company, or
conditions herein contained.
(f) At the time that this Agreement is executed by the Company, the
Underwriters shall have received from Price Waterhouse LLP a letter as of the
date of this Agreement in form and substance satisfactory to you (the "Original
Letter"), and on the Closing Date the Underwriters shall have received from such
firm a letter dated the Closing Date stating that, as of a specified date not
earlier than three (3) days prior to the Closing Date, nothing has come to the
attention of such firm to suggest that the statements made in the Original
Letter are not true and correct.
(g) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statement and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of each
of such persons are contemplated or threatened under the Act and any and
all filings required by Rule 424 and Rule 430A have been timely made;
(iii) The Registration Statement and Prospectus
and, if any, each amendment and each supplement thereto,
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<PAGE> 28
contain all statements and information required to be included therein,
and neither the Registration Statement nor any amendment thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and neither the Prospectus (or any supplement
thereto) nor any Preliminary Prospectus includes or included any untrue
statement of a material fact or omits or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus up
to and including the Closing Date, neither the Company nor any
Subsidiaries has incurred, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
neither the Company nor any Subsidiaries has purchased any of its
outstanding capital stock or paid or declared any dividends or other
distributions on its capital stock; the Company nor any Subsidiaries has
entered into any transactions not in the ordinary course of business; and
there has not been any change in the capital stock or, consolidated
long-term debt or, any increase in the short-term borrowings (other than
any increase in short-term borrowings in the ordinary course of business)
of the Company or any material adverse change to the business, properties,
assets, net worth, condition (financial or other), results of operations
or prospects of the Company and its Subsidiaries taken as a whole; neither
the Company nor any Subsidiary has sustained any material loss or damage
to its property or assets, whether or not insured; there is no litigation
which is pending or threatened against the Company or any Subsidiary which
is required under the Act or the Rules and Regulations to be set forth in
an amended or supplemented Prospectus which has not been set forth; and
there has not occurred any event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in
this paragraph (g) are to such documents as amended and supplemented at
the date of the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any adverse change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
adverse change, or any development involving a prospective adverse change, in
the business or properties of the
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<PAGE> 29
Company or its Subsidiaries which change or decrease in the case of clause (i)
or change or development in the case of clause (ii) makes it impractical or
inadvisable in the Representative's judgment to proceed with the public offering
or the delivery of the Shares as contemplated by the Prospectus.
(i) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(j) The Company shall have delivered to the Representative written
agreements in the form set forth in Exhibit ___ hereto with each officer and
director of the Company, each beneficial owner of the outstanding shares of
Class A Common Stock or Class B Common Stock and each beneficial owner of
options to purchase shares of Class A Common Stock or Class B Common Stock
listed on Exhibit ____ hereto to the effect that they will not, for a period of
(i) one year after the commencement of the public offering of the Shares, if
such person is an officer or director of the Company or (ii) 180 days after the
commencement of the public offering of the Shares, without the prior written
consent of the Representative, directly or indirectly, offer to sell, sell,
contract to sell, grant or transfer any option to purchase or otherwise dispose
(or announce any offer, sale, grant of any option to purchase or other
disposition) of any shares of Class A Common Stock or Class B Common Stock, or
any securities convertible into or exchangeable for shares of Class A Common
Stock or Class B Common Stock (other than pursuant to employee stock or
nonemployee director option plans). It is acknowledged that the restriction
contained in this Section 7(f) shall not be applicable to the Firm Shares, the
Option Shares or the Underwriter's Warrant Shares being sold by the Company to
the Underwriters pursuant to this Agreement.
(k) The Company shall have furnished the Underwriters with such
further opinions, letters, certificates or documents as you or counsel for the
Underwriters may reasonably request. All opinions, certificates, letters and
documents to be furnished by the Company will comply with the provisions hereof
only if they are reasonably satisfactory in all material respects to the
Underwriters and to counsel for the Underwriters. The Company shall furnish the
Underwriters with conformed copies of such opinions, certificates, letters and
documents in such quantities as you reasonably request. The certificates
delivered under this Section 7 shall constitute representations, warranties and
agreements of the Company as to all matters set forth therein as fully and
effectively as if such matters had been set forth in Section 2 of this
Agreement.
(l) The Shares shall be quoted on the NMS.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any
and all losses, claims, damages or liabilities, joint or several (and actions in
respect thereof), to which such Underwriter or such controlling person may
become subject, under the Act or other federal or
- 29 -
<PAGE> 30
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or the Prospectus or any Preliminary Prospectus,
or any amendment or supplement thereto, or any blue sky application or other
document executed by the Company specifically for the purpose of qualifying, or
based upon written information furnished by the Company filed in any state or
other jurisdiction in order to qualify, any or all of the Shares under the
securities or Blue Sky laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements not
misleading and will reimburse, as incurred, such Underwriter or such controlling
persons for any legal or other expenses incurred by such Underwriter or such
controlling persons in connection with investigating, defending or appearing as
a third party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in any of such documents in reliance upon and
in conformity with information relating to any Underwriter furnished in writing
to the Company by the Representative on behalf of any Underwriter expressly for
inclusion therein, and provided, further, that such indemnity with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or
to the benefit of any person controlling such Underwriter) from whom the person
asserting any such loss, claim, damage, liability or action purchased Shares
which are the subject thereof to the extent that any such loss, claim, damage,
liability or action (i) results from the fact that such Underwriter failed to
send or give a copy of the Prospectus (as amended or supplemented) to such
person at or prior to the confirmation of the sale of such Shares to such person
in any case where such delivery is required by the Act and (ii) arises out of or
is based upon an untrue statement or omission of a material fact contained in
such Preliminary Prospectus that was corrected in the Prospectus (as amended and
supplemented), unless such failure resulted from non-compliance by the Company
with Section 5(viii) hereof.
The indemnity agreement in this paragraph (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each person, if any, who
controls the Company
- 30 -
<PAGE> 31
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any and all losses, claims, damages or liabilities (and actions in
respect thereof) to which the Company or any such director, officer, or
controlling person may become subject, under the Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or the Prospectus or any Preliminary Prospectus, or
any amendment or supplement thereto or in any Blue Sky Application, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished in writing by
that Underwriter through the Representative to the Company expressly for use
therein; and will reimburse, as incurred, all legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action. The Company acknowledges that the statements with respect
to the public offering of the Shares set forth under the heading "Underwriting"
and the stabilization legend in the Prospectus have been furnished by the
Underwriters to the Company expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus. The indemnity agreement contained in this paragraph
(b) shall be in addition to any liability which the Underwriters may have at
common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 8, notify such indemnifying party or
parties of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under paragraph (a) or (b) of this Section
8 or to the extent that the indemnifying party was not adversely affected by
such omission. In case any such action is brought against an indemnified party
and it notifies an indemnifying party or parties of the commencement thereof,
the indemnifying party or parties against which a claim is to be made will be
entitled to participate therein and, to the extent that it or they may wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party has reasonably
- 31 -
<PAGE> 32
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties, in which case the indemnifying party shall only be responsible for the
fees and expenses of one counsel (in addition to local counsel) for all
similarly situated indemnified parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses (other than the reasonable costs of
investigation) subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party has employed such
counsel in connection with the assumption of such different or additional legal
defenses in accordance with the proviso to the immediately preceding sentence,
(ii) the indemnifying party has not employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to hold harmless an indemnified party under paragraph (a) or (b)
above in respect of any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) (i) in such proportion as is appropriate to reflect the relative
benefits received by each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company is a
contributing party and the Underwriters are the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the
- 32 -
<PAGE> 33
table on the cover page of the Prospectus. Relative fault 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 the Company or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this paragraph
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation (x) it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
9. Right to Increase Offering. At anytime during a period of 30 days
from the date of the Prospectus, the Underwriters, by no less than two
business days' prior notice to the Company, may designate a closing (which may
be concurrent with, and part of, the closing on the Closing Date with respect
to the Firm Shares or may be a second closing held on a date subsequent to
the Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Underwriters may purchase all or less than
all of the Option Shares in
- 33 -
<PAGE> 34
accordance with the provisions of this Section 9 at the purchase price per share
to be paid for the Firm Shares. In no event shall the Option Closing Date be
later than 10 business days after written notice of election to purchase Option
Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Option Shares specified in such notice and the
Underwriters agree, severally and not jointly, to purchase such Option Shares on
the Option Closing Date. Such Option Shares shall be purchased for the account
of each Underwriter in the same proportion as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares (subject to adjustment by you to eliminate fractions) and
may be purchased by the Underwriters only for the purpose of covering
over-allotments made in connection with the sale of the Firm Shares.
No Option Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Option Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Option Shares.
10. Effective Date and Termination.
(a) This Agreement shall become effective at 9:00 A.M., New York
time, on the date hereof, or at such later time after the Registration Statement
becomes effective as the Representative, in its sole discretion, shall release
the Shares for the sale to the public unless prior to such time the
Representative shall have received written notice from the Company that it
elects that this Agreement shall not become effective, or the Representative
shall have given written notice to the Company that the Representative on behalf
of the Underwriters elects that this Agreement shall not become effective;
provided, however, that the provisions of this Section and of Section 6 and
Section 8 hereof shall at all times be effective; provided, further, that this
Agreement shall terminate if the Registration Statement is not declared
effective. For purposes of this Section 11(a), the Shares to be purchased
hereunder shall be deemed to have been so released upon the earlier of
notification by the Representative to securities dealers releasing such Shares
for offering or the release by the Representative for publication of the first
newspaper
- 34 -
<PAGE> 35
advertisement which is subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Representative by notice to the Company in the
event that the Company has failed to comply in any respect with any of the
provisions of this Agreement required on its part to be performed at or prior to
the Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company are not accurate in any respect or if the covenants,
agreements or conditions of, or applicable to the Company herein contained have
not been complied with in any respect or satisfied within the time specified on
the Closing Date or the Option Closing Date, respectively, or if prior to the
Closing Date or the Option Closing Date:
(i) the Company shall have sustained a loss by strike, fire,
flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss was insured;
(ii) trading in the Class A Common Stock shall have been
suspended by the Commission or the NMS or trading in securities generally
on the New York Stock Exchange or the NMS shall have been suspended or a
material limitation on such trading shall have been imposed or minimum or
maximum prices shall have been established on either any such exchange or
market system;
(iii) a banking moratorium shall have been
declared by New York, California or United States
authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company and
its Subsidiaries taken as a whole that, in each case, in the
Representative's judgment makes it impracticable or inadvisable to make or
consummate the public offering, sale or delivery of the Company's Shares
on the terms and in the manner contemplated in the Prospectus and the
Registration Statement.
- 35 -
<PAGE> 36
(c) Termination of this Agreement under this Section 11 or Section
12 after the Firm Shares have been purchased by the Underwriters hereunder shall
be applicable only to the Option Shares. Termination of this Agreement shall be
without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
11. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Shares or Option Shares hereunder and the
aggregate number of such Shares that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Shares or Option Shares to be purchased by all of the
Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Shares by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Shares or Option
Shares that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Shares that is more than ten percent of the aggregate number of Firm
Shares or Option Shares, as the case may be, to be purchased by all of the
Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for
the purchase by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representatives) of the Shares
with respect to which such default occurs, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the
Company other than as provided in Section 11 hereof. In the event of any
default by one or more Underwriters as described in this Section 11, the
Representatives shall have the right to postpone the Firm Closing Date
or the Option Closing Date, as the case may be, established as provided in
Section 1 hereof for not more than seven business days in order that any
necessary changes may be made in the arrangements or documents for the purchase
and delivery of the Firm Shares or Option Shares, as the case may be. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 11. Nothing herein shall relieve any defaulting
Underwriter from liability for its default.
12. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and
the several Underwriters set forth in this Agreement or made by or on behalf
of them, respectively, pursuant to this Agreement shall remain in full force
and effect, regardless of (i) any investigation made by or on behalf of the
- 36 -
<PAGE> 37
Company, any of its officers or directors, any Underwriter or any controlling
person referred to in Section 8 hereof and (ii) delivery of and payment for the
Shares. The respective agreements, covenants, indemnities and other statements
set forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
13. Notices. Notice shall be given pursuant to any of the provisions
of this Agreement shall be in writing and, unless otherwise specified, shall
be mailed or delivered or telegraphed and confirmed by letter or telecopied and
confirmed by letter (a) if to the Underwriters, to the Representative at the
office of Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York
10022-6822, Attention: A. Brean Murray or, if sent to the Company, shall be
mailed or delivered or telegraphed and confirmed to the Company at 9775 Towne
Centre Drive, San Diego, California 92121, Attention: President, with a copy
to Gray Cary Ware & Freidenrich, 401 B Street, Suite 1700, San Diego, California
92101-4297, Attention: Cameron Jay Rains, Esq.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and each Underwriter and the Company's and each
Underwriter's respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be
and being for the sole and exclusive benefit of such persons and for the
benefit of no other person, except that the representations, warranties,
indemnities and contribution agreements of the Company contained in this
Agreement shall also be for the benefit of any person or persons, if any,
who control any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, and except that the Underwriters' indemnity
and contribution agreements shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement, and any person or persons, if any, who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Shares from the Underwriters will be deemed a
successor because of such purchase. This Agreement shall not be assignable by
either party hereto without the prior written consent of the other party.
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<PAGE> 38
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
16. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Underwriters.
Very truly yours,
JAYMARK, INC.
By:
--------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned:
BREAN MURRAY & CO., INC.
By: Brean Murray & Co., Inc.
Acting on its own behalf and as
the Representative of the several
Underwriters referred to in the
foregoing Agreement
By:
------------------------
Name:
Title:
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<PAGE> 39
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated ________, 1997
Number of Firm
Shares to be
Purchased from
Name the Company
- ---- --------------
Brean Murray & Co., Inc......................... ---------
Total...................................... 1,300,000
=========
- 39 -
<PAGE> 1
EXHIBIT 2.2
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
between
JAYCOR MULTIMEDIA SERVICES, INC., a Delaware Corporation,
as Buyer,
LONG JOHN PRODUCTIONS, INC., a Florida Corporation,
as Seller
and
JOHN BIFFAR, AN INDIVIDUAL,
as Shareholder
October 24, 1995
<PAGE> 2
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
TABLE OF CONTENTS
Page
I THE TRANSACTION...................................................... .-1-
1.1 Assets...................................................... .-1-
1.1.1 Tangible Personal Property............. .-2-
1.1.2 Real Property.......................... .-2-
1.1.3 Contracts.............................. .-2-
1.1.4 Intangible Rights...................... .-2-
1.1.5 Files and Records...................... .-2-
1.1.6 Claims................................. .-2-
1.1.7 Prepaid Items.......................... .-3-
1.1.8 Goodwill............................... .-3-
1.1.9 Accounts Receivable.................... .-3-
1.2 Excluded Assets......................................... .-3-
1.2.1 Securities....................................... .-3-
1.2.2 Insurance........................................ .-3-
1.2.3 Certain Assets................................... .-3-
1.2.4 Duplicate Records................................ .-3-
1.2.5 Corporate Records................................ .-3-
1.2.6 Excluded Contracts............................... .-3-
1.2.7 Claims........................................... .-3-
1.2.8 Shareholder's Personal Items..................... .-3-
1.3 Liabilities............................................. .-3-
1.4 Purchase Price and Method of Payment.................... .-5-
1.5 Adjustments............................................. .-5-
1.5.1 Adjustment Procedure................... .-6-
1.6 Non-Competition Agreement............................... .-6-
1.7 Closing................................................. .-6-
II SELLER'S REPRESENTATIONS............................................. .-6-
2.1 Corporate Existence......................................... .-6-
2.2 Authorization........................................... .-6-
2.3 No Violation............................................ .-7-
2.4 Financial Statements.................................... .-7-
2.5 Absence of Undisclosed Liabilities...................... .-7-
2.6 Accounts Receivable..................................... .-8-
2.7 Absence of Certain Changes.............................. .-8-
2.8 Title to Assets......................................... .-9-
2.9 Condition of Tangible Assets............................ .-9-
2.10 Real Property........................................... .-9-
2.11 Compliance with Environmental Laws...................... -10-
2.12 Inventory............................................... -10-
2.13 Taxes................................................... -10-
2.14 Litigation.............................................. -11-
-i-
<PAGE> 3
2.15 Bulk Sales................................................. -11-
2.17 Compliance with Laws.................................... -11-
2.18 Complete Copies of Materials............................ -12-
2.19 Disclosure.............................................. -12-
III BUYER'S REPRESENTATIONS.............................................. -12-
3.1 Corporate Organization and Authority........................ -12-
3.2 Agreement Will Not Cause Breach or Violation................ -12-
3.3 Buyer's Authority and Consents.............................. -12-
3.4 Full Disclosure............................................. -12-
IV CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE.......................... -13-
4.1 Representations and Warranties True
as of the Closing Date...................................... -13-
4.2 Compliance with this Agreement.............................. -13-
4.3 No Threatened or Pending Litigation......................... -13-
4.4 Biffar Employment Agreement................................. -13-
4.5 Opinions of Counsel for Seller.............................. -13-
4.6 No Material Adverse Change.................................. -13-
4.7 Seller's Corporate Documents................................ -13-
4.8 Board Approval.......................................... -14-
4.10 Non-Competition Agreement............................... -14-
4.11 Seller's Deliveries..................................... -14-
4.12 Due Diligence Review.................................... -14-
V CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE......................... -14-
5.1 Accuracy of Buyer's Representations and Warranties.......... -15-
5.2 Performance by Buyer........................................ -15-
5.3 Absence of Litigation....................................... -15-
5.4 Buyer's Deliveries...................................... -15-
VI INDEMNIFICATION...................................................... -15-
6.1 Indemnity by Seller and the Shareholder................. -15-
6.2 Indemnity by Buyer...................................... -15-
6.3 Limitation of Indemnification Liability
of Seller and the Shareholder........................... -16-
6.4 Limitation of Indemnification Liability
of Buyer................................................ -16-
6.5 Survival................................................ -16-
6.6 Indemnification Procedures.............................. -16-
VII THE CLOSING.......................................................... -17-
7.1 Seller's Deliveries at Closing.............................. -17-
7.1.1 Bill of Sale..................................... -17-
7.1.2 Possession of the Assets......................... -17-
7.1.4 Non-Competition Agreement........................ -17-
7.1.5 Biffar Employment Agreement...................... -17-
7.1.6 Corporate Documents.............................. -17-
7.1.7 Third-Party Consents............................. -17-
-ii-
<PAGE> 4
7.1.8 Opinion of Seller's Counsel...................... -17-
7.2 Bills of Sale and Other Instruments of Transfer......... -18-
7.3 Buyer's Deliveries at Closing............................... -18-
7.3.1 Closing Purchase Price........................... -18-
7.4 Further Documents........................................... -18-
VIII TERMINATION.......................................................... -18-
8.1 Termination of Agreement.................................... -18-
8.2 Remedies.................................................... -18-
IX GENERAL PROVISIONS................................................... -18-
9.1 Effect of Headings; Exhibits................................ -19-
9.2 Entire Agreement; Modification; Waiver...................... -19-
9.3 Counterparts................................................ -19-
9.4 Parties in Interest......................................... -19-
9.5 Assignment.................................................. -19-
9.6 Recovery of Litigation or Arbitration Costs................. -19-
9.7 Nature and Survival of Representations and Covenants........ -19-
9.8 Severability................................................ -20-
9.9 Necessary Acts.............................................. -20-
9.10 Time of Essence............................................ -20-
9.11 Notices.................................................... -20-
9.12 Arbitration................................................ -21-
9.12.1 Location........................................ -21-
9.12.2 Selection of Arbitrators........................ -21-
9.12.3 Discovery....................................... -21-
9.12.4 Case Management................................. -21-
9.12.5 Remedies........................................ -22-
9.12.6 Expenses........................................ -22-
9.12.7 Confidentiality ............................... -22-
9.13 Governing Law.............................................. -22-
9.14 Construction............................................... -22-
EXHIBITS:
A Assignment and Assumption of Contracts
B Non-Competition Agreement
C Disclosure Schedule
D Biffar Employment Agreement
E Opinion of Counsel of Seller
F Opinion of Counsel of Buyer
SCHEDULES:
1.1.1 Tangible Personal Property
1.1.2 Real Property
1.1.3 Contracts
1.1.4 Intangible Rights
-iii-
<PAGE> 5
1.1.9 Accounts Receivable
1.2.8 Shareholder's Personal Items
1.3.4 Assumed Contracts
1.3.5 Accounts Payable
1.3.6 Special Liabilities
1.4 Creditor Payments
2.10.5 Exceptions to Title
2.16 Agreements, Contracts and Commitments
-iv-
<PAGE> 6
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
This Agreement for Purchase and Sale of Assets (this "Agreement") is
entered into as of October 24, 1995 by and among Jaycor Multimedia Services,
Inc., a Delaware corporation doing business as Long John Productions ("Buyer"),
Long John Productions, Inc., a Florida corporation ("Seller"), and John Biffar,
an individual ("Shareholder"), with respect to the following facts:
RECITALS
A. Seller is a corporation engaged in the business of providing
video production services to its customers (the "Business").
B. Buyer is a newly-formed corporation possessing animation and
simulation technologies and capabilities, which it believes are complementary to
the Business.
C. Shareholder is the beneficial owner of all of the issued and
outstanding capital stock of Seller.
D. Seller desires to sell Buyer substantially all of the assets
used in the Business.
E. Buyer desires to purchase certain specified assets from Seller
and to assume certain specified liabilities of Seller, all as set forth in this
Agreement.
F. Shareholder is willing to enter this Agreement for the
purposes of making the representations and warranties and related indemnities
contained herein.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the terms and
provisions set forth herein, the parties hereto mutually agree as follows:
ARTICLE I
THE TRANSACTION
1.1 Assets. Subject to and in reliance upon the
representations, warranties and agreements herein set forth, and subject to the
terms and conditions herein contained, Seller agrees to grant, convey, sell,
assign, transfer and deliver to Buyer on the Closing Date (as hereinafter
defined), and Buyer agrees on the Closing
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Date to purchase, accept and assume, all properties and assets, real and
personal, tangible and intangible, of every type and description owned by Seller
and used or held for use in connection with the Business (except for Excluded
Assets as defined in Section 1.2 hereof), including its business and goodwill
(collectively, the "Assets"). Without limiting the foregoing, the Assets shall
include the following, except to the extent that any of the following are
Excluded Assets:
1.1.1 Tangible Personal Property. All equipment,
electrical devices, antennas, cables, vehicles, furniture, fixtures, office
materials and supplies, hardware, tools, spare parts, films, records, tapes,
discs, carts and other tangible personal property of every kind and description
owned, used or held for use by Seller as of the date of this Agreement in
connection with the Business, including without limitation those listed and
described on Schedule 1.1.1 attached hereto (collectively, the "Tangible
Personal Property").
1.1.2 Real Property. All land, leaseholds,
licenses, rights-of-way and other interests of every kind and description in and
to all of the real property and buildings thereon, owned or held by Seller as of
the date hereof and used or held for use in connection with the Business,
including without limitation those listed and described on Schedule 1.1.2
attached hereto (collectively, the "Real Property").
1.1.3 Contracts. All contracts in connection with
the Business listed and described on Schedule 1.1.3 attached hereto
("Contracts").
1.1.4 Intangible Rights. All trademarks, trade
names, service marks, franchises, patents, jingles, slogans, logotypes and other
intangible rights, owned, used or held for use by Seller as of the date of this
Agreement in connection with the Business, including without limitation those
listed and described on Schedule 1.1.4 attached hereto (collectively, the
"Intangible Property").
1.1.5 Files and Records. All files and records of
Seller relating to the Business (other than duplicate copies of such files,
hereinafter "Duplicate Records" which Seller may elect to retain) other than the
contents of files and other records that refer to operations of Seller (other
than the Business or that are privileged), including without limitation all
available schematics, blueprints, engineering data, customer lists, reports,
specifications, projections, statistics, promotional graphics, original art
work, mats, plates, negatives and other advertising, marketing or related
materials, and all other technical and financial information concerning Seller
and the Assets.
1.1.6 Claims. Any and all claims, choses in
action, and rights against third parties if and to the extent that they relate
to the condition of the Assets, including, without limitation, all rights under
manufacturers' and vendors' warranties, or the operation of the Business prior
to the Closing (collectively, the "Claims").
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1.1.7 Prepaid Items. All deposits, reserves and
prepaid expenses relating to the Business and prepaid ad valorem taxes relating
to the Business or the Assets (which shall be prorated as provided in Section
1.5).
1.1.8 Goodwill. All of Seller's goodwill in, and
going concern value of, the Business.
1.1.9 Accounts Receivable. All accounts
receivable, and any notes or written obligations reflecting accounts receivable,
of Seller relating to the Business (collectively, the "Receivables") existing as
of the Closing Date which are listed on Schedule 1.1.9 attached hereto.
1.2 Excluded Assets. There shall be excluded from the
Assets and retained by Seller, to the extent in existence on the Closing Date,
the following assets (collectively, the "Excluded Assets"):
1.2.1 Securities. Any securities owned or held by
Seller.
1.2.2 Insurance. All contracts of insurance.
1.2.3 Certain Assets. Pension, profit sharing and
savings plans and trusts and any assets thereof.
1.2.4 Duplicate Records. All Duplicate Records and
other files and records not acquired by Buyer pursuant to Section 1.1.5.
1.2.5 Corporate Records. The minute books, stock
books, shareholder lists and similar corporate records of Seller.
1.2.6 Excluded Contracts. Any Contracts not being
assumed by Buyer pursuant to Section 1.3.4 hereof.
1.2.7 Claims. Any and all claims, choses in
action, and rights against third parties other than the Claims as defined in
Section 1.1.6.
1.2.8 Shareholder's Personal Items. All items
belonging to Shareholder which have been used from time to time in connection
with the Business which are listed on Schedule 1.2.8 attached hereto.
1.3 Liabilities.
1.3.1 The Assets shall be sold and conveyed to
Buyer free and clear of all mortgages, liens, deeds of trust, security
interests, pledges, restrictions, prior assignments, charges, claims, defects in
title and encumbrances of any kind or type whatsoever (collectively, the
"Security Interests") except: (i) those exceptions to title appearing on a title
report issued on each item of Real Property to which Buyer does not object and
which are not released at Closing; (ii) for liens for taxes not yet
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due and payable or that are being contested in good faith by appropriate
proceedings; and (iii) for the obligations of Seller, under leases and contracts
which Buyer hereby agrees to assume as described in Section 1.3.4 of this
Agreement. The Security Interests referred to in the foregoing clauses (i)-(iii)
are collectively referred to herein as "Permitted Encumbrances."
1.3.2 Except as otherwise specifically provided
herein, or as otherwise specifically agreed by Seller and Buyer, Buyer shall not
assume or be liable for, and does not, and does not undertake to attempt to,
assume or discharge:
a. any liability or obligation of Seller
arising out of or relating to any contract or agreement;
b. any liability or obligation of Seller
arising out of or relating to any pension, retirement or profit-sharing plan or
trust;
c. any liability or obligation of Seller
arising out of or relating to any lease of Tangible Personal Property or
Intangible Property;
d. any liability or obligation of Seller
arising out of or relating to any litigation, proceeding or claim by any person
or entity relating to the business or operations of or otherwise relating to the
Business or the Assets before the Closing Date, whether or not such litigation,
proceeding or claim is pending, threatened or asserted before, on or after the
Closing Date;
e. any and all other liabilities,
obligations, debts or commitments of Seller whatsoever, whether accrued now or
hereafter, whether fixed or contingent, whether known or unknown, arising prior
to the Closing Date, or any claims asserted against the Seller or any of the
Assets or other items transferred to Buyer by Seller relating to any event
(whether act or omission) prior to the Closing Date, including without
limitation, the payment of all taxes; and
f. any liability or obligation of Seller
arising out of or relating to any employment agreement, including the payment of
severance pay, if any, to present or former employees of Seller. No employee of
Seller who becomes an employee of Buyer shall have any entitlement to severance
pay by virtue of this provision.
1.3.3 Seller retains and shall hereafter pay,
satisfy, discharge, perform and fulfill all such obligations and liabilities not
expressly assumed by Buyer hereunder as they become due, without any charge or
cost to Buyer, and Seller agrees to indemnify and hold Buyer and its successors
and assigns harmless from and against any and all such liabilities in accordance
with the terms of Article VI below.
1.3.4 Buyer agrees to execute and assume, at the
Closing, the obligations arising, and expressly provided to be performed by
Seller, after the
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Closing Date under those Contracts listed on Schedule 1.3.4 hereto. All such
Contracts will be assigned and assumed pursuant to the form of Assignment and
Assumption of Contracts attached hereto as Exhibit A. Notwithstanding the
foregoing, Buyer shall not be obligated to assume any obligations under any
contract as to which Seller fails to deliver the written consent of all other
parties thereto.
1.3.5 Buyer agrees to assume the accounts payable
listed on Schedule 1.3.5. hereto (the "Accounts Payable").
1.3.6 Buyer agrees to assume those liabilities
listed on Schedule 1.3.6 hereto (the "Special Liabilities").
1.4 Purchase Price and Method of Payment. The purchase
price to be paid for the Assets (the "Purchase Price") shall be comprised of (i)
One Hundred Ninety-One Thousand Four Hundred Thirteen Dollars ($191,413) (the
"Cash Payment")], (ii) Buyer's payoff, on or before the Closing Date, of the
creditors listed on Schedule 1.4 hereto in the amounts set forth opposite each
such creditor's name (the "Creditor Payment") and (iii) the Common Stock
Payment, as defined below. Buyer shall pay or cause to be paid by check or bank
wire transfer of immediately available federal funds, as instructed by Seller
(i) to Seller, as the Closing Date, an amount equal to the Cash Payment, and
(ii) to the creditors listed on Schedule 1.4 attached hereto, on the Closing
Date, the amounts set forth each such creditor's name on Schedule 1.4 attached
hereto. Buyer shall further pay or cause to be paid to Seller the Common Stock
Payment pursuant to Section 1.4.1 below.
1.4.1 As an element of the Purchase Price, Buyer
agrees to issue to Seller twenty seven thousand three hundred twenty-one
(27,321) shares of the common stock of Jaycor, a California corporation ("Common
Stock"), payable as follows: a certificate representing nine thousand one
hundred and seven (9,107) shares of Common Stock shall be delivered to Seller in
the name of Shareholder on each of October 24, 1996, October 24, 1997 and
October 24, 1998 (the "Common Stock Payment").
1.5 Adjustments. The operation of the Business and the
income and normal operating expenses attributable thereto through the date
preceding the Closing Date shall be for the account of Seller and thereafter for
the account of Buyer, and any income or expense shall be allocated, charged or
prorated accordingly. Expenses for goods or services received both before and
after the Closing Date, power and utilities charges, wages, payroll taxes, and
rents and similar prepaid and deferred items shall be prorated between Seller
and Buyer as of the Closing Date. All special assessments and similar charges or
liens imposed against the Real Property and Tangible Personal Property in
respect of any period of time through the Closing Date, whether payable in
installments or otherwise, shall be the responsibility of Seller, and amounts
payable with respect to such special assessments, charges or liens in respect of
any period of time after the Closing Date shall be the responsibility of Buyer,
and such charges shall be adjusted as required hereunder.
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1.5.1 Adjustment Procedure. Within thirty (30)
days after the Closing, Seller shall deliver to Buyer a Certificate ("Seller's
Adjustment Certificate") dated the Closing Date and signed by Seller's chief
financial officer, setting forth the adjustments provided for in Section 1.5, if
any, certified to be true and correct on the basis of the then most recently
available financial statements of the Business, with the supporting
documentation as to how such amount was derived annexed to the Seller's
Adjustment Certificate. Within sixty (60) days after the Closing Date, Seller
and Buyer will use their good faith efforts to agree upon a final Closing
Statement setting forth the final proration adjustments required under Section
1.5, and any required refund or payment shall be made on the basis of such
Closing Statement. Any payment due hereunder shall be paid by check to the party
to which such refund or payment is due within sixty (60) days after the Closing
Date.
1.6 Non-Competition Agreement. On the Closing Date,
Seller and Shareholder shall enter into to enter into a Non-Competition
Agreement with Buyer substantially in the form attached hereto as Exhibit B.
1.7 Closing. The closing (the "Closing") of the sale and
purchase of the Assets shall take place at the offices of Smoot Adams Edwards &
Green, One University Park, 12800 University Drive, Suite 600, Fort Myers,
Florida, on October 24, 1995, or on such other date as maybe mutually agreed
upon in writing by Purchaser and Seller. The date of the Closing is sometimes
herein referred to as the "Closing Date."
ARTICLE II
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller and Shareholder, hereby jointly and severally
represent and warrant to Buyer and covenant and agree with Buyer that, except as
set forth on the Disclosure Schedule attached hereto as Exhibit C, each of which
exceptions shall specifically identify the relevant subsection hereof to which
it relates and shall be deemed to be representations and warranties as if made
hereunder:
2.1 Corporate Existence. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, and has the requisite corporate power to own and operate its properties
and assets, and to carry on its business as presently conducted. Seller does not
now and has not at any time in the past used any name in its business operations
other than Long John Productions, Inc. Seller is not required to be qualified to
do business as a foreign corporation in any state of the United States or any
other jurisdiction where the failure to be so qualified would have a material
adverse effect on the Business or the Assets.
2.2 Authorization. Seller has the sole corporate power,
authority and legal right to execute, deliver, and perform this Agreement. The
execution, delivery
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and performance of this Agreement shall have been duly authorized, prior to the
Closing, by all necessary shareholder and corporate action. This Agreement has
been, and the other agreements, documents and instruments required to be
delivered by Seller in accordance with the provisions hereof (the "Seller's
Documents") will be, duly executed and delivered on behalf of Seller, and this
Agreement constitutes, and the Seller's Documents when executed and delivered on
behalf of Seller will constitute, the legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms.
2.3 No Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby, nor
compliance with the terms hereof, will (i) conflict with or result in a breach
of any of the terms, conditions or provisions of the articles of incorporation
or bylaws of Seller, or (ii) violate, conflict with or result in a breach of or
default under any of the terms, conditions or provisions of any agreement,
understanding, arrangement, indenture, contract, lease, sublease, loan
agreement, note, restriction, obligation or liability to which Seller is a party
or by which it is bound or to which it or its assets are subject (individually,
an "Instrument" and collectively, the "Instruments"), or (iii) accelerate or
give to others any interests or rights, including rights of acceleration,
termination, modification or cancellation, under any Instrument or in or with
respect to the Business or the Assets, or the capital stock or properties of
Seller, or (v) conflict with, violate or result in a breach of or constitute a
default under any law, statute, rule, judgment, order, decree, injunction,
ruling or regulation of any government, governmental agency, authority or
instrumentality, court or arbitration tribunal to which Seller or any of the
Seller's assets or properties are subject, or (vi) require Seller to give notice
to, or obtain an authorization, approval, order, license, franchise, declaration
or consent of, or make a filing with, any foreign, federal, state, county, local
or other governmental or regulatory body.
2.4 Financial Statements. Seller has delivered to Buyer
an unaudited income statement of Seller for the period ended September 30, 1995,
an unaudited balance sheet of Seller as of September 30, 1995, (the "Balance
Sheet") (collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in a manner
acceptable to Buyer applied on a consistent basis throughout the periods
indicated. The Financial Statements fairly present the results of operations and
financial condition of Seller for the periods, and at the dates, to which they
relate. The books and records of Seller upon which the Financial Statements are
based accurately reflect all transactions of Seller. As of September 30, 1995,
Seller owned all property, equipment, and assets shown on the Financial
Statements to and through such date, subject to no lien, charge, mortgage or
other encumbrance, except as (a) therein noted and (b) items leased under valid
and subsisting leases.
2.5 Absence of Undisclosed Liabilities. Seller has no
liabilities or obligations with respect to the Business, either direct or
indirect, matured or unmatured or absolute, contingent or otherwise, except:
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a. those liabilities or obligations set forth
on the Balance Sheet and not heretofore paid or discharged;
b. liabilities arising in the ordinary course of
business under any agreement, contract, commitment, lease or plan specifically
disclosed on the Disclosure Schedule or not required to be disclosed because of
the term or amount involved; and
c. those liabilities or obligations incurred,
consistently with past business practice, in or as a result of the normal and
ordinary course of business since September 30, 1995.
For purposes of this Agreement, the term
"liabilities" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
on unsecured.
2.6 Accounts Receivable. The accounts receivable of
Seller arising from the Business as set forth on the Balance Sheet or arising
since the date thereof (i) are valid and genuine; (ii) have arisen solely out of
bona fide sales and deliveries of goods, performance of services and other
business transactions in the ordinary course of business consistent with past
practice; (iii) are not subject to valid defenses, set-offs or counterclaims;
and (iv) are collectible within ninety (90) days after billing at the full
recorded amount thereof less, the recorded allowance for collection losses on
the Balance Sheet. The allowance for collection losses on the Balance Sheet has
been determined in a manner acceptable to Buyer consistent with past practice.
2.7 Absence of Certain Changes. Since September 30, 1995,
there has not been (i) any change in the assets, liabilities, financial
condition or operations of Seller from that reflected in the Balance Sheet other
than changes in the ordinary course of business, none of which individually or
in the aggregate have had a material adverse effect on such assets, liabilities,
financial condition or operations or business prospects of Seller, (ii) any
damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the Assets or the Business; (iii) any mortgage, pledge or
subjection to lien, charge or encumbrance of any kind of any of the Assets; (iv)
any sale, transfer or assignment of any Assets, including any intangible assets,
except sales for fair value in the ordinary course of business; (v) any material
amendment or termination of any contracts or commitments or licenses, except in
the ordinary course of business; (vi) any issuance of securities, rights to
purchase securities or any agreement concerning securities of Seller; (vii) any
amendment of the articles of incorporation or bylaws of Seller; or (viii) any
other event or condition of any character, materially and adversely affecting
the Assets or the Business; provided, however, that Seller has made expenditures
of cash to fund Seller's continuing operating expenses in the ordinary course of
Seller's business as conducted to date.
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2.8 Title to Assets. Seller has good, valid and
marketable title to all of its properties and assets, real, personal and mixed,
which would be included in the Assets if the Closing took place on the date
hereof, which it purports to own, including without limitation all properties
and assets reflected in the Balance Sheet free and clear of all mortgages,
liens, pledges, security interests, charges, claims, restrictions and other
encumbrances and defects of title of any nature whatsoever, except for Permitted
Encumbrances.
2.9 Condition of Tangible Assets. All buildings,
structures, facilities, equipment and other material items of tangible property
and assets which would be included in the Assets if the Closing took place on
the date hereof are in good operating condition and repair, subject to normal
wear and maintenance, are usable in the regular and ordinary course of business
and conform to all applicable laws, ordinances, codes, rules and regulations,
and authorizations relating to their construction, use and operation. No person
other than Seller owns any equipment or other tangible assets or properties
situated on the premises of Seller or necessary to the operation of the
Business, except for leased items disclosed in the Disclosure Schedule and for
items of immaterial value.
2.10 Real Property.
2.10.1 Schedule 1.1.2 contains descriptions of all
the Real Property owned or leased by Seller and used or held for use in
connection with the Business and leases or licenses or other rights to
possession of any Real Property so used or held.
2.10.2 Seller's interests in the Real Property are
as follows: (i) Seller has fee simple title to the Real Property described on
Schedule 1.1.2 as being so owned (the "Owned Property"); and (ii) Seller leases,
as a tenant, the premises described on Schedule 1.1.2 as being so leased (the
"Leased Property"). As to the Owned Property, all buildings, improvements and
fixtures thereon owned or leased by Seller, and all heating and air conditioning
equipment, plumbing, electrical and other mechanical facilities, and the roof,
walls and other structural components of the Real Property which are part of, or
located in, such buildings or improvements, are in good operating condition and
repair, and do not require any repairs other than normal maintenance.
2.10.3 The leases listed in Schedule 1.1.2 hereto
constitute all the real property leases to which Seller is a party (either as
lessor or lessee) which are material and required or useful in the conduct of
the Business as it is presently being conducted. True and complete copies of
such leases and all amendments thereto and modifications thereof are included in
such Schedule. To the best of Seller's knowledge, all buildings, structures,
improvements, fixtures, and appurtenances used by Seller on such leased property
are in good maintenance, operating condition, and repair, and do not require any
repairs other than normal maintenance.
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2.10.4 With respect to the Real Property, Seller has
good and marketable title to its interest in such real property, free and clear
of all liens, claims, and encumbrances, except for Permitted Encumbrances and
liens to be released at Closing. With respect to each lease, except as otherwise
disclosed in the Disclosure Schedule, (i) the leases are in full force and
effect, and are valid, binding and enforceable in accordance with their
respective terms, (ii) all accrued and currently payable rents and other
payments required by such leases have been paid, (iii) neither Seller nor any
other party is in default in any respect under any such leases and no notice of
default or termination has been given or received, and (iv) neither Seller nor
any other party has violated any term or condition under any such lease in any
material respect. No third-party consent or approval is required for the
assignment of any such lease to Buyer, or for the consummation of the
transactions contemplated herein.
2.10.5 Seller holds valid, marketable and insurable
fee interest in the owned Real Property, subject only to the Permitted
Encumbrances and liens to be released at Closing. Attached as Schedule 2.10.5
hereto is a listing of all encumbrances and exceptions to title either (i) known
to Seller relating to the Real Property or (ii) which are expected to be
included as exceptions in any title policy issued to Buyer.
2.11 Compliance with Environmental Laws. Seller is in
compliance with all applicable federal, state and local environmental health and
safety laws, regulations, orders, standards and permits. During the period of
Seller's ownership or lease of its properties, (i) there have been no disposals,
releases or threatened releases of Hazardous Materials by Seller on, from or
under such properties and (ii) to the best of Seller's knowledge, there have
been no disposals, releases or threatened releases of Hazardous Materials by any
entity other than Seller on, from or under such properties. To Seller's
knowledge, without any independent investigation, there were no disposals,
releases or threatened releases of Hazardous Materials on, from or under any of
Seller's properties, which occurred prior to Seller purchasing or leasing any of
such properties. For purposes of this Agreement, the terms "disposal,"
"release," and "threatened release" shall have the definitions assigned thereto
by CERCLA. Also, as used in this Agreement, the term "Hazardous Material" shall
mean any substance or material which is deemed hazardous, toxic, a pollutant or
contaminant, including, but not limited to, petroleum or petroleum products,
under any federal, state or local statute, law, ordinance, rule, regulation or
judicial or administrative order or decision, now or hereafter in effect.
2.12 Inventory. Seller's principal business is not the
sale of inventory from stock and the Assets do not include any inventory.
2.13 Taxes. Seller has timely filed within the time
period required for filing or any extension granted with respect thereto all
federal, state, local and other returns and reports relating to any and all
taxes or any other governmental charges, obligations or fees for taxes and any
related interest or penalties ("Tax" or "Taxes") required to be filed by it and
such returns and reports are true and correct. Seller
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has paid all Taxes, if any, shown to be due and payable on said returns and
reports and has withheld with respect to employees all federal and state income
Taxes, FICA, FUTA and other Taxes required to be withheld and has timely paid
all sales, use and similar Taxes. No income, sales, use or similar Tax return or
report of Seller has been examined or audited by the Internal Revenue Service or
any state taxing authority. There are no pending or threatened audits,
examinations, assessments, asserted deficiencies or claims for additional Taxes.
There are (and as of immediately following the Closing there will be) no liens
or similar encumbrances relating to or attributable to Taxes on the Assets,
other than liens for Taxes not yet due.
2.14 Litigation. There is no claim, action, proceeding or
investigation pending or threatened against or by the Seller, or which questions
or challenges the validity of this Agreement or any action taken by the Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby or which could be reasonably expected to have a material adverse effect
on Seller's ability to perform its obligations hereunder or on Buyer's use and
enjoyment of the Assets; and, to the best of Seller's knowledge, there is no
valid basis for any such claim, action, proceeding or investigation. The Seller
is not subject to any judgment, order or decree entered in any lawsuit or
proceeding which has had or may have a material adverse effect on the business
or its business practices or which could materially adversely affect Buyer's use
and enjoyment of the Assets.
2.15 Bulk Sales. Seller agrees to take all steps necessary
to comply with any applicable bulk transfer laws in Florida. Neither the sale
and transfer of the Assets pursuant to this Agreement, nor Buyer's possession
and use thereof from and after the Closing Date because of such sale and
transfer, will: (a) violate any law pertaining to bulk sales or transfers or to
the effectiveness of bulk sales or transfers as against creditors of Seller; or
(b) result in the imposition of any liability upon Buyer for appraisal rights or
other liability owing to any shareholder of Seller.
2.16 Agreements, Contracts and Commitments. Schedule 2.16
hereto truly and accurately lists all material licenses, agreements and
undertakings of the Seller to which any of its properties or assets are or will
be subject, Seller has performed in all material aspects all obligations
required to be performed by Seller under any and all such agreements listed in
Schedule 2.16 to which it is a party or to which any of its property or assets
is subject, and neither it nor, to the best of its knowledge, any other party
thereto is in default under any such agreement or obligation.
2.17 Compliance with Laws. Seller is not in violation of
any federal, state or local statute, law, rule or regulation with respect to or
affecting the Assets. Seller has obtained all licenses, orders, approvals, and
authorizations required in connection with the conduct of the Business.
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2.18 Complete Copies of Materials. Seller has made
available to Buyer true and complete copies of each contract, agreement,
license, lease and similar document referred to in any exhibit hereunder or
included in the Assets.
2.19 Disclosure. No representation or warranty by Seller
in this Agreement or the Exhibits attached hereto, nor any document, written
information, statement or certificate furnished or to be furnished by Seller to
Buyer pursuant hereto or in connection with the transactions contemplated
hereby, notwithstanding any investigation by Buyer, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statement contained herein or therein not misleading.
ARTICLE III
BUYER'S REPRESENTATIONS
Buyer hereby represents as follows:
3.1 Corporate Organization and Authority. Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware. Buyer has all necessary corporate powers, authority, and
approvals to purchase the Assets and consummate the transactions contemplated
pursuant to this Agreement.
3.2 Agreement Will Not Cause Breach or Violation. The
consummation of the transactions contemplated by this Agreement will not result
in or constitute a default or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of the certificate of
incorporation or bylaws of Buyer or any lease, license, promissory note,
conditional sales contract, permit, license, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument, or arrangement to which Buyer is
party.
3.3 Buyer's Authority and Consents. Buyer has the right,
power, legal capacity and authority to enter into, and perform its obligations
under this Agreement, and no approvals or consents of any person are necessary
in connection with it.
3.4 Full Disclosure. None of the representations made
by Buyer contains or will contain any untrue statement of a material fact, or
omit any material fact the omission of which would be misleading.
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<PAGE> 18
ARTICLE IV
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligation of Buyer to consummate the transactions
contemplated by this Agreement is subject to the satisfaction, at or before the
Closing of all the conditions set out below in this Article IV. Buyer may waive
in writing any or all of these conditions, in whole or in part, without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Buyer of any of its other rights or remedies, at law or in equity, if
Seller shall be in default of any of the representations or covenants under this
Agreement.
4.1 Representations and Warranties True as of the Closing
Date. The representations and warranties of Seller contained in this Agreement
or in any schedule, certificate or document delivered by Seller to Purchaser
pursuant to the provisions hereof shall have been true on the date hereof and
shall be true on the Closing Date with the same effect as though such
representations and warranties were made as of such date.
4.2 Compliance with this Agreement. Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
4.3 No Threatened or Pending Litigation. On the Closing
Date, no suit, action or other proceeding, or injunction or final judgment
relating thereto, shall be threatened or be pending before any court or
governmental or regulatory official, body or authority in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby, and
no investigation that might result in any such suit, action or proceeding shall
be pending or threatened.
4.4 Biffar Employment Agreement. Buyer and John Biffar
shall have executed and delivered an employment agreement in the form of Exhibit
D hereto.
4.5 Opinions of Counsel for Seller. Smoot Adams Edwards &
Green, counsel for Seller, shall have delivered to Buyer a written opinion,
dated the Closing Date, in the form of Exhibit E hereto with only such changes
as shall be in form and substance reasonably satisfactory to Buyer and its
counsel.
4.6 No Material Adverse Change. The business, operations,
assets, properties or prospects of the Business shall not have been and shall
not be threatened to be materially adversely affected in any way as a result of
any event or occurrence.
4.7 Seller's Corporate Documents. Seller shall have
delivered to Buyer the following items:
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<PAGE> 19
a. a good standing certificate dated
October 24, 1995 from the Secretary of
the State of Florida;
b. certified copy of the articles of
incorporation of Seller dated October
24, 1995 from the Secretary of the State
of Florida;
c. copy of the bylaws of Seller certified
by the President or Secretary of Seller;
d. copies of all corporate actions duly
taken by the directors and
shareholders of Seller, certified by
the President or Secretary of
Seller, authorizing the execution,
delivery and performance of this
Agreement and the Seller's
Documents, which actions shall be in
full force and effect at the time of
delivery on the Closing Date.
4.8 Board Approval. The Board of Directors of Jaycor
shall have authorized and approved this Agreement and the transactions
contemplated hereby.
4.9 Consents and Proceedings. Seller shall have obtained
all of the consents (including third party consents), authorizations, orders and
approvals required in order to execute and deliver this Agreement and to perform
its obligations hereunder and all actions, proceedings, instruments and
documents deemed necessary or appropriate by Buyer and its counsel to effectuate
this Agreement and the consummation of the transactions contemplated hereby, or
incidental thereto, shall have been obtained and all other related legal matters
shall have been approved by such counsel.
4.10 Non-Competition Agreement. Seller and Shareholder
shall have executed and delivered to Buyer a Non-Competition Agreement
substantially in the form attached hereto as Exhibit A.
4.11 Seller's Deliveries. Seller shall have delivered to
Buyer all the items set forth in Section 7.1 hereof.
4.12 Due Diligence Review. Buyer shall have completed its
due diligence review of Seller and be satisfied in its sole discretion with the
results thereof.
ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction, at or before the
Closing of all the
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<PAGE> 20
conditions set out below in this Article V. Seller may waive in writing any or
all of these conditions, in whole or in part, without prior notice; provided,
however, that no such waiver of a condition shall constitute a waiver by Seller
of any of its other rights or remedies, at law or in equity, if Buyer shall be
in default of any of the representations or covenants under this Agreement.
5.1 Accuracy of Buyer's Representations and Warranties.
Except as otherwise permitted by this Agreement, all representations by Buyer in
this Agreement or in any written statement that shall be delivered to Seller
under this Agreement shall be true on and as of the Closing as though made at
that time.
5.2 Performance by Buyer. Buyer shall have performed,
satisfied, and complied with all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by Buyer on or before the
Closing.
5.3 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall have
been instituted or threatened on or before the Closing.
5.4 Buyer's Deliveries. Buyer shall have delivered to
Seller all the items set forth in Section 7.2 hereof.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnity by Seller and the Shareholder. Seller and
Shareholder shall, jointly and severally, indemnify Buyer, and its affiliates,
directors, officers, stockholders, employees, agents, representatives,
successors and assigns against any and all claims, losses, liabilities, damages,
expenses (including reasonable attorneys' fees and costs of suit) which may be
asserted against, incurred or required to be paid by Buyer or its affiliates,
directors, officers, stockholders, employees, agents, representatives,
successors and assigns by reason or on account of (i) any representation or
warranty made by Seller or Shareholder herein being untrue or incorrect; or (ii)
any failure by Seller or Shareholder to observe or perform their covenants and
agreements set forth herein or in any agreement entered into pursuant to this
Agreement; or (iii) any liabilities of Seller or Shareholder incurred in
connection with the Business prior to the Closing Date.
6.2 Indemnity by Buyer. Buyer shall indemnify Seller and
its affiliates, directors, officers, shareholders, employees, agents,
representatives, successors and assigns against any and all claims, losses,
liabilities, damages, expenses (including reasonable attorneys' fees and costs
of suit) which may be asserted against, incurred or required to be paid by
Seller or its affiliates, directors, officers, shareholders, employees, agents,
representatives, successors and assigns by
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<PAGE> 21
reason or on account of (i) any representation or warranty made by Buyer herein
being untrue or incorrect or (ii) any failure by Buyer to observe or perform its
covenants and agreements herein or in any agreement entered into pursuant to
this Agreement.
6.3 Limitation of Indemnification Liability of Seller and
the Shareholder. Seller and Shareholder shall have no liability for
indemnification hereunder with respect to any claim resulting from a breach of
their representations and warranties set forth in this Agreement unless Seller
has been notified of the claim, in the manner provided under Section 9.11
hereof, within the survival period specified in Section 6.5 hereof.
6.4 Limitation of Indemnification Liability of Buyer.
Buyer shall have no liability for indemnification hereunder with respect to any
claim resulting from a breach of its representations and warranties set forth in
this Agreement unless it has been notified of the claim, in the manner provided
under Section 9.11 hereof, within the survival period specified in Section 6.5
hereof.
6.5 Survival. All representations and warranties
contained in or made pursuant to this Agreement or in any agreement,
certificate, document or statement delivered pursuant hereto shall survive the
Closing for a period of three (3) years; provided, however, that,
notwithstanding the foregoing, the representations and warranties set forth in
Section 2.11 shall survive the Closing for a period of seven (7) years, and (ii)
Section 2.13 shall survive the Closing for the applicable tax statute of
limitations plus ninety (90) days.
6.6 Indemnification Procedures. Any party making a claim
for indemnification under this Article VI (the "Indemnitee") shall notify the
indemnifying party (the "Indemnitor") of the claim in writing promptly after
discovering the claim or receiving written notice of a claim against it if by a
third party), describing the claim, the amount thereof (if known and
quantifiable), and the basis thereof. The obligations and liabilities of the
Indemnitor with respect to claims resulting from the assertion of liability by
any third party shall be subject to the following terms and conditions:
a. In the event any action, suit or
proceeding is brought against the Indemnitee, with respect to which the
Indemnitor may have liability under the indemnity agreements contained herein,
the action, suit or proceeding shall be defended including all proceedings on
appeal or for review which counsel for the Indemnitee shall deem appropriate) by
the Indemnitor. The Indemnitee shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the
Indemnitee's own expense unless the employment of such counsel and the payment
of such fees and expenses both shall have been specifically authorized by the
Indemnitor in connection with the defense of such action, suit or proceeding. In
such case only that portion of such fees and expenses reasonably related to
matters covered by the indemnity agreements contained herein shall be borne by
the Indemnitor. The Indemnitee shall be kept fully informed of
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<PAGE> 22
such action, suit or proceeding at all stages thereof whether or not it is so
represented. The Indemnitee shall make available to the Indemnitor and its
attorneys and accountants all books and records of the Indemnitee relating to
such proceedings or litigation and the parties hereto agree to render to each
other such assistance as they may reasonably require of each other in order to
ensure the proper and adequate defense of any such action, suit or proceeding.
b. The Indemnitee shall not make any
settlement of any claims without the written consent of the Indemnitor, which
consent shall not be unreasonably withheld or delayed.
ARTICLE VII
THE CLOSING
The Closing shall occur at the place and time as specified
in Section 1.7 unless extended as set forth in Section 1.7 or the Agreement is
terminated earlier in accordance with Article VIII.
7.1 Seller's Deliveries at Closing. At the Closing,
Seller shall deliver or cause to be delivered to Buyer:
7.1.1 Bill of Sale. A signed bill of sale for the
Assets.
7.1.2 Possession of the Assets. Possession of the
Assets.
7.1.3 Assignment and Assumption of Contracts. A
signed Assignment and Assumption of Contracts substantially in the form attached
hereto as Exhibit A.
7.1.4 Non-Competition Agreement. A signed Non-
Competition Agreement substantially in the form attached hereto as Exhibit B.
7.1.5 Biffar Employment Agreement. A signed Biffar
Employment Agreement substantially in the form attached hereto as Exhibit D.
7.1.6 Corporate Documents. Seller's corporate
documents discussed in Section 4.7 hereof.
7.1.7 Third-Party Consents. The consents discussed
in Section 4.9 hereof.
7.1.8 Opinion of Seller's Counsel. Signed legal
opinion of Seller's counsel, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit E.
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<PAGE> 23
7.2 Bills of Sale and Other Instruments of Transfer. Any
bills of sale, deeds, assignments, receipts, or other instruments of transfer
reasonably requested by Buyer to effectuate the transactions contemplated by
this Agreement.
7.3 Buyer's Deliveries at Closing. At the Closing, Buyer
shall deliver to Seller:
7.3.1 Closing Purchase Price. The Closing Purchase
Price, which shall be paid in the manner specified in Section 1.4, in return for
Seller's delivery of the items specified in Section 7.1.
7.3.2 Opinion of Buyer's Counsel. Gray Cary Ware &
Freidenrich, counsel for Buyer, shall have delivered to Seller a written
opinion, dated the Closing Date, in the form of Exhibit E hereto with only such
changes as shall be in form and substance reasonably satisfactory to Buyer and
its counsel.
7.4 Further Documents. At any time before or after the
Closing, Seller will execute, acknowledge, and deliver any further deeds,
assignments, conveyances, and other assurances, documents, and instruments of
transfer, reasonably requested by Buyer, and will take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Buyer, for the purpose of assigning, transferring, granting, conveying, and
confirming to Buyer, or reducing to possession, any of the Assets to be conveyed
and transferred by this Agreement.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing (i) by Buyer in its sole discretion,
without cause, (ii) by the mutual consent of Seller and Buyer, or (iii) by
either party as long as such party is not in default if the Closing has not
taken place by the scheduled Closing Date (including the permissible extensions
of the Closing, if applicable) as set forth in Sections 1.7 hereof, or (iv) by
Seller if Buyer is in default of its obligations or representations under this
Agreement.
8.2 Remedies. Subject to the controlling provisions in
Section 8.2, in the event of a material breach of this Agreement, the
non-breaching party shall have the right to pursue all remedies available to it
under this Agreement or otherwise at law or in equity.
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<PAGE> 24
ARTICLE IX
GENERAL PROVISIONS
9.1 Effect of Headings; Exhibits. The subject headings
of the sections of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions. All Exhibits and Schedules to this Agreement are incorporated herein
in their entirety.
9.2 Entire Agreement; Modification; Waiver. This
Agreement constitutes the entire agreement between the parties pertaining to the
subject matter contained in it, except for any other agreements referenced
herein. This Agreement supersedes all prior and contemporaneous agreements
(other than those entered into in writing simultaneously with this Agreement),
representations, and understandings of the parties. No supplement, modification,
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
9.3 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Counterparts of
this Agreement may be signed and the signature pages transmitted by facsimile.
9.4 Parties in Interest. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors and assigns. Nothing in this Agreement is intended
to relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any party to this Agreement.
9.5 Assignment. Neither party may assign its rights or
obligations under this Agreement without the prior written consent of the other
party. Subject to the foregoing, this Agreement shall be binding on and shall
inure to the benefit of the parties to it and their respective permitted
successors and assigns.
9.6 Recovery of Litigation or Arbitration Costs. If any
legal action, arbitration or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled,
as may be decided by the arbitrators pursuant to Section 9.12.6 hereof.
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<PAGE> 25
9.7 Nature and Survival of Representations and Covenants.
Subject to any limitations set forth in Article VI, all representations,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for in it, shall
survive the Closing.
9.8 Severability. Each term, covenant, condition or
provision of this Agreement shall be viewed as separate and distinct, and in the
event that any such term, covenant, condition or provision shall be held by a
court of competent jurisdiction to be invalid, the remaining provisions shall
continue in full force and effect, so long as the essential benefits of this
Agreement will still be realized by the parties.
9.9 Necessary Acts. Each party to this Agreement agrees
to perform any further acts and execute and deliver any further documents that
may be reasonably necessary to carry out the provisions of this Agreement.
9.10 Time of Essence. Time is of the essence in the
performance of all obligations under this Agreement.
9.11 Notices. All notices to be given with respect to this
Agreement shall be given in writing to the party, at the appropriate address
listed below. Each notice shall be deemed delivered whenever it arrives at the
party's address, by any written means, including without limitation, facsimile,
telegraph, teletype personal delivery, express delivery, or mail.
9.11.1 If to Buyer, then to:
Jaycor Multimedia Services, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attn: P. Randy Johnson,
Chief Financial Officer
Telephone: (619) 535-3129
Facsimile: (619) 452-0108
with a copy to:
Cameron Jay Rains, Esq.
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Telephone: (619) 677-1476
Facsimile: (619) 677-1477
9.11.2 If to Seller or Shareholder, then to:
Long John Productions, Inc.
11000-2 Metro Parkway
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<PAGE> 26
Fort Myers, Florida 33912
Attn: John Biffar
Telephone: (813) 275-9575
Facsimile: (813) 275-8395
with a copy to:
Bruce D. Green, Esq.
Smoot Adams Edwards & Green
One University Park
12800 University Drive, Suite 600
P.O. Box 60259
Fort Myers, FL 33906-6259
Telephone: (813) 489-1776
Facsimile: (813) 489-1776
9.12 Arbitration. Any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"), and the procedures set forth below. In
the event of any inconsistency between the Rules of AAA and the procedures set
forth below, the procedures set forth below shall control. Judgment upon the
award rendered by the arbitrators may be enforced in any court having
jurisdiction thereof.
9.12.1 Location. The location of the arbitration
shall be in Lee County, Florida.
9.12.2 Selection of Arbitrators. The arbitration
shall be conducted by a panel of three neutral arbitrators who are independent
and disinterested with respect to the parties, this Agreement, and the outcome
of the arbitration. Each party shall appoint one neutral arbitrator, and these
two arbitrators so selected by the parties shall then select the third
arbitrator. If one party has given written notice to the other party as to the
identity of the arbitrator appointed by the party, and the party thereafter
makes a written demand on the other party to appoint its designated arbitrator
within the next ten days, and the other party fails to appoint its designated
arbitrator within ten days after receiving said written demand, then the
arbitrator who has already been designated shall appoint the other two
arbitrators.
9.12.3 Discovery. Unless the parties mutually agree
in writing to some additional and specific pre-hearing discovery, the only
pre-hearing discovery shall be (a) reasonably limited production of relevant and
non-privileged documents, and (b) the identification of witnesses to be called
at the hearing, which identification shall give the witness's name, general
qualifications and position, and a brief statement as to the general scope of
the testimony to be given by the witness. The arbitrators shall decide any
disputes and shall control the process concerning these
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<PAGE> 27
pre-hearing discovery matters. Pursuant to the Rules of AAA, the parties may
subpoena witnesses and documents for presentation at the hearing.
9.12.4 Case Management. Prompt resolution of any
dispute is important to both parties; and the parties agree that the arbitration
of any dispute shall be conducted expeditiously. The arbitrators are instructed
and directed to assume case management initiative and control over the
arbitration process (including scheduling of events, pre-hearing discovery and
activities, and the conduct of the hearing), in order to complete the
arbitration as expeditiously as is reasonably practical for obtaining a just
resolution of the dispute.
9.12.5 Remedies. The arbitrators shall follow and
apply applicable law. The arbitrators shall grant such legal or equitable
remedies and relief in compliance with applicable law that the arbitrators deem
just and equitable, to the same extent that remedies or relief could be granted
by a state or federal court, provided however, that no punitive damages may be
awarded. No court action may be maintained seeking punitive damages. The
decision of any two of the three arbitrators appointed shall be binding upon the
parties.
9.12.6 Expenses. The expenses of the arbitration,
including the arbitrators' fees, expert witness fees, and attorney's fees, may
be awarded to the prevailing party, in the discretion of the arbitrators, or may
be apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
9.12.7 Confidentiality. Except as set forth below,
the parties shall keep confidential the fact of the arbitration, the dispute
being arbitrated, and the decision of the arbitrators. Notwithstanding the
foregoing, the parties may disclose information about the arbitration to persons
who have a need to know, such as directors, trustees, management employees,
witnesses, experts, investors, attorneys, lenders, insurers, and others who may
be directly affected. Additionally, if a party has stock which is publicly
traded, the party may make such disclosures as are required by applicable
securities laws. Further, if a party is expressly asked by a third party about
the dispute or the arbitration, the party may disclose and acknowledge in
general and limited terms that there is a dispute with the other party which is
being (or has been) arbitrated. Once the arbitration award has become final, if
the arbitration award is not promptly satisfied, then these confidentiality
provisions shall no longer be applicable.
9.13 Governing Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement shall be
governed by and construed in accordance with the laws of the State of Florida
without giving effect to principles of conflict of laws.
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<PAGE> 28
9.14 Construction. This Agreement shall be construed and
interpreted in accordance with the plain meaning of the entirety of the
provisions of this Agreement, consistent with the overall intent and spirit of
the parties and the entire Agreement. As both parties and their legal counsel
have participated in the negotiations and the drafting for this Agreement, any
ambiguity or inconsistency in any of the provisions of this Agreement shall not
be construed against either party as the draftsman of this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the date set forth above.
JAYCOR MULTIMEDIA SERVICES, INC.,
A DELAWARE CORPORATION
By: /s/ ERIC P. WENAAS
------------------------------------
ERIC P. WENAAS, President
and Chief Executive Officer
LONG JOHN PRODUCTIONS, INC.,
A FLORIDA CORPORATION
By: /s/ JOHN BIFFAR
------------------------------------
JOHN BIFFAR, President
JOHN BIFFAR, AN INDIVIDUAL
By: /s/ JOHN BIFFAR
------------------------------------
JOHN BIFFAR
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<PAGE> 1
EXHIBIT 2.3
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
between
JAYCOR, a California Corporation,
as Buyer
and
ROBERT L. RITTER, an Individual,
as Seller
Dated as of March 22, 1996
<PAGE> 2
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1.1 Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.2 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.3 Intangible Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.4 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.5 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.6 Prepaid Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.7 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1.8 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.1.9 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.1 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.3 Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.4 Duplicate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.5 Excluded Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.2.6 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.4 Purchase Price and Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
1.5 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
1.5.1 Adjustment Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
1.7 Physical Condition of the Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
II SELLER'S REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.4 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.5 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.6 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.12 Complete Copies of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
III BUYER'S REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.1 Corporate Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.2 Agreement Will Not Cause Breach or Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
</TABLE>
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3.3 Buyer's Authority and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
3.4 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
IV CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.1 Representations and Warranties True as of the Closing Date . . . . . . . . . . . . . . . . . . . . . . . -10-
4.2 Compliance with this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.3 No Threatened or Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
4.5 Board and Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
4.6 Consents and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
4.7 Seller's Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
4.8 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
4.9 Consent to Assignment of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
V CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.1 Accuracy of Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
5.2 Performance by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.3 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.4 Buyer's Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
VI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.1 Indemnity by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.2 Indemnity by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.3 Limitation of Indemnification Liability of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.4 Limitation of Indemnification Liability of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
6.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
6.6 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
VII THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1 Seller's Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1.1 Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1.2 Possession of the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1.4 Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1.5 Lessor's Consent to Assignment of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1.6 Bills of Sale and Other Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.2 Buyer's Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.2.1 Closing Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.3 Further Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
8.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
9.1 Effect of Headings; Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
9.2 Entire Agreement; Modification; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
</TABLE>
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9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
9.4 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.6 Recovery of Litigation or Arbitration Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.7 Nature and Survival of Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.9 Necessary Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.10 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
9.12 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
9.12.1 Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
9.12.2 Selection of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
9.12.3 Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
9.12.4 Case Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
9.12.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
9.12.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
9.12.7 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
9.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
9.14 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
EXHIBITS:
A Assignment and Assumption of Contracts
B Schedule of Exceptions
SCHEDULES:
1.1.1 Tangible Personal Property
1.1.2 Contracts
1.1.3 Intangible Rights
1.1.8 Accounts Receivable
1.1.9 Inventory
1.3.4 Assumed Contracts
2.10 Agreements, Contracts and Commitments
</TABLE>
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AGREEMENT FOR PURCHASE AND SALE OF ASSETS
This Agreement for Purchase and Sale of Assets (this "Agreement") is
entered into as of March 22, 1996 by and among Jaycor, a California corporation
("Buyer"), and Robert L. Ritter, an individual ("Seller"), with respect to the
following facts:
RECITALS
A. Seller is the owner of a sole proprietorship, Power Systems
Design Group, engaged in the business of designing and building power systems
(the "Business").
B. Buyer possesses certain technologies and capabilities, which
it believes are complementary to the Business.
C. Seller is the beneficial owner of all of the assets used or
usable in connection with the Business.
D. Seller desires to sell Buyer substantially all of the assets
used in the Business.
E. Buyer desires to purchase certain specified assets from Seller
and to assume certain specified liabilities of Seller, all as set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and subject to the terms and
provisions set forth herein, the parties hereto mutually agree as follows:
ARTICLE I
THE TRANSACTION
1.1 Assets. Subject to and in reliance upon the
representations, warranties and agreements herein set forth, and subject to the
terms and conditions herein contained, Seller agrees to grant, convey, sell,
assign, transfer and deliver to Buyer on the Closing Date (as hereinafter
defined), and Buyer agrees on the Closing Date to purchase, accept and assume,
all properties and assets, real and personal, tangible and intangible, of every
type and description owned by Seller and used or held for use in connection
with the Business (except for Excluded Assets as defined in Section 1.2
hereof), including its business and goodwill (collectively, the "Assets").
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Without limiting the foregoing, the Assets shall include the following, except
to the extent that any of the following are Excluded Assets:
1.1.1 Tangible Personal Property. All equipment,
inventory, telecommunications equipment, electrical devices, antennas, cables,
vehicles, furniture, fixtures, office materials and supplies, hardware, tools,
spare parts, films, records, tapes, discs and other tangible personal property
of every kind and description owned and used or held for use by Seller as of
the date of this Agreement in connection with the Business, including without
limitation those listed and described on Schedule 1.1.1 attached hereto
(collectively, the "Tangible Personal Property").
1.1.2 Contracts. All contracts and leases in
connection with the Business listed and described on Schedule 1.1.2 attached
hereto (collectively, the "Contracts").
1.1.3 Intangible Rights. All trademarks, trade
names, service marks, franchises, patents, jingles, slogans, logotypes and
other intangible rights, owned and used or held for use by Seller as of the
date of this Agreement in connection with the Business, including without
limitation those listed and described on Schedule 1.1.3 attached hereto
(collectively, the "Intangible Property").
1.1.4 Files and Records. All files and records of
Seller relating to the Business (other than duplicate copies of such files,
hereinafter "Duplicate Records" which Seller may elect to retain) other than
the contents of files and other records that refer to operations of Seller
(other than the Business or that are privileged), including without limitation
all available schematics, blueprints, engineering data, customer lists,
reports, specifications, projections, statistics, promotional graphics,
original art work, mats, plates, negatives and other advertising, marketing or
related materials, and all other technical and financial information concerning
Seller and the Assets.
1.1.5 Claims. Any and all claims, choses in
action, and rights against third parties if and to the extent that they relate
to (i) the condition of the Assets, including, without limitation, all rights
under manufacturers' and vendors' warranties, or (ii) the operation of the
Business prior to the Closing (collectively, the "Claims").
1.1.6 Prepaid Items. All deposits, reserves and
prepaid expenses relating to the Business and prepaid ad valorem taxes relating
to the Business or the Assets (which shall be prorated as provided in Section
1.5).
1.1.7 Goodwill. All of Seller's goodwill in, and
going concern value of, the Business.
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1.1.8 Accounts and Notes Receivable. All accounts
receivable, notes receivable and any notes or written obligations reflecting
accounts receivable, of Seller relating to the Business (collectively, the
"Receivables") existing as of the Closing Date which are listed on Schedule
1.1.8 attached hereto.
1.1.9 Inventory. All items of inventory and
related materials, including raw materials, work-in- process and finished
goods, existing as of the Closing Date (collectively, the "Inventory"), which
are listed on Schedule 1.1.9 attached hereto.
1.2 Excluded Assets. There shall be excluded from the
Assets and retained by Seller, to the extent in existence on the Closing Date,
the following assets (collectively, the "Excluded Assets"):
1.2.1 Securities. Any securities owned or held by
Seller.
1.2.2 Insurance. All contracts of insurance.
1.2.3 Certain Assets. Pension, profit sharing and
savings plans and trusts and any assets thereof.
1.2.4 Duplicate Records. All Duplicate Records and
other files and records not acquired by Buyer pursuant to Section 1.1.4.
1.2.5 Excluded Contracts. Any Contracts not being
assumed by Buyer pursuant to Section 1.3.4 hereof.
1.2.6 Claims. Any and all claims, choses in
action, and rights against third parties other than the Claims as defined in
Section 1.1.5.
1.3 Liabilities.
1.3.1 Seller shall sell and convey the Assets to
Buyer free and clear of all mortgages, liens, deeds of trust, security
interests, pledges, restrictions, prior assignments, charges, claims, defects
in title and encumbrances of any kind or type whatsoever (collectively, the
"Security Interests") except: (i) for liens for taxes not yet due and payable
or that are being contested in good faith by appropriate proceedings, and (ii)
for the obligations of Seller under leases and contracts which Buyer hereby
agrees to assume as described in Section 1.3.4 of this Agreement (collectively,
the "Permitted Encumbrances").
1.3.2 Except as otherwise specifically provided
herein, or as otherwise specifically agreed by Seller and Buyer, Buyer shall
not assume or be liable for, and does not, and does not undertake to attempt
to, assume or discharge:
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<PAGE> 8
a. any liability or obligation of
Seller arising out of or relating to any contract or agreement;
b. any liability or obligation of
Seller arising out of or relating to any pension, retirement or profit-sharing
plan or trust;
c. any liability or obligation of
Seller arising out of or relating to any lease of Tangible Personal Property or
Intangible Property;
d. any liability or obligation of
Seller arising out of or relating to any litigation, proceeding or claim by any
person or entity relating to the business or operations of or otherwise
relating to the Business or the Assets before the Closing Date, whether or not
such litigation, proceeding or claim is pending, threatened or asserted before,
on or after the Closing Date;
e. any and all other liabilities,
obligations, debts or commitments of Seller whatsoever, whether accrued now or
hereafter, whether fixed or contingent, whether known or unknown, arising prior
to the Closing Date, or any claims asserted against the Seller or any of the
Assets or other items transferred to Buyer by Seller relating to any event
(whether act or omission) prior to the Closing Date, including without
limitation, the payment of all taxes; and
f. any liability or obligation of
Seller arising out of or relating to any employment agreement, including the
payment of severance pay, if any, to present or former employees of Seller. No
employee of Seller who becomes an employee of Buyer shall have any entitlement
to severance pay by virtue of this provision.
1.3.3 Seller retains and shall hereafter pay,
satisfy, discharge, perform and fulfill all such obligations and liabilities
not expressly assumed by Buyer hereunder as they become due, without any charge
or cost to Buyer, and Seller agrees to indemnify and hold Buyer and its
successors and assigns harmless from and against any and all such liabilities
in accordance with the terms of Article VI below.
1.3.4 Buyer agrees to execute and assume, at the
Closing, the obligations arising, and expressly provided to be performed by
Seller, after the Closing Date under those Contracts listed on Schedule 1.3.4
hereto. All such Contracts will be assigned and assumed pursuant to the form
of Assignment and Assumption of Contracts attached hereto as Exhibit A.
Notwithstanding the foregoing, Buyer shall not be obligated to assume any
obligations under any contract as to which Seller fail to deliver the written
consent of all other parties thereto.
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1.4 Purchase Price and Method of Payment. The purchase
price to be paid for the Assets (the "Purchase Price") shall be Sixty-Seven
Thousand Four Hundred Fifty-three Dollars ($67,453.00), comprised of (i)
Sixty-Six Thousand Five Hundred Fifty Two Dollars ($66,552.00), the ("Asset
Payment") and (ii) Nine Hundred One Dollars ($901) (the "Lease Deposit
Payment"), payable on the Closing Date by check or bank wire transfer of
immediately available federal funds, as instructed by Seller.
1.5 Adjustments. The operation of the Business and the
income and normal operating expenses attributable thereto through the date
preceding the Closing Date shall be for the account of Seller and thereafter
for the account of Buyer, and any income or expense shall be allocated, charged
or prorated accordingly. Expenses for goods or services received both before
and after the Closing Date, power and utilities charges, wages, payroll taxes,
and rents and similar prepaid and deferred items shall be prorated between
Seller and Buyer as of the Closing Date. All special assessments and similar
charges or liens imposed against the Tangible Personal Property in respect of
any period of time through the Closing Date, whether payable in installments or
otherwise, shall be the responsibility of Seller, and amounts payable with
respect to such special assessments, charges or liens in respect of any period
of time after the Closing Date shall be the responsibility of Buyer, and such
charges shall be adjusted as required hereunder.
1.5.1 Adjustment Procedure. Within thirty (30)
days after the Closing, Seller shall deliver to Buyer a Certificate ("Seller's
Adjustment Certificate") dated the Closing Date and signed by Seller, setting
forth the adjustments provided for in Section 1.5, if any, certified to be true
and correct on the basis of the then most recently available financial
statements of the Business, with the supporting documentation as to how such
amount was derived annexed to the Seller's Adjustment Certificate. Within
sixty (60) days after the Closing Date, Seller and Buyer will use their good
faith efforts to agree upon a final Closing Statement setting forth the final
proration adjustments required under Section 1.5, and any required refund or
payment shall be made on the basis of such Closing Statement. Any payment due
hereunder shall be paid by check to the party to which such refund or payment
is due within sixty (60) days after the Closing Date.
1.6 Closing. The closing (the "Closing") of the sale and
purchase of the Assets shall take place at the offices of Gray Cary Ware &
Freidenrich, 4365 Executive Drive, Suite 1600, San Diego, California, on March
22, 1996 at 1:00 p.m., Pacific Standard Time, or on such other date and time as
may be mutually agreed upon in writing by Buyer and Seller. The date of the
Closing is sometimes herein referred to as the "Closing Date."
1.7 Physical Condition of the Tangible Personal Property.
Buyer acknowledges that with respect to the physical condition of the Tangible
Personal Property, Buyer is purchasing such items of Tangible Personal Property
on an "as-is" basis and without any representations or warranties by the Seller
as to the physical
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<PAGE> 10
condition of such items. Nothing in this provision, however, shall be
construed to limit or diminish any other representation or warranty made by
Seller herein, including but not limited to, Seller's representations and
warranties regarding Seller's title to the Assets in general and the Tangible
Personal Property in particular.
ARTICLE II
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby represents and warrants to Buyer and covenants
and agrees with Buyer, except as set forth on the Schedule of Exceptions
attached hereto as Exhibit B (the "Schedule of Exceptions"), each of which
exceptions shall specifically identify the relevant subsection hereof to which
it relates and shall be deemed to be representations and warranties as if made
hereunder, that:
2.1 Existence. Seller is a sole proprietorship, validly
existing and in good standing under the laws of the State of California, and
has the requisite power to own and operate its properties and assets, and to
carry on its business as presently conducted. Seller does not now and has not
at any time in the past used any name in its business operations other than
Power Systems Design Group. Seller is not required to be qualified to do
business as a foreign entity in any state of the United States or any other
jurisdiction where the failure to be so qualified would have a material adverse
effect on the Business or the Assets.
2.2 Authorization. Seller has the sole power, authority
and legal right to execute, deliver, and perform this Agreement. This
Agreement has been, and the other agreements, documents and instruments
required to be delivered by Seller in accordance with the provisions hereof
(the "Seller's Documents") will be, duly executed and delivered on behalf of
Seller, and this Agreement constitutes, and the Seller's Documents when
executed and delivered on behalf of Seller will constitute, the legal, valid
and binding obligations of Seller, enforceable against Seller in accordance
with such Documents' respective terms.
2.3 No Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby,
nor compliance with the terms hereof, will (i) violate, conflict with or result
in a breach of or default under any of the terms, conditions or provisions of
any agreement, understanding, arrangement, indenture, contract, lease,
sublease, loan agreement, note, restriction, obligation or liability to which
Seller is a party or by which it is bound or to which it or its assets are
subject (individually, an "Instrument" and collectively, the "Instruments"), or
(ii) accelerate or give to others any interests or rights, including rights of
acceleration, termination, modification or cancellation, under any Instrument
or in or with respect to the Business or the Assets, or (iii) conflict with,
violate or result in a breach of or constitute a default under any law
(including, but not limited to, applicable bulk sales laws), statute, rule,
judgment,
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order, decree, injunction, ruling or regulation of any government, governmental
agency, authority or instrumentality, court or arbitration tribunal to which
Seller or any of the Seller's assets or properties are subject, or (v) require
Seller to give notice to, or obtain an authorization, approval, order, license,
franchise, declaration or consent of, or make a filing with, any foreign,
federal, state, county, local or other governmental or regulatory body.
2.4 Absence of Undisclosed Liabilities. Seller has no
liabilities or obligations with respect to the Business, either direct or
indirect, matured or unmatured or absolute, contingent or otherwise, except:
a. those liabilities or obligations set forth on
financial statements previously delivered by Seller to Buyer and not heretofore
paid or discharged;
b. liabilities arising in the ordinary course of
business under any agreement, contract, commitment, lease or plan specifically
disclosed on the Schedule of Exceptions or not required to be disclosed because
of the term or amount involved; and
c. those liabilities or obligations incurred,
consistently with past business practice, in or as a result of the normal and
ordinary course of business since February 7, 1996.
For purposes of this Agreement, the term
"liabilities" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
on unsecured.
2.5 Accounts Receivable. The accounts receivable of
Seller arising from the Business as set forth on the financial statements
previously delivered to the Buyer or arising since the date thereof (i) are
valid and genuine; (ii) have arisen solely out of bona fide sales and
deliveries of goods, performance of services and other business transactions in
the ordinary course of business consistent with past practice; (iii) are not
subject to valid defenses, set-offs or counterclaims; and (iv) are collectible
within one hundred twenty (120) days after billing at the full recorded amount
thereof less, the recorded allowance for collection losses on the financial
statements previously delivered by Seller to Buyer. The allowance for
collection losses on the financial statements previously delivered to the Buyer
has been determined in a manner acceptable to Buyer consistent with past
practice.
2.6 Inventory. All items of Seller's inventory and
related supplies (including raw materials, work-in- progress and finished
goods) reflected on the financial statements previously delivered by Seller to
Buyer or thereafter acquired (and not subsequently disposed of in the ordinary
course of business) are
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merchantable, or suitable and usable for the production or completion of
merchantable products, for sale in the ordinary course of business as standard
quality goods at normal mark-ups, none of such items is obsolete or below
standard quality and each item of such inventory reflected in the financial
statements previously delivered by Seller to Buyer and the books and records of
Seller is so valued at the lower of cost (an a last-in, first-out basis) or
market in accordance with generally accepted accounting principles consistently
applied. The Assets include a sufficient but not an excessive quantity of each
type of such inventory and related materials in order to meet the normal
requirements of Seller's business.
2.7 Title to Assets. Seller has good, valid and
marketable title to all of its properties and assets, real, personal and mixed,
which would be included in the Assets if the Closing took place on the date
hereof, which it purports to own, including without limitation all properties
and assets reflected in the financial statements previously delivered by Seller
to Buyer free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and other encumbrances and defects of title of
any nature whatsoever, except for Permitted Encumbrances.
2.8 Taxes. Seller has timely filed within the time
period required for filing or any extension granted with respect thereto all
federal, state, local and other returns and reports relating to any and all
taxes or any other governmental charges, obligations or fees for taxes and any
related interest or penalties ("Tax" or "Taxes") required to be filed by it and
such returns and reports are true and correct. Seller has paid all Taxes, if
any, shown to be due and payable on said returns and reports and has withheld
with respect to employees all federal and state income Taxes, FICA, FUTA and
other Taxes required to be withheld and has timely paid all sales, use and
similar Taxes. No income, sales, use or similar Tax return or report of Seller
has been examined or audited by the Internal Revenue Service or any state
taxing authority. There are no pending or threatened audits, examinations,
assessments, asserted deficiencies or claims for additional Taxes. There are
(and as of immediately following the Closing there will be) no liens or similar
encumbrances relating to or attributable to Taxes on the Assets, other than
liens for Taxes not yet due.
2.9 Litigation. There is no claim, action, proceeding or
investigation pending or threatened against or by the Seller, or which
questions or challenges the validity of this Agreement or any action taken by
the Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby or which could be reasonably expected to have a material
adverse effect on Seller's ability to perform its obligations hereunder or on
Buyer's use and enjoyment of the Assets; and, to the best of Seller's
knowledge, there is no valid basis for any such claim, action, proceeding or
investigation. The Seller is not subject to any judgment, order or decree
entered in any lawsuit or proceeding which has had or may have a material
adverse effect on the business or its business practices or which could
materially adversely affect Buyer's use and enjoyment of the Assets.
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2.10 Agreements, Contracts and Commitments. Schedule 2.10
hereto truly and accurately lists all material licenses, agreements and
undertakings of the Seller to which any of its properties or assets are or will
be subject, Seller has performed in all material aspects all obligations
required to be performed by Seller under any and all such agreements listed in
Schedule 2.10 to which it is a party or to which any of its property or assets
is subject, and neither it nor, to the best of its knowledge, any other party
thereto is in default under any such agreement or obligation.
2.11 Compliance with Laws. Seller is not in violation of
any federal, state or local statute, law, rule or regulation with respect to or
affecting the Assets. Seller has obtained all licenses, orders, approvals, and
authorizations required in connection with the conduct of the Business.
2.12 Complete Copies of Materials. Seller has made
available to Buyer true and complete copies of each contract, agreement,
license, lease and similar document referred to in any exhibit hereunder or
included in the Assets.
2.13 Disclosure. No representation or warranty by Seller
in this Agreement or the Exhibits attached hereto, nor any document, written
information, statement or certificate furnished or to be furnished by Seller to
Buyer pursuant hereto or in connection with the transactions contemplated
hereby, notwithstanding any investigation by Buyer, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statement contained herein or therein not
misleading.
ARTICLE III
BUYER'S REPRESENTATIONS
Buyer hereby represents as follows:
3.1 Corporate Organization and Authority. Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of California. Buyer has all necessary corporate powers, authority, and
approvals to purchase the Assets and consummate the transactions contemplated
pursuant to this Agreement.
3.2 Agreement Will Not Cause Breach or Violation. The
consummation of the transactions contemplated by this Agreement will not result
in or constitute a default or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of the certificate of
incorporation or bylaws of Buyer or any lease, license, promissory note,
conditional sales contract, permit, license, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument, or arrangement to which Buyer is
party.
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3.3 Buyer's Authority and Consents. Buyer has the right,
power, legal capacity and authority to enter into, and perform its obligations
under this Agreement, and no approvals or consents of any person are necessary
in connection with it.
3.4 Full Disclosure. None of the representations made by
Buyer contains or will contain any untrue statement of a material fact, or omit
any material fact the omission of which would be misleading.
ARTICLE IV
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligation of Buyer to consummate the transactions
contemplated by this Agreement is subject to the satisfaction, at or before the
Closing of all the conditions set out below in this Article IV. Buyer may
waive in writing any or all of these conditions, in whole or in part, without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Buyer of any of its other rights or remedies, at law or
in equity, if Seller shall be in default of any of the representations or
covenants under this Agreement.
4.1 Representations and Warranties True as of the Closing
Date. The representations and warranties of Seller contained in this Agreement
or in any schedule, certificate or document delivered by Seller to Buyer
pursuant to the provisions hereof shall have been true on the date hereof and
shall be true on the Closing Date with the same effect as though such
representations and warranties were made as of such date.
4.2 Compliance with this Agreement. Seller shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
4.3 No Threatened or Pending Litigation. On the Closing
Date, no suit, action or other proceeding, or injunction or final judgment
relating thereto, shall be threatened or be pending before any court or
governmental or regulatory official, body or authority in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby, and
no investigation that might result in any such suit, action or proceeding shall
be pending or threatened.
4.4 No Material Adverse Change. The Assets and the
business, operations, assets, properties or prospects of the Business shall not
have been and shall not be threatened to be materially adversely affected in
any way as a result of any event or occurrence.
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4.5 Board and Other Approvals. The Board of Directors of
Buyer, the Board of Directors of Jaycor, a California corporation ("Jaycor"),
and Jaycor's Chief Executive Officer and President shall have authorized and
approved this Agreement and the transactions contemplated hereby.
4.6 Consents and Proceedings. Seller shall have obtained
all of the consents (including, but not limited to, the consent of Loral Space
and Range Systems ("Loral") to the assignment to Buyer of that certain Fixed
Price Subcontract Number VS-806055-5 by and between Loral and Power Systems
Design Group), authorizations, orders and approvals required in order to
execute and deliver this Agreement and to perform its obligations hereunder and
all actions, proceedings, instruments and documents deemed necessary or
appropriate by Buyer and its counsel to effectuate this Agreement and the
consummation of the transactions contemplated hereby, or incidental thereto,
shall have been obtained and all other related legal matters shall have been
approved by such counsel.
4.7 Seller's Deliveries. Seller shall have delivered to
Buyer all the items set forth in Section 7.1 hereof.
4.8 Due Diligence Review. Buyer shall have completed its
due diligence review of Seller and be satisfied in its sole discretion with the
results thereof.
4.9 Consent to Assignment of Lease. Seller shall have
obtained and delivered the lessor's consent to Seller's assignment to Buyer of
that certain lease for the premises located at 1891 Goodyear Avenue, Suite 611,
Ventura, California.
ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction, at or before the
Closing of all the conditions set out below in this Article V. Seller may
waive in writing any or all of these conditions, in whole or in part, without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by Seller of any of its other rights or remedies, at law or
in equity, if Buyer shall be in default of any of the representations or
covenants under this Agreement.
5.1 Accuracy of Buyer's Representations and Warranties.
Except as otherwise permitted by this Agreement, all representations by Buyer
in this Agreement or in any written statement that shall be delivered to Seller
under this Agreement shall be true on and as of the Closing as though made at
that time.
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5.2 Performance by Buyer. Buyer shall have performed,
satisfied, and complied with all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by Buyer on or before the
Closing.
5.3 Absence of Litigation. No action, suit, or
proceeding before any court or any governmental body or authority, pertaining
to the transaction contemplated by this Agreement or to its consummation, shall
have been instituted or threatened on or before the Closing.
5.4 Buyer's Deliveries. Buyer shall have delivered to
Seller all the items set forth in Section 7.2 hereof.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnity by Seller. Seller shall indemnify Buyer,
and its affiliates, directors, officers, stockholders, employees, agents,
representatives, successors and assigns against any and all claims, losses,
liabilities, damages, expenses (including reasonable attorneys' fees and costs
of suit) which may be asserted against, incurred or required to be paid by
Buyer or its affiliates, directors, officers, stockholders, employees, agents,
representatives, successors and assigns by reason or on account of (i) any
representation or warranty made by Seller herein being untrue or incorrect; or
(ii) any failure by Seller to observe or perform their covenants and agreements
set forth herein or in any agreement entered into pursuant to this Agreement;
or (iii) any liabilities of Seller incurred in connection with the Business
prior to the Closing Date including, but not limited to, any liabilities
incurred in connection with bulk sales laws applicable to the transactions
contemplated in this Agreement.
6.2 Indemnity by Buyer. Buyer shall indemnify Seller and
its employees, agents, representatives, successors and assigns against any and
all claims, losses, liabilities, damages, expenses (including reasonable
attorneys' fees and costs of suit) which may be asserted against, incurred or
required to be paid by Seller and its employees, agents, representatives,
successors and assigns by reason or on account of (i) any representation or
warranty made by Buyer herein being untrue or incorrect or (ii) any failure by
Buyer to observe or perform its covenants and agreements herein or in any
agreement entered into pursuant to this Agreement or (iii) any action (or
failure to take action) by Seller after the Closing Date which action or
inaction is within the scope of Seller's employment.
6.3 Limitation of Indemnification Liability of Seller.
Seller shall have no liability for indemnification hereunder with respect to
any claim resulting from a breach of their representations and warranties set
forth in this Agreement unless
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Seller has been notified of the claim, in the manner provided under Section
9.11 hereof, within the survival period specified in Section 6.5 hereof.
6.4 Limitation of Indemnification Liability of Buyer.
Buyer shall have no liability for indemnification hereunder with respect to any
claim resulting from a breach of its representations and warranties set forth
in this Agreement unless it has been notified of the claim, in the manner
provided under Section 9.11 hereof, within the survival period specified in
Section 6.5 hereof.
6.5 Survival. All representations and warranties
contained in or made pursuant to this Agreement or in any agreement,
certificate, document or statement delivered pursuant hereto shall survive the
Closing for a period of three (3) years; provided, however, that,
notwithstanding the foregoing, the representations and warranties set forth in
Section 2.10 shall survive the Closing for the applicable tax statute of
limitations plus ninety (90) days.
6.6 Indemnification Procedures. Any party making a claim
for indemnification under this Article VI (the "Indemnitee") shall notify the
indemnifying party (the "Indemnitor") of the claim in writing promptly after
discovering the claim or receiving written notice of a claim against it if by a
third party), describing the claim, the amount thereof (if known and
quantifiable), and the basis thereof. The obligations and liabilities of the
Indemnitor with respect to claims resulting from the assertion of liability by
any third party shall be subject to the following terms and conditions:
a. In the event any action, suit or proceeding
is brought against the Indemnitee, with respect to which the Indemnitor may
have liability under the indemnity agreements contained herein, the action,
suit or proceeding shall be defended including all proceedings on appeal or for
review which counsel for the Indemnitee shall deem appropriate) by the
Indemnitor. The Indemnitee shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the
Indemnitee's own expense unless the employment of such counsel and the payment
of such fees and expenses both shall have been specifically authorized by the
Indemnitor in connection with the defense of such action, suit or proceeding.
In such case only that portion of such fees and expenses reasonably related to
matters covered by the indemnity agreements contained herein shall be borne by
the Indemnitor. The Indemnitee shall be kept fully informed of such action,
suit or proceeding at all stages thereof whether or not it is so represented.
The Indemnitee shall make available to the Indemnitor and its attorneys and
accountants all books and records of the Indemnitee relating to such
proceedings or litigation and the parties hereto agree to render to each other
such assistance as they may reasonably require of each other in order to ensure
the proper and adequate defense of any such action, suit or proceeding.
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b. The Indemnitee shall not make any settlement
of any claims without the written consent of the Indemnitor, which consent
shall not be unreasonably withheld or delayed.
ARTICLE VII
THE CLOSING
The Closing shall occur at the place and time as specified in
Section 1.7 unless extended as set forth in Section 1.7 or the Agreement is
terminated earlier in accordance with Article VIII.
7.1 Seller's Deliveries at Closing. At the Closing,
Seller shall deliver or cause to be delivered to Buyer:
7.1.1 Bill of Sale. A signed bill of sale for the
Assets.
7.1.2 Possession of the Assets. Possession of the
Assets.
7.1.3 Assignment and Assumption of Contracts. A
signed Assignment and Assumption of Contracts substantially in the form
attached hereto as Exhibit A.
7.1.4 Third-Party Consents. The consents discussed
in Section 4.6 hereof.
7.1.5 Lessor's Consent to Assignment of Lease. The
consent specified in Section 4.9 executed by the lessor.
7.1.6 Bills of Sale and Other Instruments of
Transfer. Any bills of sale, deeds, assignments, receipts, or other
instruments of transfer reasonably requested by Buyer to effectuate the
transactions contemplated by this Agreement.
7.2 Buyer's Deliveries at Closing. At the Closing, Buyer
shall deliver to Seller:
7.2.1 Closing Purchase Price. The Closing Purchase
Price, which shall be paid in the manner specified in Section 1.4, in return
for Seller's delivery of the items specified in Section 7.1.
7.3 Further Documents. At any time before or after the
Closing, Seller will execute, acknowledge, and deliver any further deeds,
assignments, conveyances, and other assurances, documents, and instruments of
transfer, reasonably requested by Buyer, and will take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Buyer, for the purpose
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of assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any of the Assets to be conveyed and transferred by
this Agreement.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing (i) by Buyer in its sole
discretion, without cause, (ii) by the mutual consent of Seller and Buyer, or
(iii) by either party as long as such party is not in default if the Closing
has not taken place by the scheduled Closing Date (including the permissible
extensions of the Closing, if applicable) as set forth in Section 1.7 hereof,
or (iv) by Seller if Buyer is in default of its obligations or representations
under this Agreement.
8.2 Remedies. Subject to the controlling provisions in
this Article VIII, in the event of a material breach of this Agreement, the
non-breaching party shall have the right to pursue all remedies available to it
under this Agreement or otherwise at law or in equity.
ARTICLE IX
GENERAL PROVISIONS
9.1 Effect of Headings; Exhibits. The subject headings
of the sections of this Agreement are included for purposes of convenience
only, and shall not affect the construction or interpretation of any of its
provisions. All Exhibits and Schedules to this Agreement are incorporated
herein in their entirety.
9.2 Entire Agreement; Modification; Waiver. This
Agreement constitutes the entire agreement between the parties pertaining to
the subject matter contained in it, except for any other agreements referenced
herein. This Agreement supersedes all prior and contemporaneous agreements
(other than those entered into in writing simultaneously with this Agreement),
representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement shall be binding unless executed
in writing by all the parties. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
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9.3 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Counterparts of
this Agreement may be signed and the signature pages transmitted by facsimile.
9.4 Parties in Interest. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors and assigns. Nothing in this Agreement is intended
to relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any
right of subrogation or action over against any party to this Agreement.
9.5 Assignment. Neither party may assign its rights or
obligations under this Agreement without the prior written consent of the other
party. Subject to the foregoing, this Agreement shall be binding on and shall
inure to the benefit of the parties to it and their respective permitted
successors and assigns.
9.6 Recovery of Litigation or Arbitration Costs. If any
legal action, arbitration or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled, as may be decided by the arbitrators pursuant to Section 9.12.6
hereof.
9.7 Nature and Survival of Representations and Covenants.
Subject to any limitations set forth in Article VI, all representations,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for in it, shall
survive the Closing.
9.8 Severability. Each term, covenant, condition or
provision of this Agreement shall be viewed as separate and distinct, and in
the event that any such term, covenant, condition or provision shall be held by
a court of competent jurisdiction to be invalid, the remaining provisions shall
continue in full force and effect, so long as the essential benefits of this
Agreement will still be realized by the parties.
9.9 Necessary Acts. Each party to this Agreement agrees
to perform any further acts and execute and deliver any further documents that
may be reasonably necessary to carry out the provisions of this Agreement.
9.10 Time of Essence. Time is of the essence in the
performance of all obligations under this Agreement.
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9.11 Notices. All notices to be given with respect to
this Agreement shall be given in writing to the party, at the appropriate
address listed below. Each notice shall be deemed delivered whenever it
arrives at the party's address, by any written means, including without
limitation, facsimile, telegraph, teletype personal delivery, express delivery,
or mail.
9.11.1 If to Buyer, then to:
Jaycor
9775 Towne Centre Drive
San Diego, CA 92121
Attn: P. Randy Johnson,
Chief Financial Officer
Telephone: (619) 535-3129
Facsimile: (619) 452-0108
with a copy to:
Cameron Jay Rains, Esq.
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Telephone: (619) 677-1476
Facsimile: (619) 677-1477
9.11.2 If to Seller, then to:
Robert L. Ritter
Power Systems Design Group
1891 Goodyear Avenue, Suite 611
Ventura, CA 93003
Telephone: (805) 650-8074
Facsimile: (805) 650-9275
with a copy to:
Tom Buford, Esq.
56 East Main Street
Suite 200
Ventura, California
Telephone: (805) 652-1505
Facsimile: (805) 653-0108
9.12 Arbitration. Any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"), and the procedures set forth below.
In the event of any
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inconsistency between the Rules of AAA and the procedures set forth below, the
procedures set forth below shall control. Judgment upon the award rendered by
the arbitrators may be enforced in any court having jurisdiction thereof.
9.12.1 Location. The location of the arbitration
shall be in San Diego County, California.
9.12.2 Selection of Arbitrators. The arbitration
shall be conducted by a panel of three neutral arbitrators who are independent
and disinterested with respect to the parties, this Agreement, and the outcome
of the arbitration. Each party shall appoint one neutral arbitrator, and these
two arbitrators so selected by the parties shall then select the third
arbitrator. If one party has given written notice to the other party as to the
identity of the arbitrator appointed by the party, and the party thereafter
makes a written demand on the other party to appoint its designated arbitrator
within the next ten days, and the other party fails to appoint its designated
arbitrator within ten (10) days after receiving said written demand, then the
arbitrator who has already been designated shall appoint the other two
arbitrators.
9.12.3 Discovery. Unless the parties mutually agree
in writing to some additional and specific pre-hearing discovery, the only
pre-hearing discovery shall be (a) reasonably limited production of relevant
and non-privileged documents, and (b) the identification of witnesses to be
called at the hearing, which identification shall give the witness's name,
general qualifications and position, and a brief statement as to the general
scope of the testimony to be given by the witness. The arbitrators shall
decide any disputes and shall control the process concerning these pre-hearing
discovery matters. Pursuant to the Rules of AAA, the parties may subpoena
witnesses and documents for presentation at the hearing.
9.12.4 Case Management. Prompt resolution of any
dispute is important to both parties; and the parties agree that the
arbitration of any dispute shall be conducted expeditiously. The arbitrators
are instructed and directed to assume case management initiative and control
over the arbitration process (including scheduling of events, pre-hearing
discovery and activities, and the conduct of the hearing), in order to complete
the arbitration as expeditiously as is reasonably practical for obtaining a
just resolution of the dispute.
9.12.5 Remedies. The arbitrators shall follow and
apply applicable law. The arbitrators shall grant such legal or equitable
remedies and relief in compliance with applicable law that the arbitrators deem
just and equitable, to the same extent that remedies or relief could be granted
by a state or federal court, provided, however, that no punitive damages may be
awarded. No court action may be maintained seeking punitive damages. The
decision of any two of the three arbitrators appointed shall be binding upon
the parties.
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9.12.6 Expenses. The expenses of the arbitration,
including the arbitrators' fees, expert witness fees, and attorney's fees, may
be awarded to the prevailing party, in the discretion of the arbitrators, or
may be apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
9.12.7 Confidentiality. Except as set forth below,
the parties shall keep confidential the fact of the arbitration, the dispute
being arbitrated, and the decision of the arbitrators. Notwithstanding the
foregoing, the parties may disclose information about the arbitration to
persons who have a need to know, such as directors, trustees, management
employees, witnesses, experts, investors, attorneys, lenders, insurers, and
others who may be directly affected. Additionally, if a party has stock which
is publicly traded, the party may make such disclosures as are required by
applicable securities laws. Further, if a party is expressly asked by a third
party about the dispute or the arbitration, the party may disclose and
acknowledge in general and limited terms that there is a dispute with the other
party which is being (or has been) arbitrated. Once the arbitration award has
become final, if the arbitration award is not promptly satisfied, then these
confidentiality provisions shall no longer be applicable.
9.13 Governing Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement shall be
governed by and construed in accordance with the laws of the State of
California without giving effect to principles of conflict of laws.
9.14 Construction. This Agreement shall be construed and
interpreted in accordance with the plain meaning of the entirety of the
provisions of this Agreement, consistent with the overall intent and spirit of
the parties and the entire Agreement. As both parties and their legal counsel
have participated in the negotiations and the drafting for this Agreement, any
ambiguity or inconsistency in any of the provisions of this Agreement shall not
be construed against either party as the draftsman of this Agreement.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it as of the date set forth above.
JAYCOR, A CALIFORNIA CORPORATION
By: /s/ Eric P. Wenaas
-----------------------------
ERIC P. WENAAS, President
and Chief Executive Officer
ROBERT L. RITTER, AN INDIVIDUAL
By: /s/ Robert L. Ritter
-----------------------------
ROBERT L. RITTER
[SIGNATURE PAGE TO AGREEMENT FOR PURCHASE AND
SALE OF ASSETS]
<PAGE> 1
EXHIBIT 2.4
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is entered into
as of January 30, 1997, by and among Jaycor, a California corporation
("Jaycor"), Jaycor Emerging Technologies, Inc., a California corporation
("Holding Company"), and Jaycor Acquisition Company, a California corporation
("AcqCo").
R E C I T A L S
A. Holding Company is a wholly-owned subsidiary of Jaycor;
B. AcqCo is a wholly-owned subsidiary of Holding Company; and
C. The parties intend that, upon the terms and subject to the
conditions set forth below, AcqCo shall be merged with and into Jaycor, with
Jaycor as the surviving corporation (the "Merger"), pursuant to an Agreement and
Plan of Merger substantially in the form attached hereto as Exhibit A (the
"Agreement of Merger") and the applicable provisions of the laws of the State of
California.
A G R E E M E N T
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth herein, the parties hereby
agree as follows:
1. Plan of Reorganization.
1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and the Agreement of Merger, Jaycor, AcqCo and
Holding Company shall effect the Merger by filing an executed copy of the
Agreement of Merger, together with other requisite documents, with the Secretary
of State of the State of California, in accordance with California law. The
Merger shall become effective upon the date specified in the Agreement of Merger
(the "Effective Date").
1.2 Effects of the Merger. On the Effective Date:
(a) AcqCo shall be merged with and into Jaycor,
Jaycor shall be the surviving corporation (the "Surviving Corporation"), and the
separate corporate existence of AcqCo shall cease;
(b) Each and every share of capital stock of
Jaycor issued and outstanding immediately prior to the Effective Date will, by
virtue of the Merger, be
1
<PAGE> 2
converted into the right to receive one share of the same class and series, and
bearing the same rights, preferences and privileges, of the capital stock of
Holding Company;
(c) Each option and warrant convertible into one
or more shares of capital stock of Jaycor outstanding immediately prior to the
Effective Date will, by virtue of the Merger, be converted into the right to
receive the same number, class and series of shares of the capital stock of
Holding Company, upon the same terms, exercise price, and subject to the same
conditions as are currently set forth in the option or warrant, as the case may
be;
(d) Each and every share of Jaycor held in the
Jaycor treasury will be canceled and no shares of capital stock of Holding
Company shall be issued in respect thereof;
(e) Each and every share of capital stock of
AcqCo outstanding immediately prior to the Effective Date shall be changed and
converted into and shall be one fully paid and nonassessable share of capital
stock of Jaycor;
(f) Each and every share of capital stock of
Holding Company outstanding immediately prior to the Effective Date will be
canceled and no securities shall be issued in respect thereof; and
(g) The Merger shall, from and after the
Effective Date, have all of the effects provided by California Law.
2. Abandonment. At any time prior to the Effective Date, this
Agreement may be terminated and the Agreement of Merger may be abandoned by the
Board of Directors of Jaycor (the "Board"), notwithstanding approval of this
Agreement by the shareholder of AcqCo if circumstances arise which, in the
opinion of the Board, make the Merger for any reason inadvisable.
3. Miscellaneous.
3.1 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
3.2 Severability. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be held to be
invalid or unenforceable, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further agree
to replace such invalid or unenforceable provision of this Agreement with a
valid and enforceable provision which will achieve, to the extent possible, the
economic, business and other purposes of the invalid or unenforceable provision.
2
<PAGE> 3
3.3 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
3.4 Absence of Third Party Beneficiary Rights. No
provisions of this Agreement are intended, nor shall be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof shall be solely between the parties
to this Agreement.
3.5 Entire Agreement. This Agreement, the exhibits
hereto, the documents referenced herein, and the exhibits thereto, constitute
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and thereto. The
express terms hereof control and supersede any course of performance or usage of
the trade inconsistent with any of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
JAYCOR JAYCOR EMERGING
TECHNOLOGIES, INC.
By: /s/ Eric P. Wenaas By: /s/ P. Randy Johnson
------------------------- ---------------------------
Eric P. Wenaas, President P. Randy Johnson, President
JAYCOR ACQUISITION COMPANY
By: /s/ P. Randy Johnson
---------------------------
P. Randy Johnson, President
3
<PAGE> 4
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
4
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
January 30, 1997, is entered into by and among JAYCOR, a California corporation
("Jaycor"), Jaycor Acquisition Company, a California corporation ("AcqCo" and,
together with Jaycor, the "Constituent Corporations"), and Jaycor Emerging
Technologies, Inc., a California corporation ("Holding Company").
RECITALS
A. Each of Jaycor, AcqCo and Holding Company is a corporation duly
organized and validly existing under the laws of the State of California.
B. At the date of this Agreement, Jaycor's authorized capital
stock consists of twelve million (12,000,000) shares of common stock, One and
Sixty-Seven One Hundredths Cents ($0.0167) par value ("Jaycor Common Stock"),
of which three million ninety-nine thousand one hundred eighty-eight
(3,099,188) shares are issued and outstanding.
C. At the date of this Agreement, AcqCo's authorized capital stock
consists of one thousand (1,000) shares of common stock, no par value ("AcqCo
Common Stock"), of which one hundred (100) shares are issued and outstanding,
all of which are owned by Holding Company.
D. At the date of this Agreement, Holding Company's authorized
capital stock consists of twelve million (12,000,000) shares of common stock,
One and Sixty-Seven Hundredths Cents ($0.0167) par value ("Holding Company
Common Stock"), of which one hundred (100) shares are issued and outstanding,
all of which are owned by Jaycor.
E. The respective boards of directors of Jaycor, and AcqCo and
Holding Company have determined that it is advisable and in the best interests
of each of such corporations and their respective shareholders for AcqCo to
merge with and into Jaycor upon the terms and subject to the conditions set
forth in this Agreement, pursuant to which the current shareholders of Jaycor
will become the shareholders of Holding Company, and Holding Company will
become the sole shareholder of Jaycor.
F. The respective boards of directors of Jaycor, AcqCo and Holding
Company have, by resolutions duly adopted, approved this Agreement.
G. Holding Company has approved this Agreement as the sole
shareholder of AcqCo.
H. Jaycor has approved this Agreement as the sole shareholder of
Holding Company.
-1-
<PAGE> 6
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Jaycor, AcqCo and Holding Company hereby agree as follows:
1. Merger. AcqCo shall be merged with and into Jaycor (the "Merger"),
and Jaycor shall be the surviving corporation (hereinafter sometimes referred
to as the "Surviving Corporation"). The date that the Merger shall become
effective (the "Effective Date") shall be the date of filing with the Secretary
of State of the State of California of a duly executed copy of this Agreement
and such other certificates and documents as may be required under the laws of
the State of California to effect the Merger.
2. Succession. On the Effective Date, the separate corporate existence
of AcqCo shall cease, and Jaycor shall possess all the rights, privileges,
powers and franchises and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations, and each and all of the rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all debts due to each of the Constituent Corporations on whatever account, and
all things in action belonging to each of the Contituent Corporations shall be
transferred to and vested in the Surviving Corporation and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter the property of the Surviving Corporation as they were of
the respective Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of such Constituent Corporations, shall
not revert or be in any way impaired by reason of the Merger; provided,
however, that the liabilities of the Constituent Corporations and of their
shareholders, directors and officers shall not be affected and all rights of
creditors and all liens upon any property of the Constituent Corporations shall
be preserved unimpaired. To the extent permitted by law, any claim existing or
action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted as if the Merger had not taken place. All debts,
liabilities and duties of the respective Constituent Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if such debts, liabilities and duties had been incurred
or contracted by it. All corporate acts, plans, policies, agreements,
arrangements, approvals and authorizations of Jaycor, its shareholders, board
of directors and committees thereof, officers and agents which were valid and
effective immediately prior to the effective Date, shall be taken for all
purposes as the acts, plans, policies, agreements, arrangements, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to Jaycor.
3. Articles and Bylaws. The articles of incorporation and bylaws of
Jaycor on the Effective Date shall continue to be the articles of incorporation
and
-2-
<PAGE> 7
bylaws of Jaycor as the Surviving Corporation without change or amendment until
further amended in accordance with the provisions hereof and applicable laws.
The articles of incorporation and bylaws of Holding Company on the Effective
Date shall continue to be the articles of incorporation and bylaws of Holding
Company without change or amendment until further amended in accordance with
the provisions hereof and applicable laws.
4. Directors and Officers. The directors and officers of Jaycor at the
Effective Date shall be and continue as directors and officers, holding the same
titles and positions, of Jaycor on the Effective Date, and after the Effective
Date shall serve in accordance with the bylaws of Jaycor until their successors
shall have been elected or qualified or until otherwise provided by law. On the
Effective Date, the directors and officers of Jaycor at the Effective Date shall
also become the directors and officers of Holding Company, holding the same
titles and positions, on and after the Effective Date, and shall serve in
accordance with the bylaws of Holding Company and until their successors shall
have been elected or qualified or until otherwise provided by law.
5. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors or assigns, to the extent permitted
by law, there shall be executed and delivered on behalf of AcqCo such deeds and
other instruments, and there shall be taken or caused to be taken by it all
such further and other action, as shall be appropriate, advisable or necessary
in order to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation the title to and possession of all property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of AcqCo, and
to otherwise carry out the purposes of this Agreement, and the officers and
directors of the Surviving Corporation are fully authorized in the name and
on behalf of AcqCo or otherwise, to take any and all such action and to execute
and deliver any and all such deeds and other instruments.
6. Conversion of Shares. At the Effective Date, by virtue of the Merger
and without any action on the part of any holder thereof:
(a) each and every share of Jaycor Common Stock issued and
outstanding immediately prior to the Effective Date shall be changed and
converted into and shall be one fully paid and nonassessable share of Holding
Company Common Stock and shall bear the same rights, preferences and privileges;
(b) each and every share of Jaycor Common Stock held in the
Jaycor treasury will be canceled and retired and resume the status of
authorized and unissued shares of Jaycor Common Stock, and no shares of Holding
Company Common Stock or other securities shall be issued in respect thereof;
(c) each and every share of AcqCo Common Stock issued and
outstanding immediately prior to the Effective Date shall be changed and
converted
-3-
<PAGE> 8
into and shall be one fully paid and nonassessable share of Jaycor Common
Stock; and
(d) each and every share of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Date shall be cancelled and
retired and resume the status of authorized and unissued shares of Holding
Company Common Stock or other securities shall be issued in respect thereof.
7. Stock Certificates. At and after the Effective Date, all of the
outstanding certificates which, immediately prior to the Effective Date,
represented shares of Jaycor Common Stock shall be deemed for all purposes to
evidence ownership of, and to represent, shares of capital stock of Holding
Company into which the shares of Jaycor Common Stock, formerly represented by
such certificates, have been converted as herein provided, and any and all
restrictions or legends on any shares or certificates representing shares of
Jaycor Common Stock shall continue and/or be placed on any shares and/or
certificates for shares of Holding Company into which such shares of Jaycor
Common Stock are convertible. The registered owner on the books and records of
Jaycor or its transfer agents of any such outstanding stock certificate shall,
until such certificate has been surrendered for transfer or otherwise accounted
for to Jaycor or its transfer agents, have and be entitled to exercise any
voting and other rights and with respect to, and to receive any dividend and
other distributions upon, the shares of capital stock of Holding Company
evidenced by such outstanding certificate as above provided.
8. Stock Option Plans; Warrants. As of the Effective Date, Holding
Company shall assume and continue each of Jaycor's stock option and employee
stock ownership plans (the "Stock Plans"), and all obligations of Jaycor
thereunder, including the outstanding options or awards or portions thereof
granted pursuant thereto. Each option, whether granted under the Stock Plans or
otherwise, and each warrant issued by Jaycor to purchase shares of Jaycor
Common Stock which is outstanding immediately prior to the Effective Date
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become an option or warrant, respectively, to
purchase the same number of shares of Holding Company Common Stock at the same
price per share, and upon the same exercise price, terms and subject to the
same conditions as set forth in the Stock Plans or the terms of the respective
warrants or options, all as in effect at the Effective Date. Immediately
subsequent to the Merger, the same number of shares of Holding Company Common
Stock shall be reserved for purposes of the Stock Plans and outstanding
warrants as is equal to the number, class and series of shares of Jaycor Common
Stock so reserved immediately prior to the Merger.
9. Abandonment. At any time prior to the Effective Date, this Agreement
may be terminated and the Merger may be abandoned by the board of directors of
Jaycor, notwithstanding approval of this Agreement by the shareholder of AcqCo
if, in the opinion of the board of directors of Jaycor, circumstances arise
-4-
<PAGE> 9
which, in the opinion of such board of directors, make the Merger for any
reason inadvisable.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective duly authorized officers as of the date first above written.
JAYCOR, JAYCOR ACQUISITION COMPANY,
a California corporation a California corporation
By: /s/ ERIC P. WENAAS By: /s/ P. RANDY JOHNSON
------------------------------- ------------------------------
Eric P. Wenaas, President P. Randy Johnson, President
By: /s/ DOROTHY K. BIDWELL By: /s/ P. RANDY JOHNSON
------------------------------- ------------------------------
Dorothy K. Bidwell, Secretary P. Randy Johnson, Secretary
JAYCOR EMERGING
TECHNOLOGIES, INC.,
a California corporation
By: /s/ P. RANDY JOHNSON
-------------------------------
P. Randy Johnson, President
By: /s/ P. RANDY JOHNSON
-------------------------------
P. Randy Johnson, Secretary
-5-
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "JAYMARK, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY OF
MARCH, A.D. 1997, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
-------------------------------------------
Edward J. Freel, Secretary of State
2724516 8100 AUTHENTICATION: 8357862
971071033 DATE: 03-04-97
[STATE OF DELAWARE SEAL]
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
JAYMARK, INC.
FIRST: The name of the corporation (the "Corporation") is Jaymark, Inc.
SECOND: The address of its registered office if the Company in the
State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware, 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of this Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of common stock which the
corporation shall have authority to issue is one thousand (1,000), par value
One-Tenth of One Cent ($0.001) per share.
FIFTH: The business and affairs of the Corporation shall be managed by
or under the direction of the board of directors of this Corporation. In
addition to the powers and authority expressly conferred upon them by Statute or
by this Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation. Election of directors
need not be by written ballot, unless the Corporation's bylaws so provide.
SIXTH: The Corporation's board of directors is authorized to make,
adopt, amend, alter or repeal the Bylaws of the Corporation. The Corporation's
stockholders shall also have power to make, adopt, amend, alter or repeal the
Bylaws of the Corporation.
SEVENTH: The name and mailing address of the incorporator is:
David R. Young
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, California 92121
EIGHTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of this Corporation shall not be liable to this
Corporation or its stockholders for monetary damages for any breach of a
fiduciary duty as a director. If the Delaware General Corporation Law is
hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
Corporation Law, as so amended. Any repeal or
<PAGE> 3
modification of the foregoing provisions of this Article EIGHTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 4th day of March 1997.
/s/ DAVID R. YOUNG
-----------------------------------------
David R. Young, Incorporator
- 2 -
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
JAYMARK, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Notice of Stockholder Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8. Proxies and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.9. Stock List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
BOARD OF DIRECTORS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Number and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. Vacancies and Newly Created Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7. Participation in Meetings by Conference Telephone . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.11. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.12. Nomination of Director Candidates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
COMMITTEES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1. Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
OFFICERS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4. Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.6. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.7. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.9. Action With Respect to Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
STOCK
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.1. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.2. Transfers of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.3. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.4. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.5. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI
NOTICES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.2. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII
MISCELLANEOUS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.1. Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.3. Reliance Upon Books, Reports and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.4. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.5. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.1. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.2. Right of Claimant to Bring Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8.3. Indemnification of Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.4 Non-Exclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.5. Indemnification Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.7. Effect of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.8. Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX
AMENDMENTS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
BY-LAWS
OF
JAYMARK, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
(13) months after the organization of the corporation or after its last annual
meeting of stockholders.
Section 1.2. Special Meetings.
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by (a) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption), (b) the Chairman of the Board, or (c) the President.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.
Section 1.3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in conformity
herewith. At any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting.
Section 1.4. Quorum.
At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote at the meeting, present in person
or by proxy, shall constitute a quorum
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for all purposes, unless or except to the extent that the presence of a larger
number may be required by law or by the Certificate of Incorporation.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or, in
his absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. The
secretary of the meeting shall be such person as the chairman appoints.
Section 1.6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
Section 1.7. Notice of Stockholder Business.
At an annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) properly brought before the
meeting by or at the direction of the Board of Directors, or (c) properly
brought before an annual meeting by a stockholder and if, and only if, the
notice of a special meeting provides for business to be brought before the
meeting by stockholders, properly brought before the special meeting by a
stockholder. For business to be properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal offices of the
Corporation no later than (i) in the case of an annual meeting, ninety (90)
days before the anticipated date of the next annual meeting, under the
assumption that the next annual meeting will occur on the same calendar day as
the day of the most recent annual meeting, and (ii) in the case of a special
meeting, ten (10) days prior to date of such meeting. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (1) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the annual or special meeting, (2) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (3) the class and number of shares of the Corporation
which are beneficially owned
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by the stockholder, and (4) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an annual or special meeting except in accordance with
the procedures set forth in this Section 1.7. The chairman of an annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 1.8. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors, and except where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or the Certificate of Incorporation or
the By-Laws of this Corporation, all other matters shall be determined by a
majority of the votes cast.
Section 1.9. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
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ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Number and Term of Office.
The number of directors shall initially be not less than five (5) and
not more than nine (9), and the initial number of directors shall be fixed at
six (6) directors. The exact number of directors may be changed from time to
time within the limits specified in this Section 2.1 exclusively by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). The minimum or maximum number of directors provided in
this Section 2.1 may be changed or a definite number fixed without provision
for an indefinite majority of the outstanding shares entitled to vote. The
term of office shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). Each director shall hold office until his successor is
elected and qualified or until his earlier death, resignation, retirement,
disqualification or removal.
Section 2.2. Vacancies and Newly Created Directorships.
Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, or other cause
(other than removal from office by a vote of the stockholders) may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 2.3. Removal.
Any director, or the entire Board of Directors, may be removed from
office at any time, with or without cause, but only by the affirmative vote of
the holders of at least a sixty-six and two-thirds percent (66 2/3%) of the
voting power of its then outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by (i) a majority of the directors then in office, though less
than a quorum, or (ii) the stockholders at a special meeting of the
stockholders properly called for that purpose, by the vote of the holders of a
plurality of the shares entitled to vote at such special meeting. Directors so
chosen shall hold office until the next annual meeting of stockholders.
Section 2.4. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of
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<PAGE> 8
Directors and publicized among all directors. A notice of each regular meeting
shall not be required.
Section 2.5. Special Meetings.
Special meetings of the Board of Directors may be called by three (3)
of the directors then in office, by the chairman of the board or by the chief
executive officer and shall be held at such place, on such date, and at such
time as such directors or such officers shall fix. Notice of the place, date,
and time of each such special meeting shall be given to each director who does
not waive the right to a notice by (i) mailing written notice not less than
five (5) days before the meeting, (ii) sending notice one (1) day before the
meeting by an overnight courier service and two (2) days before the meeting if
by overseas courier service, or (iii) by telephoning, telecopying, telegraphing
or personally delivering the same not less than twenty-four (24) hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 2.6. Quorum.
At any meeting of the Board of Directors, a majority of the total
number of authorized directors shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
Section 2.7. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or of any committee of the Board of
Directors, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
Section 2.8. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 2.9. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
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<PAGE> 9
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to pass on the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's business and affairs.
Section 2.10. Action Without Meeting.
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting, if all members of the board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the board. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
Section 2.11. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
Section 2.12. Nomination of Director Candidates.
Subject to any limitations stated in the Certificate of Incorporation
of this Corporation, nominations for the election of Directors may be made by
the Board of Directors or a proxy committee appointed by the Board of Directors
or by any stockholder entitled to vote in the election of Directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees of the Board of Directors.
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<PAGE> 10
The Board of Directors, by a vote of a majority of the whole Board,
may from time to time designate one or more committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may
replace any absent or disqualified member at any meeting of the committee. Any
committee so designated may exercise the power and authority of the Board of
Directors to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee and
any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may by unanimous vote appoint another member of the
Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 3.2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-half of the authorized members shall
constitute a quorum unless the committee shall consist of one or two members,
in which event all members of the committee shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing. Such written consent or consents shall be filed with the
minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 4.1. Generally.
The officers of the Corporation shall consist of a President, a
Secretary and a Treasurer. The Corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
and such other officers as may from time to time be appointed by the Board of
Directors. Officers shall be elected by the Board of Directors, which shall
consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold office at the pleasure of the Board,
until his successor is elected and qualified or until his earlier resignation
or removal. Any number of offices may be held by the same person.
Section 4.2. Chairman of the Board.
The Chairman of the Board, if there shall be such an officer, shall,
if present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to
him by the Board of Directors or as provided by these By-Laws.
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Section 4.3. President.
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the general manager and chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and other officers,
employees and agents of the Corporation. He shall preside at all meetings of
the stockholders. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or by these By-Laws. He shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized by the Board of Directors.
Section 4.4. Vice President.
In the absence or disability of the President, the Vice Presidents, if
any, in order of their rank as fixed by the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice
Presidents, if any, shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Directors or these By-Laws.
Section 4.5. Treasurer.
The Treasurer shall keep and maintain or cause to be kept and
maintained, adequate and correct financial books and records of account of the
Corporation in written form or any other form capable of being converted into
written form.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse all funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and Directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by these By-Laws.
Section 4.6. Secretary.
The Secretary shall keep, or cause to be kept, a book of minutes in
written form of the proceedings of the Board of Directors, committees of the
Board, and stockholders. Such minutes shall include all waivers of notice,
consents to the holding of meetings, or approvals of the minutes of meetings
executed pursuant to these By-Laws or the General Delaware Corporation Law.
The Secretary shall keep, or cause to be kept at the principal executive office
or at the office of the Corporation's transfer agent or registrar, a record of
its stockholders, giving the names and addresses of all stockholders and the
number and class of shares held by each.
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The Secretary shall give or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by these By-Laws or
by law to be given, and shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these By-Laws.
Section 4.7. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
Section 4.8. Removal.
Subject to the rights and obligations set forth in a written
Employment Agreement, if any, any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.9. Action With Respect to Securities of Other
Corporations.
Unless otherwise directed by the Board of Directors, the President or
any officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 5.1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and the
Secretary, an Assistant Secretary or the Treasurer, certifying the number of
shares owned by him or her. Any or all the signatures on the certificate may
be facsimile.
Section 5.2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 5.4 of these By-Laws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 5.3. Record Date.
The Board of Directors may fix a record date, which shall not be more
than sixty (60) nor fewer than ten (10) days before the date of any meeting of
stockholders, nor more than
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<PAGE> 13
sixty (60) days prior to the time for the other action hereinafter described,
as of which there shall be determined the stockholders who are entitled: to
notice of or to vote at any meeting of stockholders or any adjournment thereof;
to express consent to corporate action in writing without a meeting; to receive
payment of any dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any change, conversion or exchange of stock
or with respect to any other lawful action.
Section 5.4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5.5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 6.1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram,
mailgram or commercial courier service. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at this last known
address as the same appears on the books of the Corporation. The time when
such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or dispatched, if delivered through the mails or by telegram,
courier or mailgram, shall be the time of the giving of the notice.
Section 6.2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice for
such meeting, except when the person attends a meeting for the express purpose
of objecting, and does in fact object, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE VII
MISCELLANEOUS
Section 7.1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-Laws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized
by the Board of Directors or a committee thereof.
Section 7.2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary.
If and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an Assistant
Secretary or other officer designated by the Board of Directors.
Section 7.3. Reliance Upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account
or other records of the Corporation, including reports made to the Corporation
by any of its officers, by an independent certified public accountant, or by an
appraiser.
Section 7.4. Fiscal Year.
The Corporation's fiscal year shall end on the Friday closest to
January 31 each year.
Section 7.5. Time Periods.
In applying any provision of these By-Laws which require that an act
be done or not done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
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corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such Proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of Delaware, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said Law permitted
the Corporation to provide prior to such amendment) against all expenses,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 8.2, the Corporation shall indemnify any such person seeking indemnity
in connection with a Proceeding (or part thereof) initiated by such person only
if such Proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. Such right shall be a contract right and shall include the
right to be paid by the Corporation expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that, if
required by the General Corporation Law of Delaware, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of
such Proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Section or otherwise.
Any indemnification as provided herein (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of a director, officer, employee or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of Delaware. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 8.2. Right of Claimant to Bring Suit.
If a claim under Section 8.1 is not paid in full by the Corporation
within ninety (90) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation
Law of Delaware for the Corporation to
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<PAGE> 16
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of Delaware, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 8.3. Indemnification of Employees and Agents.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and to the advancement of
related expenses, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article with respect to the indemnification of
and advancement of expenses to directors and officers of the Corporation.
Section 8.4 Non-Exclusivity of Rights.
The rights conferred on any person by Sections 8.1, 8.2 and 8.3 shall
not be exclusive of any other right which such persons may have or hereafter
acquire under any statute, provisions of the Certificate of Incorporation,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 8.5. Indemnification Contracts.
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to those provided for in this Article VIII.
Section 8.6. Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expenses, liability
or loss under Delaware General Corporation Law.
Section 8.7. Effect of Amendment.
Any amendment, repeal or modification of any provision of this Article
VIII by the stockholders or the directors of the Corporation shall not
adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment, repeal or modification.
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<PAGE> 17
Section 8.8. Savings Clause.
If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee and agent of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the fullest
extent permitted by any applicable portion of this Article that shall not have
been invalidated and to the fullest extent permitted by applicable law.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend, alter
or repeal By-Laws of the Corporation, subject to the right of the stockholders
to adopt, amend, alter or repeal the By-Laws of the Corporation. Any adoption,
amendment or repeal of By-Laws of the Corporation by the Board of Directors
shall require the approval of a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the Board). The stockholders shall also have power to
adopt, amend, alter or repeal the By-Laws of the Corporation; provided,
however, that any adoption, amendment or repeal of By-laws by the stockholders
without the prior approval of the Board of Directors shall require, in addition
to any vote of the holders of any class or series of stock of the Corporation
required by law or by the Certificate of Incorporation, the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
[The remainder of this page deliberately left blank]
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Secretary's Certificate of Adoption of By-Laws
I hereby certify that I am the duly elected and acting Secretary of
Jaymark, Inc., a Delaware corporation (the "Corporation"), and that the
foregoing By-Laws, comprising sixteen (16) pages, constitute the By-Laws of the
Corporation as duly adopted on March 5, 1997, by written consent of the board
of directors of the Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name on March 5,
1997.
/s/ DOROTHY K. BIDWELL
-----------------------------
Dorothy K. Bidwell, Secretary
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<PAGE> 1
EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of , 199 , is made by and
between Jaymark, Inc., a Delaware corporation (the "Company"), and
(the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such
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<PAGE> 2
director, officer or agent with the result that he, after retirement or in the
event of his death, his spouse, heirs, executors or administrators, may be faced
with limited ability and undue hardship in maintaining an adequate defense,
which may discourage such a director, officer or agent from serving in that
position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
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<PAGE> 3
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
include all out-of-pocket costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or
continue to serve as agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
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<PAGE> 4
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the
Company shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses
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<PAGE> 5
and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
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<PAGE> 6
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by
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<PAGE> 7
the Indemnitee with respect to the same proceeding, provided that (i) the
Indemnitee shall have the right to employ his counsel in any such proceeding at
the Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense, or (C) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding unless
the Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
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<PAGE> 8
10. Enforcement. Any right to indemnification or advances granted
by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee, in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under this
Agreement (other than an action brought to enforce a claim for expenses pursuant
to Section 6 hereof, provided that the required undertaking has been tendered to
the Company) that Indemnitee is not entitled to indemnification because of the
limitations set forth in Sections 4 and 8 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
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<PAGE> 9
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
17. Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
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<PAGE> 10
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
JAYMARK, INC.
By
----------------------------------------------
Title
-------------------------------------------
Address: 9775 Towne Centre Drive
San Diego, CA 92121
INDEMNITEE:
------------------------------------------------
[Indemnitee's Printed Name]
Address:
----------------------------------------
----------------------------------------
10
<PAGE> 1
EXHIBIT 10.2
AMENDMENT VI
TO
JAYCOR
STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
Page
1. Purpose, Definition of Company and Other Terms.................... 1
2. Eligibility....................................................... 2
3. Administration.................................................... 3
4. Option Price...................................................... 5
5. Exercise and Terms of Options; Consideration...................... 5
6. Option Period; Exercise Period.................................... 8
7. Issuance of Substitute Options.................................... 9
8. Exercise of Option; Payment for Shares............................ 9
9. Time Limit on Granting of Options; Date of Grant................. 10
10. Non-transferability of Options................................... 10
11. Adjustments by Reason of Recapitalization,
Stock Split-ups, Etc........................................... 10
12. The Right of the Company to Terminate Employment................. 11
13. Amendments and Interpretation of the Plan........................ 12
14. No Obligation to Exercise Option................................. 12
15. Use of Proceeds.................................................. 12
16. Rights as a Stockholder.......................................... 13
17. Compliance with the Law.......................................... 13
18. Cancellation of Options.......................................... 13
19. Limitation on Grants of Incentive Stock Options.................. 14
20. Securities Laws.................................................. 15
21. Other Provisions................................................. 15
22. Indemnification of Committee..................................... 15
23. Governing Law.................................................... 16
24. Effective Date of the Plan; Retroactivity........................ 16
<PAGE> 3
AMENDMENT VI
TO
JAYCOR
STOCK OPTION PLAN
(Restated)
(formerly STOCK OPTION PLAN FOR EXECUTIVES AND KEY EMPLOYEES)
PURPOSE, DEFINITION OF COMPANY AND OTHER TERMS
1.1 The purpose of this Stock Option Plan for Executives and Key
Employees ("Plan") is to aid in maintaining and developing management for
JAYCOR, a California corporation ("Company") which will best advance the long
range interests and performance of the Company by affording present and future
executives and other Key Employees an opportunity to secure a substantial stock
ownership in the Company in favorable terms. They thus will be encouraged to
acquire a permanent stake in the prosperity of the Company, and the interest
and outlook of an owner with respect to the company. The Plan will also permit
the company to compete with other organizations offering similar plans in
obtaining and retaining the services of executives and other key personnel whom
the Company desires to employ during the period of the Plan. Since a
participant is required to remain in the services of the Company for at least
four (4) years to obtain the full benefits of the plan, it should also provide
an inducement to participants so to remain with the Company. The Plan will also
permit the Company to compete with other organizations in obtaining and
retaining the services of selected individuals as Directors and of selected
individuals or organizations who are independent contractors in circumstances
under which the Company might otherwise be at a competitive disadvantage in
attempting to obtain those services.
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1.2 The word "Company", when used in the Plan with reference to
employment, shall include subsidiaries of the Company. The word "subsidiary",
when used in the Plan, shall mean any subsidiary of the Company within the
meaning of Section 425(f) of the Internal Revenue Code of 1954, as amended (the
"Code").
1.3 The masculine shall include the feminine and neuter, and the
singular shall include the plural, wherever the context so requires.
2. ELIGIBILITY
2.1 Options will be granted under the Plan only to (1)
employees of the Company (including Officers and assistant officers) who
perform services of special importance to the Company in the management,
operation and development of the business, all of whom are described herein as
"Key Employees"; (2) selected Directors of the Company, whether or not
employees of the Company; and (3) certain persons or organizations who are
independent contractors and who render to the Company services of special
importance to the Company in the management, operations and development of its
business. Any grantee may hold more than one option, but only on the terms and
subject to the restrictions contained herein. Such Key Employees, Directors and
independent contractors (collectively referred to herein as "Participants" or
"Optionees") will be selected from time to time during the period when the Plan
is in operation by the Executive Committee of the Company which will also
determine the number of shares which each participant shall be entitled to
purchase under his Option.
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3. ADMINISTRATION
3.1 The Executive Committee of the Company (the "Committee")
shall administer the Plan; any action of the Committee with respect to the
administration of the Plan shall be pursuant to a majority vote or pursuant to
the written consent of a majority of its members. Subject to the provisions of
the Plan, the Committee shall have the sole authority, in its absolute
discretion: (a) to determine and designate from time to time which Key
Employees, Directors and independent contractors to whom options to purchase
unissued shares of the common stock ("common shares" or "shares") of the Company
shall be granted; (b) to grant stock options which are "Incentive Stock Options"
(within the meaning of Section 422A (b) of the Internal Revenue Code of 1954 as
amended (the "Code")), to grant stock options which are not Incentive Stock
Options, and to determine which Key Employees shall be granted Incentive Stock
Options, which Key Employees, Directors and independent contractors of the
Company shall be granted options which are not Incentive Stock Options, and
which Key Employees shall be granted both and in what ratio; (c) to determine
the number of shares to be subject to options granted hereunder (subject,
however, to the limitations specified in Sections 3.2 and 19), and the time or
times when such options shall be granted; (d) to determine the option price of
the shares subject to each option (subject, however, to the limitations
specified in Section 4); (e) to determine the time or times when each option
becomes exercisable and the duration of the exercise period; (f) to prescribe
the form or forms of the option agreements under the Plan (which shall be
consistent with the Plan but need not be identical); (g) to adopt, amend, and
rescind such rules and regulations as in its opinion may be advisable in the
administration of the Plan; and (h) to construe and interpret the Plan, the
rules and regulations and the option agreements under the
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<PAGE> 6
Plan, and to make all other determinations deemed necessary or advisable for
the administration of the Plan. All decisions, determinations and
interpretations by the Committee of the terms of the Plan and the agreements
and other instruments created pursuant to the Plan made in good faith shall be
final, binding and conclusive on all Optionees for all purposes.
3.2 The total number of common shares which may be sold or
transferred pursuant to the exercise of options granted under this Plan shall
not, except as provided in Paragraph 11 hereof, exceed 1,000,000 in the
aggregate. In the event that an option granted under the Plan expires, is
cancelled, or is terminated unexercised as to any shares subject thereto, such
shares subject to the unexercised portion of such option may again be subject
to an option granted under this Plan. Shares to be sold or transferred pursuant
to this Plan shall be authorized but unissued common shares of the Company or
previously issued shares which have been reacquired by the Company.
3.3 The Company shall effect the grant of options under the Plan to
Key Employees, Directors and independent contractors of the Company in
accordance with the determinations made by the Committee, by the execution of
agreements with Optionees, and any other necessary instruments in writing in
form approved by the Committee and conforming to the provisions of the Plan.
The Committee shall from time to time authorize and direct the issuance and
sale of common shares of the Company pursuant to such options as and when the
same may be exercised, in whole or in part, in accordance with their terms.
3.4 Options which are Incentive Stock Options shall be clearly
identified as Incentive Stock Options (ISO's), and options which are not
Incentive Stock Options shall be clearly identified as non-Incentive Stock
Options ("non-ISO's").
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<PAGE> 7
4. OPTION PRICE
4.1 In the case of each Incentive Stock Option and each
other option granted pursuant to the Plan, the purchase price for each share
subject to the option shall be not less than the fair market value per share of
the stock on the date of grant of such option, as determined by the Committee in
good faith; provided, however, that a non-ISO may be granted at such lesser
exercise price (but not less than 85% of the fair market value per share) as may
be determined by the Committee consistent with applicable legal requirements.
4.2 In making its determination, the Committee may use any
reasonable valuation method, taking into consideration prices at which shares
of the stock have been recently sold and purchased, the number of shares
traded, and other relevant factors as determined by the Committee.
4.3 If, after the granting of an option to any Optionee
hereunder, a substitution or an adjustment shall be required to be made under
Paragraph 11 in the number or kind of shares of stock or other securities then
subject to such option, the price per unit payable by the Optionee for shares
or securities which he may thereafter be entitled to purchase under such option
shall be concurrently adjusted so that the aggregate purchase price of all
shares or securities not theretofore purchased under such option will be
apportioned ratably and equitably to and among the substituted or adjusted
number or kind of shares of stock or other securities.
5. EXERCISE AND TERMS OF OPTIONS; CONSIDERATION
5.1 Each Key Employee to whom an option is granted under
the Plan, shall, as consideration therefor and as a condition of its grant,
remain in the continuous employ of the Company for at
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<PAGE> 8
least one year from the date of grant of such option before he may exercise any
part of the option.
5.2 Subject to the provisions of Sections 5.3, 5.4, and 5.5
the exercise of options may be limited in whole or in part for any period or
periods of time as specified in the option agreements. Except as may be so
specified, any option may be exercised in whole at any time, or in part from
time to time, during the option period; provided however, that no option
granted to a Key Employee may be exercised more than thirty days after such
optionee's employment with the Company has been terminated for any reason
except his retirement with the consent of Company, death or disability (within
the meaning of Section 105(d) of the Code); within such thirty-day (30) period,
said Optionee may exercise his option only to the extent the same was
exercisable on his date of termination.
5.3 Upon the retirement, with the consent of the Company,
of an Optionee who was granted his option as a Key Employee, his option may be
exercised by him at any time within the period ending with the earlier of the
expiration date of his option or three (3) months after the date of his
retirement, to the extent it was exercisable on the date of his retirement.
5.4 Upon the death of a Key Employee (while still employed
by the Company), the executor or administrator of his estate or the person to
whom his option shall have been transferred pursuant to will or the laws of
descent and distribution may, within the period ending with the earlier of the
expiration date of his option or one year from the date of the Optionee's death,
exercise his option to the extent it was exercisable on his date of death.
5.5 In the event of the termination of his employment by
the Company due to the disability (within the meaning of Section 105(d)(4) of
the Code) of an Optionee who was granted his option as a Key Employee, the
disabled Optionee (or a legal representative
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<PAGE> 9
who is a mere custodian of the Optionee's property, stands in a fiduciary
relationship to such Optionee, and is subject to Court supervision) may, within
the period ending with the earlier of the expiration date of his Option or one
(1) year after the termination of the Optionee's employment with the Company
exercise said option to the extent it was exercisable on the date of said
termination of employment.
5.6 To the extent that any option of a retired, deceased or disabled
Optionee who was granted his option as a Key Employee is not exercised within
the limited periods specified in Sections 5.3, 5.4, and 5.5, all further rights
to purchase shares pursuant to such option shall cease and terminate as of the
expiration of such period.
5.7 Any other provision of the Plan notwithstanding, no option shall
be exercised after the date ten years from the date or grant of such option.
5.8 With respect to an Incentive Stock Option granted under this Plan
before January 1, 1987, such option shall provide that it shall not be
exercisable while there is outstanding (within the meaning of Section
422A(c)(7) of the Code) any incentive stock option which was granted before the
grant of such option. Incentive Stock Options granted after December 31, 1986
shall not be subject to any such sequential exercise restriction.
5.9 Notwithstanding anything herein to the contrary, no option which
was granted to a Key Employee which is not exercisable at the termination of
such participant's employment by the Company shall thereafter become
exercisable, regardless of the reason for such termination.
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<PAGE> 10
6. OPTION PERIOD; EXERCISE PERIOD
6.1 Each Option granted pursuant to this Plan shall have an
option period of not less than five (5) years nor more than ten (10) years from
the date of the grant thereof, provided, however, that each option granted to a
Key Employee shall have an option period of five (5) years from the date of the
grant thereof.
6.2 Each Key Employee to whom an option has been granted
shall have the right to purchase shares subject to his option at any time, or
from time to time, during the option period in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Continuous Employment by Total Percentage of
Company During Option Period Option Shares
Purchasable
<S> <C>
Less than 1 year 0%
1 Year but less than 2 Years 25%
2 Years but less than 3 Years 50%
3 Years but less than 4 Years 75%
4 or more Years 100%
</TABLE>
a. An Optionee shall be credited with a whole year of
continuous employment by the Company during the Option Period only on an
anniversary date of the grant of this option and only if on such anniversary
date he is, and has been continuously since the date of the grant of his option
in the employ of the Company.
b. Nothing herein shall be construed to give an Optionee
the right to purchase, in the aggregate, more than the aggregate number of
shares which are subject to the option granted to him.
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<PAGE> 11
c. Absence of an Optionee on duly granted leave or due to
sickness, for a period of not more than ninety (90) days, shall not be deemed to
be an interruption of the continuity of his employment for purposes of this
Plan.
7. ISSUANCE OF SUBSTITUTE OPTIONS
7.1 Notwithstanding the provisions of Sections 4, 5 and 6
above, the Committee may also issue options having terms and provisions which
vary from those specified in said sections, provided that any options issued
pursuant to this section are issued in substitution for, or in connection with
the assumption of, existing options issued by another corporation and assumed
or otherwise agreed to be provided for by the Company pursuant to or by reason
of a transaction involving a corporate merger, consolidation, acquisition of
property or stock, separation reorganization or liquidation to which the
Company or a subsidiary is a party.
8. EXERCISE OF OPTION; PAYMENT FOR SHARES
8.1 Shares may be purchased pursuant to an option granted
under the Plan only upon receipt by the Company of notice in writing from the
Optionee of his intention to purchase, specifying the number of shares as to
which he desires to exercise his option and the date (which shall be within
thirty (30) days after receipt by Company of said notice) on which he desires
to complete his purchase and containing the representation, satisfactory to
Company's counsel, that it is the optionee's present intention to acquire the
shares being purchased for investment purposes only and not with a view to
distribution. Upon the dates specified for the completion of the purchase of
his shares, the Optionee shall pay the Company therefor in current funds the
full purchase price of
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<PAGE> 12
the shares purchased. Upon, and as a condition precedent to exercise of the
option granted under the Plan, the Optionee shall sign the Company's then
effective Stock Restriction Agreement.
9. TIME LIMIT ON GRANTING OF OPTIONS; DATE OF GRANT
9.1 No options may be granted under the Plan subsequent to
June 2, 1990. The date of grant of any option shall be deemed to be the date on
which the grant of such option shall be approved by the Committee or such later
date as the Committee shall, at the time of such approval, fix therefor. In the
event Action taken by the Committee is by written consent of its members, the
Action of the Committee shall be deemed to be taken at the time the last
executing member signs the consent, unless such Action specifies a later time.
10. NON-TRANSFERABILITY OF OPTIONS
10.1 No option granted under the Plan shall be transferable
by the Optionee other than by will, if he dies intestate, by the laws of
descent and distribution of the state of his domicile at the time of his death,
and such option shall be exercisable during his lifetime only by such Optionee.
11. ADJUSTMENTS BY REASON OF RECAPITALIZATION, STOCK SPLIT-UPS, ETC.
11.1 If, after the effective date of this Plan, the shares
of common stock of the Company shall be changed into or exchanged for a
different number and/or kind of shares of stock or other securities of the
Company, or of another company (whether by reason of merger, consolidation,
recapitalization,
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<PAGE> 13
reclassification, split-up, combination of shares or otherwise), there shall be
substituted for each share of common stock of the Company theretofore
appropriated, or thereafter subject to appropriation by the Committee for the
purposes of the Plan (whether or not such shares are at the time subject to
outstanding options), the number and kind of shares of stock and/or other
securities into which each share of common stock of the Company shall be so
changed, or for which each such share shall be exchanged. In the event the
Company shall pay any dividend in common shares of the Company upon the common
stock of the Company, during the period of any option, the number of shares
then subject to such option and the number of shares reserved for issuance
pursuant to the Plan, but not yet subject to any option, shall be adjusted by
adding to each such share the shares which would have been distributed as a
stock dividend thereon had such share been outstanding at the record date for
the payment of the stock dividend.
11.2 The foregoing adjustments and the manner of application
of the foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustments may provide for the elimination of any
fractional share which might otherwise become subject to an option.
12. THE RIGHT OF THE COMPANY TO TERMINATE EMPLOYMENT
12.1 Nothing contained in the Plan or in any option granted
pursuant to the Plan shall confer upon any Optionee any right to be continued
in the employment of the Company, or any subsidiary of the Company, nor does it
limit in any way the right of the Company to terminate employee's employment at
any time, with or without cause.
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<PAGE> 14
13. AMENDMENTS AND INTERPRETATION OF THE PLAN
13.1 The Committee shall have the right to amend, suspend or
terminate the Plan at any time, provided, however, that no action shall affect
or in any way impair the rights of an Optionee under any option theretofore
granted under the Plan, and provided further that no such action, without
approval of the stockholders, may (a) increase the total number of shares of
stock which may be sold or transferred pursuant to options granted under the
Plan, except as permitted pursuant to Section 11; (b) expand the class of
employees eligible to participate in the Plan; (c) decrease the minimum option
price specified in Section 4; (d) extend the maximum term of options granted
hereunder; or (e) extend the term of the Plan. Notwithstanding anything in this
Plan to the contrary, the Committee shall have the authority, power, and right
to modify and amend options granted under this Plan prior to June 3, 1986 to
allow for the acceleration of the exercise, vesting, or option period of such
options. Furthermore, the Committee shall have the authority, power and right
to provide that options granted subsequent to June 3, 1986 may, in the
Committee's sole discretion, be exercisable in accordance with a vesting
schedule different from that set forth in Section 6.2 of this Plan.
14. NO OBLIGATION TO EXERCISE OPTION
14.1 Granting of an option shall impose no obligation on the
recipient to exercise such option.
15. USE OF PROCEEDS
15.1 The proceeds received from the sale of shares pursuant
to the Plan shall be used for general corporate purposes.
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<PAGE> 15
16. RIGHTS AS A STOCKHOLDER
16.1 An Optionee or a transferee of an option shall have no
rights as a stockholder with respect to any share covered by his option until
he shall have become the holder of record of such share, and he shall not be
entitled to any dividends or distributions or other rights in respect of such
share for which the record date is prior to the date on which he shall have
become the holder of record thereof. An Optionee shall, for informational
purposes, however, be provided with all annual or other reports, notices of
meetings of shareholders and proxy materials, if any, as may be disseminated
by the Company to its shareholders.
17. COMPLIANCE WITH THE LAW
17.1 The Company is relieved from any liability for the
non-issuance or non-transfer or any delay in issuance or transfer of any shares
of stock subject to options under the Plan which results from the inability of
the Company to obtain, or in any delay in obtaining, from any regulatory body
having jurisdiction all requisite authority to issue or transfer shares of
stock upon exercise of the options under the Plan or shares of stock issued or
transferred as a result of such exercise if counsel for the Company deems such
authority reasonably necessary for lawful issuance or transfer of any such
shares. Appropriate legends may be placed on the stock certificates evidencing
shares issued upon exercise of options to reflect such transfer restrictions.
18. CANCELLATION OF OPTIONS
18.1 The Committee, in its discretion, may, with the consent
of any optionee, cancel any outstanding option hereunder.
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<PAGE> 16
19. LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS
19.1 With respect to Incentive Stock Options granted before
January 1, 1987, the aggregate fair market value (determined at the time an
option is granted) of the shares of stock for which any employee may be granted
Incentive Stock Options in any calendar year under this Plan and under any
other stock option plan of the Company and any parent or subsidiary thereof
shall not exceed $100,000 plus any "unused limit carryover" as determined under
Section 422A(c)(4) of the Code.
19.2 With respect to Incentive Stock Options granted after December
31, 1986, to the extent the aggregate fair market value of the underlying stock
for all such options which become exercisable by the optionee for the first
time in any calendar year exceeds $100,000 such options shall be treated as
options which are not Incentive Stock Options. Fair market value for this
purpose shall be determined as of the date the option is granted. The
aggregate value of stock relating to Incentive Stock Options granted before
January 1, 1987 shall not be considered for this purpose. This paragraph shall
apply to underlying stock of options by the order in which options are granted.
19.3 No Incentive Stock Option or other option shall be granted to
any Key Employee, Director or independent contractor, who, at the time the
option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company. However,
an Incentive Stock Option or other option may be granted to such Key Employee,
director or independent contractor if at the time such option is granted the
option price is at least 110% of the fair market value of the shares subject to
the option and such option by its terms is not exercisable after the expiration
of five (5) years from the date such option is granted.
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<PAGE> 17
20. SECURITIES LAWS
20.1 Each option under the Plan shall be granted on such
terms and conditions, including investment intent, as are deemed advisable by
the Committee in order to comply with applicable federal, state and local
securities laws, rules and regulations. No options shall be granted and no
shares shall be sold or transferred upon the exercise of any option unless and
until the issuance complies with any then applicable requirements of
the Securities and Exchange Commission, the California Commissioner of
Corporations, other regulatory agencies having jurisdiction thereof, and any
exchanges upon which stock of the Corporation may be listed.
21. OTHER PROVISIONS
21.1 The agreements authorized under this Plan shall contain
such other provisions, including, without limitation, conditions and
restrictions upon the exercise of the option, as the Committee shall deem
advisable in its absolute discretion, provided, however, that no such
provisions shall contravene the other provisions of this Plan.
22. INDEMNIFICATION OF COMMITTEE
22.1 In addition to such other rights of indemnification as
they may have as Directors, the members of the Committee shall be indemnified
by the Company against the reasonable expenses, including attorneys' fees
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in the connection with any appeal therein, to which they
or any of them may be a party by reason of any action
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<PAGE> 18
taken or failure to act under or in connection with this Plan or agreements
made thereunder, and against all amounts paid by them in settlement thereof or
in satisfaction of a judgement therefore, provided such settlement is approved
by independent legal counsel selected by the Company, except in relation to
matters as to which it shall be adjudged in such action, suit or proceeding
that such Committee member is liable for gross negligence or willful misconduct
in the performance of his duties; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall,
in writing, offer the Company the opportunity, at its own expense, to handle
and defend the same.
23. GOVERNING LAW
23.1 This Plan shall be governed by the laws of the State
of California.
24. EFFECTIVE DATE OF THE PLAN; RETROACTIVITY
24.1 The Plan became effective on June 16, 1980, when it was
approved by the Commissioner of Corporations of the State of California. This
Amendment VI is retroactive to that date, and any unexercised option granted
pursuant thereto and prior to the adoption of this Amendment may, at the
discretion of the Committee and with the consent to the Optionees, be modified
to permit such option to qualify as an Incentive Stock Option under Section
422A of the Code.
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<PAGE> 19
JAYCOR STOCK OPTION AGREEMENT
SHARES
THIS STOCK OPTION AGREEMENT ("Option" or "Agreement") is made this day of
_______________, by and between JAYCOR, a California corporation (the
"Company"), and the ("Optionee") whose name and address is as follows:
In consideration of the services to be rendered to it in the course of
his employment and to furnish an incentive for the more energetic and
enthusiastic performance of said services, the Company hereby grants to
Optionee and option on shares of the $.05 par value common stock ("common
shares") at a price and in all respects subject to the terms and conditions of
this Agreement.
1. OPTION PRICE
The price of the stock subject to this option shall be ________ per
share subject, however, to adjustment as hereinafter provided.
2. OPTION PERIOD
This option shall continue in effect for a period of ten years from
the date hereof, subject to earlier forfeiture as hereinafter provided in
Paragraphs 6, 7 and 8.
1
<PAGE> 20
3. NUMBER OF SHARES WHICH MAY BE PURCHASED ANNUALLY
The Optionee shall have the right to purchase, at any time or form time
to time during the option period after the end of the first year thereof, and
shall have additional cumulative rights, respectively accruing at the end of
each succeeding year thereof until such Optionee shall have become entitled to
purchase all of the shares herein optioned, to purchase at any time or from
time to time during the remainder of the option period, a maximum of the number
of shares (rounded to the nearest whole share) determined by multiplying the
number of shares subject to the Option granted hereunder (as adjusted, if
necessary, pursuant to paragraph 9 hereof) by a fraction, the numerator of
which shall be the number of months (rounded to the nearest full month) the
Optionee shall have been in the continuous employ of the Company since the date
this Option was granted and the denominator shall be forty-eight (48); and
provided further that, except as hereinafter provided, no option may be
exercised unless, at the time of such exercise, the Optionee is in the employ
of the Company and shall have been so employed continuously since the date that
this Option was granted.
4. EXERCISE OF OPTION
4.1 This Option shall be exercisable by written notice which shall:
4.1.1 State the election to exercise the Option, the number of
shares in respect to which it is being exercised, the
person in whose name the stock certificate or
certificates for such shares of Common Stock is to be
registered, his address and Social Security Number (or
if more than one, the names, addresses and Social
Security Numbers of such persons);
4.1.2 Contain such representations and agreements as to the
holder's investment intent with respect to such shares
of Common Stock as may be satisfactory to the Company's
counsel;
4.1.3 Be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any
person or persons other
2
<PAGE> 21
than the Optionee, be accompanied by proof, satisfactory to
counsel for the Company, of the right to such person or persons
to exercise the Option.
4.2 Payment of the purchase price of any shares with respect to which
the Option is being exercised shall be delivered with the notice of exercise.
The certificate or certificates for shares of Common Stock as to which the
Option shall be exercised shall be registered in the name of the person or
persons exercising the Option.
4.3 As a condition to his exercise of this Option, the Company may
require the person exercising this Option to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
5. NONTRANSFERABILITY OF OPTION
This Option may not be transferred in any manner otherwise than by Will
or the laws of descent or distribution and may be exercised during the lifetime
of the Optionee only by him.
6. TERMINATION OF EMPLOYMENT
In the event the employment of the Optionee with the Company shall
terminate for any reason other than physical disability preventing him from
performing his regular duties, or death or retirement with the consent of the
Company before the full exercise of this Option, this Option and all the
Optionee's rights (including rights to purchase shares thereunder which have
accrued but which remain unexercised) to further exercise this Option shall
terminate upon the expiration of thirty (30) days after the date upon which
the employment of Option with the Company terminates. Notwithstanding the
foregoing, if the Executive Committee of the Company determines that the
Optionee has intentionally committed an act materially inimical to the
interests of the Company or a subsidiary, all of the Optionee's rights to
purchase shares pursuant to his option (including rights to purchase shares
thereunder which have accrued but which remain
3
<PAGE> 22
unexercised) shall immediately terminate. Nothing contained in this Option
shall confer upon the Optionee any right to be continued in the employment of
the Company or interfere in any way with the right of the Company to terminate
his employment at any time for any cause.
7. RETIREMENT
In the event the Optionee retires with the consent of the Company
during the term of this Option, or in the event his employment shall terminate
because of physical disability, without having fully exercised his Option
rights, the Optionee shall have the right to exercise his accrued but
unexercised Option rights, if any, as of the date of his retirement or of such
termination of employment, in full or in part, at any time prior to the
expiration date of this Option or prior to the expiration of three (3) months
after the date of such retirement or termination, whichever is the shorter
period, and at the expiration of such period this Option shall terminate.
Whether a termination of employment is to be considered a retirement with
consent of the Company or a termination of employment because of physical
disability for the purposes of this Option shall be determined by solely the
Executive Committee of the Company, and its determination shall be final.
8. DEATH OF EMPLOYEE
In the event of the death of the Optionee while in the employ of the
Company, this Option shall be exercisable at any time prior to the expiration
date of this Option or prior to the expiration of one (1) year after the date
of such death, whichever is the shorter period, but only by the persons or
person to whom the Optionee's rights under this Option shall pass by the
Optionee's Will or by the laws of descent and distribution of the state of his
domicile at the time of his death, and then only if, and to the extent that,
the Optionee was entitled to exercise this Option at the date of his death. At
the expiration of such period, all further rights to purchase shares pursuant
to this Option shall terminate.
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9. RECAPITALIZATION, STOCK DIVIDENDS, ETC.
If after the date of this Option the shares of the common stock of the
Company shall be changed into or exchanged for a different number and/or kind
of shares of stock or other securities of the Company or of another Company
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise), there shall be
substituted for each share of common stock of the Company then subject to this
Option, the number and kind of shares of stock and/or other securities into
which each share of common stock of the Company shall be so changed, or for
which each such share shall be exchanges. In the event the Company shall pay
any dividend in common shares of the Company upon the common stock of the
Company, during the period of any option, the number of share then subject to
such option shall be adjusted by adding to each such share the shares or
fractions thereof which would have been distributable as a stock dividend
thereon had such share been outstanding at the record date of the payment of
the stock dividend. If, after the granting of this Option, a substitution or an
adjustment shall be required to be made under the immediately foregoing
provisions in the number and/or kind of shares of stock or other securities
then subject to such option, the price per unit payable by the Optionee for
shares or securities which he may thereafter be entitled to purchase under such
option shall be concurrently adjusted so that the aggregate purchase price of
all shares or securities not theretofore purchased under such option will be
apportioned ratably and equitably to and among the substituted or adjusted
number and/or kind of shares of stock or other securities.
10. AUTHORIZATION OF OPTION
This Option is granted pursuant to the STOCK OPTION PLAN FOR EXECUTIVE
AND KEY EMPLOYEES of the Company, adopted at a meeting of the Board of Directors
held on June 4, 1980; and approved by the shareholders of the Company on June 3,
1980; and has since been amended on July 30, 1982; June 7, 1983; February 2,
1984; April 30, 1986; April 17, 1987; and September 10, 1987. Said Plan is now
know as Amendment VI to JAYCOR Stock Option Plan (Restated) (the "Plan").
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11. RESTRICTIONS ON SHARES
All shares issued pursuant to the exercise of this Option shall contain
the following restrictive legends:
It is unlawful to consummate a sale or transfer of this
security, of any interest therein, or to receive any consideration
therefore, without the prior written consent of the Commissioner of
Corporations of the State of California, except as permitted in the
Commission's Rules.
The securities offered hereby have not been registered with the
Securities and Exchange Commission under the Securities Act of 1933
("Act"), as amended, on reliance upon the nonpublic offering exemption
provided by Section 4(2) of such act. Consequently, these securities may
be transferred only pursuant to a registration statement filed and
effective under the act or pursuant to the opinion of counsel of JAYCOR
that such securities may be transferred without registration under the
act.
Any transfer or pledge of the shares represented by this
certificate, or the transfer of any interest in those shares, is
restricted by the provisions of a stock restriction agreement dated
October 18, 1977, a copy of which may be inspected at the Principal
Office of JAYCOR, and all of the provisions of which are incorporated
herein.
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12. NOTICE
Each notice relating to this Agreement shall be in writing and
delivered in person or by certified mail to the proper address. Each notice
shall be deemed to have been given on the date it is received. Each notice to
the Company shall be addressed to it at its principal office, now at 11011
Torreyana Road, San Diego, California 92121, attention of the Secretary. Each
notice to the Optionee or the person or persons then entitled to exercise the
Option shall be addressed to the Optionee or such other person or persons at
the Optionee's address set forth in the heading of this Agreement. Anyone to
whom a notice may be given under this Agreement may designate a new address by
notice to that effect.
13. BENEFITS OF AGREEMENT
This Agreement shall inure to the benefit of and be binding upon each
successor of the Company. All obligations imposed upon the Optionee and all
rights granted to the Company under this Agreement shall be binding upon the
Optionee's heirs, legal representatives, and successors. This Agreement shall
be the sole and exclusive source of any and all rights which the Optionee, his
heirs, legal representatives, or successors may have in respect to the Plan or
any options of Common Stock granted or issued thereunder, whether to himself or
to any other person.
14. RESOLUTION OF DISPUTES
Any dispute or disagreement which should arise under, or as a result
of, or in any way relate to, the interpretation, construction or application of
this Agreement will be determined by the Executive Committee of the Company.
Any determination made hereunder shall be final, binding, and conclusive for
all purposes.
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<PAGE> 26
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the day, month and year first above written.
COMPANY: JAYCOR, a California Corporation
By: /s/ D.K. BIDWELL
----------------------------
D.K. Bidwell
EMPLOYEE: ----------------------------
8
<PAGE> 1
EXHIBIT 10.3
JAYCOR 1990
INCENTIVE STOCK OPTION PLAN
1. PURPOSE
This Incentive Stock Option Plan (the "Plan") is intended to serve as
an incentive to and to encourage stock ownership by certain officers and
employees of JAYCOR, a California corporation (the "Corporation"), so that they
may acquire or increase their proprietary interest in the success of the
Corporation, and to encourage them to remain in the employ of the Corporation.
This Plan is intended to comply with the provisions of Section 422A of the
Internal Revenue Code of 1986, as amended ("Code"), pertaining to incentive
stock options.
2. ADMINISTRATION
The Plan shall be administered by the Executive Committee of the
Corporation (the "Committee"). Acts by a majority of the Committee in a meeting
at which a quorum is present and acts approved in writing by a majority of the
members of the Committee shall be the valid acts of the Committee. The
Committee as a whole may act on options granted to officers or employees who
are also directors.
The Committee shall be authorized to grant options under the Plan to
such officers and employees of the Corporation at such times and in such
amounts as it may decide, subject to the terms and limitations of this Plan.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
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<PAGE> 2
3. ELIGIBILITY
3.1 GENERAL
Employees eligible to receive options under the Plan shall be selected
by the Committee from among the officers, executives, management personnel and
key creative personnel of the Corporation and any Parent or Subsidiary thereof,
including those who may be directors. The selection of recipients of options
shall be within the sole and absolute discretion of the Committee. Directors
who are not officers or employees of the Corporation or a Parent or Subsidiary
thereof are not eligible to participate in the Plan. As used in this
Agreement, the terms "Parent" and "Subsidiary" shall be defined as such terms
are defined for purposes of Code Section 422A.
3.2 TERMINATION OF ELIGIBILITY
If the optionee ceases to be employed by the Corporation or a Parent
or Subsidiary thereof, for any reason other than his death, any option granted
hereunder to such optionee shall expire no later than three months (12 months
in the case of an optionee whose eligibility has ceased because of his
disability) from the date of the occurrence giving rise to such termination of
eligibility or upon the date it expires by its terms, whichever is earlier.
During such three month period, the option may be exercised in accordance with
its terms, but only in respect of the number of such shares for which the right
to exercise has accrued on the date of such termination of employment. The
Committee shall decide whether an authorized leave of absence or absence for
military or governmental service, or absence for any other reason, shall
constitute termination of eligibility for purposes of this Section.
3.3 DEATH OF OPTIONEE AND TRANSFER OF OPTION
If the optionee shall die while eligible to participate in the Plan or
within three months after the termination of his eligibility and shall not have
fully exercised one or more options, such options may, in the discretion of the
Committee, be exercised (provided, however, (i) no option shall be exercisable
after its expiration and (ii) an option may be exercised only to the extent
that the optionee's right to exercise such option had accrued at the time of
his death and had not previously been exercised) at any time up to 12 months
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<PAGE> 3
after the optionee's death by the executors or administrators of the optionee
or by any person or persons who shall have acquired the option directly from
the optionee by bequest or inheritance.
No option granted hereunder shall be transferable by the optionee
otherwise than by will or the laws of intestate succession.
4. STOCK
4.1 IDENTIFICATION OF STOCK
The stock subject to the options shall be shares of the Corporation's
authorized but unissued or acquired or reacquired Common Stock (the "Stock").
The aggregate number of shares subject to outstanding options under
this Plan shall not exceed 500,000 shares of Stock (subject to adjustment as
provided in Section 5.6). If any option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of this Plan.
4.2 LIMITATION ON AMOUNT OF STOCK SUBJECT TO OPTIONS
The aggregate fair market value of the Stock (determined at the time
of grant of the option) for which an optionee may be granted options which are
exercisable for the first time by the Optionee during any calendar year may not
exceed $100,000.
5. TERMS AND CONDITIONS OF OPTIONS
Any option granted pursuant to the Plan shall be evidenced by an
agreement in such form as the Committee shall from time to time determine,
which agreement shall include, but not be limited to the following terms and
conditions.
5.1 NUMBER OF SHARES
Each option shall state the number of shares to which it pertains.
5.2 OPTION EXERCISE PRICE
Each option shall state the option price.
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<PAGE> 4
5.2.1 Options Granted to More Than 10% Shareholders
The option exercise price for options granted to persons who
own more than 10% of the voting power or value of all classes of the
Corporation's stock or of any Parent or Subsidiary corporation ("Control
Person") shall be not less than 110% of the fair market value of the Stock
subject to the option on the date of granting the option.
5.2.2 Options Granted to Others
The option exercise price for options granted to persons other
than Control Persons shall be not less than 100% of the fair market value of
the shares of Stock subject to the option on the date of granting the option.
5.3 METHOD OF EXERCISE
An option shall be exercised by written notice to the Corporation
stating the number of shares with respect to which the option is being
exercised and designating a time for the delivery thereof, which time shall be
at least fifteen (15) days after the giving of such notice unless an earlier
date shall have been mutually agreed upon. At the time specified in the
notice, the Corporation shall deliver to the optionee at the principal office
of the Corporation, or such other appropriate place as may be determined by the
Committee, a certificate or certificates for such shares of previously
authorized but unissued shares or acquired or reacquired shares of Stock as the
Corporation may elect. Notwithstanding the foregoing, the Corporation may
postpone delivery of any certificate or certificates after notice of exercise
for such reasonable period as may be required to comply with any applicable
listing requirements of any national or other securities exchange. In the
event an option shall be exercisable by any person other than the optionee, the
required notice under this section shall be accompanied by appropriate proof of
the right of such person to exercise the option.
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<PAGE> 5
5.4 MEDIUM AND TIME OF PAYMENT
The option price shall be payable in full upon the exercise of the
option by certified or bank cashier's check, recourse promissory note, shares of
Stock, or any equivalent form of payment acceptable to the Committee.
5.5 TERM OF OPTION
5.5.1 Options to Control Persons
The term of an option granted to Control Persons shall be
determined by the Committee at the time of grant, but shall not exceed five
years from the day of the grant. In no event shall any option be exercisable
after the expiration of its term.
5.5.2 Options to Others
The term of an option granted to a person other than a Control
Person shall be determined by the Committee at the time of grant, but shall not
exceed 10 years from the date of grant. In no event shall an option be
exercisable after the expiration of its term.
5.6 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The number of shares of Stock covered by each outstanding option, and
the price per share thereof in the case of each such outstanding option, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on the
Stock). The adjustments shall be made in such manner as will prevent dilution
or enlargement of the rights granted to or available for participants in this
Plan; except that any fraction of a share subject to an option resulting from
such an adjustment shall be rounded downward to the next full number of shares
without other compensation or consideration to the holder of such option.
Subject to any required action by the shareholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to the option would have been
entitled. Upon a dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving
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<PAGE> 6
corporation, the Board of Directors of the Corporation may grant each optionee
the right immediately prior to such dissolution or liquidation, or merger or
consolidation in which the Corporation is not the surviving corporation, to
exercise his option in whole or in part. If the Corporation should be
consolidated with, or merge into, any other corporation, or if the Corporation
should sell or transfer all or substantially all of its assets, or if any other
similar event affecting shares of Stock of the Corporation should occur, and if
the exercisability of the options is not accelerated by the Board of Directors
and the acquiring corporation assumes the Corporation's obligations under the
options granted under this Plan, then each optionee shall be entitled
thereafter to purchase shares of stock and other securities and property in the
kind and amount, and at the price, which the optionee would have been entitled
had his option been exercised prior to such event. The Corporation shall make
lawful provision therefore as a part of any such transaction.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
The grant of an option pursuant to this Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
Whenever the Corporation shall take any action resulting in any
adjustment provided for in this Section 5.6, the Corporation shall forthwith
deliver notice of such action to optionee, which notice shall set forth the
number of shares subject to this Option and the purchase price thereof
resulting from such adjustment.
5.7 RIGHTS AS A SHAREHOLDER
An optionee or a transferee of an option shall have no rights as a
shareholder with respect to any shares underlying his option until the date of
the issuance to him of a certificate for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is used, except as provided in Section
5.6 hereof.
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<PAGE> 7
5.8 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend or renew outstanding optons granted
under the Plan to an optionee, or accept the surrender of his outstanding
options (to the extent not theretofore exercised) and authorize the granting to
him of new options in substitution therefor (to the extent not therefore
exercised); however, no such modification, extension, renewal or substitution
shall be effective without the written consent of such optionee.
5.9 OTHER PROVISIONS
The option agreements authorized under the Plan shall contain such
other provisions, including without limitation, restrictions upon the exercise
of the option or disposition of the Stock acquired pursuant thereto, as the
Committee shall deem advisable. Thus, for example, the Committee may require
that all or any portion of an option granted pursuant hereto not be exercisable
until a specified period of time has passed or some other event has occurred,
or that the Corporation shall have the option to purchase Stock acquired upon
exercise of an option hereunder upon the occurrence of some event. Upon, and
as a condition precedent to the exercise of the option granted under the Plan,
the Optionee shall sign the Corporation's then effective Stock Restriction
Agreement.
6. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a
period of 10 years from the date the Plan is adopted by the Corporation's Board
of Directors, unless this Plan is sooner terminated. Termination of the Plan
shall not affect any option theretofore granted.
7. AMENDMENT OF THE PLAN
The Board of Directors of the Corporation may, insofar as permitted by
law, from time to time, with respect to any shares at that time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, subject to approval of the shareholders of the Corporation as may
be required.
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<PAGE> 8
8. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Stock
pursuant to options may be used for general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
10. SECURITIES LAWS COMPLIANCE
Notwithstanding anything contained herein, the Corporation shall not
be obligated to grant any option under this Plan or to sell or issue any share
pursuant to any option agreement executed pursuant to the Plan unless such
grant of option or sale of shares upon exercise of option is at such time
effectively registered or exempt from registration under the Securities Act of
1933, as amended, and is qualified or exempt from qualification under the
California Corporate Securities Law of 1968.
As adopted by the Board of Directors on March 21, 1990.
JAYCOR
By: /s/ VERNON H. BLACKMAN
------------------------------------------
Vernon Blackman, President
By: /s/ DOROTHY BIDWELL
------------------------------------------
Dorothy Bidwell, Secretary
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<PAGE> 9
STOCK OPTION AGREEMENT UNDER
THE JAYCOR 1990 INCENTIVE STOCK OPTION PLAN
SHARES
1996
For value received, JAYCOR, a California corporation ("Grantor"), does
hereby grant to __________________________ ("Grantee"), the right and option to
purchase ________________ shares of common stock of Grantor at the price of
________________ per share pursuant and subject to the terms and conditions set
forth in the JAYCOR 1990 Incentive Stock Option Plan ("Plan"), a copy of which
is enclosed hereto as Exhibit "A", and in accordance with, and subject to, the
following terms and conditions:
1. Time and Manner of Exercise. From and after ________________, and
during each of the three succeeding one-year periods commencing on the
anniversary thereof, Grantee shall have the right to purchase from Grantor
Twenty Five (25%) Percent of the aggregate number of shares of common stock of
Grantor subject to this Option, on a cumulative basis (total ____________
shares), upon delivery to Grantor of notice of exercise in
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the form enclosed herewith, accompanied by either a personal, certified or
cashier's check in payment of the aggregate option price; or Grantee's recourse
promissory note; or shares of Stock. In the event an option shall be
exercisable by any person other than the Grantee, the required notice under this
Paragraph shall be accompanied by appropriate proof of the right of such person
to exercise the option. Promptly upon receipt of such material, Grantor will
deliver to Grantee stock certificate(s) representing the number of shares
purchased in accordance with the foregoing and duly registered in the name(s) of
Grantee and, at the Grantee's election, his or her spouse, or in the name(s) of
his or her personal representative, devisees or heirs, as the case may be. The
failure to exercise an option with respect to any shares of Grantor's common
stock for which the right has accured during any one-year period shall not
result in the termination of the option with respect to such shares of stock,
but rather, the same shall cumulate and be eligible for exercise during the
remainder of the option term.
2. Antidilution Provisions. The number of shares that Grantee is
entitled to purchase upon the exercise of this Option and the purchase price of
those shares are subject only to the adjustments set forth in Section 5.6 of
the Plan.
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3. Investment Undertaking; Nonassignability. This Option may be
exercised only by Grantee during his or her lifetime. Grantee will hold this
Option and the rights arising hereunder for investment and not with a view to
distribution, and upon exercise will deliver a letter in the form enclosed,
concerning Grantee's nondistributive intent with respect to the shares of
common stock received. Grantee will not transfer or assign this Option, except
by will or the laws of intestate succession.
4. Expiration. This Option shall terminate and expire at midnight on
the date that is Ten (10) Years after the date of this Agreement, or three
months after the date that Grantee ceases to be eligible to participate in the
Plan in accordance with Paragraph 3 of said Plan, whichever is earlier;
provided, however, that, in the event of the death of Grantee while still
employed by Grantor, then his executor(s) or administrator(s), or any person or
persons who shall have acquired the Option from the Grantee by bequest or
inheritance, shall, during the 12-month period commencing on the date of the
Grantee's death, have the right to exercise this Option with respect to the
shares that remain subject to this Option on that date, subject to the
conditions that this Option shall in no event be exercisable after its
expiration in accordance with Paragraph 4 hereof and it shall be exercisable by
such representative(s) or
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successor(s) only to the extent that the Grantee's right to exercise this
Option had accrued pursuant to Paragraph 1 hereof at the time of the Grantee's
death and had not previously been exercised.
5. Representations of Grantor. So long as this Option remains
outstanding and unexpired, Grantor will reserve for issuance upon the exercise
of this Option such number of shares of common stock of Grantor as are subject
to this Option. The shares of common stock of Grantor subject to this Option
shall, when issued, be validly issued, fully paid and nonassessable and Grantor
will pay, when due and payable, any and all federal and state taxes or fees
that may be payable by Grantor with respect to the grant of this Option or the
issuance of any shares of common stock or certificates therefor subject to this
Option not including, however, any federal, state or other personal income tax
payable by the Grantee by virtue of the grant of this Option, the issuance of
any share of common stock upon exercise hereof or any subsequent disposition of
such shares which shall remain the obligation of Grantee.
6. Representations of Grantee. Grantee hereby represents and
acknowledges his understanding that the common stock acquired upon exercise of
this Option must be held for at least one year after the date of exercise and
two years after the date
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of grant of this Option in order for this Option to be treated as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as
amended. If the common stock is sold prior to the later of such periods (other
than in the case of sale after the death of the Grantee), the tax benefits of an
incentive stock option will not be available.
7. Notice. Any notice, request, or instructions given in connection
with this Option shall be in writing and shall be deeded to have been duly
given on the date delivered in person or on the second business day following
the date mailed by the United States mail, postage prepaid, as follows:
(a) If to Grantor, at 9775 Towne Centre Drive, San Diego,
California 92121, Attention: Corporate Secretary.
(b) If to Grantee, , or at
such other address as either of the parties shall have given notice to the
other in accordance with the provisions hereof.
8. Committee Determination Final. The interpretation and
construction of the Plan and this Stock Option Agreement, including any
inconsistency between such documents, shall be reserved to and made by the
Committee provided for under the Plan, the determination of which shall be
final as between the parties hereto unless otherwise determined by the Board of
Directors of Grantor.
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9. Governing Law. This Option is granted and delivered in the State
of California and is intended to be construed and enforced under the laws
thereof.
IN WITNESS WHEREOF, this Option is executed on behalf of Grantor and
its officers thereunto duly authorized and by Grantee in his own behalf as of
this _______ day of ___________________.
GRANTOR
JAYCOR
By:_______________________________
Eric P. Wenaas
President
GRANTEE
__________________________________
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EXHIBIT 10.4
JAYCOR 1991
NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE. This Non-Qualified Stock Option Plan (the "Plan") is
intended to serve as an incentive to and to encourage stock ownership
by certain officers, employees and outside directors of JAYCOR, a
California corporation (the "Corporation"), so that they may acquire
or increase their proprietary interest in the success of the
Corporation, and to encourage them to remain in the service of the
Corporation.
2. ADMINISTRATION. The Plan shall be administered by the Plan
Committee of the Corporation (the "Committee"). Acts by a majority of
the Committee in a meeting at which a quorum is present and acts
approved in writing by a majority of the members of the Committee
shall be the valid acts of the Committee. The Committee as a whole may
act on options granted to officers, employees (including employees who
are also directors), or outside directors.
The Committee shall be authorized to grant options under the Plan
to such officers, employees and outside directors of the Corporation
at such times and in such amounts as the Board of Directors may
decide, subject to the terms and limitations of this Plan.
The interpretation and construction by the Committee of any
provisions of the Plan or of any option granted under it shall be
final. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
option granted under it.
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3. ELIGIBILITY.
3.1 General. Persons eligible to receive options under the
Plan shall be selected by the Board of Directors from among the
officers, executives, directors, management personnel and key creative
personnel of the Corporation and any Parent or Subsidiary thereof. The
selection of recipients of options shall be within the sole and
absolute discretion of the Board of Directors. As used in this
Agreement, the terms "Parent" and "Subsidiary" shall be defined as
such terms are defined for purposes of Code Section 422.
3.2 Termination of Eligibility. If the optionee shall no
longer serve as a director or an employee of the Corporation or a
Parent or Subsidiary thereof, for any reason (including, without
limitation, his death), any option granted hereunder to such optionee
shall expire no later than three (3) months from the date of the
occurrence giving rise to such termination of eligibility or upon the
date it expires by its terms, whichever is earlier. During such three
month period, the option may be exercised in accordance with its
terms, but only in respect of the number of such shares for which the
right to exercise has accrued on the date of such termination of
service. The Committee shall decide whether an authorized leave of
absence or absence for military or governmental service, or absence
for any other reason, shall constitute termination of eligibility for
purposes of this Section.
3.3 Death of Optionee and Transfer of Option. If the optionee
shall die while eligible to participate in the Plan and shall not have
fully exercised one or more options, such options may, in the
discretion of the Committee, be exercised (provided, however, (i) no
option shall be exercisable after its expiration and (ii) an option
may be exercised only to the extent that the
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optionee's right to exercise such option had accrued at the time of
his death and had not previously been exercised) at any time up to 12
months after the optionee's death by the executors or administrators
of the optionee or by any person or persons who shall have acquired
the option directly from the optionee by bequest or inheritance.
No option granted hereunder shall be transferable by the
optionee otherwise than by will or the laws of intestate succession.
4. IDENTIFICATION OF STOCK. The stock subject to the
options shall be shares of the Corporation's authorized but
unissued or acquired or reacquired common stock (the "stock").
The aggregate number of shares subject to outstanding options
under this Plan shall not exceed 175,000 shares of stock (subject to
adjustment as provided in Section 5.6). If any option granted
hereunder shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject
thereto shall again be available for purposes of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS. Any option granted pursuant
to the Plan shall be evidenced by an agreement in such form as the
Committee shall from time to time determine, which agreement shall
include, but not be limited to, the following terms and conditions.
5.1 Number of Shares. Each option shall state the
number of shares to which it pertains.
5.2 Option Exercise Price. Each option shall state
the option price.
5.3 Method of Exercise. An option shall be exercised by
written notice to the Corporation stating the number of shares with
respect to which the option is being exercised and
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designating a time for the delivery thereof, which time shall be at
least fifteen (15) days after the giving of such notice unless an
earlier date shall have been mutually agreed upon. At the time
specified in the notice, the Corporation shall deliver to the optionee
at the principal office of the Corporation, or such other appropriate
place as may be determined by the Committee, a certificate or
certificates for such shares of previously authorized but unissued
shares or acquired or reacquired shares of stock as the Corporation
may elect. Notwithstanding the foregoing, the Corporation may postpone
delivery of any certificate or certificates after notice of exercise
for such reasonable period as may be required to comply with any
applicable listing requirements of any national or other securities
exchange. In the event an option shall be exercisable by any person
other than the optionee, the required notice under this section shall
be accompanied by appropriate proof of the right of such person to
exercise the option.
5.4 Medium and Time of Payment. The option price shall be
payable in full upon the exercise of the option by personal, certified
or bank cashier's check, shares of stock, or any equivalent form of
payment acceptable to the Committee.
5.5 Term of Option. The term of an option granted pursuant to
this Plan shall be determined by the Committee at the time of grant,
but shall not exceed ten (10) years from the date of the grant. In no
event shall any option be exercisable after the expiration of its
term.
5.6 Adjustments Upon Changes In Capitalization. The number of
shares of stock covered by each outstanding option, and the price per
share thereof in the case of each such outstanding option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of stock of
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the Corporation resulting from a subdivision or consolidation of
shares or the payment of a stock dividend (but only on the stock). The
adjustments shall be made in such manner as will prevent dilution or
enlargement of the rights granted to or available for participants in
this Plan; except that any fraction of a share subject to an option
resulting from such an adjustment shall be rounded downward to the
next full number of shares without other compensation or consideration
to the holder of such option.
Subject to any required action by the shareholders, if
the Corporation shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain to and apply to
the securities to which a holder of the number of shares of stock
subject to the option would have been entitled. Upon a dissolution or
liquidation of the Corporation or a merger or consolidation in which
the Corporation is not the surviving corporation, the Board of
Directors of the Corporation may grant each optionee the right
immediately prior to such dissolution or liquidation, or merger or
consolidation in which the Corporation is not the surviving
corporation, to exercise his option in whole or in part. If the
Corporation should be consolidated with or merged into any other
corporation, or if the Corporation should sell or transfer all or
substantially all of its assets, or if any other similar event
affecting shares of stock of the Corporation should occur, and if the
exercisability of the options is not accelerated by the Board of
Directors and the acquiring corporation assumes the Corporation's
obligations under the options granted under this Plan, then each
optionee shall be entitled thereafter to purchase shares of stock and
other securities and property in the kind and amount, and at the
price, which the optionee would
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have been entitled had his option been exercised prior to such event.
The Corporation shall make lawful provision therefor as a part of any
such transaction.
To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made
by the Committee, whose determination in that respect shall be final,
binding and conclusive.
The grant of an option pursuant to this Plan shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
Whenever the Corporation shall take any action resulting
in any adjustment provided for in this Section 5.6, the Corporation
shall forthwith deliver notice of such action to optionee, which
notice shall set forth the number of shares subject to this option and
the purchase price thereof resulting from such adjustment.
5.7 Rights as a Shareholder. An optionee or a transferee of
an option shall have no rights as a shareholder with respect to any
shares underlying his option until the date of the issuance to him of
a certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record
date is prior to the date such stock certificate is issued, except as
provided in Section 5.6 hereof.
5.8 Modification, Extension and Renewal of Options. Subject
to the terms and conditions and within the limitations of the Plan,
the Committee, at the direction of the Board of
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Directors, may modify, extend or renew outstanding options granted
under the Plan to an optionee, or accept the surrender of his
outstanding options (to the extent not theretofore exercised) and
authorize the granting to him of new options in substitution therefor
(to the extent not theretofore exercised); however, no such
modification, extension, renewal or substitution shall be effective
without the written consent of such optionee.
5.9 Other Provisions. The option agreements
authorized under the Plan shall contain such other provisions,
including without limitation, restrictions upon the exercise of
the option or disposition of the stock acquired pursuant thereto, as
the Committee shall deem advisable. Thus, for example, the Committee
may require that all or any portion of an option granted pursuant
hereto not be exercisable until a specified period of time has passed
or some other event has occurred, or that the Corporation
shall have the option to purchase stock acquired upon exercise of an
option hereunder upon the occurrence of some event. Upon, and as a
condition precedent to the exercise of the option granted under the
Plan, any optionee shall sign the Corporation's then effective Stock
Restriction Agreement.
6. TERM OF PLAN. Options may be granted pursuant to the Plan from
time to time within a period of 10 years from the date the Plan is
adopted by the Corporation's Board of Directors, unless this Plan is
sooner terminated. Termination of the Plan shall not affect any option
theretofore granted.
7. AMENDMENT OF THE PLAN. The Board of Directors of the
Corporation may, insofar as permitted by law, from time to time, with
respect to any shares at that time not subject to options, suspend or
discontinue the Plan or revise or amend it in any
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respect whatsoever, subject to approval of the shareholders of the
Corporation as may be required.
8. APPLICATION OF FUNDS. The proceeds received by the
Corporation from the sale of stock pursuant to options may be
used for general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION. The granting of an
option shall impose no obligation upon the optionee to exercise
such option.
10. SECURITIES LAWS COMPLIANCE. Notwithstanding anything contained
herein, the Corporation shall not be obligated to grant any option
under this Plan or to sell or issue any share pursuant to any option
agreement executed pursuant to the Plan unless such grant of option or
sale of shares upon exercise of option is at such time effectively
registered or exempt from registration under the Securities Act of
1933, as amended, and is qualified or exempt from qualification under
the California Corporate Securities Law of 1968.
As adopted by the Board of Directors on June 14, 1991.
JAYCOR
By: /s/ Eric P. Wenaas
--------------------------------------
Eric P. Wenaas, President
By: /s/ Dorothy K. Bidwell
--------------------------------------
Dorothy K. Bidwell, Secretary
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STOCK OPTION AGREEMENT
UNDER THE JAYCOR 1991
NON-QUALIFIED STOCK OPTION PLAN
For value received, JAYCOR, a California corporation ("Grantor"), does
hereby grant to ______________ ("Grantee") the right and option to purchase
____________ shares of common stock of Grantor at the price of ____________ and
00/100 Dollars ( . ) per share pursuant and subject to the terms and
conditions set forth in the JAYCOR 1991 Non-Qualified Stock Option Plan
("Plan"), a copy of which is enclosed hereto as Exhibit 'A', and in accordance
with, and subject to, the following terms and conditions:
1. Time and Manner of Exercise. From and after ____________ Grantee
shall have the right to purchase from Grantor ____________, shares of common
stock of Grantor, upon delivery to Grantor of notice of exercise and
representations in the form enclosed hereto as Exhibit 'B' accompanied by either
a personal, certified or cashier's check in payment of the aggregate option
price; shares of the common stock of Grantor having a total fair market value
(agreed upon by Grantor and Grantee) equal to the aggregate option price; or any
combination of cash and stock (agreed upon by Grantor and Grantee). In the event
an option shall be exercisable by any person other than the Grantee, the
required notice under this paragraph shall be accompanied by appropriate proof
of the right of such person to exercise the option. Promptly upon receipt of
such material, Grantor will deliver to Grantee stock certificate(s) representing
the number of shares purchased in accordance with the foregoing and duly
registered in the name(s) of Grantee and, at the Grantee's election, his or her
spouse, or in the name(s) of his or her personal representatives, devisees or
heirs, as the case may be.
2. Antidilution Provisions. The number of shares that Grantee is
entitled to purchase upon the exercise of this Option and the purchase price
of those shares are subject only to the adjustments set forth in Section 5.6 of
the Plan.
3. Investment Undertaking; Nonassignability. This option may be
exercised only by Grantee during his or her lifetime. Grantee will hold this
Option and the rights arising hereunder for investment and not with a view to
distribution, and upon exercise will deliver a letter in the form enclosed
hereto as Exhibit 'B' concerning Grantee's nondistributive intent with respect
to the shares of common stock received. Grantee will not transfer or assign
this Option, except by will or the laws of intestate succession.
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<PAGE> 10
4. Expiration. This Option shall terminate and expire at midnight on
the date that is ten (10) years after the date of this Agreement, or three (3)
months after the date that Grantee ceases to be eligible to participate in the
Plan in accordance with Paragraph 3 of said Plan, whichever is earlier;
provided, however, that, in the event of the death of Grantee while still
serving as an employee, officer or director of Grantor, then his executor(s) or
administrator(s), or any person or persons who shall have acquired the Option
from the Grantee by bequest or inheritance, shall, during the twelve month
period commencing on the date of the Grantee's death, have the right to exercise
this Option with respect to the shares that remain subject to this Option on
that date, subject to the conditions that this Option shall in no event be
exercisable after its expiration in accordance with Paragraph 4 hereof and it
shall be exercisable by such representative(s) or successor(s) only to the
extent that the Grantee's right to exercise this Option had accrued pursuant to
Paragraph 1 hereof at the time of the Grantee's death and had not previously
been exercised.
5. Withholding Taxes. In the event that the Grantor determines that it
is required to withhold federal, state or local tax as a result of the exercise
of this Option, the Grantee, as a condition to the exercise of this Option,
shall make arrangements satisfactory to the Grantor to enable it to satisfy
such withholding requirements.
6. Rights as a Shareholder. Neither the Grantee nor the Grantee's
representative shall have any rights as a shareholder with respect to any shares
subject to this Option until such shares have been issued in the name of the
Grantee or the Grantee's representative.
7. Legality of Issuance. No shares shall be issued upon the exercise
of this Option unless and until the Grantor has determined that:
(a) It and the Grantee have taken all actions required to
register the shares under the Securities Act of 1933, as amended (the
"Securities Act"), or to perfect an exemption from the registration requirement
thereof;
(b) Any applicable listing requirement of any stock exchange on
which stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has
been satisfied.
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8. Restrictions on Transfer of Shares. Regardless of whether the
offering and sale of shares under the Plan have been registered under the
Securities Act or have been registered or qualified under the securities laws of
any state, the Grantor may impose restrictions upon the sale, pledge or other
transfer of such shares (including the placement of appropriate legends on
stock certificates) if, in the judgment of the Grantor and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or any other
law.
Upon any exercise of this Option, the Grantee will deliver to the
Grantor a letter in the form enclosed hereto as Exhibit 'B' in which the Grantee
shall represent and agree that the shares to be acquired pursuant to the
exercise of this Option are being acquired for investment, and not with a view
to the sale or distribution thereof. The Grantee also agrees to make such other
representations as are deemed necessary or appropriate by the Grantor and its
counsel.
Stock certificates evidencing shares acquired under this Agreement in
an unregistered transaction shall bear the following restrictive legend (and
such other restrictive legends as are required or deemed advisable under the
provisions of any applicable law):
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE
ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT."
Any determination by the Grantor and its counsel in connection with any
of the matters set forth in this Paragraph 8 shall be conclusive and binding on
the Grantee and all other persons.
9. Registration of Securities. The Grantor may, but shall not be
obligated to, register or qualify the sale of shares under the Securities Act
or any other applicable law. The Grantor shall not be obligated to take any
affirmative action in order to cause the sale of shares under this Agreement to
comply with any law.
10. Removal of Legends. If, in the opinion of the Grantor and its
counsel, any legend placed on a stock certificate representing shares sold
under this Agreement is no longer
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<PAGE> 12
required, the holder of such certificate shall be entitled to exchange such
certificate for a certificate representing the same number os shares but
lacking such legend.
11. No Transfer or Assignment of Option. Except as otherwise
provided in this Agreement, this Option and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject
to sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Option, or
of any right or privilege conferred hereby, contrary to the provisions hereof,
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, this Option and the rights
and privileges conferred hereby shall immediately become null and void.
12. No Employment Rights. Nothing in this Agreement shall be
construed as giving the Grantee the right to be retained as an employee of the
Grantor or as impairing the right of the Grantor to terminate his service at
any time, with or without cause.
13. Mandatory Arbitration. In the event of any dispute between the
Grantor and Grantee regarding this Agreement, the dispute and any issue as to
the arbitrability of such dispute, shall be settled to the exclusion of a court
of law, by arbitration in San Diego, California, by a panel of three
arbitrators (each party shall choose one arbitrator and the third shall be
chosen by the two arbitrators so selected) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect. The
decision of a majority of the arbitrators shall be final and binding upon the
parties. All costs of the arbitration and the fees of the arbitrators shall be
allocated between the parties as determined by a majority of the arbitrators,
it being the intention of the parties that the prevailing party in such a
proceeding be made whole with respect to its expenses.
14. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective permitted successors and assigns.
(b) This Agreement and the legal relations among the parties hereto
shall be governed by, and construed in accordance with, the laws of the State
of California.
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(c) This Agreement constitutes the entire agreement of the parties
hereto as to the subject matter hereof, and supersedes all prior or
contemporaneous written or oral agreements to the contrary.
(d) All notices required or permitted to be given under this
Agreement shall be sufficient in all respects if given in writing and delivered
personally or by registered or certified mail, postage prepaid, to:
If to the Grantor: JAYCOR
9775 Towne Centre Drive
San Diego, CA 92121
If to the Grantee:
All notices given under this Agreement shall be deemed to have been
given upon actual receipt thereof if delivered personally or, if mailed, on the
third business day after such notice is deposited in the mail. Either party
hereto may change its address by giving notice of such change to the other
party hereto.
(e) This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument, but in making proof of this
Agreement, it shall never be necessary to produce or account for but one such
counterpart.
15. Committee Determination Final. The interpretation and
construction of the Plan and this Stock Option Agreement, including any
inconsistency between such documents, shall be reserved to and made by the
Committee provided for under the Plan, the determination of which shall be
final as between the parties hereto unless otherwise determined by the Board of
Directors of Grantor.
IN WITNESS WHEREOF, this Option is executed on behalf of Grantor and
its officers thereunto duly authorized and by Grantee in his own behalf as of
this 5th day of March, 1996.
GRANTOR GRANTEE
JAYCOR
- ----------------------------- -----------------------------------
Dorothy Bidwell, Secretary
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<PAGE> 1
EXHIBIT 10.5
JAYCOR EMERGING TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
(AS AMENDED AND RESTATED)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. Effective December 5, 1995, Jaycor adopted the
Jaycor 1996 Nonstatutory Stock Option Plan. The Jaycor 1996 Nonstatutory Stock
Option Plan is hereby amended and restated in its entirety as the Jaycor
Emerging Technologies, Inc. 1996 Stock Option Plan (the "PLAN"), effective as of
the effective date of the initial registration by the Company of its Stock under
Section 12 of the Exchange Act (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company. Notwithstanding the foregoing,
if the maximum number of shares of Stock issuable pursuant to the Plan as
provided in Section 4.1 has been increased at any time, all Incentive Stock
Options shall be granted, if at all, no later than the last day preceding the
tenth (10th) anniversary of the earlier of (a) the date on which the latest such
increase in the maximum number of shares of Stock issuable under the Plan was
approved by the stockholders of the Company or (b) the date such amendment was
adopted by the Board.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
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<PAGE> 2
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means Jaycor Emerging Technologies, Inc., a
California corporation, or any successor corporation thereto. It is anticipated
that Jaycor Emerging Technologies, Inc. will reincorporate as a Delaware
corporation prior to the Effective Date and that sponsorship of the Plan will be
assumed by the successor Delaware corporation.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date there is then a
public market for the Stock, the closing sale price of a share of Stock (or the
mean of the closing bid and asked prices of a share of Stock if the Stock is so
quoted instead) as quoted on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, NASDAQ National Market System, or such
other national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock has traded on such securities exchange or market system, the
date on which the Fair Market Value shall be established shall be the last day
on which the Stock was so traded prior to the relevant date, or such other
appropriate day as shall be determined by the Board, in its sole discretion. If,
on such date, there is no public market for the Stock, the Fair Market Value of
a share of Stock shall be as determined by the Board without regard to any
restriction other than a restriction which, by its terms, will never lapse.
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<PAGE> 3
(j) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(k) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(l) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(m) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(n) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(o) "OPTIONEE" means a person who has been granted one or more
Options.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(t) "SECTION 162(m)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(u) "STOCK" means the common stock of the Company which,
following the anticipated reincorporation of the Company in Delaware, will be
divided into two classes, Class A Common Stock and Class B Common Stock, as
adjusted from time to time in accordance with Section 4.2. All references herein
to "Stock" are to stock of the Company after giving effect to the Company's
anticipated reincorporation in Delaware. Options issued prior to the Effective
Date of this Plan
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(i.e., under the terms of the Jaycor 1996 Nonstatutory Stock Option Plan) shall
be Options to purchase shares of Class B Common Stock of the Company. Options
issued after the Effective Date of this Plan shall be Options to acquire Class A
Common Stock of the Company.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(w) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
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<PAGE> 5
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of employment or service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
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4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Four Hundred Thirty-Five Thousand
(435,000) shares of Class B Common Stock (issued under Nonstatutory Stock
Options only) and Five Hundred Thousand (500,000) shares of Class A Common
Stock. Such shares shall consist of authorized but unissued or reacquired shares
of Stock or any combination thereof. If any outstanding Option for any reason
expires or is terminated or canceled or shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its sole discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded up or down to the nearest whole number, as
determined by the Board, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option. The adjustments determined by the Board pursuant to this Section 4.2
shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees", "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.
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5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that the aggregate
Fair Market Value of stock with respect to which options designated as Incentive
Stock Options are exercisable by an Optionee for the first time during any
calendar year (under all stock option plans of the Participating Company Group,
including the Plan) exceeds One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board (or Committee administering the
Plan); provided, however, that (a) the exercise price per share for an Incentive
Stock Option shall be not less than the Fair Market Value of a share of Stock on
the effective date of grant of the Incentive Stock Option, and (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
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<PAGE> 8
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences service with a Participating Company.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline
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<PAGE> 9
to approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Nonstatutory Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
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<PAGE> 10
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are not immediately
exercisable.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or
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exchanges of the voting stock of the Company or multiple Ownership Change Events
are related, and its determination shall be final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase, for each share of Stock
subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. The Board may, in its discretion, accelerate vesting of Options upon a
Transfer of Control. Any Options which are neither assumed or substituted for by
the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option except
as otherwise provided in such Option Agreement. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the outstanding
Options immediately prior to an Ownership Change Event described in Section
8.1(a)(i) constituting a Transfer of Control is the surviving or continuing
corporation and immediately after such Ownership Change Event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation or by other corporations that are members of an affiliated
group within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
10. NONTRANSFERABILITY OF INCENTIVE STOCK OPTIONS. During the lifetime of
the Optionee, an Option shall be exercisable only by the Optionee or the
Optionee's guardian or legal representative. No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall
be assignable or transferable to the extent permitted by the Board and set forth
in the Option Agreement evidencing such Option.
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<PAGE> 12
11. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the
Plan at any time. However, subject to changes in applicable law, regulations or
rules that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the Jaycor Emerging Technologies, Inc. 1996 Stock Option Plan was duly
adopted by the Board on February 25, 1997.
____________________________________________
Secretary
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PLAN HISTORY
December 5, 1995 Board adopts Plan with an initial reserve of
435,000 shares of Class B Common Stock (725,000 shares
of Common Stock prior to restructuring).
February 25, 1997 Board adopts Plan (as amended and restated), with an
increased reserve of 500,000 shares of Class A Common
Stock.
___________, 1997 Stockholders approve Plan (as amended and restated),
with an initial reserve of 435,000 shares of Class B
Common Stock and a reserve of 500,000 shares of Class A
Common Stock.
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JAYCOR EMERGING TECHNOLOGIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made and
entered into as of ___________, 199_, by and between Jaycor Emerging
Technologies, Inc. and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Jaycor Emerging
Technologies, Inc. 1996 Stock Option Plan an option to purchase certain shares
of Stock upon the terms and conditions set forth in this Option Agreement (the
"OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means ________________, 199_.
(b) "NUMBER OF OPTION SHARES" means __________________shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $______________per share of Stock,
as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Initial Vesting Date.
(e) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
__ the Date of Option Grant.
__ __________________ , 199_, the date the Optionee's
Service commenced.
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(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the Date of
Option Grant until the Initial
Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "COMPANY" means Jaycor Emerging Technologies, Inc., a
California corporation, or any successor corporation thereto. It is anticipated
that the Company will reincorporate in Delaware and that the Plan sponsorship
will be assumed by the successor Delaware corporation.
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(l) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(m) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(n) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(o) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(q) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in the Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(r) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
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(t) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(u) "PLAN" means the Jaycor Emerging Technologies, Inc. 1996
Stock Option Plan.
(v) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(w) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(x) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination. (NOTE: If the Option
is exercised more than three (3) months after the date on which the Optionee
ceased to be an Employee (other than by reason of death or a permanent and total
disability as defined in Section 22(e)(3) of the Code), the Option will be
treated as a nonstatutory stock option and not as an incentive stock option to
the extent required by Section 422 of the Code.)
(y) "STOCK" means Class A Common Stock, par value $0.001, of
the Company, as adjusted from time to time in accordance with Section 9. All
references herein to "Stock" are to stock of the Company after giving effect to
the Company's anticipated reincorporation in Delaware.
(z) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
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<PAGE> 18
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be an incentive
stock option within the meaning of Section 422(b) of the Code (an "INCENTIVE
STOCK OPTION"), but the Company does not represent or warrant that this Option
qualifies as such. The Optionee should consult with the Optionee's own tax
advisor regarding the tax effects of this Option and the requirements necessary
to obtain favorable income tax treatment under Section 422 of the Code,
including, but not limited to, holding period requirements. (NOTE: If the
aggregate Exercise Price of the Option (that is, the Exercise Price multiplied
by the Number of Option Shares) plus the aggregate exercise price of any other
Incentive Stock Options held by the Optionee (whether granted pursuant to the
Plan or any other stock option plan of the Participating Company Group) is
greater than One Hundred Thousand Dollars ($100,000), the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, or (b) the Optionee is subject to a
restriction on transfer to comply with "Pooling-of-Interests Accounting" rules.
Failure to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise of
the Option regarding the tax consequences to the Optionee of the exercise of the
Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE
DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS
THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement
shall be determined by the Board, including any duly appointed Committee of the
Board. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
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4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option be
exercisable for more shares than the Number of Option Shares.
4.2 METHOD OF EXERCISE.
Exercise of the Option shall be by written notice to the
Company which must state the election to exercise the Option, the number of
whole shares of Stock for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by cash for a portion of the aggregate Exercise Price not less than the Par
Value of the shares being acquired and by the Optionee's recourse promissory
note in a form approved by the Company for the balance of the aggregate Exercise
Price, (iv) by means of a Cashless Exercise, as defined in Section 4.3(d), or
(v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
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<PAGE> 20
(c) PROMISSORY NOTE. A promissory note permitted in accordance
with Section 4.3(a) above shall not exceed the amount permitted by law to be
paid by a promissory note and shall be a full recourse note in a form
satisfactory to the Company. Interest on the principal balance of the promissory
note shall be payable in at least annual installments (over a period of time
determined by the Company) at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. In the event
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations. Except as the
Company in its sole discretion shall determine, the Optionee shall pay the
unpaid principal balance of the promissory note and any accrued interest thereon
upon termination of the Optionee's employment with the Participating Company
Group for any reason, with or without cause.
(d) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
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<PAGE> 21
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should
be directed to the Chief Financial Officer of the Company. The inability of the
Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company's legal counsel to be necessary to the lawful
issuance and sale of any shares subject to the Option shall relieve the Company
of any liability in respect of the failure to issue or sell such shares as to
which such requisite authority shall not have been obtained. As a condition to
the exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last
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<PAGE> 22
date for exercising the Option following termination of the Optionee's Service
as described in Section 7, or (c) a Transfer of Control to the extent provided
in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences to the Optionee of any such delayed exercise.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods
set forth in Section 7.1 of shares acquired upon the exercise of the Option
would subject the Optionee to suit
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<PAGE> 23
under Section 16(b) of the Exchange Act, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which a sale of such shares by the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of Service, or (iii) the Option Expiration Date. The Company makes
no representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisors as to the tax
consequences to the Optionee of any such delayed exercise.
7.4 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to return to Service with the Participating Company Group
remains guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company
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<PAGE> 24
or the corporation or corporations to which the assets of the Company were
transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes
of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one or
more corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase, for each share of Stock subject to the Option immediately
prior to the Transfer of Control, the consideration (whether stock, cash or
other securities or property) to which a holder of a share of Stock on the
effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such
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<PAGE> 25
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
12. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any
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<PAGE> 26
and all certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to carry out the provisions of this Section.
13. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement, and
any such attempted disposition shall be void. The Company shall not be required
(a) to transfer on its books any shares which will have been transferred in
violation of any of the provisions set forth in this Option Agreement or (b) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares will have been so
transferred.
14. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
15. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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<PAGE> 27
17. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR EMERGING TECHNOLOGIES, INC.
By:_____________________________
Title:__________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:________________________ _________________________________
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<PAGE> 28
JAYCOR EMERGING TECHNOLOGIES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made
and entered into as of ___________, 199_, by and between Jaycor Emerging
Technologies, Inc. and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Jaycor Emerging
Technologies, Inc. 1996 Stock Option Plan an option to purchase certain shares
of Stock upon the terms and conditions set forth in this Option Agreement (the
"OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means _________________________,
199_.
(b) "NUMBER OF OPTION SHARES" means ________________________
shares of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $_____________ per share of Stock,
as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Initial Vesting Date.
(e) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
__ the Date of Option Grant.
__ __________________ , 199_, the date the Optionee's
Service commenced.
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(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the later of
the Date of Option Grant or the
Optionee's Service
commencement date until the
Initial Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "COMPANY" means Jaycor Emerging Technologies, Inc., a
California corporation, or any successor corporation thereto. It is anticipated
that the Company will reincorporate in Delaware and that the Plan sponsorship
will be assumed by the successor Delaware corporation.
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<PAGE> 30
(l) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(m) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(n) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(o) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(q) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in the Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(r) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
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<PAGE> 31
(t) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(u) "PLAN" means the Jaycor Emerging Technologies, Inc. 1996
Stock Option Plan.
(v) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(w) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(x) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination.
(y) "STOCK" means Class A Common Stock, par value $0.001, of
the Company, as adjusted from time to time in accordance with Section 9. All
references herein to "Stock" are to stock of the Company after giving effect to
the Company's anticipated reincorporation in Delaware.
(z) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
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<PAGE> 32
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, or (b) the Optionee is subject to a
restriction on transfer to comply with "Pooling-of-Interests Accounting" rules.
Failure to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise of
the Option regarding the tax consequences to the Optionee of the exercise of the
Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE
DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS
THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
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delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by cash for a portion of the aggregate Exercise Price not less than the Par
Value of the shares being acquired and by the Optionee's recourse promissory
note in a form approved by the Company for the balance of the aggregate Exercise
Price, (iv) by means of a Cashless Exercise, as defined in Section 4.3(d), or
(v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) PROMISSORY NOTE. A promissory note permitted in accordance
with Section 4.3(a) above shall not exceed the amount permitted by law to be
paid by a promissory note and shall be a full recourse note in a form
satisfactory to the Company. Interest on the principal balance of the promissory
note shall be payable in at least annual installments (over a period of time
determined by the Company) at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. In the event
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable
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regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's employment with the
Participating Company Group for any reason, with or without cause.
(d) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under
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the Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
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(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.4 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to return to Service with the Participating Company Group
remains guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
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8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase, for each share of Stock subject to the Option immediately
prior to the Transfer of Control, the consideration (whether stock, cash or
other securities or property) to which a holder of a share of Stock on the
effective date of the Transfer of Control was entitled. The Option shall
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terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
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11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section .
12. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement, and
any such attempted disposition shall be void. The Company shall not be required
(a) to transfer on its books any shares which will have been transferred in
violation of any of the provisions set forth in this Option Agreement or (b) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares will have been so
transferred.
13. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
14. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
15. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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16. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR EMERGING TECHNOLOGIES, INC.
By:____________________________
Title:_________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:____________________________ _______________________________
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EXHIBIT 10.6
JAYCOR EMERGING TECHNOLOGIES, INC.
1997 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Jaycor Emerging Technologies, Inc. 1997
Outside Directors Stock Option Plan (the "Plan") is hereby established effective
as of the effective date of the initial registration by the Company of its Stock
under Section 12 of the Exchange Act (the "Effective Date").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract and retain highly qualified persons to serve as Outside
Directors of the Company and by creating additional incentive for Outside
Directors to promote the growth and profitability of the Participating Company
Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(d) "COMPANY" means Jaycor Emerging Technologies,
Inc., a California corporation, or any successor corporation thereto. It is
anticipated that Jaycor Emerging Technologies, Inc. will reincorporate as a
Delaware corporation prior to the Effective Date and that sponsorship of the
Plan will be assumed by the successor Delaware corporation.
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(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or the
board of directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of the Stock (or
the mean of the closing bid and asked prices of the Stock if so reported
instead) as reported on The National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on the NASDAQ, the NASDAQ National Market System or
such other national or regional securities exchange or market system, the date
on which the Fair Market Value shall be established shall be the last day on
which the Stock was so traded prior to the relevant date. If there is then no
public market for the Stock, the Fair Market Value on any relevant date shall be
as determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse. Notwithstanding the
foregoing, the Fair Market Value per share of Stock on the Effective Date shall
be deemed to be the public offering price set forth in the final prospectus
filed with the Securities and Exchange Commission in connection with the initial
public offering of the Stock.
(j) "OPTION" means a right to purchase Stock (subject
to adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan.
(k) "OPTIONEE" means a person who has been granted
one or more Options.
(l) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee.
(m) "OUTSIDE DIRECTOR" means a Director of the
Company who is not an Employee.
(n) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
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(o) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.
(q) "RULE 16b-3" means Rule 16b-3 as promulgated
under the Exchange Act, as amended from time to time, or any successor rule or
regulation.
(r) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(s) "STOCK" means Class A Common Stock, par value
$0.001, of the Company, as adjusted from time to time in accordance with Section
4.2. All references to "Stock" herein are to the stock of the Company after
giving effect to the Company's anticipated reincorporation in Delaware.
(t) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any
other provision herein to the contrary, the Board shall have no authority,
discretion, or power to select the Outside Directors who will receive Options,
to set the exercise price of the Options, to determine the number of shares of
Stock to be subject to an Option or the time at which an
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Option shall be granted, to establish the duration of an Option, or to alter any
other terms or conditions specified in the Plan, except in the sense of
administering the Plan subject to the provisions of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Seventy-Five Thousand (75,000) and shall
consist of authorized but unissued shares or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in
Section 6.1), and to any outstanding Options, and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an "Ownership Change
Event" as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
exercise price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
5. ELIGIBILITY AND TYPE OF OPTIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options shall be granted
only to persons who are Outside Directors.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock
options; that is, options which are not treated as incentive stock options
within the meaning of Section 422(b) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
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<PAGE> 5
6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an
Outside Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each Outside Director who first
becomes a Director after the Effective Date shall be granted an Option to
purchase Ten Thousand (10,000) shares of Stock on the date he or she first
becomes an Outside Director (an "Initial Option"). Notwithstanding anything
herein to the contrary, an Initial Option shall not be granted to a Director of
the Company who previously did not qualify as an Outside Director but
subsequently becomes an Outside Director as a result of the termination of his
or her status as an Employee or to any person who was a Director at any time
prior to the Effective Date.
(b) ANNUAL OPTION. Each Outside Director shall be
granted, on the date immediately following the date of each annual meeting of
the stockholders of the Company (an "Annual Meeting") following which such
person remains an Outside Director, an Option to purchase Three Thousand (3,000)
shares of Stock (an "Annual Option"). Notwithstanding the foregoing, the number
of shares that may be purchased under an Annual Option by an Outside Director
who has not served continuously as a Outside Director of the Company for at
least twelve (12) months as of the date immediately following the date of such
Annual Meeting shall be Three Thousand (3,000) times a fraction, the numerator
of which is the number of complete months the Outside Director has continuously
served as an Outside Director of the Company as of the date immediately
following the Annual Meeting and the denominator of which is twelve (12).
(c) RIGHT TO DECLINE OPTION. Notwithstanding the
foregoing, any person may elect not to receive an Option by delivering written
notice of such election to the Board no later than the day prior to the date
such Option would otherwise be granted. A person so declining an Option shall
receive no payment or other consideration in lieu of such declined Option. A
person who has declined an Option may revoke such election by delivering written
notice of such revocation to the Board no later than the day prior to the date
such Option would be granted pursuant to Section 6.1(a) or (b), as the case may
be.
6.2 DISCRETION TO VARY OPTION SIZE. Notwithstanding any
provision of the Plan to the contrary, the Board may, in its sole discretion,
increase or decrease the number of shares of Stock that would otherwise be
subject to one or more Initial Options or Annual Options to be granted pursuant
to Section 6.1 if the exercise of such discretion would not otherwise preclude
any transaction in an equity security of the Company by an officer or Director
of a Participating Company from being exempt from Section 16(b) of the Exchange
Act pursuant to Rule 16b-3.
6.3 EXERCISE PRICE. The exercise price per share of Stock
subject to an Option shall be the Fair Market Value of a share of Stock on the
date the Option is granted.
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<PAGE> 6
6.4 EXERCISE PERIOD. Each Option shall terminate and cease to
be exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.5 RIGHT TO EXERCISE OPTIONS.
(a) INITIAL OPTION. Except as otherwise provided in
the Plan or in the Option Agreement, an Initial Option shall (i) first become
exercisable on the date which is one (1) year after the date on which the
Initial Option was granted (the "Initial Option Vesting Date"); and (ii) be
exercisable on and after the Initial Option Vesting Date and prior to the
termination thereof in an amount equal to the number of shares of Stock
initially subject to the Initial Option multiplied by the Vested Ratio as set
forth below, less the number of shares previously acquired upon exercise
thereof. The Vested Ratio described in the preceding sentence shall be
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
<S> <C>
Prior to Initial Option Vesting Date 0
On Initial Option Vesting Date, 1/4
provided the Optionee's Service is continuous
from the date of grant of the Initial Option
until the Initial Option Vesting Date
Plus
For each full month of the Optionee's 1/48
continuous Service from the Initial Option
Vesting Date until the Vested Ratio equals
1/1, an additional
</TABLE>
(b) ANNUAL OPTION. Each Annual Option grant shall be exercisable in
full on the fourth anniversary of the date of grant of such Annual Option.
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<PAGE> 7
6.6 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value not less than the exercise
price, (iii) by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), or (iv) by any
combination thereof.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
6.7 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value equal to all or any part of the
federal, state, local and foreign taxes, if any, required by law to be withheld
by the Participating Company Group with respect to such Option or the shares
acquired upon exercise thereof. Alternatively or in addition, in its sole
discretion, the Company shall have the right to require the Optionee to make
adequate provision for any such tax withholding obligations of the Participating
Company Group arising in connection with the Option or the shares acquired upon
exercise thereof. The Company shall have no obligation to deliver shares of
Stock until the Participating Company Group's tax withholding obligations have
been satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
7.1 INITIAL OPTION. Unless otherwise provided for by the Board
at the time an Initial Option is granted, each Initial Option shall comply with
and be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Initial Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
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<PAGE> 8
7.2 ANNUAL OPTION. Unless otherwise provided for by the Board
at the time an Annual Option is granted, each Annual Option shall comply with
and be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Annual Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set
forth in Section 3.2, the Board shall have the authority from time to time to
vary the terms of any of the standard forms of Option Agreement described in
this Section 7 either in connection with the grant or amendment of an individual
Option or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or
amended standard form or forms of Option Agreement are not inconsistent with the
terms of the Plan. Such authority shall include, but not by way of limitation,
the authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee upon the exercise of an Option in the event such Optionee's Service is
terminated for any reason.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation,
8
<PAGE> 9
an interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, any unexercisable or unvested portion of the outstanding
Options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Transfer of Control. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option except
as otherwise provided in such Option Agreement. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the outstanding
Options immediately prior to an Ownership Change Event described in Section
8.1(a)(i) constituting a Transfer of Control is the surviving or continuing
corporation and immediately after such Ownership Change Event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation or by other corporations that are members of an affiliated
group within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by
9
<PAGE> 10
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no other amendment of the Plan that would require the
approval of the Company's stockholders under any applicable law, regulation or
rule. In any event, no termination or amendment of the Plan may adversely affect
any then outstanding Option, or any unexercised portion thereof, without the
consent of the Optionee, unless such termination or amendment is necessary to
comply with any applicable law or government regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Jaycor Emerging Technologies, Inc. 1997 Outside Directors
Stock Option Plan was duly adopted by the Board on February 25, 1997.
-----------------------------
Secretary
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<PAGE> 11
PLAN HISTORY
February 25, 1997 Board adopts Plan, with an initial reserve of 75,000 shares.
__________, 1997 Stockholders approve Plan, with an initial reserve of 75,000
shares.
11
<PAGE> 12
JAYCOR EMERGING TECHNOLOGIES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL
OPTION) (the "Option Agreement") is made and entered into as of ___________,
199_, by and between Jaycor Emerging Technologies, Inc. and
___________________________ (the "Optionee").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means Ten Thousand
(10,000) shares of Stock (the number of shares set forth in Section 6.1(a) of
the Plan), as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $________________ per
share of Stock, as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Initial Vesting
Date.
(e) "INITIAL VESTING DATE" means the date occurring
one (1) year after the Date of Option Grant.
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<PAGE> 13
(f) "VESTED RATIO" means, on any relevant date, the
ratio determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided 1/4
the Optionee's Service is
continuous from the Date of
Option Grant until the Initial
Vesting Date
Plus
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date until
the Vested Ratio equals 1/1, an
additional
</TABLE>
(g) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(k) "COMPANY" means Jaycor Emerging Technologies,
Inc., a California corporation, or any successor corporation thereto. It is
anticipated that Jaycor Emerging Technologies, Inc. will reincorporate as a
Delaware corporation and that sponsorship of the Plan will be assumed by the
successor Delaware corporation.
(l) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(m) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(n) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
2
<PAGE> 14
(o) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(p) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(q) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of the Stock (or
the mean of the closing bid and asked prices of the Stock if so reported
instead) on The National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), The NASDAQ National Market System or such other national or
regional securities exchange or market system constituting the primary market
for the Stock. If the relevant date does not fall on a day on which the Stock is
trading on the NASDAQ, the NASDAQ National Market System or other national or
regional securities exchange or market system, the date on which the Fair Market
Value shall be established shall be the last day on which the Stock was so
traded prior to the relevant date. If there is then no public market for the
Stock, the Fair Market Value on any relevant date shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(r) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(t) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.
(u) "PLAN" means the Jaycor Emerging Technologies,
Inc. 1997 Outside Directors Stock Option Plan.
(v) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(w) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(x) "STOCK" means Class A Common Stock, par value
$0.001, of the Company, as adjusted from time to time in accordance with Section
9. All references to "Stock"
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<PAGE> 15
herein are to the stock of the Company after giving effect to the Company's
anticipated reincorporation in Delaware.
(y) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased. The Option shall be deemed to be exercised upon receipt by the
Company of such written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for
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<PAGE> 16
which the Option is being exercised shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of whole shares of Stock owned by the
Optionee having a Fair Market Value not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by
any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee agrees to make adequate provision for any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired upon exercise of the Option, or (iii) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
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<PAGE> 17
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of Service.
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<PAGE> 18
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale, within the applicable time periods set
forth in Section 7.1, of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets
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<PAGE> 19
of the Company were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Company or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
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<PAGE> 20
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR EMERGING
TECHNOLOGIES, INC.
By:________________________________
Title:_______________________________
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<PAGE> 21
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:___________________ ___________________________
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<PAGE> 22
JAYCOR EMERGING TECHNOLOGIES, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL
OPTION) (the "Option Agreement") is made and entered into as of ___________,
199_, by and between Jaycor Emerging Technologies, Inc. and
___________________________ (the "Optionee").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means Three Thousand
(3,000) shares of Stock (the number of shares set forth in Section 6.1(b) of the
Plan), as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $____________ per share of
Stock, as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the fourth
anniversary of the Date of Option Grant.
(e) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
(f) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" shall also mean such Committee(s).
(g) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(h) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers
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<PAGE> 23
of the Committee have been specifically limited, the Committee shall have all of
the powers of the Board granted in the Plan, including, without limitation, the
power to amend or terminate the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law.
(i) "COMPANY" means Jaycor Emerging Technologies,
Inc., a California corporation, or any successor corporation thereto. It is
anticipated that Jaycor Emerging Technologies, Inc. will reincorporate as a
Delaware corporation and that sponsorship of the Plan will be assumed by the
successor Delaware corporation.
(j) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(k) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(l) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(n) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of the Stock (or
the mean of the closing bid and asked prices of the Stock if the Stock is so
reported instead) on The National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on the NASDAQ, the NASDAQ National Market System or
other national or regional securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which
the Stock was so traded prior to the relevant date. If there is then no public
market for the Stock, the Fair Market Value on any relevant date shall be as
determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(p) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
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<PAGE> 24
(r) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.
(s) "PLAN" means the Jaycor Emerging Technologies,
Inc. 1997 Outside Directors Stock Option Plan.
(t) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(u) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(v) "STOCK" means Class A Common Stock, par value
$0.001, of the Company, as adjusted from time to time in accordance with Section
9. All references to "Stock" herein are to the stock of the Company after giving
effect to the Company's anticipated reincorporation in Delaware.
(w) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF THE OPTION. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
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<PAGE> 25
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option. In no event shall the Option be exercisable for
more shares than the Number of Option Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased. The Option shall be deemed to be exercised upon receipt by the
Company of such written notice and the aggregate Exercise Price.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value not less than
the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined
in Section 4.3(c), or (iv) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4
<PAGE> 26
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee agrees to make adequate provision for any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired upon exercise of the Option, or (iii) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
5
<PAGE> 27
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised, may be exercised by the
Optionee (or the Optionee's guardian or legal representative) at any time prior
to the expiration of twelve (12) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised, may be exercised by
the Optionee within three (3) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale, within the applicable time periods set
forth in Section 7.1, of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
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<PAGE> 28
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of
7
<PAGE> 29
Control with respect to such shares shall continue to be subject to all
applicable provisions of this Option Agreement except as otherwise provided
herein. Furthermore, notwithstanding the foregoing, if the corporation the stock
of which is subject to the Option immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the Code
without regard to the provisions of Section 1504(b) of the Code, the Option
shall not terminate.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 9.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government
8
<PAGE> 30
regulation. No amendment or addition to this Option Agreement shall be effective
unless in writing.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR EMERGING TECHNOLOGIES,
INC.
By:________________________________
Title:_______________________________
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:_____________________ _______________________
9
<PAGE> 1
EXHIBIT 10.8
EMPLOYEE STOCK OWNERSHIP PLAN
OF
JAYCOR AND SUBSIDIARIES
<PAGE> 2
EMPLOYEE STOCK OWNERSHIP PLAN
OF
JAYCOR AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER AND SECTION NUMBERS PAGE
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<S> <C> <C>
1. ESTABLISHMENT AND PRELIMINARY MATTERS
1.1 Purpose I-1
1.2 Compliance with the Law I-1
1.3 Effective Date I-1
2. DEFINITIONS II-1
3. PARTICIPATION AND ENTRY DATE
3.1 Ineligible Employees III-1
3.2 Initial Eligibility III-1
3.3 Time of Participation III-1
3.4 Procedure for and Effect of
Admission III-2
3.5 Waiver of Participation III-2
3.6 Termination of Participation III-2
3.7 Re-employment Before Break in
Service III-2
3.8 Break in Service
3.9 Employees Who Lose or Gain
Eligible Status III-3
3.10 Predecessor Employer III-3
3.11 Owner-Employees III-3
4. EMPLOYER CONTRIBUTIONS
4.1 Determining Employer's Contributions IV-1
4.2 Payment of Contributions IV-1
4.3 Exclusive Benefit; Refund of
Contribution IV-1
4.4 Types of Contributions IV-2
4.5 Omission of Eligible Employee IV-2
4.6 Inclusion of Ineligible Employee IV-3
5. LIMITATIONS ON BENEFITS
5.1 Annual Additions Limitations V-1
5.2 Definition of Compensation for
Purposes of Section 415 of the Code V-3
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
6. ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
6.1 Employer Contributions VI-1
6.2 Forfeitures VI-2
6.3 Release of Financed Securities VI-2
6.4 Limitation on Allocations VI-3
7. CONTRIBUTIONS BY PARTICIPANTS AND ROLLOVER
CONTRIBUTIONS
7.1 No Mandatory or Voluntary VII-1
Contributions
7.2 No Rollover Contributions VII-1
8. VESTING AND TERMINATION OF EMPLOYMENT
8.1 Vesting of Interests VIII-1
8.2 Application of Forfeitures VIII-1
8.3 "Cash Outs" VIII-1
8.4 Restoration of Accrued Benefit
Upon Repayment of Distribution
and Non-Duplication of Benefits VIII-4
8.5 Certain Employers; Service
Included in Determination of
Non-Forfeitable Percentage VIII-5
8.6 Effect of Breaks in Service VIII-5
8.7 Crediting of Years of Service VIII-5
8.8 Accrued Benefit Rules VIII-6
8.9 Amendment of Vesting Schedule VIII-6
8.10 Amendments Affecting Vested and/or
Accrued Benefits VIII-6
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER AND SECTION NUMBERS PAGE
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<S> <C> <C>
9. DEATH BENEFIT
9.1 Pre-Retirement Death Benefit IX-1
9.2 Post-Retirement Death Benefit IX-1
9.3 Action to be Taken on Death IX-1
9.4 Exception for Certain Death
Benefits IX-1
9.5 Designation of Beneficiary
and Form of Benefit Payment IX-1
9.6 Deferred Payment of Death Benefit IX-3
10. RETIREMENT BENEFITS AND DISABILITY BENEFITS
10.1 Normal Retirement Benefit X-1
10.2 Early Retirement Benefit X-1
10.3 Deferred Retirement Benefit X-1
10.4 Disability Benefit X-1
11. METHOD AND TIMING OF BENEFIT DISTRIBUTIONS
11.1 Method of Distribution of
Vested Benefits XI-1
11.2 Determination of Amount to be
Distributed Each Year XI-1
11.3 Death Distribution Provisions XI-2
11.4 Definitions XI-3
11.5 Transitional Rule XI-5
11.6 Changing Method of Distributions XI-7
11.7 Changing Method of Distributions
After Death of Participant XI-7
11.8 Joint and Survivor Annuity and
Pre-Retirement Survivor Annuity
Requirements XI-7
11.9 Latest Date for Distribution of
Benefits XI-14
11.10 Receipt of Acquittance XI-14
11.11 Required Beginning Date XI-14
11.12 Mandatory Distribution Rules XI-14
11.13 Distributions Under Domestic
Relations Order XI-15
11.14 Participant Withdrawals XI-16
11.15 Distributions of Qualifying
Employer Securities XI-16
12. ASSOCIATED COMPANIES
12.1 Definitions of Terms XII-1
12.2 Service with Associated Companies XII-1
</TABLE>
(iii)
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<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER AND SECTION NUMBERS PAGE
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<S> <C>
12.3 Eligibility of Associated
Companies XII-1
12.4 Eligibility Requirements for
Employee Participation XII-2
12.5 Employees Employed by Two or
More Employers XII-2
12.6 Employee Transferred from One
Employer to Another Employer XII-2
12.7 Contributions of Each Employer XII-2
12.8 Vesting of Interests XII-2
12.9 Years of Vesting Service XII-2
13. ADMINISTRATION OF FUNDS
13.1 Investment of Assets XIII-1
13.2 Special ESOP Provisions XIII-1
13.3 Valuations XIII-4
13.4 Crediting of Contributions XIII-4
13.5 Crediting of Investment Results XIII-4
14. ALLOCATION OF AUTHORITY AND RESPONSIBILITIES
14.1 Authority and Responsibilities
of Employer XIV-1
14.2 Authority and Responsibilities
of the Plan Administrator XIV-1
14.3 Authority and Responsibilities
of the Trustee XIV-1
14.4 Limitations on Obligations of
Named Fiduciaries XIV-1
15. CLAIMS PROCEDURE
15.1 Applications for Benefits XV-1
15.2 Appeals of Denied Claims for
Benefits XV-1
15.3 Appointment of the Named Appeals
Fiduciary XV-2
16. THE PLAN ADMINISTRATOR
16.1 Administration by Plan
Administrator XVI-1
16.2 Control of Plan by Plan
Administrator XVI-2
16.3 Authority and Responsibility of
the Plan Administrator XVI-2
16.4 Reporting and Disclosure XVI-3
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<CAPTION>
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<S> <C> <C>
16.5 Construction of the Plan XVI-3
16.6 Engagement of Assistants and
Advisors XVI-3
16.7 Investment of the Trust Fund XVI-4
16.8 Directed Investments by Plan
Administrator XVI-4
16.9 Prohibited Transactions XVI-4
16.10 Investment in Savings Accounts
and Trust Funds XVI-4
16.11 Disqualified Persons XVI-5
16.12 Bonding XVI-5
16.13 Indemnification of the Plan
Administrator XVI-5
16.14 Minutes of the Plan Administrator XVI-5
16.15 Compensation of the Plan
Administrator XVI-5
17. AMENDMENT, TERMINATION, MERGER AND
CONSOLIDATION OF THE PLAN
17.1 Amendment XVII-1
17.2 Plan Termination XVII-1
17.3 Permanent Discontinuance of
Employer Contributions XVII-2
17.4 Suspension of Employer
Contributions XVII-2
17.5 Mergers and Consolidations
of Plans XVII-2
18. MISCELLANEOUS PROVISIONS
18.1 Non-Alienation of Benefits XVIII-1
18.2 Procedures Upon Receipt of
Domestic Relations Order XVIII-1
18.3 Procedures for Period During
Which Qualified Domestic Relations
Order Determination is Being Made XVIII-2
18.4 No Contract of Employment XVIII-2
18.5 Severability of Provisions XVIII-2
18.6 Insurance Companies XVIII-2
18.7 Transfers to and from Other
Qualified Plans XVIII-3
18.8 Separate Trust Agreement XVIII-3
18.9 Segregated Trusts XVIII-3
18.10 Heirs, Assigns and Personal
Representatives XVIII-4
18.11 Headings and Captions XVIII-4
18.12 Gender and Number XVIII-4
18.13 Controlling Law XVIII-4
</TABLE>
(v)
<PAGE> 7
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER AND SECTION NUMBERS PAGE
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<S> <C> <C>
18.14 Title to Assets XVIII-4
18.15 Payments to Minors, etc. XVIII-4
18.16 Benefits of Persons Who Cannot
be Located XVIII-5
18.17 Mechanical Reproduction XVIII-5
18.18 Discrepancies XVIII-5
19. AFFILIATED SERVICE GROUPS
19.1 Definitions XIX-1
19.2 Limitation on Benefits and
Contributions XIX-1
19.3 Multiple Integrated Plans of
Members XIX-2
19.4 Control XIX-2
20. ADDITIONAL REQUIREMENTS FOR TOP-HEAVY PLANS
20.1 Generally XX-1
20.2 Top-Heavy Determination:
Aggregation of Related Employers XX-1
20.3 Top-Heavy Determination:
Key Employee XX-1
20.4 Top-Heavy Determination:
Non-Key Employee XX-2
20.5 Top-Heavy Determination:
Disregarded Employee XX-2
20.6 Top-Heavy Determination:
Beneficiary XX-3
20.7 Top-Heavy Ratio XX-3
20.8 Top-Heavy Ratio: Aggregation
Group XX-4
20.9 Top-Heavy Ratio: Top-Heavy Group XX-5
20.10 Top-Heavy Ratio: Distributions;
Rollover Contributions XX-5
20.11 Top-Heavy Ratio: Determination
Date XX-6
20.12 Top-Heavy Vesting XX-6
20.13 Minimum Benefits Under a Top-
Heavy Plan XX-7
20.14 Minimum Benefit: Defined
Benefit Plan XX-7
20.15 Minimum Contribution: Defined
Contribution Plan XX-8
20.16 Coordination Where Employer Has
Two or More Plans XX-9
20.17 Modified Aggregate Limit on
Contributions and Benefits XX-9
20.18 Limit on Includible Compensation XX-11
</TABLE>
(vi)
<PAGE> 8
<TABLE>
<CAPTION>
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<S> <C> <C>
21. POST-1992 DISTRIBUTIONS
21.1 Distributee Election XXI-1
21.2 Definitions XXI-1
</TABLE>
(vii)
<PAGE> 9
ARTICLE 1.
ESTABLISHMENT AND PRELIMINARY MATTERS
1.1. Purpose. The purpose of this Plan is to provide additional
incentive, retirement and disability funds for eligible Employees.
1.2. Compliance with the Law. This Plan is being adopted, together
with the Trust, to meet the requirements of applicable law, including the
Internal Revenue Code of 1986, as amended (the "Code"), and those requirements
of the Employee Retirement Income Security Act of 1974 (the "Act") which may be
applicable to the Plan Years involved. All language of the Plan and Trust shall
be interpreted, wherever possible, to comply with the provisions of applicable
law, including said Code and Act and all rules and regulations thereunder. This
Plan shall be amended from time to time as may be necessary to conform to the
requirements of applicable law, including the Code and Act, and such amendments
shall relate back to their required dates. This Plan, together with any
amendments thereto, is intended to meet the requirements of the Tax Reform Act
of 1986 ("TRA '86"), and it shall be amended from time to time as may be
necessary to conform to the requirements of same and other applicable laws.
1.3. Effective Date. The original effective date of the Plan was May
5, 1983. Unless a later date is specified herein, the effective date of the
Plan, as amended and restated, shall be January 1, 1989. the first day of the
first Plan Year beginning on or after January 1, 1989. Notwithstanding the
preceding two sentences, Plan provisions concerning the following sections of
the Code shall be effective in accordance with the following schedule:
<TABLE>
<CAPTION>
Code Section Effective Date
------------ (Plan Years Commencing
on or After)
------------
<S> <C>
415, 401(k), 401(m) January 1, 1987
401(a)(11), 417 January 1, 1988
410, 411, 401(l) January 1, 1989
</TABLE>
I-1
<PAGE> 10
ARTICLE 2.
DEFINITIONS
As used in this instrument, the following words and phrases shall have the
following meanings, unless a different meaning is clearly required by the
context:
2.1. "Account" or "Accrued Benefit" or "Participant's Combined
Account" shall mean the entire interest of a Participant in the Trust Fund. The
Accrued Benefit at any time shall be determined as of the last valuation of the
Fund coinciding with or occurring before the date when the Accrued Benefit is
valued.
2.2. "Acquisition Loan" shall mean an installment obligation of the
Trust made in connection with the acquisition of Qualifying Employer Securities,
as described in section 13.2 below.
2.3. "Act" shall mean the Employee Retirement Income Security Act of
1974 and shall include any amendments thereto.
2.4. "Active Participant" shall mean a Participant who satisfied the
requirements of section 6.1 below and is eligible to receive an allocation under
the Plan.
2.5. "Affiliated Employer" means the Employer and any corporation
which is a member of a controlled group of corporations (as defined in Code
Section 414(b)) which includes the Employer; any trade or business (whether or
not incorporated) which is under common control (as defined in Code Section
414(c)) with the Employer; any organization (whether or not incorporated) which
is a member of an affiliated service group (as defined in Code Section 414(m))
which includes the Employer; and any other entity required to be aggregated with
the Employer pursuant to Regulations under Code Section 414(o).
2.6. "Age" shall mean the chronological age attained by the
Participant at his most recent birthday or as of such other date of reference as
is set forth in the Plan.
2.7. "Age Discrimination in Employment Act" shall mean the Act of
December 6, 1967, P.L. 90-202, 81 Stat. 602, 29 U.S.C., 1964 Ed., Supplement IV,
Chapter 14, sections 621-634, effective June 12, 1968, as amended by P.L.
93-259, effective May 1, 1974, as last amended by the Age Discrimination in
Employment Amendments of 1986, and as further amended from time to time (herein
referred to as the "Age Discrimination Act").
2.8. "Anniversary Date" shall mean the last day in each Plan Year.
II-1
<PAGE> 11
2.9. "Beneficiary" or "Beneficiaries" shall mean and refer to such
person or persons or legal entity as may be designated by a Participant or the
Plan Administrator as provided in section 9.5. Wherever the rights of
Participants are stated or limited herein, such provisions shall also apply to
their beneficiaries.
2.10. "Board of Directors" shall mean the duly elected board of
directors of the Employer.
2.11. "Break in Service" or "One-Year Break in Service" shall mean the
failure by a Participant or Employee to complete more than 500 Hours of Service
during any applicable computation period. Any Break in Service shall be
effective on the last day of the applicable computation period in which it
occurs. A Break in Service shall not be deemed to have occurred because of a
Participant's failure to complete more than 500 Hours of Service during the
applicable computation period occurring in part during his first 12-month Period
of Service. A Break in Service shall not be deemed to have occurred during any
period of Excused Absence if the Employee returns to the service of the Employer
within the time permitted pursuant to the provisions of this Plan setting forth
circumstances of Excused Absence. A Break in Service shall not be deemed to have
occurred merely because an Employee fails to complete more than 500 Hours of
Service during an applicable computation period solely because of his or her
retirement or death during such applicable computation period.
2.12. "Compensation" shall mean the following:
2.12.1. "Compensation" shall mean wages as defined in
section 3401(a) of the Code for the purposes of income tax withholding at the
source but determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in such section
3401(a)(2)). Compensation shall be determined by reference to the Plan Year.
Compensation shall include Employer contributions made pursuant to a salary
reduction agreement which are not includable in the gross income of the employee
under sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
2.12.2. The annual Compensation of each Participant taken
into account under the Plan for any plan year beginning after December 31, 1988,
shall not exceed $200,000, as adjusted by the Secretary at the same time and in
the same manner as under section 415(d) of the Code. In determining the
Compensation of a Participant for purposes of this limitation, the rules of
section 414(q)(6) of the Code shall apply, except in applying such rules, the
term "family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the close of
the year. If, as a result of the application of such rules, the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be
II-2
<PAGE> 12
prorated among the affected individuals in proportion to each such individual's
compensation as determined under this section prior to the application of this
limitation.
2.12.3. Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the Employee under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
2.13. "Contract" shall mean any annuity, retirement income or
endowment contract, or insurance policy or contract providing benefits under
this Plan.
2.14. "Controlled Groups" shall mean such groups as are provided for
in sections 414(b) and 414(c) of the Code, as modified by section 415 of the
Code where applicable.
2.15. "Credited Service" shall mean the period of a Participant's
Years of Service considered in determining the Participant's non-forfeitable
percentage in the benefits accrued under this Plan.
2.16. "Deferred Retirement Date" shall mean the date of a
Participant's retirement after the Participant's Normal Retirement Date.
2.17. "Defined Contribution Plan" shall mean a plan which provides for
an individual account for each Participant and for benefits based solely on the
amount contributed to the Participant's account, and any income, expenses, gains
and losses, and any Forfeitures of accounts of other Participants which may be
allocated to such Participant's Account.
2.18. "Defined Benefit Plans" shall mean all types of qualified
retirement plans other than Defined Contribution Plans.
2.19. "Disability" shall mean:
2.19.1. the permanent loss, or loss of use, of a member or
function of the body, or the permanent disfigurement, of a Participant.
2.19.2. The inability of a Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
2.19.3. A condition of Disability shall be deemed to exist only
when a written application has been filed with an Employer by or on behalf of
such Participant and when such Disability is certified to the Employer by a
licensed physician approved by the Employer.
II-3
<PAGE> 13
2.20. "Early Retirement Age" or "Early Retirement Date" shall be the
date on which a Participant attains age 55. Effective for Plan Years beginning
on or after January 1, 1991, Early Retirement Age shall mean the date on which a
Participant attains age 55 and completes 5 Years of Service. At the Early
Retirement Age, benefits under this Plan shall be fully vested and
non-forfeitable.
2.21. "Effective Date" shall mean May 5, 1983.
2.22. "Employee" shall mean any individual employed by the Employer
maintaining the Plan or of any other employer required to be aggregated with
such employer under sections 414(b), (c), (m) or (o) of the Code, and the
following individuals:
2.22.1. An "Owner-Employee" who is an individual who owns more
than 10 percent of either the capital interest or the profits interest of the
Employer and who receives income for personal services from the Employer; and
2.22.2. A "Self-Employed Individual" who is an individual
described in Code section 401(c)(1) who has Compensation from the Employer or
who would have Compensation except for the fact that the Employer had no profits
for the Taxable Year.
2.22.3. A "Leased Employee" shall mean any person (other than an
employee of the recipient) who, pursuant to an agreement between the recipient
Employer and any other person ("leasing organization"), has performed services
for the recipient (or for the recipient and related persons determined in
accordance with section 414(n)(6) of the Code) on a substantially full-time
basis for a period of at least one year, and such services are of a type
historically performed by employees in the business field of the recipient
Employer. Contributions or benefits provided a leased Employee by the leasing
organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient employer.
2.22.4. A leased employee shall not be considered an employee of
the recipient if: (i) such employee is covered by a money purchase pension plan
providing: (1) a nonintegrated employer contribution rate of at least 10 percent
of compensation, as defined in section 415(c)(3) of the Code, but including
amounts contributed by the employer pursuant to a salary reduction agreement
which are excludable from the employee's gross income under section 125, section
402(a)(8), section 402(h) or section 403(b) of the Code, (2) immediate
participation, and (3) full and immediate vesting; and (ii) leasing employees do
not constitute more than 20 percent of the recipient's nonhighly compensated
workforce.
2.23. "Employer" shall mean JAYCOR and JAYCOR Technical Services.
II-4
<PAGE> 14
2.24. "Employer Contribution Account" or "Participant's Account" means
so much of a Participant's Accrued Benefit as is attributable to the Employer's
Contributions, reallocated Forfeitures and the earnings and realized and
unrealized gains and losses of the Trust Fund generated by such contributions
and reallocated Forfeitures.
2.25. "Employment Commencement Date" shall mean the date on which the
Employee first performs an Hour of Service for the Employer.
2.26. "Entry Date" shall mean the last day of each Plan Year.
2.27. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, and shall include any amendments thereto.
2.28. "Excused Absence" or "Leave of Absence" means any of the
following:
2.28.1. Absence on leave granted by the Employer for any cause
for the period stated in such leave, or, if no period is stated, then for six
months and any extensions that the Employer may grant in writing. For the
purpose of this subsection, the Employer shall give equal treatment to all
Employees in similar circumstances.
2.28.2. Absence in any circumstance so long as the Employee
continues to receive his regular Compensation from the Employer.
2.28.3. Absence in the armed forces of the United States or
government service in time of war or national emergency.
2.28.4. Absence by reason of illness or disability until such
time as the employment relationship between Employee and Employer is severed.
2.28.5. An absence shall cease to be an "Excused Absence" or a
"Leave of Absence" and shall be deemed to be a Break in Service as of the later
of (1) or (2):
(1) (A) The failure of the Employee to return to the
service of the Employer:
(i) within five days of expiration of any Leave of
Absence referred to in paragraph (a) hereof,
(ii) within six months after his discharge or release
from active military duty, or, if the Employee does not return to service with
the Employer within the said six-month period by reason of a Disability incurred
while in the armed forces, if he returns to service with the Employer upon
II-5
<PAGE> 15
the termination of such Disability as evidenced by release from
confinement in a military or veterans hospital, or
(iii) upon recovery from illness or Disability; or
(B) At such time as the payment of regular compensation
is discontinued as referred to in paragraph (b).
(2) The first day of the first Plan Year in which the
Employee fails to complete more than 500 Hours of Service.
2.28.6. The Employer shall be the sole judge of whether recovery
from illness or Disability has occurred for this purpose.
2.29. "Financed Shares" shall mean Qualifying Employer Securities that
have been pledged in connection with an Acquisition Loan and which have not been
released from such pledge and allocated to the Accounts of the Participants.
2.30. "Fund" or "Trust Fund" shall mean all of the assets of the Plan
held by the Trustee (or any nominee thereof) at any time under the Trust
Agreement.
2.31. "Highly Compensated Employee" includes highly compensated active
employees and highly compensated former employees.
A highly compensated active employee includes any employee who
performs service for the Employer during the determination year and who, during
the look-back year: (i) received compensation from the Employer in excess of
$75,000 (as adjusted pursuant to section 415(d) of the Code); (ii) received
compensation from the Employer in excess of $50,000 (as adjusted pursuant to
section 415(d) of the Code) and was a member of the top-paid group for such
year; or (iii) was an officer of the Employer and received compensation during
such year that is greater than 50 percent of the dollar limitation in effect
under section 415(b) (1)(A) of the Code. The term highly compensated employee
also includes: (i) employees who are both described in the preceding sentence if
the term "determination year" is substituted for the term "look-back year" and
the employee is one of the 100 employees who received the most compensation from
the Employer during the determination year; and (ii) employees who are 5 percent
owners at any time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii) above
during either a determination year or look-back year, the highest paid officer
for such year shall be treated as a highly compensated employee.
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<PAGE> 16
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year.
A highly compensated former employee includes any employee who
separated from service (or was deemed to have separated prior to the
determination year), performs no service for the employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the employee's 55th
birthday.
If an employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former employee or
a highly compensated employee who is one of the 10 most highly compensated
employees ranked on the basis of compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten highly
compensated employee shall be aggregated. In such case, the family member and 5
percent owner or top-ten highly compensated employee shall be treated as a
single employee receiving compensation and plan contributions or benefits equal
to the sum of such compensation and contributions or benefits of the family
member and 5 percent owner or top-ten highly compensated employee. For purposes
of this section, family member includes the spouse, lineal ascendants and
descendants of the employee or former employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a highly compensated employee, including
the determination of the number and identity of employees in the top-paid group,
the top 100 employees, the number of employees treated as officers and the
compensation that is considered, will be made in accordance with section 414(q)
of the Code and the regulations thereunder.
2.32. "Hour of Service" shall mean:
2.32.1. Each hour for which an Employee is paid or entitled to
payment, for the performance of duties during the applicable Plan Year. The
Employer may round up hours at the end of a computation period or more
frequently.
2.32.2. Each hour for which an Employee is paid or entitled to
payment by the Employer on account of a period of time during which no duties
are performed (regardless of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence. Notwithstanding the preceding
sentence:
(1) No more than 501 Hours of Service shall be credited
under section 2.32.2 above to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period);
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<PAGE> 17
(2) An hour for which an Employee is directly or indirectly
paid, or entitled to payment, on account of a period during which no duties are
performed, is not required to be credited to the Employee if such payment is
made or due under a plan maintained solely for the purpose of complying with
applicable workmen's compensation, or unemployment compensation or disability
insurance laws; and
(3) Hours of Service shall not be credited for a payment
which reimburses an Employee solely for medical or medically related expenses
incurred by the Employee.
2.32.3. For purposes of section 2.32.2 above, a payment shall be
deemed to have been made by or due from the Employer regardless of whether such
payment is made by or due from the Employer directly, or indirectly through,
among others, a trust fund or insurer, to which the Employer contributes or pays
premiums and regardless of whether contributions made or due to the Trust Fund,
insurer or other entity are for the benefit of particular Employees or are on
behalf of a group of Employees in the aggregate.
2.32.4. Each hour for which back pay, regardless of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited under both sections 2.32.1 and 2.32.2 above, as
the case may be, and under this section 2.23.4. Crediting of Hours of Service
for back pay awarded or agreed to with respect to periods described in section
2.32.2 above shall be subject to the limitations set forth in that paragraph.
In the case of a payment which is made or due on account of a period
during which an Employee performs no duties, and which results in the crediting
of Hours of Service under section 2.32.2 above, or in the case of an award or
agreement for back pay, to the extent that such award or agreement is made with
respect to a period described in section 2.32.2 above, the number of Hours of
Service to be credited shall be determined in accordance with Department of
Labor Regulations section 2530.200b-2(b). Hours shall be credited to the
applicable computation period in accordance with Department of Labor Regulations
section 2530.200b-2(c). This section shall be interpreted in a manner consistent
with the aforementioned regulations.
2.32.5. To the extent possible, Hours of Service shall be
determined from the Employer's records of hours worked and hours for which
payment is made or due. In the event that the hours worked by an Employee are
not accurately determinable from such records, he shall instead be credited with
10 hours daily, 45 hours weekly, 95 hours semi-monthly or 190 hours monthly if
he is paid on a daily, weekly, semi-monthly or monthly basis, respectively, so
long as such Employee shall have completed an Hour of Service during such
period.
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<PAGE> 18
2.32.6. Hours of Service will be credited for employment with
other members of an affiliated service group (under section 414(m)), a
controlled group of corporations (under section 414(b)), or a group of trades or
businesses under common control (under section 414(c)) of which the adopting
employer is a member, and any other entity required to be aggregated with the
employer pursuant to sections 414(n) or 414(o) and the regulations thereunder.
2.32.7. Hours of Service will also be credited for any individual
considered an employee for purposes of this Plan under section 414(n) or section
414(o) and the regulations thereunder.
2.32.8. Solely for purposes of determining whether a Break in
Service for eligibility or vesting purposes has occurred in a computation
period, an individual who is absent from work for maternity or paternity reasons
shall receive credit for the Hours of Service which otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 hours of service per day of such absence. For purposes
of this section, an absence from work for maternity or paternity reasons means
an absence (1) by reason of the pregnancy of the individual, (2) by reason of a
birth of a child of the individual, (3) by reason of the placement of a child
with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this section shall be credited (1) in the computation period in which the
absence begins if the crediting is necessary to prevent a break in service in
that period, or (2) in all other cases, in the following computation period.
2.33. "Insurer" shall mean any legal reserve life insurance
company as may issue any contract under the provisions of this
Plan.
2.34. "Investment Manager" shall mean any Fiduciary, other than the
Trustee or the Plan Administrator, who: (a) is delegated the power to manage,
acquire or dispose of any assets of the Plan or the Trust; (b) is (1) registered
as an investment advisor under the Investment Advisors Act of 1940, (2) a bank
as defined in that Act, or (3) an insurance company qualified to perform
services described above under the laws of more than one state; and (c) has
acknowledged in writing that he is a Fiduciary with respect to the Plan.
2.35. "Limitation Year" shall mean the Plan Year.
2.36. "Named Fiduciary" shall mean the Trustee, the Plan Administrator,
the Investment Manager and the Named Appeals Fiduciary. Each Named Fiduciary
shall have only those particular powers, duties, responsibilities and
obligations as are specifically given him under this Plan and/or the Trust
Agreement.
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<PAGE> 19
2.37. "Net Income" shall mean the current and accumulated earnings of
the Employer, as determined by the Employer's regularly engaged accountant upon
the basis of the Employer's books of account in accordance with generally
accepted accounting principles, if applicable, but without any deduction being
taken for any of the following: (1) depreciation, (2) extraordinary losses
resulting from the sale of assets not in the ordinary course of business, (3)
casualty losses in excess of recovery, (4) contributions to this or any other
qualified retirement plan, or (5) federal, state, county or city income taxes.
2.38. "Normal Retirement Age" or "Normal Retirement Date" shall be the
date on which a Participant attains age 65. At Normal Retirement Age, benefits
under this Plan shall be fully vested and non-forfeitable.
2.39. "Participant" shall mean an Employee who has met the eligibility
requirements specified in the Plan and is still employed on the Entry Date
following the completion of these requirements. An Employee becomes a
Participant on his or her Entry Date. In certain cases, depending on the
context, the term Participant also encompasses individuals classified as Former
Participants. A Former Participant shall mean an individual who was a
Participant in Plan, but is no longer entitled to an allocation of Employer
Contributions or Forfeitures, but has not yet received a complete distribution
of his or her benefits.
2.40. "Period of Service" shall mean a period of service commencing on
the Employee's Employment Commencement Date or Reemployment Commencement Date,
whichever is applicable, and ending on his Severance-from-Service Date.
2.41. "Period of Severance" shall mean the period of time commencing
on the Severance-from-Service Date and ending on the date on which the Employee
again performs an Hour of Service. For purposes hereof, a one-year Period of
Severance shall mean a 12-consecutive-month period beginning on the
Severance-from-Service Date during which the Employee does not perform an Hour
of Service for the Employer.
2.42. "Person" shall mean an individual, partnership, joint venture,
corporation, mutual company, joint-stock company, trust, estate, unincorporated
organization, association or employee organization.
2.43. "Plan" shall mean the Plan of the Employer as set forth herein,
together with all exhibits and Amendments thereto.
2.44. "Plan Administrator" shall mean the entity, person or
committee named as such pursuant to the provisions of Article 16
below.
2.45. "Plan Year" shall mean and refer to the Taxable Year
as defined below in this Article 2.
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<PAGE> 20
2.46. "Predecessor Entity" shall mean a former employer who maintained
the Plan of the current Employer.
2.47. "Predecessor Plan" shall mean any employee stock ownership plan
maintained by the Predecessor Entity or the Employer.
2.48. "Qualifying Employer Securities" shall mean shares of any class
of stock, common or preferred, voting or non-voting, which are issued by the
Employer and held by the Trustee.
2.49. "Re-employment Commencement Date" shall mean the first date,
following a Period of Severance from service which is not required to be taken
into account under the service-spanning rules of the Elapsed Time Method of
crediting service, on which the Employee completes an Hour of Service following
the last vesting computation period in which a Break in Service occurred.
2.50. "Severance-from-Service Date" shall mean the earlier of:
2.50.1. The date on which an Employee quits, retires, is discharged or
dies; or
2.50.2. The first anniversary of the first date of a period in which
an Employee remains absent from service (with or without pay) with the Employer
or Employers maintaining the Plan for any reason other than quitting,
retirement, discharge or death, such as vacation, holiday, sickness, disability,
leave of absence or lay-off.
2.50.3. The Severance-from-Service Date of an Employee who is absent
from service beyond the first anniversary of the first day of absence by reason
of a maternity or paternity absence described in Code Section 410(a)(5)(E)(i) or
411(a)(6)(E)(i) is the second anniversary of the first day of such absence. The
period between the first and second anniversaries of the first day of absence
from work is neither a period of service nor a period of severance. This rule
applies to maternity and paternity absences beginning on or after the first day
of the first plan year in which the Plan is required to credit service under
Sections 410(a)(5)(E) and 411(a)(6)(E).
2.51. "Spouse" shall mean the person to whom the Participant is
legally married, except that to the extent provided in any Qualified Domestic
Relations Order, as defined in section 414 of the Code, a Participant's former
Spouse may be treated as the surviving Spouse for purposes of this Plan.
2.52. "Taxable Year" shall mean and refer to the 12-month period
commencing on January 1 and ending on December 31.
2.53. "Trust" shall mean the trust which the Employer has established
as of the same date as its adoption of this Plan, together with all amendments
thereto to hold the assets of this
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<PAGE> 21
Plan. The Trust, and any future amendments thereto, shall form a part of this
Plan, and any amendments hereto, and is hereby incorporated by reference and
shall have the same force and effect as if all the terms and provisions thereof
were set forth in full herein.
2.54. "Trust Fund" shall mean the assets of the Trust.
2.55. "Trustee" shall mean San Diego Trust & Savings Bank, a California
banking corporation, or any other the person, corporation or banking association
hereafter appointed by the Board of Directors of the Employer to serve as
Trustee and who has accepted such Trust by execution of the Trust Agreement,
acting in its capacity as a party to the Trust and any successor or successors
in the Trust.
2.56. "Valuation Date" shall mean the Anniversary Date or any interim
date as of which the Trust Fund is valued by the Trustee; provided, however,
that Qualifying Employer Securities shall be valued as of the Friday closest to
January 31 of each Plan Year, commencing with February 1, 1991 for the Plan Year
beginning on January 1, 1991.
2.57. "Vested Interest" shall mean the non-forfeitable
right of a Participant to benefits under the Plan.
2.58. "Vesting Computation Period" shall mean the 12- consecutive-month
period coinciding with the Plan Year. An Employee who has 1,000 or more Hours of
Service during a Plan Year shall be credited with a Year of Service for vesting
purposes for that Plan Year.
2.59. "Year of Participation" shall mean each Plan Year
during which this Plan is in existence in which a Participant
completes 1,000 Hours of Service.
2.60. "Year of Service" or "Year of Credited Service" shall mean the
twelve (12) consecutive month period during which the Employee completes one
thousand (1,000) or more Hours of Service. For purposes of determining Years of
Service and One-Year Breaks in Service for purposes of eligibility, the initial
12-month period shall commence on the Employee's Employment Commencement Date.
The second twelve (12) month period shall be the Plan Year which commences prior
to the end of the initial 12-month period. For purposes of determining Years of
Service and One-Year Breaks in Service for purposes of computing a Participant's
Accrued Benefit or his non-forfeitable right to his Accrued Benefit, the twelve
(12) month period shall be the Plan Year. All Years of Service with other
members of a Controlled Group of corporations or with other trades or businesses
under common control of which the adopting Employer is a member, and any other
entity required to be aggregated with the Employer pursuant to section 414(o)
and the regulations thereunder, shall be credited for purposes of determining an
Employee's eligibility or his non-forfeitable right to his Accrued Benefit.
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<PAGE> 22
ARTICLE 3.
PARTICIPATION AND ENTRY DATE
3.1. Ineligible Employees. The following types of Employees shall be
ineligible to participate in this Plan:
3.1.1. Any Employee who is included in a unit of Employees covered by
a collective bargaining agreement between Employee representatives and the
Employer, in which retirement benefits were the subject of good-faith bargaining
between such Employee representatives and the Employer.
3.1.2. Any Employee who is a non-resident alien and who has no earned
income from Employer.
3.1.3. Except as otherwise provided in Section 3.02 of this plan, any
Employee who is classified by Employer as a part-time 1 employee or a temporary
employee.
3.1.4. Managerial and administrative employees of Manufacturing
Services, Inc. who were formerly eligible to participate in this Plan, shall not
be eligible to participate in the allocation of contributions for the Plan year
ending December 31, 1990, or for any subsequent Plan Year.
3.2. Initial Eligibility. Any Employee who is not excluded under section
3.1 above and is classified as full-time or part-time 2 shall be eligible to
participate in this Plan. There is no minimum age requirement for this Plan, but
for Plan Years beginning on or after January 1, 1992, there is a minimum Hours
of Service requirement, as set forth in section 3.3 below. In the case of any
Employee who was employed by IRT Corporation, a Delaware corporation, as of
September 10, 1988, such Employee shall be credited with all years of service
with IRT Corporation in determining such Employee's eligibility to participate
in the Plan.
3.3. Time of Participation. For Plan Years beginning prior to January 1,
1992, any eligible Employee whose Employment Commencement Date is on or before
July 1 shall become a Participant on the first Entry Date after such Employment
Commencement Date; provided that such Employee has not separated from service
with the Employer prior to such Entry Date. For Plan Years beginning prior to
January 1, 1992, any eligible Employee whose Employment Commencement Date is
after July 1 shall become a Participant on the second Entry Date after such
Employment Commencement Date; provided that such Employee has not separated from
service with the Employer prior to such Entry Date. If such separated Employee
returns to service after either of such dates without incurring a One-Year Break
in Service, then the Employee shall commence participation immediately upon such
return unless such Employee is excluded under the rules of section 3.1 above.
For the Plan Years beginning on or after January 1, 1992, an eligible Employee
shall commence participation on the first entry date coincident with or next
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<PAGE> 23
following a Plan Year during which such employee completes 501 Hours of
Service; provided that such Employee is still in the employment of Employer
as of such Entry Date.
3.4. Procedure for and Effect of Admission. Each Employee who becomes
eligible for admission to participation in this Plan shall complete such forms
and provide such data as are reasonably required by the Plan Administrator. By
becoming a Participant, each Employee shall for all purposes be deemed
conclusively to have assented to the provisions of the Plan, the corresponding
Trust Agreement and all amendments to such instruments.
3.5. Waiver of Participation. An Employee, once having become eligible for
participation in this Plan, shall not have the right to waive such participation
unless the Plan Administrator, in its sole discretion, determines to allow
written waivers of participation. If such waivers are permitted, they shall be
permitted on a non-discriminatory basis and shall be permanent. The Plan
Administrator retains the right not to permit waivers in any year or years, even
if such waivers have been permitted in prior years.
3.6. Termination of Participation. A Participant ceases to be an Active
Participant in the Plan after he has incurred a Break in Service and, if the
Adoption Agreement so provides, has also terminated employment with the Employer
or a member of the Controlled Group, or an affiliated service group, or any
other entity required to be aggregated with the employer pursuant to sections
414(n) or 414(o) and the regulations thereunder. These persons are referred to
in this Plan as "Former Participants."
3.7. Re-employment Before Break in Service. If an eligible Employee who has
separated from service and who has satisfied the minimum age and service
requirements for participation in this Plan, and who is otherwise entitled to
participate in this Plan, returns to service after such Employee's Entry Date
without incurring a Break in Service, such Employee shall commence participation
immediately upon such return to service.
3.8. Break in Service. Breaks in Service for eligibility purposes shall be
determined as follows:
3.8.1. Except as provided in sections 3.8.2 or 3.8.3, below, all of an
Employee's Years of Service with the Employer or with an employer maintaining
this Plan shall be taken into account in computing his Period of Service for
eligibility purposes.
3.8.2. A Former Participant who did not have a non- forfeitable right
to any portion of his Employer-derived Accrued Benefit at the time of his
termination of participation shall be considered a new Employee, for eligibility
purposes, if the number of consecutive Breaks in Service equals or exceeds the
greater of 5, or the aggregate number of Years of Service before such break. If
such former participants years of service before
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<PAGE> 24
his termination exceed the number of consecutive Breaks in Service after such
termination, such Participant shall participate immediately upon his return to
employment.
3.8.3. A Former Participant, whether or not vested, shall be eligible
to participate in the Plan immediately upon his re-employment, unless such
Former Participant is re-employed in a category of excluded Employees, as set
forth in section 3.1 above.
3.9. Employees Who Lose or Gain Eligible Status. In the event a Participant
becomes ineligible to participate because he is no longer a member of an
eligible class of Employees, but has not incurred a One-Year Break in Service,
such Employee shall participate immediately upon his return to an eligible class
of Employees. Such affected Participant shall continue to be credited with
vesting Years of Service even though the Participant may not be entitled to
further accrual credit under this Plan. If such affected Participant does not
incur a Break in Service, he shall re-enter as provided below in this section.
If such Participant incurs a One-Year Break in Service, his eligibility to
participate shall be determined pursuant to section 3.7. In the event an
Employee who is not a member of the eligible class of Employees becomes a member
of the eligible class, such Employee shall participate immediately if such
Employee has satisfied the requirements of section 3.3 above and would have
previously become a Participant had he been in the eligible class.
3.10. Predecessor Employer. If the Employer maintains the Plan of a
predecessor employer, service as a common law employee for such predecessor
employer shall be treated as service for the Employer. If the predecessor
employer was not a corporation, Years of Service shall not include service with
the predecessor employer as a partner or sole proprietor. If the predecessor
employer did not maintain a plan or maintained a plan that has been terminated,
Years of Service under this Plan shall not include service with the predecessor
employer.
3.11. Owner-Employees. Notwithstanding anything herein to the contrary, no
Owner-Employee may become a Participant initially, or remain a Participant, if
such Owner-Employee, either alone or in conjunction with one or more other
Owner-Employees:
3.11.1. Controls an unincorporated trade or business other than the
business of the Employer unless the employees of such other trade or business
are included under a plan which meets the requirements of the Code and which
provides contributions and benefits which are not less favorable than the
contributions and benefits provided for Owner-Employees under this Plan; or
3.11.2. Controls both the business of the Employer and one or more
other unincorporated trades or businesses, unless plans are established with
respect to such other trades or
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<PAGE> 25
businesses, and such plans and this Plan, when coalesced, would form a single
plan which meets the requirements of the Code; or
3.11.3. If such Owner-Employee is covered under a plan of a trade or
business, or under the plans of two or more trades or businesses which he does
not control, and such individual controls a trade or business, unless the
contributions and benefits of the employees under the plan of the trade or
business which he does control are as favorable as those provided for him under
the most favorable plan of the trade or business which he does not control.
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ARTICLE 4.
EMPLOYER CONTRIBUTIONS
4.1. Determining Employer's Contributions. For each Plan Year, the Employer
shall contribute to the Plan a discretionary amount. The Employer shall not be
required to make such discretionary contributions in any specific Plan Year,
whether or not there exists Net Income from which such contributions could be
made. The Employer shall have sole discretion in determining whether such
contributions shall be made and in what amount, without regard to whether or not
the Employer has Net Income for a particular applicable period. Notwithstanding
anything to the contrary in this section, the Employer shall contribute, in cash
funds, such amounts and at such times, as may be required to provide the Trustee
with sufficient funds to discharge any current obligations of the Trust under
any Acquisition Loan.
4.2. Payment of Contributions. All Employer Contributions shall be paid
directly to the Trustee and may be made at any date or dates selected by the
Employer within the time prescribed by law for the filing of the Employer's
federal income tax return for such year, including any extensions of time
obtained for filing the return. Any earnings or losses generated on Employer
contributions made in advance of the deadline prescribed by law for making such
contributions, shall be allocated to the Employer Contribution Accounts of the
Participants together with the earnings or losses that are generated on the
balance of the assets in the Trust.
4.3. Exclusive Benefit; Refund of Contribution. All contributions made by
the Employer are made for the exclusive benefit of the Participants and their
Beneficiaries, and such contributions shall not be used for, nor diverted to,
purposes other than for the exclusive benefit of the Participants and their
Beneficiaries (including the costs of maintaining and administering the Plan and
Trust). Notwithstanding the foregoing, amounts contributed to the Trust by the
Employer may be refunded to the Employer under the following circumstances and
subject to the following limitations:
4.3.1. Employer Contributions are conditioned on the initial
qualification of the Plan. If the Plan fails initially to satisfy the
qualification requirements of section 401(a) of the Code and the Employer
declines to amend the Plan to satisfy such qualification requirements,
contributions made prior to the determination that the Plan has failed to
qualify shall be returned to the Employer within one year of the date of denial
of qualification, provided that the application for determination relating to
initial qualification is filed by the due date of the Employer's return for the
taxable year in which the Plan is adopted.
4.3.2. If a contribution to the Fund in whole or in part is
attributable to a good-faith mistake of fact or a good-
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<PAGE> 27
faith mistake in determining the deductibility of the contribution under Code
section 404 (for example, incorrect information as to the eligibility or
Compensation of a Participant, or a mathematical error), then an amount shall be
returned to the Employer equal to the excess of (1) the amount contributed over
(2) the amount which would have been contributed had there not occurred a
mistake of fact or a mistake in determining the deduction. Earnings attributable
to the excess contribution shall not be returned to the Employer, but losses
attributable thereto shall reduce the amount to be so returned.
4.3.3. The withdrawal of the amount attributable to the mistaken
contribution shall be reduced appropriately if it would cause the balance of an
individual account of a Participant to be reduced to less than the balance which
would have been in the account had the mistaken amount not been contributed.
4.3.4. Any contribution made by the Employer conditioned upon the
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer within one year after a deduction for the contribution
under Section 404 of the Code is disallowed by the Internal Revenue Service, but
only to the extent disallowed. The return to the Employer of the amount involved
shall be paid by the Trustee after demand by the Employer and shall be made
within one year of the mistaken payment of the contribution or disallowance of
the deduction, as the case may be. Notwithstanding any other provision of this
paragraph, no refund shall be made to the Employer which is specifically
chargeable to the Account(s) of any Participant(s) in excess of 100 percent of
the amount in such Account(s) nor shall a refund be made by the Trustee of any
funds otherwise subject to refund hereunder, which have been distributed to
Participants and/or Beneficiaries. In the case that such distributions become
refundable, the Employer shall have a claim directly against the distributees to
the extent of the refund to which it is entitled.
4.3.5. All refunds pursuant to this section shall be limited in
amount, circumstances and timing to the provisions of section 403(c) of the Act,
and no such refund shall be made if, solely on account of such refund, the Plan
would cease to be a qualified plan pursuant to section 401(a) of the Code.
4.4. Types of Contributions. Employer contributions may be made in cash or
other property acceptable to the Trustee, including without limitation,
Qualifying Employer Securities.
4.5. Omission of Eligible Employee. If, in any Plan Year, any Employee who
should have been included as a Participant in the Plan is erroneously omitted
and discovery of such omission is not made until after a contribution for the
Plan Year has been made, the Employer shall make a subsequent contribution with
respect to the omitted Employee in the amount which would have been contributed
with respect to such Participant regardless of
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<PAGE> 28
whether or not it is deductible in whole or in part in any Taxable Year under
applicable provisions of the Code.
4.6. Inclusion of Ineligible Employee. If, in any Plan Year, any individual
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the Plan Year has been made, the Employer shall not be entitled
to recover the contribution made with respect to the ineligible individual
regardless of whether or not a deduction is allowable with respect to such
contribution. However, such contribution shall be used to reduce the Employer's
contribution to the Plan with respect to the Plan Year or succeeding Plan Years
in which such discovery occurs.
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ARTICLE 5.
LIMITATIONS ON BENEFITS
5.1. (a) Annual Additions Limitations. Notwithstanding the provisions of
sections 6.1 and 6.2 of this Plan, in no event shall the annual additions to a
Participant's Employer Contribution Account for a Limitation Year exceed the
lesser of twenty-five percent (25%) of such Participant's Compensation or the
greater of Thirty Thousand Dollars ($30,000) or 25% of the deferred benefit
maximum set forth in Section 415(b)(1), in effect for the Limitation Year, until
such time as a greater amount may be allowed pursuant to section 415(d) of the
Code as adjusted annually, effective as of January 1 of each calendar year and
applicable with respect to Limitation Years ending with or within that calendar
year, for increases in the cost of living, in accordance with regulations issued
by the Secretary of the Treasury. The limitation above shall not apply to any
contribution for medical benefits (within the meaning of section 401(h) or
section 419A(f)(2) of the Code) which is otherwise treated as an annual addition
under section 415(1)(1) or 419A(d)(2) of the Code. For the purposes hereof, the
amounts contributed to any Defined Contribution Plan maintained by the Employer
or a member of the Controlled Group or a member of an Affiliated Service Group
shall be aggregated with contributions made by the Employer under this Plan for
any Employee in computing his annual additions limitation. To the extent Defined
Contribution Plans of a member of the Controlled Group or a member of an
Affiliated Service Group are aggregated, any Compensation of an Employee from
such member shall also be aggregated, subject to the limitations contained
herein. Moreover, in no event shall the amount allocated to the Employer
Contribution Account of any Participant be greater than the maximum amount
allowed pursuant to section 415 of the Code with respect to combinations of
plans without disqualification of any such plan.
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive-month period, the maximum
annual additions to a Participant's Account for the short Limitation Year shall
not exceed the limitation above multiplied by the following fraction:
Number of Months in the Short Limitation Year
12
For the purposes of this section 5.1, the term "annual additions," as
it applies to the Account of any Participant, shall mean the sum for any
Limitation Year of:
(1) Employer contributions allocated to his or her Employer
Contribution Account;
(2) all Voluntary Employee contributions;
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<PAGE> 30
(3) amounts allocated to separate medical accounts under
Sections 415(l) and 419A(d)(2);
(4) for an individual who controls over 50% of the interests of
any Company comprising the Employer, all amounts allocated under annuity
contracts for that individual which qualify under Code Section 403(b); and
(5) Forfeitures (at their fair market value) reallocable to the
Participant's Account.
Unless otherwise defined by resolutions of the Board of
Directors, the term "Limitation Year" shall mean and correspond to the Plan
Year.
(b) Limitations Under Combination of Plans. If the Employer
maintains both a Defined Contribution Plan and a Defined Benefit Plan qualifying
under section 401(a) or 403(a) of the Code, the annual additions under the
Defined Contribution Plan for any Participant, expressed as a Defined
Contribution Plan fraction, and the annual benefit under the Defined Benefit
Plan for any Participant, expressed as a Defined Benefit Plan fraction, shall
not exceed 1.0, as provided in section 415 of the Code. For this purpose,
(1) The Defined Benefit Plan fraction for any year is a
fraction:
(A) the numerator of which is the projected annual benefit
of the Participant under such Plan determined as of the close of such Plan Year,
and
(B) the denominator of which is the lesser of 125% of the
maximum dollar limit for that year or 140% of 100% of the average compensation
of the Participant over his high three years.
(2) The Defined Contribution Plan fraction for any year is a
fraction:
(A) the numerator of which is the sum of the annual
additions as of the close of a Plan Year, and
(B) the denominator of which is the lesser of 125% of the
maximum dollar limit or 140% of 25% of Compensation for such year and all prior
Years of Service; provided, however, that the annual additions for each Plan
Year are subject to the limitations set forth in section 5.1(a) hereof.
In the event the sum of the Defined Benefit Plan fraction and the
Defined Contribution Plan fraction exceeds 1.0 in any Plan Year, the Defined
Contribution Plan fraction shall be reduced, and, if required, the accruals
under
V-2
<PAGE> 31
the Defined Benefit Plan shall be frozen until such time as the 1.0 limitation
is no longer exceeded.
If the Employee was a Participant as of the end of the first day of
the first limitation year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last limitation year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the section 415 limitation applicable to the first
limitation year beginning on or after January 1, 1987.
(c) Excess Annual Additions. If the annual additions limitation
described in this Article V is exceeded for any Plan Year, first, any voluntary
contribution in the Plan Year shall be returned to the Participant whose annual
additions limitation was exceeded. Second, the excess, if any, consisting of
Forfeitures, shall be reallocated to the other eligible Participants who
received an allocation of the Employer's contribution under section 6.1 of this
Plan in proportion to the ratio which each such Participant's total compensation
for the applicable Plan Year bears to the total compensation paid to all such
Participants for the applicable Plan Year. If the annual additions limitation is
still exceeded after the above steps, then the excess, consisting of
Forfeitures, shall be held in a suspense account. This process shall be repeated
each Plan Year until the suspense account is exhausted. Upon termination of this
Plan, the balance in such suspense account shall revert to the Employer.
5.2. Definition of Compensation for Purposes of Section 415 of the Code.
For purposes of applying the limitations of Code section 415, the term
"Compensation" shall have the following meaning:
(a) Compensation includes the Participant's wages, salaries, fees for
professional service and other amounts received (without regard to whether or
not an amount is paid in cash) for personal services actually rendered in the
course of employment with the Employer maintaining this Plan, to the extent that
the amounts are includible in gross income (including, but not limited to,
commissions paid salesmen, compensation for service on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements and allowances).
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<PAGE> 32
(b) Compensation does not include such items as contributions made by
the Employer to a plan of deferred compensation to the extent that, before the
application of the 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 Code section 408(k) are
not considered as Compensation for the Taxable Year in which contributed to the
extent such contributions are deductible by the Employee under Code section
219(b)(7). Additionally, any distributions from a plan of deferred compensation
are not considered as Compensation for 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.
V-4
<PAGE> 33
ARTICLE 6.
ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
6.1. Employer Contributions. Employer contributions shall be allocated
among the Participants, as follows:
6.1.1. As of each Anniversary Date, Employer contributions for the
current Plan Year shall be allocated only to the Employer Contribution Account
of each Active Participant in the ratio that each Active Participant's
Compensation for such Plan Year bears to the total Compensation of all Active
Participants for such Plan Year. Unless otherwise provided in Article XX below,
in applying the Plan's allocation formula, the term "Compensation" shall only
include Compensation of an Employee during the portion of the Plan Year in which
such Employee is an Active Participant, and such term shall further exclude
Compensation of an Employee which is not for performing services for the
Employer, such as severance benefits. Notwithstanding the preceding sentences,
each Participant who is employed on the last day of the Plan Year shall receive
an allocation for such Participant's initial Plan Year of participation, even if
such Participant would otherwise not be treated as an Active Participant under
the Plan. The Employer may, in its discretion, make contributions to the Plan
with respect to a Plan Year at various intervals during the Plan Year, but such
contributions shall only be allocated to the Participants as of the Anniversary
Date.
6.1.2. Any Participant who was on an Excused Absence, retired after
attaining the Early or Normal Retirement Age, suffered a Disability or died
during the Plan Year shall be deemed an Active Participant with respect to such
Plan Year (unless, in the case of an Excused Absence, the Participant's
employment has terminated) for purposes of this section and also for purposes of
section 4.1, and such Participant shall share in the allocation on the basis of
actual Compensation with respect to such Plan Year. Otherwise, any Participant
who (a) fails to earn 1,000 Hours of Service in the Plan Year, or (b) was not in
the employ of the Employer or a member of a Controlled Group at the end of a
Plan Year (regardless of the number of Hours of Service completed during such
Plan Year) shall not be Active Participants and shall not share in the Employer
contribution or forfeitures made with respect to the Employer's Fiscal Year
ending with or within such Plan Year. Any Participant who remained in the employ
of the Employer or a member of a Controlled Group or Affiliated Service Group or
any other entity required to be aggregated with the Employer pursuant to
sections 414(n) or 414(o) and the regulations thereunder, through the end of the
Plan Year, but who changed from an eligible to ineligible classification during
the Plan Year shall be deemed an Active Participant for such Plan Year, but only
with respect to his Compensation while in an eligible status; provided, however,
that any Participant who changed from an ineligible classification to
VI-1
<PAGE> 34
an eligible classification shall be considered an Active Participant only with
respect to his Compensation while in the eligible status.
6.1.3. Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would otherwise fail
to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or
410(b)(2)(A)(i) and the Regulations thereunder because Employer contributions
have not been allocated to a sufficient number or percentage of Participants for
a Plan Year, then the following rule shall apply:
6.1.3.1. The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year shall be expanded to
include the minimum number of Participants who would not otherwise be eligible
as are necessary to satisfy the applicable test specified above. The specified
Participants who shall become eligible under the terms of this paragraph shall
be those who are actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the greatest number
of Hours of Service in the Plan Year.
6.1.3.2. If after application of immediately preceding paragraph
above the applicable test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution and Forfeitures for the Plan
Year shall be further expanded to include the minimum number of Participants who
are not actively employed on the last day of the Plan Year as are necessary to
satisfy the applicable test. The specified Participants who shall become
eligible to share shall be those Participants, when compared to similarly
situated Participants, who have completed the greatest number of Hours of
Service in the Plan Year before terminating employment.
6.1.4. Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore, any amounts that have previously been
allocated to Participants may not be reallocated to satisfy these requirements.
In such event, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they been included in
the allocations, even if it exceeds the amount which would be deductible under
section 404 of the Code. Any adjustment to the allocations pursuant to this
paragraph shall be considered a retroactive amendment adopted by the last day of
the Plan Year.
6.2. Forfeitures. Forfeitures shall be allocated as additional Employer
contributions pursuant to the provisions of sections 4.1 and 6.1 hereof. The
amount of such Forfeiture shall be the non-vested portion of a Participant's
Employer Contribution Account. This means that the vested and non-vested
portions of a Participant's Employer Contribution Account shall be maintained
for his benefit, sharing in Trust Fund earnings,
VI-2
<PAGE> 35
and realized and unrealized gains and losses, unless his Account is segregated
pursuant to section 16.12, until such time as the non-vested portion of his
Employer Contribution Account has been forfeited, which Forfeiture shall then be
reallocated pursuant to section 6.1. In no event shall Forfeitures resulting
from contributions of an Adopting Employer be allocated for the benefit of
another Adopting Employer.
6.3. Release of Financed Securities. Shares of Financed Securities which
are released during a Plan Year, shall be allocated to the accounts of the
Active Participants in the same manner as Employer Contributions would be
allocated for such Plan Year under section 6.1 above.
6.4. Limitation on Allocations. No portion of the assets of the Plan
attributable to (or allocable in lieu of) Qualifying Employer Securities
acquired by the Trust after October 22, 1986 in a sale to which section 1042 of
the Code applies, shall accrue (or be allocated, directly or indirectly, under
any other tax-qualified plan maintained by the Employer):
6.4.1. During the nonallocation period, for the benefit of any person
who made an election under section 1042(a) of the Code with respect o Qualifying
Employer Securities, or any individual who is related to such person within the
meaning of section 267(b) of the Code, other than individuals described in
section 6.4.3 below.
6.4.2. For the benefit of any other person who owns (after application
of section 318(a) of the Code without regard to paragraph (2)(B)(i) thereof)
more than 25% of (a) any class of outstanding stock of the Employer or of any
corporation which is a member of the same controlled group of corporations
(within the meaning of section 4091(l) of the Code) as the Employer, or (b) the
total value of any class of outstanding stock of the Employer or such other
corporation.
6.4.3. The limitation described in section 6.4.1 above shall not apply
to an individual if such individual is a lineal descendant of the person who
made the election under section 1042 of the Code, and the aggregate amount
allocated to the benefit of all such lineal descendants during the nonallocation
period does not exceed more than 5% of the Qualifying Employer Securities (or
amounts allocated in lieu thereof) held by the Plan which is attributable to a
sale to the Plan by any person related to such descendants (within the meaning
of section 267(c)(4) of the Code) in transactions to which section 1042 of the
Code applied.
6.4.4. A person shall be treated as failing to met the ownership
limitations of section 6.4.2 above if such person fails such limitation at any
time during the one-year period ending on the date of sale of Qualifying
Employer Securities to the Plan, or on the date as of which shares of Qualifying
Employer Securities are allocated to Participants.
VI-3
<PAGE> 36
6.4.5. For the purposes of this section 6.4, the term "nonallocation
period" means the period beginning on the date of a sale described in section
6.4.1 above, and ending on (a) the date which is 10 years after the date of such
sale, or (b) the date of the allocation attributable to the final payment of any
Acquisition Loan received in connection with such sale.
VI-4
<PAGE> 37
ARTICLE 7.
CONTRIBUTIONS BY PARTICIPANTS AND ROLLOVER CONTRIBUTIONS
7.1. No Mandatory or Voluntary Contributions. No contributions shall be
required of or permitted by any Participant under this Plan.
7.2. No Rollover Contributions. Except as otherwise provided in Article 21
below, no rollover contributions or plan-to-plan transfers shall be permitted
under this Plan.
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<PAGE> 38
ARTICLE 8.
VESTING AND TERMINATION OF EMPLOYMENT
8.1. Vesting of Interests. A Participant's vested and non-forfeitable
interest in such Participant's Employer Contribution Account shall be determined
at the time such Participant terminates employment. All managerial and
administrative employees of Manufacturing Services, Inc. who have been
Participants in this Plan and who, as of December 31, 1990, are still employed
by Manufacturing Services, Inc. ("MSI"), and have remaining account balances as
of such date, shall be fully vested in such account balances. Any managerial or
administrative employees of MSI who are not employed by MSI as of December 31,
1990 shall have their vested interest, if any, determined under the schedule set
forth in this section. Effective for Plan Years beginning on or after January 1,
1992, if an Employee has at least 501 Hours of Service in the Plan Year for
which such Employee first becomes eligible to be a Participant, then such
Employee shall be credited with one Year of Service for vesting purposes. Except
as provided in the previous sentence, a Year of Service for vesting purposes
shall otherwise mean a Plan Year in which a Participant is credited with at
least 1,000 Hours of Service. If the employment of any Participant is terminated
for any cause other than death, Disability or attainment of the Normal
Retirement Age, then such Participant shall have vested rights in accordance
with the following schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS VESTED PORTION
OF CREDITED SERVICE OF ACCRUED BENEFIT
------------------- ------------------
<S> <C>
Less than 5 years None
5 years or more 100%
</TABLE>
8.2. Application of Forfeitures. The non-vested portion of a Participant's
Employer Contribution Account shall be forfeited at the earlier of (a) time such
Participant receives a "Qualified Cash Out" pursuant to section 8.3 below, or
(b) the end of the Plan Year following the Plan Year in which such Participant
has incurred 5 consecutive one year Breaks in Service. Notwithstanding the
preceding sentence, if a Participant terminates employment without being vested
with respect to any portion of his Employer Contribution Account, then such
Participant's Employer Contribution Account Balance shall be deemed forfeited as
of the end of the Plan Year in which occurs the date of such termination of
employment.
8.3. "Cash Outs." Cash Outs of accrued non-forfeitable benefits to
Participants, shall be considered Qualified Cash Outs under the following
conditions:
8.3.1. Involuntary. Upon entitlement, a Participant shall receive a
lump sum distribution provided such distribution:
VIII-1
<PAGE> 39
(1) represents the present value of his entire non-forfeitable
benefit; and
(2) represents an amount, that portion of which is attributable to
the present value of the Employer-derived Accrued Benefit and is not in excess
of Three Thousand Five Hundred ($3,500)(and at the time of any prior
distribution has never exceeded $3,500); and
(3) is made due to his termination of participation in the Plan.
No Cash Out of any benefits may be made under this Plan where the
present value of the Accrued Benefit (taking into consideration benefits derived
from both Employer and Employee Contributions) is in excess of the amount
specified in subparagraph (2) above without the consent of the Participant and,
if applicable, the Participant's spouse.
A distribution shall be deemed to have been made due to the termination
of an Employee's participation in the Plan if it is made no later than the close
of the second Plan Year following the Plan Year in which such termination
occurs.
Service after the distribution is disregarded for purposes of
determining the non-forfeitable benefit.
For purposes of this section, if the value of a Participant's vested
account balance is zero, there shall be a deemed Cash-Out of his vested account
balance as of the date of his termination of employment. A Participant's vested
account balance shall not include accumulated deductible employee contributions
within the meaning of section 72(o)(5)(B) of the Code for plan years beginning
prior to January 1, 1989.
8.3.2. Voluntary. Upon entitlement, a Participant may receive a lump
sum distribution provided such distribution:
(1) represents the present value of his entire non-forfeitable
benefit;
(2) has been elected by the Participant; and
(3) is made on termination of his participation in the Plan.
A distribution shall be deemed to have been made on termination of
participation in the Plan if it is made no later than the close of the second
Plan Year following the Plan Year in which such termination occurs.
Service after the distribution is disregarded for purposes of
determining the non-forfeitable benefit.
VIII-2
<PAGE> 40
In the case of a voluntary distribution which is less than the present
value of the Participant's total non-forfeitable benefit immediately prior to
distribution, the Accrued Benefit not taken into account in computing the
Accrued Benefit under the Plan is the total Accrued Benefit multiplied by a
fraction, the numerator of which is the amount of the distribution and the
denominator of which is the present value of his total non-forfeitable benefit
immediately prior to such distribution.
Notwithstanding subparagraphs (a) and (b) above, if a Participant's
non-forfeitable Accrued Benefit is paid in the form of an annuity pursuant to
section 11.2, such benefit cannot be cashed out after the Annuity Starting Date
without the written consent of the Participant and his spouse.
No distribution shall be made under this section, unless the
Participant and the Participant's spouse (or where the Participant or the spouse
has died, the survivor) consent to any distribution of such account balance. The
consent of the Participant and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity starting date. The
annuity starting date is the first day of the first period for which an amount
is paid as an annuity or in any other form. The Plan Administrator shall notify
the Participant and the Participant's spouse of the right to defer any
distribution until the Participant's account balance is no longer immediately
distributable. Such notification shall include a general description of the
material features, and an explanation of the relative values of, the optional
forms of benefit available under the Plan in a manner that would satisfy the
notice requirements of section 417(a)(3), and shall be provided no less than 30
days and no more than 90 days prior to the annuity starting date.
Notwithstanding the foregoing, only the Participant need consent to
the commencement of a distribution in the form of a qualified joint and survivor
annuity while the account balance is immediately distributable. Furthermore, if
payment in the form of a qualified joint and survivor annuity is not required
with respect to the Participant pursuant to section 11.8(f) of the Plan, only
the Participant need consent to the distribution of an account balance that is
immediately distributable. Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a distribution is
required to satisfy section 401(a)(9) or section 415 of the Code. In addition,
upon termination of this Plan, if this Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's account balance may,
without the Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an employee stock
ownership plan as defined in section 4975(e)(7) of the Code) within the same
controlled group.
An account balance is immediately distributable if any part of the
account balance could be distributed to the
VIII-3
<PAGE> 41
Participant (or surviving spouse) before the Participant attains (or would have
attained if not deceased) the later of normal retirement age or age 62.
For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first plan year
beginning after December 31, 1988, the Participant's vested account balance
shall not include amounts attributable to accumulated deductible employee
contributions within the meaning of section 72(o)(5)(B) of the Code.
8.4. Restoration of Accrued Benefit Upon Repayment of Distribution and
Non-Duplication of Benefits.
8.4.1. In the event an Employee who received a distribution which was
less than the present value of his Accrued Benefit resumes employment covered by
this Plan prior to incurring a Break in Service, the Accrued Benefit above shall
be restored upon repayment to the Plan of the full amount of the distribution as
hereinafter provided. Such restoration shall be made notwithstanding the
provisions of section 4.1 to the contrary. However, any Forfeitures which may be
allocated shall be utilized first to restore the Accrued Benefit and then any
additional Employer Contribution which may be required.
8.4.2. For the purposes of this section, an Employee shall have
received a distribution which is less than the present value of his Accrued
Benefit if any portion of such benefit was forfeitable at the time of such
distribution.
8.4.3. In order to have the Accrued Benefit restored upon repayment to
the Plan as hereinabove provided, the Employee must repay the full amount of his
distribution on or before the earlier of five years after the first date on
which the Participant is subsequently re-employed by the Employer, or the date
the Participant incurs five consecutive One-Year Breaks in Service following the
date of distribution. If an Employee is deemed to receive a distribution
pursuant to this section, and the Employee resumes employment covered under this
Plan before the date the Participant incurs five consecutive One-Year Breaks in
Service, upon the reemployment of such Employee, the Employer- derived account
balance of the Employee will be restored to the amount on the date of such
deemed distribution. If the Plan is terminated before the latest date for
repaying the full amount of a distribution to the Plan has occurred, the
Participant's right to repay the amount of such distribution will be cut off as
of the date of the termination of the Plan.
8.4.4. The Employer-derived Accrued Benefit required to be restored by
this section shall not be less than the amount in the Account Balance of the
Employee, both the amount distributed and the amount forfeited, unadjusted by
any subsequent gains or losses.
VIII-4
<PAGE> 42
8.4.5. In the event the Employee does not make such election, his
right to repayment and restoration of benefits shall cease, and his benefits
shall be adjusted accordingly.
8.4.6. Notwithstanding anything in this Plan to the contrary, there
shall be no duplication of benefits allowed with respect to any period of
service completed by any person.
8.4.7. A Participant's right to have his Accrued Benefit restored by
this section shall terminate as of the date of Plan termination or a Permanent
Discontinuance of Employer Contributions.
8.5. Certain Employers; Service Included in Determination of
Non-Forfeitable Percentage. Service with a predecessor employer who maintained
the Plan of the current Employer shall be treated as service with the current
Employer. Service with an employer shall be treated as service with certain
related employers. These related employers include members of an Affiliated
Service Group (under section 414(m)), a Controlled Group of Corporations (under
section 414(b)), or a group of trades or businesses under common control (under
section 414(c)) of which the adopting employer is a member, and any other entity
required to be aggregated with the Employer pursuant to section 414(o) and the
regulations thereunder.
8.6. Effect of Breaks in Service.
8.6.1. In the case of any Employee who has incurred a Break in
Service, Years of Service completed before such break shall not be taken into
account until the Employee has completed one Year of Service after his return to
service.
8.6.2. In the case of a Participant who has five or more consecutive
One-Year Breaks in Service, all service after such Breaks in Service will be
disregarded for the purpose of vesting the Employer-derived account balance that
accrued before such Breaks in Service. Such Participant's pre-break service will
count in vesting the post-break Employer-derived account balance only if either:
(i) such Participant has any non- forfeitable interest in the account balance
attributable to Employer contributions at the time of separation from service;
or (ii) upon returning to service, the number of consecutive One-Year Breaks in
Service is less than the number of Years of Service.
8.6.3. Separate accounts will be maintained for the Participant's
pre-break and post-break Employer-derived account balance. Both accounts will
share in the earnings and losses of the fund.
8.7. Crediting of Years of Service. Except as otherwise provided in
this Article 8, all Years of Service shall be taken into account for purposes of
determining the non-forfeitable percentage of the Participant's right to
Employer-derived Accrued
VIII-5
<PAGE> 43
Benefits. In the case of any Participant who was employed by IRT Corporation, a
Delaware corporation, as of September 10, 1988, such Participant shall be
credited with all years of service with IRT Corporation in determining such
Participant's vested interest in the Plan.
8.8. Accrued Benefit Rules. If a Participant receives a distribution before
incurring five consecutive One-Year Breaks in Service and his account is not 100
percent vested at the time of the distribution, unless the Participant has
received a qualified "Cash Out," the unvested amount shall be retained in the
Participant's account until he has incurred five consecutive One-Year Breaks in
Service, at which time the amount shall be allocated as a Forfeiture. If the
Participant again becomes an Employee before incurring five consecutive One-Year
Breaks in Service, a separate account shall be established for the amount
retained in the account. On a subsequent distribution of the previously unvested
amount, the vested amount then available for distribution from the separate
account shall be an amount ("X") determined by the formula: X = P (AB + (R x D))
- - (R x D). For purposes of applying the formula, "P" is the vested percentage at
the time of distribution, "AB" is the account balance of the separate account at
the time of distribution, "D" is the amount of the prior distribution and "R" is
the ratio of the account balance immediately after the prior distribution.
8.9. Amendment of Vesting Schedule. If the Plan's vesting schedule is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of the Participant's nonforfeitable percentage or if the Plan is
deemed amended by an automatic change to or from a top-heavy vesting schedule,
each Participant with at least three Years of Service with the Employer may
elect, within a reasonable period after the adoption of the amendment or change,
to have the nonforfeitable percentage computed under the Plan without regard to
such amendment or change. For Participants who do not have at least one Hour of
Service in any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "five Years of Service" for "three
Years of Service" where such language appears. The period during which the
election may be made shall commence with the date the amendment is adopted or
deemed to be made and shall end on the latest of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
8.10. Amendments Affecting Vested and/or Accrued Benefits. No amendment to
the Plan shall be effective to the extent that it has the effect of decreasing a
Participant's accrued benefit. Notwithstanding the preceding sentence, a
Participant's account balance may be reduced to the extent permitted under
section
VIII-6
<PAGE> 44
412(c)(8) of the Code. For purposes of this paragraph, a Plan amendment which
has the effect of decreasing a Participant's account balance or eliminating an
optional form of benefit, with respect to benefits attributable to service
before the amendment shall be treated as reducing an accrued benefit.
Furthermore, if the vesting schedule of a Plan is amended, in the case of an
Employee who is a Participant as of the later of the date such amendment is
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's Employer-derived accrued benefit
will not be less than the percentage computed under the Plan without regard to
such amendment.
VIII-7
<PAGE> 45
ARTICLE 9.
DEATH BENEFIT
9.1. Pre-Retirement Death Benefit. In the event of the death of an Active
Participant prior to the commencement of benefit payments, such deceased
Participant's Accrued Benefit shall be one hundred percent (100%) vested.
9.2. Post-Retirement Death Benefit. In the event of the death of a Retired
Participant whose benefits are in a "pay status," or of a Vested Participant,
the death benefit shall be one hundred percent (100%) of the undistributed
balance of such deceased Participant's Accrued Benefit, if any.
9.3. Action to be Taken on Death. Upon the death of a Participant, or of a
terminated or retired Participant for whom benefits are still held hereunder by
the Trustee, the Employer shall notify the Plan Administrator. The Plan
Administrator shall cooperate with the Beneficiary of such deceased Participant
so that such Beneficiary may receive the benefits so held by the Trustee for
such deceased Participant and shall suitably direct the Trustee as to the action
to be taken by it hereunder.
9.4. Exception for Certain Death Benefits. Upon the death of any retired
Participant who, at the time of his death, is receiving benefits pursuant to a
contract, policy, program or arrangement having a refund feature, period certain
installments, survivor's benefits or other similar provisions, there shall be
paid such continuing installments or death benefits as are provided pursuant to
such contract, policy, program or arrangement. A Beneficiary of a Participant
who dies on or after his Normal Retirement Date while still employed by the
Employer or who terminates employment on or after his Normal Retirement Date (or
the Early Retirement Age) and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter dies before beginning to
receive such benefits shall receive payments under this Plan as provided in
Article 11.
9.5. Designation of Beneficiary and Form of Benefit Payment.
(a) Each Participant, subject to Section 9.5(b) shall have the right
at any time to give written instructions to the Plan Administrator designating
primary and contingent Beneficiaries to receive any benefit provided by the Plan
or changing a Beneficiary designation. The Participant may also give written
instructions as to the method of payment of benefits to his Beneficiary (such
instructions will be followed to the extent Sections 11.2, 11.3, 11.8 and 11.9
are not violated, and to the extent that the Beneficiary does not select another
method of payment of benefits pursuant to Section 11.7 of the Plan). Upon
receipt of such written instructions from the Participant,
IX-1
<PAGE> 46
the Plan Administrator shall take steps necessary to effectuate such designation
or change of Beneficiary. A Participant's Beneficiary designation shall not be
effective over the Participant's spouse's community property interest in the
Plan unless the Participant's spouse consents or consented to such designation.
(b) Notwithstanding the foregoing, a Participant's Beneficiary must
be his surviving spouse unless the spouse consents in writing to the selection
of another person as Beneficiary. The spouse's written consent shall be obtained
in accordance with Section 11.8(d)(3) of the Plan. If spousal consent is
required and not obtained, the Participant shall be deemed to have designated
his spouse as Beneficiary.
(c) The Participant may designate a person other than his spouse as
Beneficiary without such written consent only if:
(i) the Participant established to the satisfaction of the Plan
Administrator that he or she has no spouse; or
(ii) the Participant's spouse cannot be located; or
(iii) because of other circumstances under which no spousal
consent is required in accordance with applicable Treasury or Department of
Labor Regulations.
(d) In the event that the Participant fails to designate a
Beneficiary to receive a benefit that becomes payable pursuant to the provisions
of this Article, or in the event that the Participant is predeceased by all
designated primary and contingent Beneficiaries, the death benefit shall be
payable to the following classes of takers, each class to take to the exclusion
of all subsequent classes, and all members of each class to share equally:
(i) surviving spouse;
(ii) lineal descendants (including adopted children) by right of
representation;
(iii) surviving parents; and
(iv) Participant's estate.
(e) Any designation or change shall become effective as of the date
received by the Plan Administrator and must be received by the Plan
Administrator prior to the Participant's death to be effective.
(f) Failure to complete and file a Beneficiary designation does not
prevent an Employee from being a Participant.
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9.6. Deferred Payment of Death Benefit. If any payment becomes payable to a
Beneficiary under this Article, the Plan Administrator may, at its discretion,
delay such payment for at least two years from the date of death so as to
provide time for the Beneficiaries to consult with the Plan Administrator
regarding alternative methods of distribution of the Participant's death
benefit; provided, however, that no such deferral may be made unless it is in
accordance with section 11.3 of this Plan and section 401(a)(9) of the Code.
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ARTICLE 10.
RETIREMENT BENEFITS AND DISABILITY BENEFITS
10.1. Normal Retirement Benefit. The Normal Retirement Benefit with respect
to any Participant retiring at his Normal Retirement Age shall be equal to 100
percent of such Participant's Accrued Benefit.
10.2. Early Retirement Benefit. The Early Retirement Benefit with respect
to any Participant retiring at his Early Retirement Age shall be equal to 100
percent of such Participant's Accrued Benefit.
10.3. Deferred Retirement Benefit. The Deferred Retirement Benefit with
respect to any Participant retiring after such Participant's Normal Retirement
Date shall be equal to 100 percent of such Participant's Accrued Benefit.
10.4. Disability Benefit. The Disability Benefit shall be payable with
respect to any Participant who has suffered a Disability as defined in Article 2
of this Plan, and who is separated from service with the Employer by reason of
such Disability, and shall be equal to 100 percent of such Participant's Accrued
Benefit.
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ARTICLE 11.
METHOD AND TIMING OF BENEFIT DISTRIBUTIONS
11.1. Method of Distribution of Vested Benefits. When a Participant (i)
separates from service or (ii) incurs a Break in Service and has previously
separated from service, or (iii) attains Normal Retirement Age or more and
separates from service, or (iv) becomes disabled, or (v) with respect to such
Participant, the latest date for distribution of benefits occurs pursuant to
section 11.9 and no valid election has been made to postpone such date, or (vi)
with respect to such Participant, he must begin to receive distributions from
the Plan because it is such Participant's first Distribution Calendar Year,
whichever is applicable (herein called "Termination Date"), or (vii) attains age
59-1/2 but has not separated from service, the Plan Administrator and/or the
Trustee shall, after receipt of such notice from the Employer or Plan
Administrator, determine the Participant's vested Accrued Benefit. His vested
Accrued Benefit shall be distributed to him in cash or in kind, or any
combination thereof, as determined by the Participant in one of the following
methods of payment:
(a) A single lump sum payment;
(b) Payment over one of the following periods (or combination
thereof):
(i) A period certain not extending beyond the Life Expectancy of
the Participant; or
(ii) A period certain not extending beyond the joint and
last-survivor expectancy of the Participant and a Designated Beneficiary.
11.2. Determination of Amount to be Distributed each Year. If the
Participant's interest is to be distributed in other than a single lump-sum
payment, the following minimum distribution rules shall apply on or after the
Required Beginning Date:
(a) Individual Account.
(i) If a Participant's Benefit is to be distributed over (1) a
period not extending beyond the Life Expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
Designated Beneficiary, or (2) a period not extending beyond the Life Expectancy
of the Designated Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first Distribution Calendar
Year, must at least equal the quotient obtained by dividing the Participant's
Benefit by the Applicable Life Expectancy.
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(ii) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the Designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present value of the
amount available for distribution is paid within the Life Expectancy of the
Participant.
(iii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for the first
Distribution Calendar Year shall not be less than the quotient obtained by
dividing the Life Expectancy, or (2) if the Participant's spouse is not the
Designated Beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed regulations.
Distributions after the death of the Participant shall be distributed using the
Applicable Life Expectancy in section 11.2(a)(i) above as the relevant divisor
without regard to Proposed Regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Participant's
first Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar years,
including the minimum distribution for the Distribution Calendar Year in which
the Employee's Required Beginning Date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(b) Other Forms.
(i) If the Participant's Benefit is distributed in the form of
an annuity purchased from an insurance company, distributions thereunder shall
be made in accordance with the requirements of section 401(a)(9) of the Code and
the proposed or final regulations thereunder.
11.3. Death Distribution Provisions.
(a) Distribution Beginning Before Death. If the Participant dies
after distribution of his or her interest has begun, the remaining portion of
such interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
(b) Distribution Beginning After Death. If the Participant dies
before distribution of his or her interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death, except to the
extent that an election is made to receive distributions in accordance with (i)
or (ii) below:
(i) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life or over a period
certain not greater than the Life Expectancy of the Designated Beneficiary
commencing on or before
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December 31 of the calendar year immediately following the calendar year in
which the Participant died;
(ii) If the Designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance with (i)
above, shall not be earlier than the later of (1) December 31 of the calendar
year immediately following the calendar year in which the Participant died, and
(2) December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made an election pursuant to this Section
11.3(b) by the time of his or her death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the earlier of
(1) December 31 of the calendar year in which distributions would be required to
begin under this section, or (2) December 31 of the calendar year which contains
the fifth anniversary of the date of death of the Participant. If the
Participant has no Designated Beneficiary, or if the Designated Beneficiary does
not elect a method of distribution, distribution of the Participant's entire
interest must be completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death.
(c) For purposes of section 11.3(b) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin, the
provisions of section 11.3, with the exception of paragraph (ii) therein, shall
be applied as if the surviving spouse were the Participant.
(d) For purposes of this section 11.3, any amount paid to a child of
the Participant will be treated as if it had been paid to the surviving spouse
if the amount becomes payable to the surviving spouse when the child reaches the
age of majority.
(e) For the purposes of this section 11.3, distribution of a
Participant's interest is considered to begin on the Participant's Required
Beginning Date (or, if Section 11.3(c) above is applicable, the date
distribution is required to begin to the surviving spouse pursuant to Section
11.3(b) above). If distribution in the form of an annuity irrevocably commences
to the Participant before the Required Beginning Date, the date distribution is
considered to begin is the date distribution actually commences.
11.4. Definitions. The following definitions shall apply for purposes of
this Article:
(a) Applicable Life Expectancy. The Life Expectancy (or joint and
last survivor expectancy) calculated using the attained age of the Participant
(or Designated Beneficiary) as of the Participant's (or Designated
Beneficiary's) birthday in the applicable calendar year reduced by one for each
calendar year which has elapsed since the date Life Expectancy was first
calculated. If Life Expectancy is being recalculated, the
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<PAGE> 52
Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The
applicable calendar year shall be the first Distribution Calendar Year, and if
Life Expectancy is being recalculated such succeeding calendar year.
(b) Designated Beneficiary. The individual who is designated as the
Beneficiary under the Plan in accordance with section 401(a)(9) and the proposed
regulations thereunder.
(c) Distribution Calendar Year. A calendar year for which a minimum
distribution is required. For distributions beginning before the Participant's
death, the first Distribution Calendar Year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which distributions are
required to begin pursuant to section 11.3 above.
(d) Life Expectancy. Life Expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in Tables V and
VI of section 1.72-9 of the income tax regulations.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in Section 11.3(b)(ii) above) by the time distributions
are required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or spouse) and shall apply
to all subsequent years. The Life Expectancy of a nonspouse Beneficiary may not
be recalculated.
(e) Participant's Benefit.
(i) The account balance as of the last valuation date in the
calendar year immediately preceding the Distribution Calendar Year (valuation
calendar year) increased by the amount of any contributions or forfeitures
allocated to the account balance as of dates in the valuation calendar year
after the valuation date and decreased by distributions made in the valuation
calendar year after the valuation date.
(ii) Exception for second Distribution Calendar Year. For
purposes of paragraph (i) above, if any portion of the minimum distribution for
the first Distribution Calendar Year is made in the second Distribution Calendar
Year on or before the Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year shall be treated as
if it had been made in the immediately preceding Distribution Calendar Year.
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<PAGE> 53
(f) Required Beginning Date.
(i) General rule. The Required Beginning Date of
a Participant is the first day of April of the calendar year following the
calendar year in which the Participant attains age 70-1/2.
(ii) Transitional Rules. The Required Beginning
Date of a Participant who attains age 70-1/2 before January 1, 1988, shall be
determined in accordance with (1) or (2) below:
(1) Non-5-percent owners. The Required
Beginning Date of a Participant who is not a 5-percent owner is the first day
of April of the calendar year following the calendar year in which the later of
retirement or attainment of age 70-1/2 occurs.
(2) 5-percent owners. The Required
Beginning Date of a Participant who is a 5-percent owner during any year
beginning after December 31, 1979, is the first day of April following the
later of:
(A) the calendar year in which the
Participant attains age 70-1/2, or
(B) the earlier of the calendar year
with or within which ends the Plan Year in which the Participant becomes a
5-percent owner, or the calendar year in which the Participant retires.
The Required Beginning Date of a Participant who is not a 5-percent owner who
attains age 70-1/2 during 1988 and who has not retired as of January 1, 1989,
is April 1, 1990.
(iii) 5-percent owner. A Participant is treated as
a 5-percent owner for purposes of this section if such Participant is a
5-percent owner as defined in section 416(i) of the Code (determined in
accordance with section 416, but without regard to whether the Plan is
top-heavy) at any time during the Plan Year ending with or within the calendar
year in which such owner attains age 66-1/2 or any subsequent Plan Year.
(iv) Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
11.5. Transitional Rule.
(a) Notwithstanding the other requirements of this
article and subject to the requirements of Section 11.8, Joint and Survivor
Annuity Requirements, distribution on behalf of any employee, including a
5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
XI-5
<PAGE> 54
(i) The distribution by the trust is one which
would not have disqualified such trust under section 401(a)(9) of the Internal
Revenue Code as in effect prior to amendment by the Deficit Reduction Act of
1984.
(ii) The distribution is in accordance with a method
of distribution designated by the Employee whose interest in the trust is being
distributed or, if the Employee is deceased, by a Beneficiary of such Employee.
(iii) Such designation was in writing, was signed by
the Employee or the Beneficiary, and was made before January 1, 1984.
(iv) The Employee has accrued a benefit under the
Plan as of December 31, 1983.
(v) The method of distribution designated by the
Employee or the Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and in the case of
any distribution upon the Employee's death, the Beneficiaries of the Employee
listed in order of priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation contains the
required information described above with respect to the distributions to be
made upon the death of the employee.
(c) For any distribution which commences before January
1, 1984, but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is being
made if the method of distribution was specified in writing and the
distribution satisfies the requirements in subsections (a) and (e).
(d) If a designation is revoked, any subsequent
distribution must satisfy the requirements of section 401(a)(9) of the Code and
the proposed regulations thereunder. If a designation is revoked subsequent to
the date distributions are required to begin, the Trust must distribute by the
end of the calendar year following the calendar year in which the revocation
occurs, the total amount not yet distributed which would have been required to
have been distributed to satisfy section 401(a)(9) of the Code and the proposed
regulations thereunder, but for the section 242(b)(2) election. For calendar
years beginning after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in section 1.401(a)(9)-2
of the proposed regulations. Any changes in the designation will be considered
to be a revocation of the designation. However, the mere substitution or
addition of another Beneficiary (one not named in the designation) under the
designation will not be considered to be a revocation of the
XI-6
<PAGE> 55
designation, so long as such substitution or addition does not alter the period
over which distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring life). In the case
in which an amount is transferred or rolled over from one plan to another plan,
the rules in Q&A J-2 and Q&A J-3 shall apply.
11.6. Changing Method of Distributions. Notwithstanding that
periodic distributions may have commenced pursuant to the provisions of this
section, the Participant may, upon written notice to the Plan Administrator,
change the amount of periodic distributions to any amount up to the whole
amount; provided, however, that in all events the distributions during the
Taxable Year of the payee may not be less than the minimum distribution
required above under this section. Distributions shall not be made more
frequently than once a month. The Plan Administrator shall implement such
change no later than six months following the date on which the written notice
to change is received by the Plan Administrator.
11.7. Changing Method of Distributions After Death of Participant.
Subject to the provisions of Section 11.3 of the Plan, if a Participant dies
before receiving full payment of the benefits he is entitled to receive, the
Plan Administrator may direct that the residual benefits be distributed to the
Beneficiary or Beneficiaries in any of the methods described herein.
When a Participant dies, the Plan Administrator shall pay the
Participant's remaining vested Accrued Benefit to his Beneficiaries in a
lump-sum or over one of the periods described in Section 11.1 above, as
requested by his Beneficiaries.
The Plan Administrator may, if the Participant does not have a
segregated account, with the Participant's written consent, direct the Trustee
to segregate the amount of the Participant's interest and invest the same in a
federally insured bank or savings and loan association savings account.
11.8. Joint and Survivor Annuity and Pre-Retirement Survivor Annuity
Requirements.
(a) Except as provided in subsection 11.8(f) of this
section, the provisions of subsections (b) and (c) below shall apply to any
Participant who is credited with at least one Hour of Service with the Employer
on or after August 23, 1984.
(b) Qualified joint and survivor annuity. Unless an
optional form of benefit is selected pursuant to a qualified election within
the 90-day period ending on the annuity starting date, a married Participant's
vested account balance will be paid in the form of a qualified joint and
survivor annuity and an unmarried Participant's vested account balance will be
paid in the form of a life annuity. The Participant may elect to have
XI-7
<PAGE> 56
such annuity distributed upon attainment of the earliest retirement age under
the Plan.
(c) Qualified preretirement survivor annuity. Unless an
optional form of benefit has been selected within the election period pursuant
to a qualified election, if a Participant dies before the annuity starting
date, then the Participant's vested account balance shall be applied toward the
purchase of an annuity for the life of the surviving spouse. The surviving
spouse may elect to have such annuity distributed within a reasonable period
after the Participant's death. For the purpose of this paragraph, any security
interest held by the Plan by reason of a loan outstanding to the Participant
(as of the date of death) shall be taken into account in determining the amount
of the qualified pre-retirement survivor annuity.
(d) Definitions.
(1) Election period: The period which begins on
the first day of the Plan Year in which the Participant attains age 35 and ends
on the date of the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age 35 is attained,
with respect to the account balance as of the date of separation, the election
period shall begin on the date of separation.
Pre-age 35 waiver: A Participant who will not yet
attain age 35 as of the end of any current Plan Year may make a special
qualified election to waive the qualified preretirement survivor annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
qualified preretirement survivor annuity in such terms as are comparable to the
explanation required under section 5.1. Qualified preretirement survivor
annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this article.
(2) Earliest retirement age: The earliest date
on which, under the Plan, the Participant could elect to receive retirement
benefits.
(3) Qualified election: A waiver of a qualified
joint and survivor annuity or a qualified preretirement survivor annuity. Any
waiver of a qualified joint and survivor annuity or a qualified preretirement
survivor annuity shall not be effective unless: (a) the Participant's spouse
consents in writing to the election; (b) the election designates a specific
Beneficiary, including any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal consent (or the spouse
expressly permits designations by the Participant without any further spousal
consent); (c) the spouse's consent
XI-8
<PAGE> 57
acknowledges the effect of the election; and (d) the spouse's consent is
witnessed by a plan representative or notary public. Additionally, a
Participant's waiver of the qualified joint and survivor annuity shall not be
effective unless the election designates a form of benefit payment which may
not be changed without spousal consent (or the spouse expressly permits
designations by the Participant without any further spousal consent). If it is
established to the satisfaction of a plan representative that there is no
spouse or that the spouse cannot be located, a waiver will be deemed a
qualified election.
Any consent by a spouse obtained under this provision
(or establishment that the consent of a spouse may not be obtained) shall be
effective only with respect to such spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such spouse must acknowledge that the spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit where applicable, and
that the spouse voluntarily elects to relinquish either or both of such
rights. A revocation of a prior waiver may be made by a Participant without
the consent of the spouse at any time before the commencement of benefits. The
number of revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as provided
in section 5 below.
(4) Qualified joint and survivor annuity: An
annuity for the life of the Participant with a survivor annuity for the life of
the spouse which is not less than 50 percent and not more than 100 percent of
the amount of the annuity which is payable during the joint lives of the
Participant and his spouse and which is the amount of benefit which can be
purchased with the Participant's vested account balance. The percentage of the
survivor annuity under the Plan shall be 50 percent which shall be considered
the designated qualified joint and survivor annuity and automatic form of
payment for purposes of this Plan. However, the Participant may elect to
receive a smaller annuity benefit with continuation of payments to the spouse
at a rate of seventy-five percent (75%) or one hundred percent (100%) of the
rate payable to a Participant during his lifetime, which alternative joint and
survivor annuity shall be equal in value to the automatic joint and 50%
survivor annuity.
(5) Spouse (surviving spouse): The spouse or
surviving spouse of the Participant; provided that a former spouse will be
treated as the spouse or surviving spouse and a current spouse will not be
treated as the spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
(6) Annuity starting date: The first day of the
first period for which an amount is paid as an annuity or any other form.
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(7) Vested account balance: The aggregate value
of the Participant's vested account balance derived from employer and employee
contributions (including rollovers), whether vested before or upon death,
including the proceeds of insurance contracts, if any, on the Participant's
life. The provisions of this article shall apply to a Participant who is
vested in amounts attributable to employer contributions, employee
contributions (or both) at the time of death or distribution.
(e) Notice Requirements.
(1) In the case of a qualified joint and survivor
annuity, the Plan Administrator shall, no less than 30 days and no more than 90
days prior to the annuity starting date, provide each Participant within a
reasonable period prior to the commencement of benefits a written explanation
of: (i) the terms and conditions of qualified joint and survivor annuity; (ii)
the Participant's right to make and the effect of an election to waive the
qualified joint and survivor annuity form of benefit; (iii) the rights of a
Participant's spouse; and (iv) the right to make, and the effect of, a
revocation of a previous election to waive the qualified joint and survivor
annuity.
(2) In the case of a qualified pre-retirement
survivor annuity as described in subparagraph 11.8(c) of this section, the Plan
Administrator shall provide each Participant, within the applicable period for
each Participant, a written explanation of the qualified pre-retirement
survivor annuity in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of section 11.8(e)(1)
applicable to a qualified joint and survivor annuity. The applicable period
for a Participant is whichever of the following periods ends last: (i) the
period beginning with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35; (ii) a reasonable period ending
after the individual becomes a Participant; (iii) a reasonable period ending
after section 11.8(e)(3) ceases to apply to the Participant; (iv) a reasonable
period ending after this article first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after separation from service in the case of a Participant who
separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events described in (ii), (iii)
and (iv) is the end of the two-year period beginning one year prior to the date
the applicable event occurs, and ending one year after that date. In the case
of a Participant who separates from service before the Plan Year in which age
35 is attained, notice shall be provided within the two-year period beginning
one year prior to separation and ending one year after separation. If such a
Participant thereafter returns to employment with the employer, the applicable
period for such Participant shall be redetermined.
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<PAGE> 59
(3) Notwithstanding the other requirements of
this section 11.8(e), the respective notices prescribed by this section need
not be given to a Participant if (1) the Plan "fully subsidizes" the costs of a
qualified joint and survivor annuity or qualified pre-retirement survivor
annuity, and (2) the Plan does not allow the Participant to waive the qualified
joint and survivor annuity or qualified preretirement survivor annuity and does
not allow a married Participant to designate a nonspouse Beneficiary. For
purposes of this section 11.8(e)(3), a plan fully subsidizes the costs of a
benefit if no increase in cost, or decrease in benefits to the Participant may
result from the Participant's failure to elect another benefit.
(f) Sections 11.8(b) and (c), concerning the requirement
to provide a qualified joint and survivor annuity and qualified preretirement
survivor annuity shall not apply if the following two conditions are met: (1)
the Participant cannot or does not elect payments in the form of a life
annuity, and (2) on the death of the Participant, the Participant's vested
account balance will be paid to the Participant's surviving spouse, but if
there is no surviving spouse, or if the surviving spouse has already consented
in a manner conforming to a qualified election, then to the Participant's
Designated Beneficiary. However, this section (f) shall not be operative with
respect to the Participant if it is determined that this Profit Sharing Plan is
a direct or indirect transferee of a Defined Benefit Plan, Money Purchase
Pension Plan (including a target benefit plan), stock bonus or Profit Sharing
Plan which would otherwise provide for a life annuity form of payment to the
Participant.
(g) Safe Harbor rules/stock ownership plan.
(1) This section 11.8 shall apply to
distributions under this plan, including any distribution, made on or after the
first day of the first Plan Year beginning after December 31, 1988, from or
under a separate account attributable solely to accumulated deductible employee
contributions, as defined in section 72(o)(5)(B) of the Code, and maintained on
behalf of a Participant in a money purchase pension plan (including a target
benefit plan) if the following conditions are satisfied: (i) the Participant
does not or cannot elect payments in the form of a life annuity; and (2) on the
death of a Participant, the Participant's vested account balance will be paid
to the Participant's surviving spouse, but if there is no surviving spouse, or
if the surviving spouse has consented in a manner conforming to a qualified
election, then to the Participant's Designated Beneficiary. The surviving
spouse may elect to have distribution of the vested account balance in a lump
sum commencing within the 90-day period following the date of the Participant's
death. The account balance shall be adjusted for gains or losses occurring
after the Participant's death in accordance with the provisions of the Plan
governing the adjustment of account balances for other types of distributions.
This section 11.8(g) shall not be operative with respect to a Participant in
this plan if the plan is a direct or indirect
XI-11
<PAGE> 60
transferee of a defined benefit plan, money purchase plan, a target benefit
plan, stock bonus, or profit sharing plan which is subject to the survivor
annuity requirements of section 401(a)(11) and section 417 of the Code. If
this section 11.8(g) is operative, then the provisions of this Article, other
than sections 11.8(f), (g) and (h), shall be inoperative.
(2) The Participant may waive the spousal death
benefit described in this section at any time provided that no such waiver
shall be effective unless it satisfies the conditions of section 11.8(d)(3)
(other than the notification requirement referred to therein) that would apply
to the Participant's waiver of the qualified preretirement survivor annuity.
(3) For purposes of this section (g), vested
account balances shall mean, in the case of a money purchase pension plan or a
target benefit plan, the Participant's separate account balances attributable
solely to accumulated deductible employee contributions within the meaning of
section 72(o)(5)(B) of the Code. In the case of a profit sharing plan, vested
account balance shall have the same meaning as provided in section 11.8(d)(7).
(h) Transitional Rules.
(1) Any living Participant not receiving benefits
on August 23, 1984, who would otherwise not receive the benefits prescribed by
the previous sections of this article, must be given the opportunity to elect
to have the prior sections of this article apply, if such participant is
credited with at least one Hour of Service under this Plan or a predecessor
plan in a Plan Year beginning on or after January 1, 1976, and such Participant
had at least 10 years of vesting service when he or she separated from service.
(2) Any living Participant not receiving benefits
on August 23, 1984, who was credited with at least one hour of service under
this Plan or a predecessor plan on or after September 2, 1974, and who is not
otherwise credited with any service in a Plan Year beginning on or after
January 1, 1976, must be given the opportunity to have his or her benefits paid
in accordance with section 11.8(h) of this article.
(3) The respective opportunities to elect (as
described in sections 11.8(h)(1) and 11.8(h)(2) above) must be afforded to the
appropriate Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said Participants.
(4) Any Participant who has elected pursuant to
section 11.8(h)(2) of this article and, any Participant who does not elect
under section 11.8(h)(1), or who meets the requirements of section 11.8(h)(1),
except that such Participant does not have at least 10 years of vesting service
when he or she separates from service, shall have his or her benefits
distributed in
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accordance with all of the following requirements if benefits would have been
payable in the form of a life annuity:
(a) Automatic joint and survivor
annuity. If benefits in the form of a life annuity becomes payable to a
married Participant who:
(i) begins to receive payments
under the Plan on or after normal retirement age; or
(ii) dies on or after normal
retirement age while still working for the employer; or
(iii) begins to receive payments on or
after the qualified early retirement age; or
(iv) separates from service on or
after attaining normal retirement age (or the qualified early retirement age)
and after satisfying the eligibility requirements for the payment of benefits
under the Plan and thereafter dies before beginning to receive such benefits;
then such benefits will be received under this Plan in the form of a qualified
joint and survivor annuity, unless the Participant has elected otherwise during
the election period. The election period must begin at least six months before
the Participant attains qualified early retirement age and end not more than 90
days before the commencement of benefits. Any election hereunder will be in
writing and may be changed by the Participant at any time.
(b) Election of early survivor annuity.
A Participant who is employed after attaining the qualified early retirement
age will be given the opportunity to elect, during the election period, to have
a survivor annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the payments which
would have been made to the spouse under the qualified joint and survivor
annuity if the Participant had retired on the day before his or her death. Any
election under this provision will be in writing and may be changed by the
Participant at any time. The election period begins on the later of (1) the
90th day before the Participant attains the qualified early retirement age, or
(2) the date on which participation begins, and ends on the date the
Participant terminates employment.
(c) For purposes of this section
11.8(h):
(i) Qualified early retirement
age is the latest of:
1) the earliest date, under the
Plan, on which the Participant may elect to receive retirement benefits,
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2) the first day of the 120th
month beginning before the Participant reaches normal retirement age, or
3) the date the Participant
begins participation.
(ii) Qualified joint and survivor
annuity is an annuity for the life of the Participant with a survivor annuity
for the life of the spouse as described in section 11.8(d)(4) of this Article.
11.9. Latest Date for Distribution of Benefits. Subject to section
11.14 of the Plan, unless the Participant otherwise elects a later date, the
payment of benefits to the Participant will begin no later than the 60th day
after the latest of the close of the Plan Year in which:
(a) The Participant attains the earlier of age 65 or the
Normal Retirement Age specified under this Plan;
(b) Occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) The Participant terminates his service with the
Employer.
Such election referred to above must be made by submitting to
the Plan Administrator a written statement signed by the Participant which
describes the benefit and the date on which the payment of such benefit shall
commence; provided, however, that no election shall be made if the exercise of
such election would cause benefits payable under this Plan with respect to such
participation in the event of death to be more than "incidental" within the
meaning of Paragraph (b)(1)(i) of Treasury Regulation 1.401-1 or any applicable
successor regulations.
11.10. Receipt of Acquittance. The Plan Administrator and/or the
Trustee may require the Participant or his legal representative or Beneficiary
to sign a receipt of acquittance as a condition of final payment of his Plan
Benefit, in full satisfaction of all claims against the Plan, the Trust, the
Trustee, the Plan Administrator, the former and present members of the
Committee, (if it were the Plan Administrator) and the Employer.
11.11. Required Beginning Date. The entire interest of a Participant
must be distributed or begin to be distributed no later than the Participant's
Required Beginning Date.
11.12. Mandatory Distribution Rules. All distributions required
under this article, shall be determined and made in accordance with the
proposed regulations under section 401(a)(9), including the minimum
distribution incidental benefit requirement of section 1.401(a)(9)-2 of the
proposed regulations.
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11.13. Distributions Under Domestic Relations Orders. Nothing
contained in this Plan prevents the Trustee, in accordance with the direction
of the Plan Administrator, from complying with the provisions of a qualified
domestic relations order (as defined in Code Section 414(p)). This Plan
specifically permits distribution to an alternate payee under a qualified
domestic relations order at any time, irrespective of whether the Participant
has attained his earliest retirement age (as defined under Code Section 414(p))
under the Plan. A distribution to an alternate payee prior to the
Participant's attainment of earliest retirement ages is available only if: (1)
the order specifies distribution at that time or permits an agreement between
the Plan and the alternate payee to authorize an earlier distribution; and (2)
if the present value of the alternate payee's benefits under the Plan exceeds
$3,500, and the order requires, the alternate payee consents to any
distribution occurring prior to the Participant's attainment of earliest
retirement age. Nothing in this section 11.14 permits a Participant a right to
receive distribution at a time otherwise not permitted under the Plan nor does
it permit the alternate payee to receive a form of payment not permitted under
the Plan.
The Plan Administrator must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator must determine the qualified
status of the order and must notify the Participant and each alternate payee,
in writing, of its determination. The Plan Administrator must provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its determination of
the qualified status of the domestic relations order, the Plan Administrator
must make a separate accounting of the amounts payable. If the Plan
Administrator determines the order is a qualified domestic relations order
within 18 months of the date amounts first are payable following receipt of the
order, the Plan Administrator will direct the Trustee to distribute the payable
amounts in accordance with the order. If the Plan Administrator does not make
its determination of the qualified status of the order within the 18 month
determination period, the Plan Administrator will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Plan
Administrator later determines the order is a qualified domestic relations
order.
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To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Plan Administrator may direct the
Trustee to invest any partitioned amount in a segregated subaccount or separate
account and to invest the account in Federally insured, interest-bearing
savings account(s) or time deposit(s) (or a combination of both), or in other
fixed income investments. A segregated subaccount remains a part of the Trust,
but it alone shares in any income it earns, and it alone bears any expense or
loss it incurs. The Trustee will make any payments or distributions required
under this Section 11.17 by separate benefit checks or other separate
distribution to the alternate payee(s).
11.14. Participant Withdrawals. No Participant Withdrawals shall be
permitted under this Plan.
11.15. Distributions of Qualifying Employer Securities. If the
account of a Participant contains Qualifying Employer Securities acquired after
December 31, 1986, then the following shall apply:
11.15.1. Such Participant may elect to receive a distribution
of such Participant's post-1986 Qualifying Employer Securities commencing not
later than one year after the close of the Plan Year (a) in which such
Participant separates from service by reason of attaining Normal Retirement
Age, death or Disability, or (b) which is the fifth Plan Year following the
Plan Year in which such Participant otherwise separates from service, except
that this (b) shall not apply if such Participant is re-employed before
distribution is required to begin under this section 11.15.1.
11.15.2. The provisions of section 11.15.1 shall not apply to
Financed Shares until the close of the Plan Year in which the Acquisition Loan
for such Financed Shares has been repaid in full.
11.15.3. Unless a Participant elects otherwise, a
distribution required under section 11.15.1 above shall be in substantially
equal periodic payments, payable not less frequently than annually, over a
period not longer than the greater of (a) 5 years, or (b) in the case of a
Participant whose account to the extent of post-1986 Qualifying Employer
Securities is in excess of $500,000.00, 5 years plus one additional year for
each $100,000.00 or fraction thereof by which such account exceeds $500,000.00.
The dollar amounts set forth in this section 11.15.3 shall be subject to
adjustment in accordance with adjustments published by the Internal Revenue
Service.
11.15.4. If the Articles of Incorporation of the Employer or
its Bylaws restricts ownership of substantially all outstanding securities of
the Employer to Employees or to a trust described in section 401(a) of the
Code, then notwithstanding anything to the contrary, all distributions under
this Plan shall be in cash.
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11.15.5. If section 11.15.4 above does not apply, then each
Participant or Beneficiary who is otherwise entitled to receive a distribution
from the Plan, may require the Plan to distribute such benefits in the forms of
Qualifying Employer Securities. Following a distribution of Qualifying
Employer Securities pursuant to this section 11.56.5, the Participant or
Beneficiary who received such securities may require the Employer to repurchase
such securities under a fair valuation formula determined by the Plan
Administrator. Effective for the Plan Year beginning January 1, 1991, for the
purposes of determining such value, such Qualifying Employer Securities shall
be valued as of the appraised value determined as of the annual Valuation Date
immediately preceding the delivery of written notice from such Participant or
Beneficiary under this section. Such right may be exercised by written notice
delivered to the Plan Administrator within 60 days after such distribution, or
if not exercised within such initial 60 day period, then within 60 days after
the end of the Plan Year in which such distribution was made. The amount to be
paid by the Employer under this section 11.15.5 shall be paid as follows:
11.15.5.1. If such securities were distributed in a
single tax year as part of a distribution of the entire credit balance of a
Participant's or Beneficiary's account, then payment may be made in
substantially equal annual installments commencing 30 days from the date of
exercise of such right, over a period not exceeding 5 years, with interest
payable at a reasonable rate (as determined by the Plan Administrator) on any
unpaid balance, with adequate security provided, and without penalty for any
prepayment of such installments.
11.15.5.2. If such distribution was part of a series
of periodic distributions to a Participant or Beneficiary, then payment shall
be made in lump sum within 30 days after exercise of such right.
11.15.6. In the case of Qualifying Employer Securities
acquired by use of an Acquisition Loan, the following shall apply:
11.15.6.1. Any rights under section 11.15.5 above
may be exercised by the recipient's donee, or by any person, estate or
distributee, to whom or which such securities pass by reason of the death of
the recipient.
11.15.6.2. Any rights under section 11.15.5 above
may be exercised at any time during the 15 month period beginning on the date
of distribution, by the holder of such rights notifying the Employer in writing
that such rights are being exercised.
11.15.7. The provisions of section 11.15.5 and 11.15.6 above
shall be non-terminable and shall remain in effect even if this Plan shall
cease to be an employee stock ownership plan within the meaning of section
4975(e)(7) of the Code.
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11.15.8. The Trustee may offer to purchase any Qualifying
Employer Securities which are not otherwise sold under section 11.15.5 above
from any former Participant or Beneficiary at any time in the future, at the
then fair market value.
11.15.9. Share certificates for Qualifying Employer
Securities may be endorsed with a restrictive legend as the Employer may
reasonably require to ensure compliance with applicable state or federal
securities laws.
XI-18
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ARTICLE 12.
ASSOCIATED COMPANIES
12.1. Definitions of Terms. As used in this Article:
12.1.1. "Associated Company" shall mean any related or
affiliated corporation which shall have been designated by the Board of
Directors as an Employing Company eligible to participate herein and which
shall have adopted this Plan and Trust by the execution of an Adoption
Agreement.
12.1.2. "Anniversary Date" shall mean the date specified in
the Adoption Agreement as to each Associated Company adopting this Plan.
12.1.3. "Effective Date" as to each Associated Company
adopting this Plan shall mean the date specified in its Adoption Agreement.
12.1.4. "Employer" shall mean any Associated Company which
shall have adopted this Plan on or after the Effective Date and becomes a party
to this Agreement with the approval of the Board of Directors of the adopting
Employer.
12.1.5. "Fiscal Year" of the Trust as to any Associated
Company shall mean the period specified in its Adoption Agreement.
12.2. Service with Associated Companies. In the event an Employee of
one Employer is transferred to another Employer, such transfer shall not be
deemed an interruption of his active continuous service if he enters the
employment of the other Employer immediately upon such transfer. Further, a
Participant hereunder who is so transferred from one Employer shall not be
divested of any of his rights hereunder, nor shall any additional benefits
accrue to his benefit as a result of such transfer; and, in addition, the
Participant's interest hereunder shall continue to vest in accordance with the
provisions of this Agreement. An Employee of one Employer shall be deemed to
be employed by the other Employer(s) if he was employed by any one of the other
Employers on the Effective Date hereof, or on the Effective Date of the
respective Employer's Adoption Agreement or any Anniversary Date hereafter.
12.3. Eligibility of Associated Companies. Participation in this
Plan and Trust Agreement is limited to those Associated Companies who shall
have adopted this Plan and Trust for the sole and exclusive benefit of their
respective Employees who shall become eligible to participate under the terms
and conditions set forth in such Employer's Adoption Agreement. Such
participation, however, shall be contingent upon obtaining a ruling from the
Internal Revenue Service to the effect that the Plan of such
XII-1
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Employer is a qualified plan under the provisions of the Code and the Act, as
amended.
12.4. Eligibility Requirements for Employee Participation. Those
Employees of any Associated Company adopting this Plan shall be eligible to
participate who shall have met the eligibility requirements specified in its
Adoption Agreement.
12.5. Employees Employed by Two or More Employers. In the event a
Participant hereunder is employed by two or more Employers, the benefits shall
be provided and the contributions shall be made by each Employer in the same
amounts and manner as if each were a part of a separate Trust; provided,
however, that the benefits to which the Employee is entitled may be funded, at
the discretion of the Plan Administrator, by one insurance contract which shall
be held by the Trustee as an undivided interest as related to each Employer and
the Trust created hereunder for the benefit of such Participant.
12.6. Employee Transferred from One Employer to Another Employer. In
the event an Employee, a Participant hereunder, is transferred from one
Employer to another Employer without a Break in Service, such transfer shall
not divest such Participant of any of his rights, benefits or privileges
hereunder nor shall such transfer add to or increase any such rights, benefits
or privileges.
12.7. Contributions of Each Employer. For the purposes of this Plan,
each Employer may make contributions to the Trustee.
12.8. Vesting of Interests. If the employment of any Participant
employed by an Associated Company is terminated for any cause other than death,
disability or normal retirement, the Participant shall have vested rights in
accordance with the following schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS VESTED PORTION
OF CREDITED SERVICE OF ACCRUED BENEFIT
------------------- ------------------
<S> <C>
Less than 5 years None
5 years or more 100%
</TABLE>
12.9. Years of Vesting Service. For the purpose of determining the
Years of Crediting Service in the Plan, as to any Employee transferred without
a Break in Service from one Employer to another Employer which is a party to
this Agreement, the years of participation in all such Plans shall be deemed
his "Years of Service" in the Plan of the Successor Employer.
XII-2
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ARTICLE 13.
ADMINISTRATION OF FUNDS
13.1. Investment of Assets. All contributions shall be paid over to
the Trustee and shall be invested by the Trustee in accordance with this Plan
and the Trust Agreement. It is intended that the Trust shall be primarily
invested in Qualifying Employer Securities, and the Trustee may, in the
Trustee's discretion, invest up to 100% of the Trust assets in such securities.
The Trustee may acquire such securities from shareholders of the Employer, from
other third parties, or from a direct issuance of shares by the Employer. All
purchases and sales of Qualifying Employer Securities shall be made by the
Trustee at the direction of the Plan Administrator.
13.2. Special ESOP Provisions. Notwithstanding anything to the
contrary in this Plan, the following shall apply:
13.2.1. The following additional definitions shall apply with
respect to this Plan:
13.2.1.1. "Qualified Election Period" shall mean the
six-Plan Year period beginning with the later of (a) the first Plan year in
which a Participant first became a Qualified Participant, or (b) the first Plan
Year beginning after December 31, 1986; provided, however, that the Plan
Administrator may elect to treat a Participant who became a Qualified
Participant in the 1987 Plan Year as having become a Qualified Participant in
the 1988 Plan Year.
13.2.1.2. "Qualified Participant" shall mean a
Participant who has attained age 55 and has completed at least 10 years of
participation in the Plan.
13.2.2. At the direction of the Plan Administrator, the
Trustee may use an Acquisition Loan to acquire Qualifying Employer Securities
or to repay a prior Acquisition Loan. An installment obligation incurred by
the Trust in connection with the acquisition of Qualifying Employer Securities
shall be an Acquisition Loan. An Acquisition Loan shall be for a specific
term, shall bear a reasonable rate of interest, and shall not be payable on
demand expect in the event of a default. An Acquisition Loan may be secured by
the Qualifying Employer Securities acquired with the proceeds thereof (the
"Financed Securities"). All Financed Securities shall initially be held in a
suspense account (the "Securities Suspense Account") and shall be allocated to
the Accounts of Participants as payments are made under the Acquisition Loan,
as provided below in this section. No other Plan assets may be pledged to
secure an Acquisition Loan. No holder of an Acquisition Loan shall have
recourse to any Plan assets other than the Financed Securities held under
pledge for such loan. Payment of principal or interest due on an
XIII-1
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Acquisition Loan shall be made only from (a) cash contributions made to the
Plan by the Employer for such purpose, (b) from net earnings on such Employer
Contributions, and (c) from cash dividends on the Financed Securities held
under such pledge.
13.2.3. Any pledge of Qualifying Employer Securities made in
connection with an Acquisition Loan shall provide for a release of such
securities. For each Plan Year, such release shall be equal to the product of
(a) the number of Financed Securities held in the Securities Suspense Account
prior the start of such Plan Year, multiplied times (b) a fraction, the
numerator of which is principal and interest paid under the Acquisition Loan in
such Plan Year, and the denominator of which is the total amount of principal
and interest remaining to be paid under the Acquisition Loan. If the interest
rate on the Acquisition Loan is a variable rate, then the denominator
calculation shall be made by assuming that the current interest rate shall
remain in effect for the remaining term of the Acquisition Loan. If the
requirements of Treasury Regulation 54.4975-7(b)(8) are satisfied, then such
fraction may be computed with reference only to principal payments in the
current and future Plan Years.
13.2.4. Each Qualified Participant may elect to direct the
investment of a portion of such Qualified Participant's Account that holds
Qualifying Employer Securities acquired by or contributed to the Trust after
December 31, 1986. Such election may be made within 90 days after the end of
each Plan Year falling within the Qualified Election Period. Such election may
be with respect to at least 25% of such Qualified Participant's Account holding
such post-1986 securities (to the extent that this exceeds any prior election
made under this section). In the last Plan Year of the Qualified Election
Period, such election may be made with respect to at least 50% of such
post-1986 securities, to the extent that this exceeds any previous election
under this section. Notwithstanding anything to the contrary, if the fair
market value of the Qualified Employer Securities allocated to the account of a
Qualified Participant is $500.00 or less as of the Valuation Date immediately
preceding the first day of any Qualified Election Period, then such Qualified
Participant shall not be entitled to an election under this section for that
period.
13.2.5. The Plan Administrator shall establish a
participant-directed account for each Qualified Participant who makes an
election under section 13.2.4 above within the Qualified Election Period. Each
Qualified Participant shall have the right to direct or earmark the investment
of all or part of the assets in such Qualified Participant's
participant-directed account. Each Qualified Participant with such an account
shall designate the name of the investment and state the portion of the account
to be so directed. Upon receipt of such notification, the Plan Administrator
shall have up to 90 days after the end of the applicable Qualified Election
Period. Any income and any increase or decrease in the value of any directed
investment
XIII-2
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shall be allocated to the corresponding account of the Qualified Participant
who selected such investment. The Trustee may deduct from a Qualified
Participant's directed account the unpaid Trustee fees assessed for maintaining
such directed account, if any, together with all unpaid costs and expenses paid
by the Trustee in connection with the investment of the assets in the directed
account if such fees, costs and expenses remain unpaid for 30 days. The
Trustee may deduct from the directed account such unpaid fees, costs and
expenses of the Trustee before making any distributions. If there is
insufficient cash in the directed account to pay the Trustee's unpaid fees,
costs and expenses, the Trustee may, notwithstanding anything in this Plan to
the contrary, withhold distribution until such fees, costs and expenses have
been paid in full. Each Qualified Participant's right to earmark investments
shall be absolute and shall not be subject to approval by the Plan
Administrator or by the Trustee; provided, however, that the Plan Administrator
shall have the right to refuse to make any investment which could, in the Plan
Administrator's discretion, disqualify the Plan or cause the income of the
Trust to be subject to income or excise taxes. Pursuant to section 404(c)(2)
of the Act, the Trustee and the Plan Administrator, when so directed by a
Qualified Participant, shall not be liable for any loss, or by reason of any
breach, which results from such Qualified Participant's exercise of his right
to direct the investment of such Qualified Participant's directed account.
13.2.6. If the Employer issues a class of securities which
are required to be registered under section 12 of the Securities Exchange Act
of 1934 (or would be so required except for an exemption under section
12(g)(2)(H) of such Act), then each Participant or Beneficiary shall have the
right to direct the Trustee how to vote the Qualifying Employer Securities
allocated to the account of such Participant or Beneficiary. If the Employer
has not issued a class of securities described in the previous sentence, then
the Participants or Beneficiaries shall still have the right to direct the
voting of such securities, subject to the following:
13.2.6.1. Such voting right direction shall be
limited to a corporate matter which involves the approval or disapproval of any
corporate merger, reorganization, consolidation, recapitalization, liquidation,
dissolution, sale of substantially all assets, or such other matter as may be
prescribed in regulations issued by the Secretary of the Treasury.
13.2.6.2. The Plan Administrator may instruct the
Trustee to vote the shares such that each Participant and each Beneficiary
shall be deemed to be entitled to only one vote, regardless of the number of
shares allocated to their account, and the actual vote of such shares shall be
in proportion to such deemed number of votes.
XIII-3
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13.2.6.3. If there are unallocated shares, then as
to any matter subject to a vote or written direction under this section 13.2.6,
the Trustee shall vote such unallocated shares in proportion to the number of
votes or other written directions timely received from the Participants and
Beneficiaries.
13.2.7. Except as provided in section 13.2.6 above, the
Trustee shall vote any Financed Shares held in the Securities Suspense Account
as directed by the Plan Administrator.
13.3. Valuations. The Fund shall be valued by the Trustee at fair
market value annually as of the close of business on the annual Valuation Date.
A similar valuation of the Fund may occur at the end of any calendar month upon
direction of the Plan Administrator. Any Qualified Employer Securities held by
the Trust shall be appraised as of each Valuation Date by an appraiser selected
by the Plan Administrator meeting requirements similar to those imposed on
appraisers under section 170(a)(1) of the Code. Notwithstanding anything to
the contrary in this section, Qualifying Employer Securities shall be valued as
of the Friday closest to January 31 of each Plan Year, commencing with the
February 1, 1991 valuation for the Plan Year beginning on January 1, 1991.
13.4. Crediting of Contributions. Any contributions made with
respect to any Plan Year (or Fiscal Year ending during a Plan Year) by the
Employer after the end of the Plan Year or later shall be deemed to have been
credited immediately after the valuation occurring at the end of the Plan Year
with respect to which such contribution was made or during which such Fiscal
Year ended.
13.5. Crediting of Investment Results. Investment results shall be
credited as follows:
13.5.1. Increases in cash surrender values of contracts and
dividends payable with respect to contracts shall be allocated directly to the
Accounts of the Participants for whose benefit the respective contracts are
maintained.
13.5.2. To the extent that the Trustee maintains
participant-directed accounts on behalf of any Participant or Beneficiary,
there shall be credited to the Account of such Participant or Beneficiary all
earnings and realized or unrealized gains generated by that segregated account
since the immediately preceding Valuation Date reduced by losses experienced
(whether or not realized), and there shall be debited from such Account all
identifiable separate expenses incurred in the operation and maintenance of
such Account.
13.5.3. Any stock dividends received on Qualifying Employer
Securities shall be allocated to the account of each Participant to which such
securities were allocated. Cash dividends on such securities shall be applied
as follows:
XIII-4
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13.5.3.1. Dividends received on Financed Shares
shall be applied to make payments due under the Acquisition Loan for such
Financed Shares. Any cash dividends received in excess of such payment amount
shall be allocated in the same manner as other general plan earnings under this
section and shall be distributed to the Participants within 90 days after the
end of the Plan Year in which received, to the extent of the nonforfeitable
vested interest of such Participants determined under Article 8 as of the close
of the Plan Year.
13.5.3.2. Any cash dividends received on Qualifying
Employer Securities which are allocated to an account of a Participant shall be
allocated to such account and shall be distributed to the Participants within
90 days after the end of the Plan Year in which received, to the extent of the
nonforfeitable vested interest of such Participants determined under Article 8
as of the close of the Plan Year.
13.5.4. Except as provided above in this section, as of any
Valuation Date, the earnings and realized or unrealized gains of the Trust Fund
attributable to investment of Fund assets, reduced by losses experienced
(whether or not realized) and expenses incurred since the preceding Valuation
Date, shall be credited to the Accounts of the Participants and Beneficiaries
who had unpaid balances in their Accounts as of such Valuation Date in
proportion to the balances in such Accounts as of the prior Valuation Date,
after reducing such prior Valuation Date balances by the amounts withdrawn by
or distributed to the Participant or Beneficiary since such Valuation Date, if
any. For the purposes of this paragraph, the balance in any Participant's or
Beneficiary's account shall not include values contained in Contracts.
13.5.5. The Plan Administrator shall, in a uniform and
non-discriminatory manner, allocate earnings or losses and realized or
unrealized gains or losses based on proration in time or such other method
which shall reasonably produce an equitable result when trust funds are
transferred to or from the general Trust Fund during a Plan Year to or from
segregated accounts.
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ARTICLE 14.
ALLOCATION OF AUTHORITY AND RESPONSIBILITIES
14.1. Authority and Responsibilities of Employer. The Employer, as
Plan sponsor, shall serve as a "Named Fiduciary" having the following (and only
the following) authority and responsibilities:
(a) To establish and communicate to the Trustee a funding
policy for the Plan;
(b) To appoint the Trustee and the Plan Administrator and
to monitor each of their performances;
(c) To appoint an investment manager (or to refrain from
such appointment), to monitor the performance of the investment manager so
appointed and to terminate such appointment. More than one investment manager
may be appointed and in office at any time pursuant hereto;
(d) To communicate such information to the Plan
Administrator and to the Trustee as each needs for the proper performance of
its duties; and
(e) To provide channels and mechanisms through which the
Plan Administrator and/or the Trustee can communicate with Participants and
their Beneficiaries.
In addition, the Employer shall perform such duties as are
imposed by law or by regulation and shall serve as Plan Administrator in the
absence of an appointed Plan Administrator.
14.2. Authority and Responsibilities of the Plan Administrator. The
Plan Administrator shall have authority and responsibilities imposed by Article
16 hereof. With respect to the said authority and responsibilities, the Plan
Administrator shall be a "Named Fiduciary," and as such, shall have no
authority or responsibilities other than as granted in this Plan, or as imposed
as a matter of law.
14.3. Authority and Responsibilities of the Trustee. The Trustee
shall be the "Named Fiduciary" with respect to investment of Trust Fund assets
and shall have the powers and duties set forth in the Trust Agreement.
14.4. Limitations on Obligations of Named Fiduciaries. No Named
Fiduciary shall have authority or responsibility to deal with matters other
than as delegated to it under this Plan, under the Trust Agreement or by
operation of law. A Named Fiduciary shall not in any event be liable for
breach of fiduciary responsibility or obligation by another fiduciary
(including Named Fiduciaries) if the responsibility or authority of the act or
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omission deemed to be a breach was not within the scope of the said Named
Fiduciary's authority or delegated responsibility.
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ARTICLE 15.
CLAIMS PROCEDURE
15.1. Applications for Benefits. All applications for benefits shall
be submitted in writing on forms provided by the Plan Administrator. Such
application shall include all information and exhibits deemed necessary by the
Plan Administrator to properly evaluate the merit of the claim for benefits and
to make such determinations as are necessary with respect thereto.
15.2. Appeals of Denied Claims for Benefits. In the event that any
claim for benefits is denied in whole or in part, the Participant or
Beneficiary whose claim for benefits has been so denied shall be notified of
such denial in writing by the Plan Administrator. The notice advising of the
denial shall specify the reason or reasons for denial, make specific reference
to pertinent Plan provisions, describe any additional material or information
necessary for the claimant to perfect the claim (explaining why such material
or information is needed), and shall advise the Participant or Beneficiary, as
the case may be, of the procedure for the appeal of such denial. All appeals
shall be made by the following procedure:
15.2.1. The Participant or Beneficiary whose claim has been
denied shall file with the Plan Administrator a notice of desire to appeal the
denial. Such notice shall be filed within 60 days of notification by the Plan
Administrator of claim denial, shall be made in writing, and shall set forth
all of the facts upon which the appeal is based. Appeals not timely filed
shall be barred.
15.2.2. The Plan Administrator shall, within 20 days of
receipt of the Participant's or Beneficiary's notice of appeal, establish a
hearing date on which the Participant or Beneficiary may make an oral
presentation to the Named Appeals Fiduciary in support of his appeal. The
Participant or Beneficiary shall be given not less than 10 days' notice of the
date set for the hearing.
15.2.3. The Named Appeals Fiduciary shall consider the merits
of the claimant's written and oral presentations, the merits of any facts or
evidence in support of the denial of benefits, and such other facts and
circumstances as the Named Appeals Fiduciary shall deem relevant. If the
claimant elects not to make an oral presentation, such election shall not be
deemed adverse to his or her interest, and the named Appeals Fiduciary shall
proceed as set forth below as though an oral presentation of the contents of
the claimant's written presentation had been made.
15.2.4. The Named Appeals Fiduciary shall render a
determination upon the appealed claim which determination shall be accompanied
by a written statement as to the reasons therefor.
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The determination so rendered by the Named Appeals Fiduciary shall be binding
upon all parties.
15.3. Appointment of the Named Appeals Fiduciary. The Named Appeals
Fiduciary shall be the person or persons named as such by the Board of
Directors, or if no such person or persons be named, then the person or persons
named by the Plan Administrator as the Named Appeals Fiduciary. Named Appeals
Fiduciaries may at any time be removed by the Board of Directors, and any Named
Fiduciary named by the Plan Administrator may be removed by him. All such
removals may be with or without cause and shall be effective on the date stated
in the notice of removal. The Named Appeals Fiduciary, if there be more than
one determining the merits of any appeal, shall act by a majority vote on each
matter coming before it. The Named Appeals Fiduciary shall be a "Named
Fiduciary" within the meaning of the Act, and, unless appointed to other
fiduciary responsibilities, shall have no authority, responsibility or
liability with respect to any matter other than the proper discharge of the
functions of the Named Appeals Fiduciary as set forth herein.
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ARTICLE 16.
THE PLAN ADMINISTRATOR
16.1. Administration by Plan Administrator. This Plan shall be
administered by the Plan Administrator. The Plan Administrator shall be a
committee appointed by the Board of Directors of the Employer. The Committee
shall consist of three members. Each such member of the Committee so appointed
shall hold his office until resignation, death, or removal by the Board of
Directors of the Company which appointed said member. A member of the
Committee may be removed at any time by the Board of Directors of the Company
with or without cause. Notwithstanding anything in Article 16 to the contrary,
the Committee, in addition to the powers and duties as specified in this
Article 16, shall have the following responsibilities:
16.1.1. The Committee may appoint a Chairman and/or Secretary
to conduct the meetings and keep a record of its proceedings. The Committee
may designate one of its members or any other person to transmit decisions,
instructions, consents, or directions to the Trustee, all of which shall be in
writing, or to other interested parties, or to perform ministerial acts. The
Committee may make rules, regulations, and Bylaws for the administration of the
Plan not inconsistent with this Agreement. The Trustee may rely on the latest
certification of the membership of the Committee for the purpose of
transmitting such decisions, instructions, consents, or directions. Two
members of the Committee shall constitute a quorum, and any action by two
members present shall constitute the action of the Committee.
16.1.2. Any action required or permitted to be taken by the
Committee may be taken without a meeting if all members of the Committee shall
individually or collectively consent in writing to such action.
16.1.3. The Committee may adopt such rules not inconsistent
with the Plan, as it deems necessary, desirable or appropriate. All rules and
decisions of the Committee shall be uniformly and consistently applied to all
Participants in similar circumstances. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Participant or Beneficiary, the Employer, the legal counsel of the
Employer, or the Trustee.
16.1.4. The Committee may use the facilities of any Employer
in discharging its duties and obligations hereunder.
16.1.5. The Committee shall have no power to add to, subtract
from, or modify any of the terms of the Plan, or to change or add to any
benefits provided by the Plan, or to waive or fail to apply any requirements of
eligibility for a benefit under the Plan.
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16.2. Control of Plan by Plan Administrator. The Plan Administrator
shall have complete control of the administration of the Plan herein embodied,
with all powers necessary to enable it to carry out its duties properly in
that respect. Not in limitation, but in amplification of the foregoing, the
Plan Administrator shall have the discretionary authority and power to
determine eligibility for benefits, to construe the Plan, to determine all
questions that shall arise thereunder, and shall also have all the powers
elsewhere in this instrument conferred upon it. It shall have discretionary
authority to decide all questions relating to the eligibility of Employees to
participate in the benefits of this Plan and all questions as to vesting of
Participants' accounts and payment of benefits to Participants or their
Beneficiaries. It shall be responsible for the administration and accounting
of Participants' Accounts. All disbursements by the Trustee, except for the
ordinary expenses of administration of the Trust, shall be made upon, and in
accordance with, the written instructions of the Plan Administrator. The
decisions of the Plan Administrator upon all matters within the scope of its
authority shall be conclusive and binding upon all persons interested in this
Plan.
16.3. Authority and Responsibility of the Plan Administrator. The
Plan Administrator shall have the following duties and responsibilities:
(a) To maintain and retain records relating to Plan
Participants, former Participants and each of their Beneficiaries;
(b) To prepare and furnish to Participants all
information required under federal law or provisions of this Plan to be
furnished to them;
(c) To prepare and furnish to the Trustee sufficient
employee data and the amount of contributions received from all sources so that
the Trustee may maintain separate Accounts for Participants and make required
payments of benefits;
(d) To prepare and file or publish with the Secretary of
Labor, the Secretary of the Treasury, their delegates and all other appropriate
government officials all reports and other information required under law to be
so filed or published;
(e) To provide direction to the Trustee with respect to
the purchase of life insurance, methods of benefit payment, valuations at dates
other than Annual Valuation Dates and on all other matters where called for in
the Plan or requested by the Trustee;
(f) To provide direction to the Trustee regarding
investment of the Trust Fund pursuant to section 16.8;
(g) To construe the provisions of the Plan, to correct
defects therein and to supply omissions thereto;
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(h) To engage assistants and professional advisors;
(i) To arrange for bonding; and
(j) To provide procedures for determination of claims for
benefits,
all as further set forth herein.
16.4. Reporting and Disclosure. The Plan Administrator shall keep
all individual and group records relating to Plan Participants, former
Participants and Beneficiaries, and all other records necessary for the proper
operation of the Plan. Such records shall be made available to each
Participant and Beneficiary for examination during business hours except that a
Participant or Beneficiary shall examine only such records as pertain
exclusively to the examining Participant or Beneficiary and the Plan and Trust
Agreement. The Plan Administrator shall prepare and shall file as required by
law or regulation all reports, forms, documents and other items required by the
Act and/or the Code, and every other relevant statute, each as amended, and all
regulations thereunder. This provision shall not be construed as imposing upon
the Plan Administrator the responsibility or authority for the preparation,
preservation, publication or filing of any document required to be prepared,
preserved or filed by the Trustee or by any other Named Fiduciary to whom such
responsibilities are delegated by law or by this Plan.
16.5. Construction of the Plan. The Plan Administrator shall take
such steps as are considered necessary and appropriate to remedy any inequity
that results from incorrect information received or communicated in good faith
or as the consequence of an administrative error. The Plan Administrator shall
interpret the Plan and shall determine the questions arising in the
administration, interpretation and application of the Plan. It shall endeavor
to act, whether by general rules or by particular decisions, so as not to
discriminate in favor of or against any person and so as to treat all persons
in similar circumstances uniformly. The Plan Administrator shall correct any
defect, reconcile any inconsistency and supply any omission with respect to
this Plan.
16.6. Engagement of Assistants and Advisors. The Plan Administrator
shall have the right to hire, at the expense of the Employer, such professional
assistants and consultants as it, in its sole discretion, deems necessary or
advisable, including, but not limited to:
(a) Investment managers and/or advisors;
(b) Accountants;
(c) Actuaries;
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(d) Attorneys;
(e) Consultants;
(f) Clerical and office personnel; and
(g) Medical practitioners.
To the extent that the costs for such assistants and advisors are not paid by
the Employer, they shall be paid from the Trust Fund as an expense of the Fund
at the direction of the Plan Administrator.
16.7. Investment of the Trust Fund. The Plan Administrator should
adopt an investment philosophy and should communicate same to the Trustee, or
to such other advisors who may be in charge of investment selection. In
discharging this duty, the Plan Administrator shall act solely in the interest
of the Participants and their Beneficiaries, and for the exclusive purpose of
providing benefits to such Participants and Beneficiaries and defraying
reasonable expenses of administering the Plan and Trust, by diversifying the
investment of the Plan so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so, with care, skill,
prudence and diligence under the circumstances then prevailing, that a prudent
man acting in a like capacity and familiar with such matters and with similar
investment philosophy, would use in the conduct of an enterprise of like
character and with like aims, and in accordance with the documents and
instructions governing this Plan and Trust insofar as such documents and
instructions are consistent with the Act. In discharging this duty, the Plan
Administrator should consider the overall make-up of the Trust Fund so that
some percentage of the Trust Fund may be in speculative or illiquid investments
so long as these investments, when considered in relation to the total Trust
Fund, do not make the Trust Fund imprudently invested.
16.8. Directed Investments by Plan Administrator. The Trustee shall
be subject to the directions of the Plan Administrator with respect to
investment and reinvestment of Trust Fund assets; provided, however, that such
directions are made in accordance with the terms of this Plan and are not
contrary to the Act. To the extent the authority under this section is used,
the Trustee shall not be liable for following such directions, as provided in
section 405(b)(3)(B) of the Act.
16.9. Prohibited Transactions. Notwithstanding anything to the
contrary herein contained, the Plan Administrator shall have no authority to
direct the Trustee to engage in the prohibited transactions set forth in
sections 406 and 407 of the Act and section 4975 of the Code, as added by
section 2003(a) of said Act.
16.10. Investment in Savings Accounts and Trust Funds. Pursuant to
section 408(b)(4) of the Act and section 4975(d)(4)
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of the Code, as added by section 2003(a) of the Act, the Plan Administrator
shall have the power to instruct the Trustee to invest all or part of the Plan
assets in deposits which bear a reasonable interest rate in a bank or similar
financial institution supervised by the United States or a state, even though
such bank or other institution is a fiduciary of the Plan. Furthermore,
pursuant to section 408(b)(8) of the Act and section 4975(d)(8) of the Code,
the Plan Administrator may expressly permit a transaction between the Plan and
a common or collective Trust Fund or pooled investment fund maintained by a
party in interest and/or a disqualified person which is a bank or trust company
supervised by a state or federal agency if such transaction is a sale or
purchase of an interest in the Fund and the bank or trust company receives no
more than reasonable compensation.
16.11. Disqualified Persons. Pursuant to section 411 of the Act, no
person shall serve or be permitted to act on behalf of the Plan Administrator,
or serve as a Named Fiduciary, officer, Trustee, custodian, counsel, agent or
Employee of the Plan, or as a consultant to the Plan, if such person has been
convicted of, or has been imprisoned as a result of his conviction of, any of
the offenses enumerated in said section.
16.12. Bonding. The Plan Administrator shall arrange for such
bonding as is required by law, but no bonding in excess of the amount required
by law shall be considered required by this Plan.
16.13. Indemnification of the Plan Administrator. Each person who
acts within the scope of his duties on behalf of the Plan Administrator shall
be indemnified by the Employer against expenses (other than amounts paid in
settlement to which the Employer does not consent) reasonably incurred by him
in connection with any action to which he may be a party by reason of his
service on behalf of the Plan Administrator except in relation to matters as to
which he shall be adjudged in such action to be personally guilty of negligence
or willful misconduct in the performance of his duties. The foregoing right to
indemnification shall be in addition to such other rights as such person may
enjoy as a matter of law or by reason of insurance coverage of any kind.
Rights granted hereunder shall be in addition to and not in lieu of any rights
to indemnification to which such person may be entitled pursuant to the bylaws
of the Employer or as a matter of law. Service on behalf of the Plan
Administrator shall be deemed in partial fulfillment of such person's function
as an Employee, officer and/or director of the Employer, if he serves in such
other capacity as well.
16.14. Minutes of the Plan Administrator. The Plan Administrator
shall keep minutes of its meetings.
16.15. Compensation of the Plan Administrator. The Plan
Administrator shall not receive Compensation for the administration of this
Plan.
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ARTICLE 17.
AMENDMENT, TERMINATION, MERGER AND CONSOLIDATION OF THE PLAN
17.1. Amendment. The provisions of this Plan may be amended at any
time and from time to time by the Employer; provided, however, that:
(a) No Amendment shall increase the duties or liabilities
of the Plan Administrator or of the Trustee without the consent of such party:
(b) No Amendment shall deprive any Participant or
Beneficiary of a deceased Participant of any of the benefits to which he is
entitled under this Plan with respect to contributions previously made, nor
shall any Amendment decrease the balance in any Participant's Account;
(c) No Amendment shall provide for the use of funds or
assets held to provide benefits under this Plan other than for the benefit of
Employees and their Beneficiaries or provide that funds may revert to the
Employer;
Each Amendment shall be approved by the Employer by
resolution. Notwithstanding the foregoing, any Amendment necessary to
initially qualify this Plan under section 401(a) of the Code may be made
without the further approval of the Employer if signed by the proper officer(s)
of the Employer.
17.2. Plan Termination.
(a) Right Reserved. While it is the Employer's intention
to continue the Plan indefinitely in operation, the right is, nevertheless,
reserved to terminate the Plan in whole or in part. Termination of the Plan
shall result in full and immediate vesting in each Participant of the entire
amount standing to his credit in his Account, including his Employer
Contribution Account, and there shall not thereafter be any Forfeitures with
respect to any Participant for any reason. Plan termination shall be effective
as of the date specified by resolution of the Board of Directors. In addition,
to the extent there is a partial termination, as such term is defined for
purposes of section 411(d)(3) of the Code, the Employer Contribution Accounts
of all Participants at the date of such partial termination shall become fully
vested and non-forfeitable.
(b) Effect on Retired Persons, etc. Termination of the
Plan shall have no effect upon payment of installments and benefits to former
Participants, their Beneficiaries and their estates, whose benefit payments
commenced prior to Plan termination. The Trustee shall retain sufficient
assets to complete any such payments, and shall have the right, upon direction
by the Employer, to purchase annuity contracts to assure the completion
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of such payments or to pay the value of the remaining payments in a lump sum
distribution.
(c) Effect on Remaining Participants, etc. The Employer
shall instruct the Trustee either (1) to continue to manage and administer the
assets of the Trust for the benefit of the Participants and their Beneficiaries
pursuant to the terms and provisions of the Trust Agreement, or (2) to pay over
to each Participant (and vested former Participant) the value of his vested
interest, and to thereupon dissolve the Trust.
17.3. Permanent Discontinuance of Employer Contributions. While it
is the Employer's intention to make substantial and recurrent contributions to
the Trust Fund pursuant to the pro visions of this Plan, the right is
nevertheless reserved to permanently discontinue Employer contributions at any
time. Such permanent discontinuance shall be established by resolution of the
Board of Directors and shall have the effect of a termination of the Plan,
resulting in full and immediate vesting in each Participant of the entire
amount standing to his credit in his Account as of the first day of the Plan
Year following the last Plan Year for which a contribution was made, including
his Employer Contribution Account, except that the Trustee shall not have
authority to dissolve the Trust Fund except upon adoption of a further
resolution by the Board of Directors to the effect that the Plan is terminated
and, upon receipt of instructions from the Employer, to dissolve the Trust Fund
pursuant to section 15.2(c) hereof.
17.4. Suspension of Employer Contributions. The Employer shall have
the right at any time, and from time to time, to suspend Employer contributions
to the Trust Fund pursuant to this Plan. Such suspension shall have no effect
on the operation of the Plan except as set forth below:
(a) If the Board of Directors determines by resolution
that such suspension shall be permanent, a permanent discontinuance of
contributions will be deemed to have occurred as of the date of such resolution
or such earlier date as is therein specified.
(b) If such suspension becomes a plan termination, a
permanent discontinuance of contributions will be imputed. In such case, the
permanent discontinuance shall be deemed to have occurred on the earlier of:
(1) The date specified by resolution of the Board
of Directors or established as a matter of equity by the Plan Administrator, or
(2) The last day of the Plan Year next following
the last Plan Year in which there was a substantial contribution.
17.5. Mergers and Consolidations of Plans. In the event of any
merger or consolidation with, or transfer of assets or
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liabilities to, any other plan, each Participant in the event of termination
shall have a benefit in the surviving or transferee plan (determined as if such
plan were then terminated immediately after such merger, etc.) that is equal to
or greater than the benefit he would have been entitled to receive immediately
before such merger, etc., in the Plan in which he was then a Participant (had
such Plan been terminated at that time). For the purposes hereof, former
Participants and Beneficiaries shall be considered Participants.
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ARTICLE 18.
MISCELLANEOUS PROVISIONS
18.1 Non-Alienation of Benefits.
(a) General. Except as provided in paragraph (b) of this
section 18.1, none of the payments, benefits or rights of any Participant or
Beneficiary shall be subject to any claim of any creditor, and, in particular,
to the fullest extent permitted by law, all such payments, benefits and rights
shall be free from attachment, garnishment, trustee's process, or any other
legal or equitable process available to any creditor of such Participant or
Beneficiary. Except as provided in paragraph (b) of this section 18.1, no
Participant or Beneficiary shall have the right to alienate, anticipate,
commute, pledge, encumber or assign any of the benefits or payments which he
may expect to receive, contingently or otherwise under this Plan, except the
right to designate a Beneficiary or Beneficiaries as hereinbefore provided.
(b) Exceptions. This provision shall not apply to a
"qualified domestic relations order" defined in Code section 414(p), and those
other domestic relations orders permitted to be so treated by the Administrator
under the provisions of the Retirement Equity Act of 1984.
This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any provision of
this Plan or the corresponding Trust. At the time a distribution is to be made
to or for a Participant's or Beneficiary's benefit, such proportion of the
amount distributed as shall equal such indebtedness shall be paid by the
Trustee to the Trustee or the Plan Administrator, at the direction of the Plan
Administrator, to apply against or discharge such indebtedness. Prior to the
Trustee's making a payment, however, the Participant or Beneficiary must be
given written notice by the Plan Administrator that such indebtedness is to be
so paid in whole or part from his Participant's Accrued Benefit. If the
Participant or Beneficiary does not agree that the indebtedness is a valid
claim against his vested Participant's Accrued Benefit, he shall be entitled to
a review of the validity of the claim in accordance with procedures provided in
Article 15.
18.2. Procedures Upon Receipt of Domestic Relations Order. In case
the Plan receives a domestic relations order, the Plan Administrator shall
promptly notify the Participant and any other alternate payee of the receipt of
such order and the Plan's procedures for determining the qualified status of
domestic relations orders, and, within a reasonable period after receipt of
such order, the Plan Administrator shall determine whether such order is a
Qualified Domestic Relations Order and notify the Participant and each
alternate payee of such determination. The Plan Administrator shall establish
reasonable procedures (which
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need not be part of the Plan) to determine the qualified status of domestic
relations orders and to administer distributions under such qualified orders.
The term "alternate payee" for Section 18.2 and 18.3 means any spouse, former
spouse, child or other dependent of a Participant who is recognized by a
domestic relations order as having a right to receive all or a portion of the
Participant's benefits payable under the Plan.
18.3. Procedures for Period During Which Qualified Domestic Relations
Order Determination is Being Made. During any period in which the issue of
whether a domestic relations order is a Qualified Domestic Relations Order is
being determined (by the Plan Administrator, by a court of competent
jurisdiction, or otherwise), the Plan Administrator shall segregate in a
separate account in the Plan or in an escrow account the amounts which would
have been payable to the alternate payee during such period if the order had
been determined to be a Qualified Domestic Relations Order. If within 18
months the order (or modification thereof) is determined to be a Qualified
Domestic Relations Order, the Plan Administrator shall pay the segregated
amounts (plus any interest thereon) to the person or persons entitled thereto.
If within 18 months it is determined that the order is not a Qualified Domestic
Relations Order, or the issue as to whether such order is a Qualified Domestic
Relations Order is not resolved, the Plan Administrator shall pay the
segregated amounts (plus any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a Qualified Domestic Relations Order which is
made after the close of the 18-month period shall be applied prospectively
only.
18.4. No Contract of Employment. Neither the establishment of the
Plan, nor any modification thereof, nor the creation of any fund, trust or
account, nor the payment of any benefits shall be construed as giving any
Participant or Employee, or any person whomsoever, the right to be retained in
the service of the Employer, and all Participants and other Employees shall
remain subject to discharge to the same extent as if the Plan had never been
adopted.
18.5. Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provisions had not been included.
18.6. Insurance Companies. No insurance company which shall issue
any policy as provided for in this Plan shall be a party to this Plan or have
any responsibility for the validity of this Plan. The liability of any such
insurance company shall be only as provided in any policy which it may issue.
Any insurance company shall be fully protected from all liabilities in
accepting premium payments from the Trustee and in making payments to or on
direction of the Trustee, without liability as to the application of such
payments. Such insurance company
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shall be fully protected in dealing with the Trustee as the sole owner of
policies held under this Plan, and shall not be liable in assuming that the
Plan has not been amended or terminated until notice of any amendment or
termination of the Plan has been received by the insurance company at its Home
Office. No amendment of the Plan shall deprive the insurance company of any
protection except as to policies issued by it after receipt at its Home Office
of notice of the terms of such amendment. The insurance company shall be fully
protected in dealing with the Trustee according to the latest notification
received by it at its Home Office. The Plan Administrator shall furnish each
insurance company with the name(s) and address(es) of the Trustee and shall
furnish each insurance company with any changes in same.
18.7. Transfers to and from Other Qualified Plans. Notwithstanding
anything herein to the contrary, with the written consent of the Plan
Administrator, there may be transferred to the Trustee all or any assets held
on behalf of any other plan which satisfies the requirements of section 401 of
the Code and which is maintained for the benefit of any person who is or is
about to become a Participant in this Plan; provided that such assets and
earnings thereon shall be allocated to the Participant and shall be 100 percent
vested at all times and shall not be forfeitable for any cause. Further, the
Trustee shall, with the written consent of the Plan Administrator, transfer the
vested interest of any Participant whose employment with the Employer is
terminated, to any other Plan which satisfies the requirements of section 401
of the Code and in which such Participant is or is about to become a
Participant.
18.8. Separate Trust Agreement. The Employer shall establish a Trust
pursuant to which the Trustee shall hold, invest, administer and distribute the
Trust Fund and the income therefrom, in accordance with the provisions of the
separate Trust Agreement between the Employer and Trustee. The Trust Agreement
constitutes a part of the Plan, and its terms are incorporated into the Plan.
The Plan constitutes a part of the Trust Agreement, and its terms are
incorporated into the Trust Agreement.
18.9. Segregated Trusts.
(a) Any Employer may enter into more than one Trust Agreement
between the Employer and the Trustee or Trustees thereunder in order to provide
for the funding of the interests of one or more Employees or groups of
Employees who are Participants under this Plan. In such event, the separate
Trusts shall be administered and valued on a segregated basis and only the net
earnings and net losses resulting from the specific assets in which any such
separate Trust is invested shall be allocated to such Trust. Any such
segregated Trust shall not share in the allocations of net earnings or net
losses of any other Trust created hereunder. In addition, except as provided
in section 18.9(b), below, in the event any such separate Trust is created
hereunder to provide for the funding of the interests
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of any one or more Employees or groups of Employees who are Participants under
this Plan, any benefit provided hereunder to such Employees shall be payable
only from the separate Trust to the extent then funded, and not from any other
Trust created hereunder. Further, in the event any such Trust is created
hereunder to provide for the funding of the interests of any one or more
Employees or groups of Employees who are Participants under this Plan, if any
benefit provided hereunder is in the form of an annuity which is not provided
through the purchase and distribution of a contract for an annuity product from
an insurance company, any actuarial gains or losses resulting in that separate
Trust from the payment of such an annuity shall inure to the benefit or
detriment of the separate Trust, and not to the benefit or detriment of any
other Trust created hereunder.
(b) Notwithstanding any provision in the Plan or Trust to the
contrary, the assets of the separate Trust will be legally available to satisfy
the claims of and/or pay the benefits of any participant or beneficiary of the
Plan. However, it is intended that the assets of the separate Trust will not
be legally available or subject to attachment by third party creditors of the
other Trusts.
18.10. Heirs, Assigns and Personal Representatives. This Plan shall
be binding upon the heirs, executors, administrators, successors and assigns of
the parties, including each Participant and Beneficiary, present and future.
18.11. Headings and Captions. The headings and captions herein are
provided for reference and convenience only; shall not be considered part of
the Plan; and shall not be employed in the construction of the Plan.
18.12. Gender and Number. Except where otherwise clearly indicated
by context, the masculine and the neuter shall include the feminine and the
neuter, the singular shall include the plural, and vice versa.
18.13. Controlling Law. This Plan shall be construed and enforced
according to the laws of the state in which the Employer has its principal
place of business to the extent not pre-empted by federal law, which shall
otherwise control.
18.14. Title to Assets. No Participant or Beneficiary shall have any
right to, or interest in, any assets of the Trust Fund upon termination of his
employment or otherwise, except as provided from time to time under this Plan,
and then only to the extent of the benefits payable under the Plan to such
Participant or out of the assets of the Trust Fund. All payments of benefits
as provided for in this Plan shall be made from the assets of the Trust Fund,
and neither the Employer nor any other person shall be liable therefor in any
manner.
18.15. Payments to Minors, etc. Any benefit payable to or for the
benefit of a minor, an incompetent person or other person
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incapable of receiving therefor shall be deemed paid when paid to such person's
guardian or to the party providing for or reasonably appearing to provide for
the care of such person, and such payment shall fully discharge the Trustee,
the Plan Administrator, the Employer and all other parties with respect
thereto.
18.16. Benefits of Persons Who Cannot Be Located. Each Participant
and each designated Beneficiary must file with the Plan Administrator from time
to time, in writing, his post office address and each change of post office
address. If the Administrator is unable to ascertain the whereabouts of a
Participant or Beneficiary after having made a diligent, good faith effort, any
benefits otherwise payable to the Participant or Beneficiary will be treated as
a Forfeiture and processed in the same manner as a Forfeiture pursuant to the
Adoption Agreement (if no Forfeitures occur, such amount will reduce Employer
contributions to the Plan). If the Participant or Beneficiary is located
subsequent to his benefit being forfeited, such benefit will be restored if a
claim is made by the Participant or Beneficiary.
18.17. Mechanical Reproduction. Only one set of the pages
constituting this Plan has been executed and shall be deemed the original, even
though physically produced by the use of automatic printing or copying
machines, if such set bears the original signatures of the parties hereto.
18.18. Discrepancies. In the event any discrepancy or conflict in
interpretation occurs between the provisions of this Plan and the provisions of
the Adoption Agreement, the Adoption Agreement shall control.
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ARTICLE 19.
AFFILIATED SERVICE GROUPS
19.1. Definitions. For purposes of this Plan, the term "Affiliated
Service Group," in accordance with section 414(m) of the Code, means a group
consisting of a service organization (hereinafter in this section referred to
as the "first organization") and one or more of the following:
(a) any service organization which --
(1) is a shareholder or partner in the first
organization, and
(2) regularly performs services for the first
organization or is regularly associated with the first organization in
performing services for third persons, and
(b) any other organization if --
(1) a significant portion of the business of such
organization is the performance of services (for the first organization, for
organizations described in subparagraph (a) above, or for both) of a type
historically performed in such service field by employees, and
(2) 10 percent or more of the interests in such
organization is held by persons who are officers, highly compensated Employees,
or owners of the first organization or an organization described in
subparagraph (a) above.
For purposes of this section, the term "service
organization" means an organization, the principal business of which is the
performance of services.
Such organizations, if any, which constitute, with
the Employer hereunder, an Affiliated Service Group shall be specified in the
Adoption Agreement.
Wherever the word "Employer" appears in this Plan,
that word shall be interpreted to mean any member of such Affiliated Service
Group, together with any other organizations as may hereafter become members,
and all service with any member of the Affiliated Service Group shall be
treated as service with a single Employer.
19.2. Limitation on Benefits and Contributions. For purposes hereof,
all Defined Benefit Plans (whether or not terminated) of the Affiliated Service
Group shall be treated as one Defined Benefit Plan, and all Defined
Contribution Plans (whether or not terminated) of the Affiliated Service Group
shall be treated as one Defined Contribution Plan. A Participant's
Compensation shall, for purposes hereof, include the annual
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Compensation of the Participant from any employer which is a member of the
Affiliated Service Group. For purposes of this Article 5 of the Plan, all
benefits, annual additions and compensation from all members of the Affiliated
Service Group will be aggregated.
19.3. Multiple Integrated Plans of Members. The retirement plan of
each member of the Affiliated Service Group is designed so that there will be
no duplication of benefits. However, in the event that an Employee should
become eligible to participate in the retirement plans of more than one member
of the Affiliated Service Group, such plans will be amended, if applicable,
effective as of the date upon which such Employee becomes eligible to
participate in more than one plan, to comply with provisions of Proposed
Regulation 1.401(l)-4 or any subsequent applicable law or regulation, i.e.,
such plans will be appropriately modified so as to insure that the extent of
integration does not exceed 100 percent. Accordingly, the sum of the defined
benefit excess plan integration fraction, the defined benefit offset plan
integration fraction, and the defined contribution plan integration fraction
may not exceed one with respect to any employee.
19.4. Control. In the event that the provisions of this Article 19
conflict in any way with any other provisions of this Plan, this Article 19
shall control.
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ARTICLE 20.
ADDITIONAL REQUIREMENTS FOR TOP-HEAVY PLANS
20.1. Generally. If for any Plan Year beginning after December 31,
1983, the Plan is determined to be top-heavy, then additional requirements set
forth in this Article 20 shall apply. These additional requirements: provide
for more rapid vesting for Participants; provide a minimum Accrued Benefit or
minimum contribution for Participants; place additional restrictions on
distributions to Key Employees; and reduce the limits on contributions and
benefits.
20.2. Top-Heavy Determination: Aggregation of Related Employers.
All Employers which are members of a Controlled Group of Corporations (as
defined in Code section 414(b)); a group of trades or businesses which are
under common control (as defined in Code section 414(c)); or an Affiliated
Service Group (as defined in Code section 414(m) and any other entity required
to be aggregated with the Employer pursuant to section 414(o) and the
regulations thereunder) shall be treated as a single Employer for purposes of
applying the limitations of this Article 20.
20.3. Top-Heavy Determination: Key Employee. A Key Employee shall
be any Employee or former Employee (including any deceased Employee) who at any
time during the determination period was an officer of the Employer if such
individual's annual compensation exceeds 50 percent of the dollar limitation
under section 415(b)(1)(A) of the Code, an owner (or considered an owner under
section 318 of the Code) of one of the 10 largest interests in the Employer if
such individual's Compensation exceeds 100 percent of such dollar limitation
under Section 415(c)(1)(A) of the Code, a 5 percent owner of the Employer, or a
1 percent owner of the Employer who has an annual Compensation of more than
$150,000. Annual compensation means compensation as defined in section
415(c)(3) of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludible from the
Employee's gross income under section 125, section 402(a)(8), section 402(h) or
section 403(b) of the Code. The determination period is the Plan Year
containing the determination date and the four preceding Plan Years.
The determination of who is a Key Employee will be made in accordance
with section 416(i) of the Code and the regulations thereunder.
In general, an officer shall mean an administrative executive who is
in regular and continuing service. The term "officer" shall not include those
employed for a special or single transaction. An Employee who merely has the
title of an officer, but not the authority, shall not be considered an officer.
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There shall be a maximum number of officers considered Key Employees.
No more than the lesser of 50 Employees, or the greater of three Employees or
10 percent of all Employees, shall be treated as Key Employees by reason of
being officers. If this maximum limit on the number of officers is exceeded,
the officers who shall be Key Employees are those officers, selected from the
group of individuals who were officers in the current Plan Year or the four
preceding Plan Years, who had the largest annual Compensation while officers in
that five-year period.
An Employee who has some ownership interest shall be considered to be
one of the top 10 owners under (b) unless at least 10 other Employees own a
greater interest in the Employer than the Employee. However, an Employee shall
not be considered a top 10 owner for a Plan Year if the Employee earns less
than the maximum dollar limitation under Code section 415(c)(1)(A) as in effect
for the calendar year in which the Determination Date falls.
An Employee shall be considered to own more than a 5 percent interest
under (c) if he owns more than 5 percent of the corporation's outstanding stock
or stock possessing 5 percent of the total combined voting power of all stock
of the corporation. An Employee is also treated as owning stock owned by
certain members of his family or, in the case of any Employer which is not a
corporation, by partnerships, estates, trusts or corporations in which the
Employee has an interest, as provided in Code section 318. The same rules
shall apply to determine whether an Employee is a more than 1 percent owner
under (d). In the case of an Employer which is not a corporation, ownership
shall be determined in accordance with regulations to be issued by the
Secretary of the Treasury.
For purposes of determining 5 percent and 1 percent owners, each
Employer that would otherwise be aggregated under section 21.2 shall be treated
as a separate Employer. However, for purposes of determining whether an
Employee has Compensation of more than $150,000, Compensation from each entity
required to be aggregated by section 21.2 shall be taken into account.
"Compensation," for purposes of determining whether an Employee has
compensation of more than $150,000 shall mean compensation as defined for
testing the limits on contributions and benefits under Code section 415. To
determine whether a Self-Employed Individual who is a more than 1 percent owner
is a Key Employee, Compensation shall mean earned income from the trades or
businesses under which the Plan is maintained.
20.4. Top-Heavy Determination: Non-Key Employee. A non-Key Employee
shall be any Employee who is not a Key Employee.
20.5. Top-Heavy Determination: Disregarded Employee. If an Employee
ceases to be a Key Employee, his Accrued Benefit or Account shall be
disregarded for any Determination Date following the last Determination Date
for which he was a Key Employee. Thus, if an Employee is a Key Employee on any
date during the
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Plan Year in which he separates from the service of the Employer, his Accrued
Benefit or Account shall be taken into account as a Key Employee's, but only
with respect to the Determination Date within the Plan Year of separation or
the four following Plan Years. With respect to subsequent Plan Years, his
Accrued Benefit or Account shall be disregarded (unless the Employee returns to
service with the Employer as a Key Employee). In addition, the account balance
and Accrued Benefit of a Participant who has not received any Compensation from
any Employer maintaining the Plan at any time during the five-year period
ending on the Determination Date will be disregarded.
20.6. Top-Heavy Determination: Beneficiary. The term "Key Employee"
includes a deceased Employee as represented by his Beneficiary.
20.7. Top-Heavy Ratio.
(a) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension Plan) and the
Employer has not maintained any defined benefit plan which during the five year
period ending on the determination date(s) has or has had accrued benefits, the
top-heavy ratio for this plan alone or for the required or permissive
aggregation group as appropriate is a fraction, the numerator of which is the
sum of the account balances of all key employees as the determination date(s)
(including any part of any account balance distributed in the five year period
ending on the determination date(s)), and the denominator of which is the sum
of all account balances (including any part of any account balance distributed
in the five year period ending on the determinate date(s)), both computed in
accordance with section 416 of the Code and the regulations thereunder. Both
the numerator and denominator of the top-heavy ratio are increased to reflect
any contribution not actually made as of the determination date, but which is
required to be taken into account on that date under section 416 of the Code
and the regulations thereunder.
(b) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension Plan) and the
Employer maintains or has maintained one or more defined benefit plans which
during the five year period ending on the determination date(s) has or has had
any accrued benefits, the top-heavy ratio for any required or permissive
aggregation group as appropriate is a fraction, the numerator of which is the
sum of account balances under the aggregated defined contribution plan or plans
for all key employees, determined in accordance with (a) above, and the present
value of accrued benefits under the aggregated defined benefit plan or plans
for all key employees as of the determination date(s), and the denominator of
which is the sum of the account balances under the aggregated defined
contribution plan or plans for all Participants, determined in accordance with
(a) above, and the present value of accrued benefits under the defined benefit
plan or plans for all Participants as of the determination date(s), all
determined in
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accordance with section 416 of the Code and the regulations thereunder. The
accrued benefits under a defined benefit plan in both the numerator and
denominator of the top-heavy ratio are increased for any distribution of an
accrued benefit made in the five year period ending on the determination date.
(c) For purposes of (a) and (b) above, the value of account
balances and the present value of accrued benefits will be determined as of the
most recent valuation date that falls within or ends with the 12-month period
ending on the determination date, except as provided in section 416 of the Code
and the regulations thereunder for the first and second plan years of a defined
benefit plan. The account balances and accrued benefits of a Participant (1)
who is not a key employee but who was a key employee in a prior year, or (2)
who has not been credited with at least one Hour of Service with any Employer
maintaining the Plan at any time during the five year period ending on the
determination date will be disregarded. The calculation of the top-heavy
ratio, and the extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with section 416 of the Code and
the regulations thereunder. Deductible employee contributions will not be
taken into account for purposes of computing the top-heavy ratio. When
aggregating plans, the value of account balances and accrued benefits will be
calculated with reference to the determination dates that fall within the same
calendar year.
The accrued benefit of a Participant other than a key employee
shall be determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the employer, or
(b) if there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional rule of section
411(b)(1)(C) of the Code.
20.8. Top-Heavy Ratio: Aggregation Group. For purposes of
determining whether the Plan is part of a top-heavy group, the following
aggregation rules apply:
(a) Required Aggregation Group. All plans maintained by
an Employer in which a Key Employee participates shall be aggregated to
determine whether or not the plans, as a group, are top-heavy. Each other plan
of the Employer which enables any plan in which a Key Employee participates to
meet the requirements of Code section 401(a)(4) or 410 shall also be
aggregated.
(b) Permissive Aggregation Group. One or more plans,
which are not required to be aggregated, may be aggregated with each other or
with plans under (a) if such group continues to meet the requirements of Code
sections 401(a)(4) and 410 with such plans(s) being taken into account.
Collectively bargained plans that include a Key Employee shall
be included in a required aggregation group of that Employer. Collectively
bargained plans that do not include
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a Key Employee may be included in a permissive aggregation group. However, the
vesting rules under section 20.12; the minimum benefit and contribution
provisions under sections 20.14 to 20.15; and the provision limiting the amount
of includable compensation under section 20.18 shall not apply to a
collectively bargained plan whether or not it includes a Key Employee.
20.9. Top-Heavy Ratio: Top Heavy Group. An aggregation group shall
be a top-heavy group, as of the Determination Date, if the sum of:
(a) The aggregate of accounts of Key Employees under all
Defined Contribution Plans in such group (determination in accordance with
section 20.7(a)), and
(b) The present value of Accrued Benefits for Key
Employees under all Defined Benefit Plans in such group (determined in
accordance with section 20.7(b))
exceeds 60 percent of the same amounts determined for all Employees under all
plans included within the aggregation group.
If a required aggregation group is top-heavy, then each plan required
to be included within the group shall be top-heavy. If a permissive
aggregation group is top-heavy, only those plans which are part of a required
aggregation group shall be top-heavy. If the aggregation group is not a
top-heavy group, then no individual plan included in the group shall be
top-heavy, even though the plan standing alone would be top-heavy under section
20.7 or 20.8.
20.10. Top-Heavy Ratio: Distributions; Rollover Contributions.
Distributions made within the Plan Year which includes the Determination Date,
or within the four preceding Plan Years, shall be added to the present value of
Accrued Benefits or accounts in testing for top-heaviness, except to the extent
already included in the present value of the Accrued Benefit or accounts as of
the Determination Date. In the case of the distribution of an annuity contract
or a guaranteed annuity certificate from a group annuity contract, the amount
of such distribution shall be the current actuarial value of such contract or
certificate determined on the date of distribution. Distributions made prior
to the first Plan Year after December 31, 1983, shall be taken into account
under this rule.
In the case of rollovers and plan-to-plan transfers both initiated by
the Employee and made from the plan of one employer to the plan of another
Employer (i.e., unrelated):
(a) The Plan making the distribution counts the distribution, and
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(b) The Plan receiving the rollover distribution or
plan-to-plan transfer considers it part of the Accrued Benefit or Account, but
only if it was accepted prior to December 31, 1983.
In the case of rollovers and plan-to-plan transfers either not
initiated by the Employee or made to a plan of the same Employer (i.e.,
related):
(a) The Plan providing the rollover or plan-to-plan
transfer does not count the rollover as a distribution; and
(b) The Plan accepting the rollover counts the rollover
or plan-to-plan transfer in the present value of Accrued Benefits or accounts.
For purposes of determining the character of rollovers and
plan-to-plan transfers, the related employer rules of section 20.2 shall apply.
20.11. Top-Heavy Ratio: Determination Date.
(a) Whether a plan is top-heavy shall be determined on the
Determination Date. In the case of an employer who maintains a single plan,
the Determination Date shall be:
(1) For the first Plan Year, the last day of the
Plan Year; and
(2) For any other Plan Year, the last day of the
preceding Plan Year.
(b) In the case of an employer who maintains more than
one plan which is to be aggregated under section 20.8:
(1) The present value of Accrued Benefits or
Accounts (including distributions) shall be determined separately for each plan
as of its Determination Date;
(2) Then, the present values of the plans shall
be aggregated by adding the results of each plan as of its respective
Determination Date that falls within the same calendar year.
The Valuation Date shall be the same date as the
Determination Date.
(3) Present value shall be based only on the
following interest and mortality tables unless otherwise specified in the
Adoption Agreement or in the Defined Benefit Plan: Interest Rate - 5%,
Mortality Rate - 1971 IAM.
20.12. Top-Heavy Vesting. For any Plan Year in which this Plan is
top-heavy, the vesting schedule shown below in this section shall apply. The
minimum vesting schedule applies to all benefits within the meaning of section
411(a)(7) of the Code
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except those attributable to employee contributions, including benefits accrued
before the effective date of section 416 and benefits accrued before the Plan
became top-heavy. Further, no decrease in a Participant's nonforfeitable
percentage may occur in the event the Plan's status as top-heavy changes for
any Plan Year. However, this section does not apply to the account balances of
any Employee who does not have an Hour of Service after the Plan has initially
become top-heavy and such Employee's account balance attributable to Employer
contributions and forfeitures will be determined without regard to this
section. Such vesting schedule shall be as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS VESTED PORTION
OF CREDITED SERVICE OF ACCRUED BENEFIT
------------------- ------------------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
20.13. Minimum Benefits Under a Top-Heavy Plan. In the case of an
employer which maintains a single Plan, for any Plan Year for which the Plan is
top-heavy, each Participant and each other Employee specified in section 20.3
or 20.5 shall receive either a minimum contribution or minimum Accrued Benefit.
20.14. Minimum Benefit: Defined Benefit Plan. For any Plan Year for
which the Plan is top-heavy, a Participant's Employer-provided Accrued Benefit,
when expressed as an annual retirement benefit, calculated under the Adoption
Agreement shall, in no event, be less than the lesser of:
(a) 2 percent of the Participant's Average Compensation
for High Five Years multiplied by the number of Years of Service, or
(b) 20 percent of the Participant's Average Compensation
for High Five Years.
Any accruals of Employer-derived benefits, whether or not
attributable to years for which the Plan is top-heavy, may be used to satisfy
the defined benefit minimum.
A minimum benefit calculated under this section shall not
decrease in a later Plan Year, whether or not the Plan is top-heavy at that
time.
Average Compensation for High Five Years shall be the
Participant's Compensation from the Employer during the five consecutive years
during which the Participant had the highest aggregate Compensation from the
Employer. Compensation required to be taken into account for purposes of this
section is compensation within the meaning of Code section 415. Years for this
purpose shall have the same meaning as the annual period used to
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calculate Average Annual Compensation under the Plan's Normal Retirement
Benefit formula. Years taken into account shall be properly adjusted in
accordance with regulations issued by the Secretary of the Treasury for years
not included in a Year of Service. In addition, years ending in a Plan Year
beginning before January 1, 1984, and years beginning after the close of the
last year in which the Plan was top-heavy shall not be taken into account.
For purposes of determining the minimum benefits under
paragraph (a), all Years of Service during which a Participant is credited with
1,000 or more Hours of Service, and which are required to be taken into account
under the Plan for purposes of calculating vesting service under the Adoption
Agreement, shall be taken into account. However, Years of Service in which the
Plan was not top-heavy and Years of Service ending in a Plan Year beginning
before January 1, 1984, shall be excluded.
The Minimum Benefit is an annual retirement benefit which
shall be expressed as a single life annuity with no ancillary benefits
commencing at Normal Retirement Age or its equivalent. No adjustment may be
provided for pre-retirement ancillary benefits. A minimum benefit in a form
other than a single life annuity or commencing at a date other than Normal
Retirement Age must be the equivalent determined under the actuarial
assumptions set forth in the Adoption Agreement.
A Participant shall not fail to accrue a minimum benefit
merely because he:
(a) was not employed on a specified date;
(b) had Compensation of less than a stated amount; or
(c) declined to make mandatory employee contributions.
20.15. Minimum Contribution: Defined Contribution Plan. For any
Plan Year for which the Plan is top-heavy, Employer contributions and
reallocated Forfeitures (in the case of a Profit Sharing Plan) allocated to the
account of any Participant shall equal at least 3 percent of Compensation
within the meaning of Code section 415. However, a minimum percentage of
Compensation of less than 3 percent shall apply if such minimum percentage of
Compensation is equal to the largest percentage of Compensation provided on
behalf of any Key Employee. The largest percentage of Compensation for any Key
Employee shall be the largest ratio for any Key Employee of less than 3 percent
where the ratio equals the sum of employer contributions and reallocated
Forfeitures (if any) provided on behalf of a Key Employee for that Plan Year
divided by the Compensation for such Key Employee.
For the purpose of determining an employee contribution, amounts
contributed under a salary reduction agreement or an agreement to forego an
increase in salary in connection with a
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plan qualified under Code section 401(k) are taken into account.
A Participant shall not fail to receive a Minimum Contribution merely
because he:
(a) failed to be credited with 1,000 Hours of Service for
the Plan Year;
(b) declined to make mandatory employee contributions; or
(c) has been excluded from the Plan because such
individual's Compensation is less than a stated amount but must be considered a
Participant in order for the Plan to satisfy the coverage requirements of Code
sections 410(b) and 401(a)(5).
In addition, a Participant who was credited with 1,000 or more
Hours of Service in the Plan Year, but separated from service prior to the end
of the Plan Year, shall not be entitled to a Minimum Contribution.
20.16. Coordination Where Employer Has Two or More Plans. If the
Employer maintains one or more plans in addition to this Plan and one or more
Employees is covered by this Plan and at least one other plan, the minimum
benefit or minimum contribution for each such Employee shall be the lesser of
the defined benefit minimum as defined in Section 416(e)(1) of the Code or 5
percent of such non-Key Employee's Compensation. There shall be no required
duplication of minimum benefits or contributions as provided in section 416(f)
of the Code and regulations promulgated thereunder.
20.17. Modified Aggregate Limit on Contributions and Benefits. This
section establishes additional rules with respect to the aggregate limit on
benefits and contributions for a Participant who participates in both a Defined
Benefit Plan and a Defined Contribution Plan that are included in a top-heavy
group. Unless certain requirements are met, for any Limitation Year for which
the plans are included in the top-heavy group, the Defined Benefit and Defined
Contribution Fractions under Article V shall be modified, effectively providing
the Participant with an aggregate limit equal to the lesser of 1.0 (as applied
only to the dollar limits, rather than 1.25) or 1.4 (as applied to the
percentage limits).
The fractions shall be modified as follows:
(a) The denominator of the modified Defined Benefit
Fraction shall be the lesser of (i) the Maximum Permissible Dollar Amount in
effect for such Limitation Year (or, if greater, that Participant's current
Accrued Benefit as of the last Limitation Year beginning before January 1,
1983), or (ii) the product of 1.4 multiplied by 100 percent of the highest
average Compensation for any three consecutive calendar Years of Service during
which the Participant was an active Participant in the Plan.
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(b) The denominator of the modified Defined Contribution
Fraction shall be the sum of the lesser of the following amounts, computed
separately for each Limitation Year with the Employer: (i) the dollar limit in
effect for such Limitation Year, or (ii) 1.4 times 25 percent of the
Participant's Compensation for such year.
In some cases, the aggregate of a Participant's Accrued
Benefit under an employer's Defined Benefit Plan and annual additions under the
Employer's defined contribution plan, computed using the Defined Benefit and
Defined Contribution Fractions, may exceed 1.0 at the time the Participant is
first required to use the fractions as enacted by TEFRA to compute the modified
aggregate limit. In such a case, the Participant shall be permitted no further
benefit accruals under the Defined Benefit Plans and no additional employer
contributions, reallocated Forfeitures or voluntary non-deductible employee
contributions under the Defined Contribution Plans until the sum of the Defined
Contribution and Defined Benefit Fractions of the Plan is less than 1.0.
These modifications to the Defined Benefit and Defined
Contribution Fractions shall not apply if the plans of the Employer in which
the Participant participates (1) meet the requirements of the concentration
test, and (2) provide either an extra minimum benefit (in the case of the
Defined Benefit Plan) or an extra minimum contribution (in the case of the
Defined Contribution Plan) for non-Key Employees participating in the Plans.
The extra contribution or benefit shall be in addition to the minimum
contribution or minimum benefit required for all top-heavy plans under sections
20.14 to 20.15.
The concentration test shall be satisfied with respect to a
Participant if the present value of Accrued Benefits and Accounts does not
exceed 90 percent of the present value of Accrued Benefits and Accounts for all
Employees. These present values shall be computed using the same rules as set
forth in section 20.7 to determine whether or not the plans are a top-heavy
group.
The requirement for an extra minimum benefit for non-Key
Employees shall be satisfied for a Limitation Year if, in addition to the
minimum benefit otherwise required in a Defined Benefit Plan, for the Plan Year
ending with or within such Year, the additional Accrued Benefit of each non-Key
Employee who is a Participant is not less than the lesser of: (a) 1 percent of
the Employee's Average Annual Compensation for High Five Years, multiplied by
the Employee's Years of Service with the Employer, or (b) 10 percent of such
Average Annual Compensation for High Five Years. This extra minimum benefit
generally is determined in the same manner as the minimum benefit required
under the rules for a top-heavy Defined Benefit Plan under section 20.14.
However, for purposes of the extra minimum benefit, a Year of Service shall be
taken into account only if: (a) such Year of Service includes the last day of
a Plan Year for which the plan
XX-10
<PAGE> 103
is a top-heavy plan (or included in a top-heavy group), and (b) such Plan Year
ends with or within a Limitation Year for which the aggregate limit of the Key
Employee exceeds 1.0 under the modified fractions.
In a Defined Contribution Plan, the requirement for an extra
minimum contribution shall be satisfied for a Limitation Year if, for the Plan
Year ending with or within such year, the Employer contributes on behalf of
each non-Key Employee who is a Participant an extra amount (in addition to the
usual minimum contribution set forth in section 20.15) that is not less than 1
percent of the Employee's Compensation for the year.
20.18. Limit on Includible Compensation. If for any Plan Year the
Plan is a top-heavy plan, then only the first $200,000 of a Participant's
Compensation shall be taken into account under the Plan. The $200,000 limit
shall be increased automatically beginning in 1986 to the extent permitted by
the Internal Revenue Service. A top-heavy plan shall continue to provide for
any accrued benefits attributable to compensation in excess of $200,000 to the
extent such benefit was accrued before the Plan was top-heavy.
XX-11
<PAGE> 104
ARTICLE 21.
POST-1992 DISTRIBUTIONS
21.1. Distributee Election. This Article applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election under this
Article, 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.
21.2. Definitions. As used in this Article, the following terms shall have
the meaning set forth below:
(a) 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 one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated beneficiary,
or for a specified period of 10 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).
(b) 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.
(c) 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 an
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.
(d) Direct Rollover: A direct rollover is a payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
XXI-1
<PAGE> 105
Signature Page to Employee Stock Ownership
Plan of JAYCOR and Subsidiaries
JAYCOR
by: /s/ Eric P. Wenaas
----------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
by: /s/ Eric P. Wenaas
----------------------------
Eric P. Wenaas, President
ACCEPTANCE OF TRUSTEE
San Diego Trust & Savings Bank, a California banking corporation, as Trustee of
the Trust, hereby accepts the amended and restated Plan, as set forth above.
San Diego Trust & Savings Bank
by:
-------------------------------
XXI-2
<PAGE> 106
AMENDMENT TO PLAN AGREEMENT
OF
EMPLOYEE STOCK OWNERSHIP PLAN
OF JAYCOR AND SUBSIDIARIES
This Amendment is made on February 28, 1995 to amend the Employee Stock
Ownership Plan of JAYCOR and Subsidiaries, effective as of January 1, 1995, as
follows:
1. Section 2.26 of the Plan shall be amended and restated in its entirety
to read as follows:
2.26 "Entry Date" shall mean the last day of the Plan Year, except
that in the case of part-time 1 and temporary employees, such term shall have
the meaning set forth in section 3.3.2 below.
2. Sections 3.1 through 3.3 of the Plan shall be amended and restated in
their entirety to read as follows:
3.1 Ineligible Employees. The following types of Employees shall be
ineligible to participate in this Plan:
3.1.1 Any Employee who is included in a unit of Employees
covered by a collective bargaining agreement between Employee representatives
and the Employer, in which retirement benefits were the subject of good-faith
bargaining between such Employee representatives and the Employer.
3.1.2 Any Employee who is a non-resident alien and who has no
earned income from Employer.
3.1.3 Managerial and administrative employees of Manufacturing
Services, Inc. who were formerly eligible to participate in this Plan, shall not
be eligible to participate in the allocation of contributions for the Plan year
ending December 31, 1990, or for any subsequent Plan Year.
3.2 Initial Eligibility. Any Employee who is not excluded under
section 3.1 above shall be eligible to participate in this Plan as of the
applicable Entry Date for such Employee. There is no minimum age requirement for
this Plan, but for Plan Years beginning on or after January 1, 1992, there is a
minimum Hours of Service requirement, as set forth in section 3.3 below. In the
case of any Employee who was employed by IRT Corporation, a Delaware
corporation, as of September 10, 1988, such Employee shall be credited with all
years of service with IRT Corporation in determining such Employee's
eligibility to participate in the Plan.
3.3 Time of Participation. The commencement of Participant and
applicable Entry Date for eligible Employees shall be as follows:
3.3.1. For Plan Years beginning prior to January 1, 1992, any
eligible Employee (other than part-time 1 and temporary employees) whose
Employment Commencement Date is on or before July 1 shall become a
1
<PAGE> 107
Participant on the first Entry Date after such Employment Commencement Date;
provided that such Employee has not separated from service with the Employer
prior to such Entry Date. For Plan Years beginning prior to January 1, 1992,
any eligible Employee (other than part-time 1 and temporary employees) whose
Employment Commencement Date is after July 1 shall become a Participant on the
second Entry Date after such Employment Commencement Date; provided that such
Employee has not separated from service with the Employer prior to such Entry
Date. If such separated Employee returns to service after either of such dates
without incurring a One-Year Break in Service, then the Employee shall commence
participation immediately upon such return unless such Employee is excluded
under the rules of section 3.1 above. For the Plan Years beginning on or after
January 1, 1992, an eligible Employee (other than part-time 1 or temporary
employees) shall commence participation on the first Entry Date coincident with
or next following a Plan Year during which such employee completes 501 Hours of
Service; provided that such Employee is still in the employment of Employer as
of such Entry Date.
3.3.2 Any Employee who is classified by the Employer as a
temporary employee or as a part-time 1 employee must complete a Year of Service
(as defined in Section 2.60 above) during which such Employee is credited with
at least 1,000 Hours of Service, using Hours of Service credited on or after
January 1, 1995. The Entry Dates for Employees who are temporary or part-time 1
employees shall be January 1 and July 1. Any part-time 1 or temporary Employee
who satisfies the Year of Service requirement shall become a Participant on the
first Entry Date which occurs coincident with or next following the completion
of the Year of Service provided that such Employee has not separated from
service with the Employer prior to such Entry Date.
3. Except as so amended, the Plan Agreement is ratified and confirmed.
JAYCOR
by: /s/ ERIC P. WENAAS
--------------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
by: /s/ ERIC P. WENAAS
--------------------------------
Eric P. Wenaas, President
2
<PAGE> 108
AMENDMENT TO PLAN AGREEMENT
EMPLOYEE STOCK OWNERSHIP PLAN
OF JAYCOR AND SUBSIDIARIES
This Amendment is made on December 5, 1995 to amend the Employee Stock Ownership
Plan of JAYCOR and Subsidiaries, effective as of October 1, 1995, as follows:
1. Section 13.2.5 of the Plan is amended and restated in its entirety to read
as follows:
13.2.5. The Plan Administrator shall establish a participant-directed
account (for that portion of such participant's account which is eligible for
diversification) for each Qualified Participant who makes an election under
section 13.2.4 above within the Qualified Election Period. Each Qualified
Participant shall have the right to direct or earmark the investment of the
assets in such Qualified Participant's participant-directed account; provided,
however, that as of October 1, 1995, such Qualified Participant may only select
from those investment choices selected and approved for the Plan, from time to
time, by the Plan Administrator. The Plan Administrator shall at all times
approve at least three investment choices for Qualified Participants. Each
Qualified Participant with such an account shall designate the name of the
approved investment and state the portion of the account to be so directed.
Upon receipt of such notification, the Plan Administrator shall have up to 90
days after the end of the applicable Qualified Election Period to make the
investment. Any income and any increase or decrease in the value of any
directed investment shall be allocated to the corresponding account of the
Qualified Participant who selected such investment. The Trustee may deduct from
a Qualified Participant's directed account the unpaid Trustee fees assessed for
maintaining such directed account, if any, together with all unpaid costs and
expenses paid by the Trustee in connection with the investment of the assets
in the directed account if such fees, costs and expenses remain unpaid for 30
days. The Trustee may deduct from the directed account such unpaid fees, costs
and expenses of the Trustee before making any distributions. If there is
insufficient cash in the directed account to pay the Trustee's unpaid fees,
costs and expenses, the Trustee may, notwithstanding anything in this Plan to
the contrary, withhold distribution until such fees, costs and expenses have
been paid in full. Each Qualified Participant's right to direct investments
among such approved investment choices shall be absolute and shall not be
subject to approval by the Plan Administrator or by the Trustee; provided,
however, that the Plan Administrator shall have the right to refuse to make
any investment which could, in the Plan Administrator's discretion, disqualify
the Plan or cause the income of the Trust to be subject to income or excise
taxes. Pursuant to section 404(c)(2) of ERISA, the Trustee and the Plan
Administrator, when so directed by a Qualified Participant, shall not be
liable for any loss, or by reason of any breach, which results from such
Qualified Participant's exercise of this right to direct the investment of such
Qualified Participant's directed account among such approved investments.
<PAGE> 109
2. Except as so amended, the Adoption Agreement is ratified and confirmed.
JAYCOR
by: /s/ ERIC P. WENAAS
-----------------------------
Eric P. Wenaas, President
<PAGE> 110
RETROACTIVE AMENDMENT TO PLAN AGREEMENT
OF
EMPLOYEE STOCK OWNERSHIP PLAN
OF JAYCOR AND SUBSIDIARIES
This Retroactive Amendment is made on May 3, 1996 to amend the Employee
Stock Ownership Plan of JAYCOR and Subsidiaries, effective as of September 21,
1993, as follows:
Section 6.1.2 of the Plan shall be amended and restated in its entirety
to read as follows:
6.1.2 Any Participant who was on an Excused Absence, retired
after attaining the Early or Normal Retirement Age, suffered a Disability or
died during the Plan Year shall be deemed an Active Participant with respect to
such Plan Year (unless, in the case of an Excused Absence, the Participant's
employment has terminated) for purposes of this section and also for purposes
of section 4.1, and such Participant shall share in the allocation on the basis
of actual Compensation with respect to such Plan Year. Effective for Plan Years
beginning on or after January 1, 1992, if an Employee has at least 501 Hours of
Service in the Plan Year for which such Employee first becomes eligible to be a
Participant, then such Employee shall be deemed an Active Participant, sharing
in the Company's contributions and forfeitures. Except as provided in the
previous two sentences, any Participant who (a) fails to earn 1,000 Hours of
Service in the Plan Year, or (b) was not in the employ of the Employer or a
member of a Controlled Group at the end of a Plan Year (regardless of the
number of Hours of Service completed during such Plan Year) shall not be Active
Participants and shall not share in the Employer contribution or forfeitures
made with respect to the Employer's Fiscal Year ending with or within such Plan
Year. Any Participant who remained in the employ of the Employer or a member of
a Controlled Group or Affiliated Service Group or any other entity required to
be aggregated with the Employer pursuant to sections 414(n) or 414(o) and the
regulations thereunder, through the end of the Plan Year, but who changed from
an eligible to ineligible classification during the Plan Year shall be deemed
an Active Participant for such Plan Year, but only with respect to his
Compensation while in an eligible status; provided, however, that any
Participant who changed from an ineligible classification to an eligible
classification shall be considered an Active Participant only with respect to
his Compensation while in the eligible status.
Except as so amended, the Plan Agreement is ratified and confirmed.
JAYCOR JAYCOR Technical Services
by: /s/ ERIC P. WENAAS by: /s/ ERIC P. WENAAS
------------------------- -------------------------
Eric P. Wenaas, President Eric P. Wenaas, President
<PAGE> 111
AMENDMENT TO EMPLOYEE STOCK OWNERSHIP PLAN
OF
JAYCOR AND SUBSIDIARIES
This Amendment is made on February 22, 1994 by JAYCOR as the employer, and
JAYCOR Technical Services, Inc., as an additional adopting employer, to amend
the JAYCOR EMPLOYEE STOCK OWNERSHIP PLAN, by the adoption of a new Article
XXII, to read as follows:
ARTICLE XXII
LIMITS ON COMPENSATION AND WAIVER RIGHTS
22.01 Post-1993 Limits on Compensation. In addition to other applicable
provisions of the Plan, and notwithstanding anything in the Plan to the
contrary, for plan years beginning on or after January 1, 1994, the annual
compensation of each employee taken into account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 (OBRA '93) annual
compensation limit. The OBRA '93 annual compensation limit is $150,000.00, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17) of the Internal Revenue 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 (the "determination period")
beginning in such calendar years. If a determination period consists of fewer
than 12 months, then the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12. For plan years
beginning on or after January 1, 1994, any reference in this Plan to the
limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this section. If compensation for any prior
determination period is taken into account in determining an employee's
benefits accruing in the current plan year, then the compensation for that
prior determination period is subject to the OBRA '93 annual compensation limit
in effect for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first plan year
beginning on or after January 1, 1994, the OBRA '93 annual compensation limit
is $150,000.00.
22.02 Waiver of 30 Day Notice Period. If a distribution to a participant is
one to which sections 401(a)(11) and 417 of the Code do not apply, then such
distribution may commence less than 30 days after the notice, required under
section 1.411(a) - 11(c) of the Income Tax Regulations, is given, provided that:
(a) The Plan Administrator clearly informs the participant that the
participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution, and
if applicable, a particular distribution option; and
(b) The participant, after receiving the notice, affirmatively elects a
distribution.
<PAGE> 112
Except as so amended, the Employee Stock Ownership Plan is ratified and
confirmed.
JAYCOR
by: /s/ ERIC P. WENAAS
-------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
by: /s/ ERIC P. WENAAS
-------------------------
Eric P. Wenaas, President
<PAGE> 113
EMPLOYEE STOCK OWNERSHIP PLAN
OF JAYCOR AND SUBSIDIARIES
RETIREMENT TRUST
<PAGE> 114
EMPLOYEE STOCK OWNERSHIP PLAN
OF JAYCOR AND SUBSIDIARIES
RETIREMENT TRUST
TABLE OF CONTENTS
ARTICLE I NAME AND EFFECTIVE DATE I-1
ARTICLE II CONTRIBUTIONS TO THE TRUST FUND II-1
ARTICLE III PAYMENTS FROM THE TRUST FUND III-1
ARTICLE IV INVESTMENT OF TRUST FUND IV-1
ARTICLE V POWERS, RIGHTS AND DUTIES OF TRUSTEE V-1
ARTICLE VI SUBSTITUTION OF TRUSTEE VI-1
ARTICLE VII AMENDMENTS VII-1
ARTICLE VIII SUSPENSION AND TERMINATION VIII-1
ARTICLE IX PERSONAL LIABILITY IX-1
ARTICLE X MISCELLANEOUS X-1
<PAGE> 115
ARTICLE I
NAME AND EFFECTIVE DATE
1.1 This Agreement of Trust, as amended and restated, shall be
designated the EMPLOYEE STOCK OWNERSHIP PLAN OF JAYCOR AND SUBSIDIARIES
RETIREMENT TRUST.
1.2 The effective date of this amendment and restatement of the
Trust shall be January 1, 1989. The fiscal year of the Trust shall correspond
to the fiscal year of Employer.
1.3 The term "Code," as used in this instrument, shall mean and
refer to the Internal Revenue Code of 1986 as from time to time amended, or any
applicable successor Code.
1.4 The term "Act," as used in this instrument, shall mean and
refer to the Employee Retirement Income Security Act of 1974, as it may from
time to time be amended, or any applicable successor Act.
1.5 The term "Plan" shall mean the Employee Stock Ownership Plan of
JAYCOR and Subsidiaries, as amended from time to time.
1.6 All defined terms used in this Trust shall have the meaning
given to such terms in the Plan.
I-1
<PAGE> 116
ARTICLE II
CONTRIBUTIONS TO THE TRUST FUND
2.1 Subject to the provisions of Article VIII hereof, the Employer,
on behalf of itself and its Employees, intends (but is not so required under
the Plans), from time to time, to deliver or cause to be delivered to the
Trustee such amounts of cash or other property acceptable to the Trustee as the
Employer, in its sole discretion, deems necessary to comply with the provisions
of the Plans. Moreover, if said Plan so provides, the Trustee shall accept
voluntary contributions made by Plan Participants, pursuant to the relevant
provisions of such Plan.
The Trustee may accept contributions made under the terms of
any other retirement plan which qualifies under section 401(a) of the Code
(herein also referred to as "Retirement Plan") which the Employer acquires or
maintains as well as contributions made by other employers adopting the Plan or
Plans maintained by the Employer hereunder pursuant to the provisions of the
Plans. Assets contributed pursuant to the Plans and any such other Retirement
Plans shall constitute one common fund and may be commingled for investment
purposes. The Plan Administrator shall be responsible for allocating for
accounting purposes such amounts between and among such Plans.
Any funds contributed to the Trust under the terms of any Plan
which ultimately becomes disqualified under the provisions of the Code relating
to qualification and exemption shall be segregated for the exclusive benefit of
the Participants thereunder as soon as administratively feasible after the date
of the determination of such disqualification.
Unless the context clearly implies or indicates to the
contrary, the term "Trust Fund" comprises all property of every kind held by
the Trustee, from time to time, pursuant to this Trust Agreement. The Trustee
shall have no duty, express or implied, to compel any payment to be made to it
by the Employer or otherwise be responsible for the adequacy of the Trust Fund
to meet and discharge any liabilities under the Plans, and shall be accountable
only for cash and other property actually received by it.
2.2 If the Plan or Plans or this Trust fails initially to satisfy
the qualification requirements of section 401(a) or section 501(a) of the Code,
and the Employer declines to amend the Plan to satisfy such qualification
requirements, contributions made prior to the determination that the Plan has
failed to qualify shall be returned to the Employer within one year of the date
of denial of qualification.
II-1
<PAGE> 117
If a contribution to the Fund in whole or in part is
attributable to a good-faith mistake of fact or a good-faith mistake in
determining the deductibility of the contribution under Code section 404 (for
example, incorrect information as to the eligibility or Compensation of a
Participant, or a mathematical or actuarial error), then an amount shall be
returned to the Employer equal to the excess of (1) the amount contributed over
(2) the amount which would have been contributed had there not occurred a
mistake of fact or a mistake in determining the deduction. Earnings
attributable to the excess contribution shall not be returned to the Employer,
but losses attributable thereto shall reduce the amount to be so returned.
The withdrawal of the amount attributable to the mistaken
contribution shall be reduced appropriately if it would cause the balance of an
individual account of a Participant to be reduced to less than the balance which
would have been in the Account had the mistaken amount not be contributed.
The return to the Employer of the amount involved shall be paid
by the Trustee after demand by the Employer and shall be made within one year of
the mistaken payment of the contribution or disallowance of the deduction, as
the case may be.
Notwithstanding any other provision of this paragraph, no
refund shall be made to the Employer which is specifically chargeable to the
Accounts of any Participant(s) in excess of 100 percent of the amount in such
Account(s), nor shall a refund be made by the Trustee of any funds, otherwise
subject to refund hereunder, which have been distributed to Participants and/or
Beneficiaries. In the case that such distributions become refundable, the
Employer shall have a claim directly against the distributees to the extent of
the refund to which it is entitled.
All refunds pursuant to this Section 2.2 shall be limited in
amount, circumstance and timing to the provisions of section 403(c) of the Act,
and no such refund shall be made if, solely on account of such refund, the Plan
or Trust would cease to be qualified pursuant to section 401(a) or section
501(a) of the Code.
II-2
<PAGE> 118
ARTICLE III
PAYMENTS FROM THE TRUST FUND
3.1 Payments shall be made from the Trust Fund by the Trustee to
such persons, in such manner, at such times, and in such amounts as the Plan
Administrator may from time to time direct in writing; provided, however, that
the Trustee may withhold compliance with the Plan Administrator's direction to
the extent that, and so long as, the Trustee shall deem such withholding
necessary to insure payment of the Trustee's expenses or to protect the Trustee
against liability for taxes or for any other liability.
3.2 The Employer shall promptly notify the Trustee of the names of
the authorized person(s) to act on behalf of the Plan Administrator as of the
date of this Agreement and of any subsequent changes. In the absence of any
notification of changes, the Trustee may assume that the authorized person(s)
is the same as last reported by the Employer to the Trustee. The Plan
Administrator shall furnish the Trustee with all the necessary factual
information required by it to perform its duties as Trustee hereunder and the
Trustee shall not be required to verify the facts so furnished by the Plan
Administrator. The Trustee shall be subject to the direction of the Plan
Administrator with respect to the payment of sums from the Trust Fund to Plan
Participants and Beneficiaries; provided, however, that such directions are
made in accordance with the terms of the Plan and are not contrary to Title I
of the Act. the Trustee, in following the directions of the Plan Administrator,
is authorized to act upon instructions of the authorized person(s), and,
pursuant to section 405(b)(3)(B) of the Act, shall not be liable for
following the directions referred to in the foregoing sentence; provided,
however, that the Trustee may require an opinion of counsel to the Employer
that such instructions are made in accordance with the terms of the Plan and
are not contrary to Title I of the Act.
III-1
<PAGE> 119
ARTICLE IV
INVESTMENT OF TRUST FUND
4.1 The Trustee shall invest and reinvest the Trust Fund assets
only as directed by the Plan Administrator; provided, however, that such
directions are made in accordance with the terms of the Plans and are not
contrary to Title I of the Act. The Plan Administrator may direct the Trustee to
make arrangements for property to be bought or sold for the Trust Fund (for
example, by directing the Trustee to execute agreements of purchase or sale),
and to consummate the purchases and sales so arranged. The Trustee shall
consummate the same from the Trust Fund. Any cash of the Trust Fund which the
Plan Administrator does not invest or direct to be invested may be held
uninvested by the Trustee and the Trustee shall have no liability for the
payment of interest thereon. Pursuant to section 405(b)(3)(B) of the Act, the
Trustee shall not be liable for following the directions referred to in this
Paragraph; provided, however, that the Trustee may require an opinion of counsel
to the Employer that such instructions are made in accordance with the terms of
the Plan and are not contrary to Title I of the Act. Notwithstanding anything to
the contrary herein contained, the Plan Administrator shall have no authority to
direct the Trustee to engage in the prohibited transactions set forth in
Sections 406 and 407 of the Act and Section 4975 of the code, as added by
Section 2003(a) of the Act.
4.2 The Plan Administrator may, in its discretion, delegate to the
Trustee the power, right and duty to retain, manage, improve, repair, operate,
control, acquire, dispose of, invest and reinvest Plan assets, which authority
and discretion of the Trustee to manage and control said assets shall not
become effective until acceptance thereof by the Trustee.
4.3 Pursuant to section 402(c)(3) of the Act, the Plan
Administrator may appoint an investment manager or managers to manage
(including the power to acquire and dispose of) any assets of the Plans. If an
investment manager or managers has been appointed pursuant to this Paragraph,
then the Trustee shall not be liable for the acts or omissions of such
investment manager or managers, nor shall the Trustee be under an obligation to
invest or otherwise manage any asset of the Plan which is subject to the
management of such investment manager. The Plan Administrator shall notify the
Trustee of any appointment of an investment manager under this Paragraph.
4.4 Pursuant to Section 408(b)(4) of the Act and Section 4975(d)
(4) of the Code, as added by Section 2003(a) of the Act, the Plan Administrator
shall have the power to instruct the Trustee to invest all or part of the Plan
assets in deposits which bear a reasonable interest rate in a bank or similar
IV-1
<PAGE> 120
financial institution supervised by the United States or a state, even though
such bank or other institution is a fiduciary of the Plan. Furthermore,
pursuant to Section 408(b)(8) of the Act and Section 4975(d)(8) of the Code,
the Plan Administrator may expressly permit a transaction between the Plan and
a common or collective Trust Fund or pooled investment fund maintained by a
party in interest and/or a disqualified person which is a bank or trust company
supervised by a state or federal agency if such transaction is a sale or
purchase of an interest in the Fund and the bank or trust company receives not
more than reasonable Compensation.
If a Bank is Trustee, it shall have full power and authority to
transfer money and other assets of the Trust to the Bank as trustee of any
common or collective trust fund or pooled investment fund or to the Bank or
trustee of any investment fund or funds consisting exclusively of assets of
exempt pension or profit sharing trusts. The instruments establishing any such
fund, as they may be amended from time to time, are hereby adopted and
incorporated herein by reference. Money and other assets of the Trust invested
in said fund or funds shall be held and administered by the Bank strictly in
accordance with the terms and under the powers granted in any instrument or
instruments, as amended, creating or governing such fund or funds. The combining
of money and other assets of the Trust with money and other assets of other
qualified trusts in such fund or funds is specifically authorized.
IV-2
<PAGE> 121
ARTICLE V
POWERS, RIGHTS AND DUTIES OF TRUSTEE
5.1 Subject to paragraphs 4.1, 4.2 and 4.3 hereof and subject to
the powers conferred upon the Plan Administrator by the Plans, the Trustee
shall have the following powers, rights and duties in addition to those vested
in it elsewhere in the Trust Agreement and/or the Plans:
(a) To invest and reinvest funds in every kind of property,
real, personal or mixed, and every kind of investment, specifically including,
but not limited to, partnership interests, certificates of beneficial interest,
deposit receipts, corporate obligations of every kind, market funds and index
funds, corporate obligations, preferred or common stock, shares of investment
trusts, investment companies, mutual funds, mortgages, mortgage participation,
bonds, debentures, notes, deeds of trust and any common trust funds maintained
by any financial institution or trust company, including any common trust fund
administered by a financial institution which is a Trustee hereunder; to
purchase and sell such shares of investments (including short sales), or
exercise, buy or sell stock options (including puts and calls), subscriptions
or conversion rights; to buy and sell commodity futures; and with respect to
all said securities and investments held in this Trust, to vote, give proxies,
participate in voting trusts, pooling agreements, foreclosures,
reorganizations, consolidations, mergers, acquisitions, liquidations or other
like occurrence; and incident thereto, to hold securities or other trust
property in Trustee's name as Trustee hereunder, or in the name of a nominee,
depository or custodian or any protective or other committee, upon such terms
and conditions as the Trustee may deem advisable, or to hold such securities
unregistered in such condition that the ownership will pass by delivery; to
hold securities in a margin account with a brokerage firm and to borrow against
the value of such securities to the extent permitted by law; to purchase bonds
and to pay such premiums in connection with the purchase as the Trustee, in its
discretion, deems advisable; provided, however, that each premium shall be
repaid periodically to principal out of the interest on the bond in such
reasonable manner as the Trustee shall determine and, to the extent necessary,
out of the proceeds on the sale or other disposition of this bond.
(b) To sell, convey, transfer, exchange, partition, grant
options with respect to, lease for any term (even though such term extends
beyond the duration of this Trust or commences in the future), mortgage,
pledge, or otherwise deal with or dispose of any asset of the Trust Fund in such
manner, for such consideration and upon such terms and conditions as the
Trustee, in its discretion, shall determine;
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(c) To employ suitable agents and counsel, who may be
counsel for the Employer, as may be reasonably necessary in collecting,
managing, administering, investing, distributing and protecting the Trust Fund
or assets thereof, and to pay their reasonable Compensation and expenses;
(d) To settle, compromise or abandon all claims and demands
in favor of or against the Trust Fund or the Trust;
(e) To make advances to or for the benefit of the Trust
Fund and to borrow money for the Trust Fund to the extent deemed desirable by
the Plan Administrator. The Trustee shall not, however, make any distribution,
payment, loan or advance to any Participant or Beneficiary except as
specifically authorized or permitted by this Agreement or the Plans;
(f) To have all the rights, powers and privileges of an
owner with respect to any of the securities held in trust, including, but not
limited to, the following: to vote any corporate stock either in person or by
proxy for any purpose; to pay assessments or other charges in connection
therewith; to exercise any conversion privilege, subscription right or any
other right or option given to the Trustee as the owner of any security owned
by the Trust and to make payments incidental thereto; and to consent to, take
any action in connection with and receive and retain any securities resulting
from any reorganization, consolidation, merger, readjustment of the financial
structure, sale, lease or other disposition of the assets of any corporation or
other organization, the securities of which may be an asset of the Trust. The
Trustee shall have no duty to question the Plan Administrator's instructions
as to voting;
(g) To purchase and subscribe for any securities or other
property and to retain such securities or other property in trust;
(h) To sell at public or private sale, for cash, or upon
credit, or otherwise dispose of any property, real or personal; and no person
dealing with the Trustee shall be bound to see to the application or to inquire
into the validity, expediency or propriety of such sale or other disposition;
(i) To adjust, settle, contest, compromise or arbitrate any
claims, debts, or damages due or owing to or from the Trust Fund, and to sue,
commence or defend any legal proceedings in reference thereto;
(j) To exercise itself, or by general or limited power of
attorney, any right, including the right to vote, incident to any securities or
other property held by it;
(k) To borrow money upon such terms and conditions as may
be deemed advisable to carry out the purposes of the
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Trust, to encumber trust property of the trust estate as the Trustee deems
advisable, and to pledge securities or other property in repayment of any such
loan; provided, however, that loans or advances may be made by the Trustee
hereunder by way of overdrafts or otherwise on a temporary basis on which no
interest is payable;
(l) To manage, administer, operate, repair, improve and
mortgage or lease for any number of years, regardless of any restrictions on
leases made by the Trustee or to otherwise deal with any real property or
interest therein; to renew or extend or to participate in the renewal or
extension of any mortgage, and to agree to the reduction in the interest on any
mortgage or other modification or change in the terms of any mortgage or
guarantee thereof in any manner and upon such terms as may be deemed advisable;
to waive any defaults whether in the performance of any covenant or condition of
any mortgage or in the performance of any guarantee or to enforce any such
default in such manner as may be deemed advisable, including the exercise and
enforcement of any and all rights of foreclosure;
(m) To invest all or part of the Trust Fund in
interest-bearing deposits with the Trustee, or with a bank or similar financial
institution related to the Trustee if such bank or other institution is a
fiduciary with respect to the Plan as defined in the employee Retirement Income
Security Act of 1974, including, but not limited to, investments in time
deposits, savings deposits, certificates of deposit or time accounts which bear
a reasonable interest rate;
(n) To register any investment held in the Trust Fund in its
own name or in the name of a nominee or to hold any investment in bearer form;
(o) To delegate discretionary authority or control, with
respect to the acquisition, management, retention and disposal of trust assets,
to an appointed investment advisor;
(p) To hold any part or all of the Trust Fund uninvested;
(q) To form corporations and to create trusts to hold title
to any securities or other property, all upon such terms and conditions as it
may deem advisable;
(r) To make, execute and deliver as Trustee any and all
deeds, leases, mortgages, advances, contracts, waivers, releases or other
instruments in writing necessary or proper in the employment of any of the
foregoing powers;
(s) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either real,
personal or mixed held by the Trust Fund, and to do
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all other acts that the Trustee may deem necessary or proper to carry out any
of the powers set forth in this Article V or otherwise in the best interests of
the Trust Fund;
(t) To manage, control, grant options on, sell (for cash or
on deferred payments), convey, exchange, partition, divide, improve and repair
trust property;
(u) To lease trust property for terms within or beyond the
term of the Trust of any purpose, including exploration for and removal of gas,
oil and other minerals; and to enter into community oil leases, pooling and
unitization agreements;
(v) To commence or defend, at the expense of the Trust,
such litigation with respect to the Trust or any property of the trust estate
as the Trustee may deem advisable, and to compromise or otherwise adjust any
claims or litigation against or in favor of the Trust;
(w) To carry insurance of such kinds and in such amounts as
the Trustee deems advisable, at the expense of the Trust, to protect the trust
estate and the Trustee personally against any hazard;
(x) To purchase bonds at such discount as the Trustee in
the Trustee's discretion deems advisable; provided, however, that each discount
shall be accumulated periodically as interest in such reasonable manner as the
Trustee shall determine and to the extent necessary paid out of the proceeds on
the sale or other disposition of the bond or out of principal.
5.2 Notwithstanding the foregoing, the Trustee shall have no
authority to engage in the prohibited transactions set forth in Sections 406
and 407 of the Act and Section 4975 of the Code, as added by Section 2003(a) of
the Act.
5.3 The Trustee is authorized and directed to pay from the Trust
Fund all the Trustee's expenses, taxes and charges (including attorneys' and
agents' fees) incurred in connection with the collection, administration,
management, investment, protection and distribution of the Trust Fund to the
extent they are not paid by the Employer. The Trustee is authorized and
directed to pay from the Trust Fund such reasonable Compensation to itself as
shall be agreed upon from time to time by the Employer and the Trustee and
evidenced in writing; provided, however, that no person serving as Trustee or
Co-Trustee hereunder who already receives full-time pay from the Employer or an
association of employers whose employees are Participants in the Plan, or from
an employee organization whose members are Participants in the Plan, shall
receive Compensation from the Trust Fund, except for reimbursement of expenses
properly and actually incurred.
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5.4 If Participant-earmarked Accounts are permitted under the Plan
or Plans, the Trustee may deduct from a Participant's earmarked Account the
unpaid Trustee fees assessed for maintaining such earmarked Account, if any,
together with all unpaid costs and expenses paid by the Trustee in connection
with the investment of the assets in the earmarked Account. The Trustee may
deduct from the earmarked Account such unpaid fees, costs and expenses of the
Trustee before making any distributions. If there is insufficient cash in the
earmarked Account to pay the Trustee's unpaid fees, costs and expenses, the
Trustee may, notwithstanding anything in the Plan or this Trust to the
contrary, withhold distribution until such fees, costs and expenses have been
paid in full.
5.5 The Trustee shall maintain accurate and detailed records and
Accounts of all transactions of the Trust, which shall be available at all
reasonable times for inspection or audit by any person designated by the
Employer or the Plan Administrator. The Trustee, at the direction of the
Employer, or the Plan Administrator, shall submit to the auditors for the
Employer, to the Plan Administrator and to others designated by the Plan
Administrator such valuations, reports or other information as they may
reasonably require.
5.6 As soon as practical following the close of each Fiscal Year of
the Trust and following the effective date of the removal or resignation of the
Trustee, the Trustee shall file with the Employer a written report setting
forth all transactions with respect to the Trust during the Fiscal Year or
during the period from the close of the last Fiscal Year to the date of such
removal or resignation and listing the assets of the Trust and the market value
thereof as of the close of the period covered by such report.
Upon the receipt by the Trustee of the Employer's written
approval of such report or upon the expiration of 60 days after delivery of any
such report to the Employer, such report (as originally stated if no objection
has been theretofore filed by the Employer, or as adjusted pursuant to
agreement between the Employer and the Trustee) shall be deemed to be approved
by the Employer except as to matters, if any, covered by written objections
theretofore delivered to the Trustee by the Employee regarding which the
Trustee has not given an explanation or made adjustments satisfactory to the
Employer, and the Trustee shall be released and discharged as to all items,
matters and things set forth in such report which are not covered by such
written objections as if such report had not been settled and allowed by a
decree of a court having jurisdiction regarding such report and of the Trustee,
the Employer, the Plan Administrator, and all persons having or claiming to
have any interest in the Trust. The Trustee, nevertheless, shall have the
right to have its accounts and reports settled by judicial proceedings if it
so elects.
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5.7 In the event that the Trustee hereof is composed of Co-Trustees,
then the following provisions shall apply to the extent that they may be
necessary:
(a) All actions permitted to be taken by the Trustee hereof may
be taken by any one or more of the Co-Trustees then in office acting under the
provisions of subparagraph (d) of this Section.
(b) In the event of the resignation or removal of a Co-Trustee,
such Co-Trustee shall have the right to a settlement of his account at the
expense of the Trust. Upon completion of such accounting and payment to the
outgoing Co-Trustee of his Compensation and expenses, including court costs and
legal fees, such Co-Trustee or his legal representatives shall promptly assign,
transfer and deliver unto the remaining or successor Co-Trustee (or in the
absence thereof, to the Plan Administrator) the Trust Fund and all records and
data (or copies thereof) pertaining to the Plan and Trust, and such outgoing
Co-Trustee shall thereupon be discharged from further accountability.
(c) The Co-Trustees shall act by unanimous agreement of such
persons at the time in office, and such action may be taken either by vote at a
meeting or in writing without a meeting.
(d) The Co-Trustees may by such unanimous action appoint from
among their members a Chairman to preside at their meetings and/or Secretary
to keep records of their meetings and activities and to perform such other
duties and functions as the Co-Trustees may prescribe. The Co-Trustees may in
like manner designate one or more of their members to take any actions
permitted to be taken by the Trustee or to execute any instrument or document on
their behalf, including, but not limited to, checks drawn on any bank account
opened by the Co-Trustees and any applications of insurance contracts, and the
action for such person shall have the same force and effect as if taken by the
Co-Trustees as a whole. In the event of such authorization, the Co-Trustees
shall notify the Plan Administrator thereof, and the Plan Administrator shall be
entitled to rely upon such notification until the Co-Trustees shall give
written notification to the contrary.
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ARTICLE VI
SUBSTITUTION OF TRUSTEE
6.1 The Employer, by resolution of its Board of Directors, may remove
the Trustee by written notice of such removal mailed to the Trustee at its last
known address as shown by the records of the Plan Administrator, or by
delivering written notice to such Trustee. Such removal shall take effect upon
delivery of such notice and acceptance of the Trust by a successor Trustee.
6.2 The Trustee may resign by delivering to the Employer a written
resignation to take effect in not less than 30 days nor more than 60 days
following the date of delivery of such notice.
6.3 The Employer may appoint a successor Trustee at any time by
written notice, such appointment to become effective upon the delivery to the
removed or resigning Trustee of a certified copy of such notice or the
original notice and the acceptance of the Trust signed by the successor
Trustee so appointed. Each successor Trustee shall have all the rights, powers,
title, discretions, duties and immunities given to, or required of, the Trustee
by the Trust. Any successor Trustee shall succeed as Trustee with like effect
as though originally named herein as such.
6.4 As of the Effective Date of the appointment of a successor Trustee,
the removed or resigning Trustee shall transfer and deliver the Trust Fund to
such successor Trustee, after reserving such reasonable amount as it shall deem
necessary to provide for its fees and expenses and any sums chargeable against
the Trust Fund for which it may be liable. No successor Trustee shall be liable
for the acts or omissions of any prior Trustee or be obligated to examine the
accounts, records, acts or omissions of any prior Trustee.
6.5 In the absence of any other Trustee, the person(s) authorized to
act for the Plan Administrator shall act and serve as an interim Trustee.
6.6 In the event that no successor Trustee is appointed pursuant to
paragraph 6.3 within 30 days following the resignation, removal, death,
incapacity or otherwise caused lack of the Trustee, when the person(s)
authorized to act for the Plan Administrator shall thereupon become successor
Trustee.
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ARTICLE VII
AMENDMENTS
7.1 The Employer may amend the Plans and/or this Trust at any time
and from time to time. No change may be made in the Plans or Trust which shall
vest in any Employer, directly or indirectly, any interest, ownership or
control in any of the present or subsequent funds of the Trust or in any of the
present or subsequent funds set aside for Participants pursuant to the Plans,
except as provided in Article II hereof and in the Plans.
7.2 No part of the funds of the Trust shall, by reason of any
amendment, be used for, or diverted to, purposes other than for the exclusive
benefit of Participants and their Beneficiaries or for the payment of expenses
incurred in connection with the administration of the Plans and the Trust
created hereby, nor shall any amendment reduce any then vested interest of a
Participant, except as provided in Article II hereof and in the Plans.
7.3 Subject to the above-stated limitations, the Employer shall
have the power to amend the Plans and/or Trust in any manner which it deems
desirable, including, but not by way of limitation, the rights to increase or
diminish contributions to be made by the Employer, to change or modify the
method of allocation of such contributions; to change any provision relating to
the administration of the Plans and/or Trust; and to change any provisions
relating to the distribution of payment or both of any of the assets of the
Trust; provided, however, any amendment which changes the duties or liabilities
of the Trustee shall not become effective without its consent.
7.4 Notwithstanding anything to the contrary contained in this
Article, any amendment may be made to the Plans and/or Trust that the Employer
deems necessary or appropriate in order to comply with any statute or
regulation, including requirements for qualification, exempt status and
deductibility of contributions under applicable provisions of the Code, and
such amendments shall have retroactive effect if necessary for such purposes.
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ARTICLE VIII
SUSPENSION AND TERMINATION
8.1 The Employer has established the Plans and Trust with a bona
fide intention that they shall be permanent. However, the Employer realizes
that circumstances not now foreseen or circumstances beyond its control may make
it either impossible or inadvisable to continue to make contributions to the
Plans.
8.2 In the event that the Employer decides that it is impossible or
inadvisable for it to continue to make its contributions to the Plans, the
Employer shall have the power to discontinue contributions to the Trust, either
temporarily or indefinitely, or to terminate the Plans by appropriate
resolutions; provided, however, as to any pension plans (Money Purchase and/or
Defined Benefit) such suspended contributions will be made up pursuant to the
terms and conditions contained in such Plans. In the event of termination or
complete discontinuance, all Participants' Accounts in such Plan shall become
fully vested. A certified copy of such notice, or the original notice, shall be
delivered to the Plan Administrator, and as soon as possible thereafter the
Plan Administrator shall send or deliver to each then Participant a copy of
said notice. In addition, to the extent there is a partial termination, as such
term is defined for purposes of section 411(d)(3) of the Code, the Employer
Contribution Account of all Participants at the date of such partial termination
shall become fully vested.
8.3 After the date specified in such termination resolution
relating to the Plan, no more Employer contributions shall be made to such
Plan. However, the Plan Administrator and the Trust shall remain in existence,
and all of the provisions of the Plan (other than the provisions relating to
Employer contributions) which in the sole opinion of the Plan Administrator are
necessary, shall remain in full force and effect for so long as the Plan
Administrator deems appropriate.
8.4 Upon termination of the Plan, after payment of all expenses
(including Trustee's fees) and proportionate adjustments of Participants'
Accounts to reflect such expenses, net earnings or net losses and reallocations
to the date of termination of such Plan, each Participant, former Participant,
or retired Participant or Beneficiary, as the case may be, shall be entitled to
receive any amounts then credited to his Account which are attributable to the
terminated Plan in the Trust Fund; provided, however, that the Plan
Administrator and the Trust shall not be required to effect such distribution
until written evidence of approval by the Commissioner of Internal Revenue to
such termination and distribution shall have been received by the Plan
Administrator and the Trustee. The Plan Administrator may authorize the payment
to Participants or Beneficiaries upon
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termination of such amounts in cash, in assets of the Trust Fund, or in such
form as may be provided for in the Plan, and the Trustee shall continue to hold,
invest, administer and distribute the Trust Fund pursuant to the terms of the
Agreement until no Trust Assets remain in its hands.
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ARTICLE IX
PERSONAL LIABILITY
9.1 Pursuant to Section 405(b)(3)(B) of the Act, the Trustee shall
not be liable for following the directions of any Named Fiduciary; provided
such directions are made in accordance with the terms of the Plans and this
Trust and are not contrary to Title I of the Act.
9.2 The Trustee shall be bonded in compliance with section 412 of
the Act.
9.3 To the extent permitted by ERISA and state law, the Employer
shall indemnify and save the Trustee harmless against any and all expenses or
liabilities, including reasonable attorneys' fees, it may incur in the lawful
performance of its duties except as to any liabilities arising from the
Trustee's willful misconduct or gross negligence. The Employer may satisfy its
obligations under this Section 9.3 through the purchase of a policy or policies
of insurance providing equivalent protection. The Trustee may enforce the terms
of this indemnification against the Employer as authorized under the laws of
the State of California, to the extent that such recovery is permitted under
ERISA.
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ARTICLE X
MISCELLANEOUS
10.1 Except as provided in Article II hereof, and in the Plans, it
shall be impossible, under any conditions, for any part of the corpus of income
of the Trust to be used for, or diverted to, purposes other than for the
exclusive benefits of the Participants or their Beneficiaries (including the
payment of the expense of the administration of the Plans and/or the Trust) and
the Trust shall continue for such time as may be necessary to accomplish the
purposes for which it is created.
10.2 Any actions required or permitted to be taken by the Employer, if
it is a corporation, are to be evidenced by a resolution of its Board of
Directors, or may be taken on behalf of the Employer by any officer thereof if a
certified copy of a Board resolution to such effect is given to the Trustee.
10.3 Definitions of the terms used in this Trust shall be as set forth
in the Plan document, and said definitions are incorporated herein by this
reference.
10.4 The headings of the Article are included solely for convenience
in reference, and if there is any conflict between such headings and the text
of this Trust, the text shall control.
10.5 Masculine gender shall include the feminine and the neuter; the
singular shall include the plural; and the plural shall include the singular,
unless the context clearly indicates otherwise.
10.6 If any provisions of this Trust shall for any reason be
unenforceable, the remaining provisions of this Trust shall, nevertheless, be
carried into effect.
10.7 All legal questions pertaining to the Trust shall be determined
in accordance with the laws of the State of California to the extent that said
laws are not pre-empted by the Act.
<PAGE> 133
10.8 Only two sets of the pages constituting this Agreement of Trust
have been executed and each such set shall be deemed an original even though
physically produced by the use of automatic printing or copying machines, if
such set bears the original signatures of the parties hereto.
JAYCOR
by: /s/ ERIC P. WENAAS Dated: 9/27/93
-------------------------------- ----------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
by: /s/ ERIC P. WENAAS Dated: 9/27/93
-------------------------------- ----------------------------
Eric P. Wenaas, President
ACCEPTANCE OF TRUSTEE
San Diego Trust & Savings Bank, a California banking corporation, as Trustee of
the Trust, hereby accepts the foregoing amended and restated Retirement Trust
and agrees to continue to serve as Trustee.
San Diego Trust & Savings Bank
by: Dated:
-------------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.9
JAYCOR EMERGING TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Jaycor Emerging Technologies, Inc. 1997
Employee Stock Purchase Plan (the "PLAN") is hereby established effective as of
the effective date of the initial registration by the Company of its Stock under
Section 12 of the Exchange Act (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to provide Eligible
Employees of the Participating Company Group with an opportunity to acquire a
proprietary interest in the Company through the purchase of Stock. The Company
intends that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted herein, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Jaycor Emerging Technologies, Inc., a
California corporation, or any successor corporation thereto. It is anticipated
that
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<PAGE> 2
the Company will reincorporate in Delaware and that sponsorship of the Plan will
be assumed by the successor Delaware corporation.
(e) "COMPENSATION" means, with respect to an Offering Period
under the Plan, all amounts paid in cash in the forms of base salary,
commissions, overtime, bonuses, annual awards, other incentive payments, shift
premiums, and all other compensation paid in cash during such Offering Period
before deduction for any contributions to any plan maintained by a Participating
Company and described in Section 401(k) or Section 125 of the Code. Compensation
shall not include reimbursements of expenses, allowances, long-term disability,
workers' compensation or any amount deemed received without the actual transfer
of cash or any amounts directly or indirectly paid pursuant to the Plan or any
other stock purchase or stock option plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of a Participating Company and for purposes of Section 423 of the Code;
provided, however, that neither service as a director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of a share of Stock (or
the mean of the closing bid and asked prices of a share of Stock if the Stock is
so reported instead) as reported on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System, the NASDAQ National Market System
or such other national or regional securities exchange or market system
constituting the primary market for the Stock. If the relevant date does not
fall on a day on which the Stock is trading on the NASDAQ, the NASDAQ National
Market System or other national or regional securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board without regard to
any restriction other than a restriction which, by its terms, will never lapse.
Notwithstanding the foregoing, the Fair Market Value per share of Stock on the
Effective Date shall be deemed to be the public offering price set forth in the
final prospectus filed with the Securities and Exchange Commission in connection
with the initial public offering of the Stock.
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(j) "OFFERING" means an offering of Stock as provided in
Section 6.
(k) "OFFERING DATE" means, for any Offering Period, the first
day of such Offering Period.
(l) "OFFERING PERIOD" means a period determined in accordance
with Section 6.1.
(m) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee participating in
the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation which the Board determines should be
included in the Plan. The Board shall have the sole and absolute discretion to
determine from time to time what Parent Corporations or Subsidiary Corporations
shall be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(q) "PURCHASE DATE" means, for any Purchase Period, the last
day of such Purchase Period.
(r) "PURCHASE PERIOD" means a period determined in accordance
with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased pursuant to the Plan, as determined in accordance with Section
9.
(t) "PURCHASE RIGHT" means an option pursuant to the Plan to
purchase such shares of Stock as provided in Section 8 which may or may not be
exercised at the end of an Offering Period. Such option arises from the right of
a Participant to withdraw such Participant's accumulated payroll deductions (if
any) and terminate participation in the Plan or any Offering therein at any time
during a Purchase Period.
(u) "STOCK" means Class A Common Stock, par value $0.001, of
the Company after giving effect to the Company's anticipated reincorporation in
Delaware, as adjusted from time to time in accordance with Section 4.2.
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<PAGE> 4
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION. The Plan shall be administered by the Board,
including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or such Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Two Hundred Thousand (200,000) and shall
consist of authorized but unissued or reacquired shares of the Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan, to the Per Offering
Share Limit set forth in Section 8.1 and to each Purchase Right and in the
Purchase Price.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a
Participating Company is eligible to participate in the Plan except the
following:
(a) Employees who are customarily employed by the
Participating Company Group for twenty (20) hours or less per week;
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<PAGE> 5
(b) Employees who have not completed two (2) years of
employment with the Participating Company Group as of the commencement of the
Offering Period;
(c) Employees who are customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year; and
(d) Employees who own or hold options to purchase or who, as a
result of participation in the Plan, would own or hold options to purchase,
stock of the Company or of any Parent Corporation or Subsidiary Corporation
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of such corporation within the meaning of Section
423(b)(3) of the Code.
5.2 LEASED EMPLOYEES EXCLUDED. Notwithstanding anything herein to
the contrary, any individual performing services for a Participating Company
solely through a leasing agency or employment agency shall not be deemed an
"Employee" of such Participating Company.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of approximately twenty-four (24)
months duration (an "OFFERING PERIOD"); provided, however that the first
Offering Period shall commence on the Effective Date and end on May 31, 1999
(the "INITIAL OFFERING PERIOD"). Subsequent Offerings shall commence on the
first day of June and December of each year and end on the last day of the
second May and November, respectively, occurring thereafter. Notwithstanding the
foregoing, the Board may establish a different term for one or more Offerings or
different commencing or ending dates for such Offerings; provided, however, that
no Offering may exceed a term of twenty-seven (27) months. An Employee who
becomes an Eligible Employee after an Offering Period has commenced shall not be
eligible to participate in such Offering but may participate in any subsequent
Offering provided such Employee is still an Eligible Employee as of the
commencement of any such subsequent Offering. Eligible Employees may not
participate in more than one Offering at a time. In the event the first or last
day of an Offering Period is not a business day, the Company shall specify the
business day that will be deemed the first or last day, as the case may be, of
the Offering Period.
6.2 PURCHASE PERIODS. Each Offering Period shall consist of four (4)
consecutive purchase periods of approximately six (6) months duration
(individually, a "PURCHASE PERIOD"). The Purchase Period commencing on the
Offering Date of the Initial Offering Period shall end on November 30, 1997. A
Purchase Period commencing on June 1 shall end on the last day of the next
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<PAGE> 6
following November. A Purchase Period commencing on December 1 shall end on the
last day of the next following May. Notwithstanding the foregoing, the Board may
establish a different term for one or more Purchase Periods or different
commencing or ending dates for such Purchase Periods. In the event the first or
last day of a Purchase Period is not a business day, the Company shall specify
the business day that will be deemed the first or last day, as the case may be,
of the Purchase Period.
6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any
other provision of the Plan to the contrary, any Purchase Right granted pursuant
to the Plan shall be subject to (a) obtaining all necessary governmental
approvals or qualifications of the sale or issuance of the Purchase Rights or
the shares of Stock and (b) obtaining stockholder approval of the Plan.
Notwithstanding the foregoing, stockholder approval shall not be necessary in
order to grant any Purchase Right granted in the Plan's Initial Offering Period;
provided, however, that the exercise of any such Purchase Right shall be subject
to obtaining stockholder approval of the Plan.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements of Section 5 and delivering to the Company's payroll office or
other office designated by the Company not later than the close of business for
such office on the last business day before such Offering Date (the
"SUBSCRIPTION DATE") a subscription agreement indicating the Employee's election
to participate in the Plan and authorizing payroll deductions. An Eligible
Employee who does not deliver a subscription agreement to the Company's payroll
or other designated office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Employee subsequently enrolls in the Plan by filing a
subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
proper administration of the Plan.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
until such time as such Participant (a) ceases to be an Eligible Employee, (b)
withdraws from the Plan pursuant to Section 13.2 or (c) terminates employment as
provided in Section 14. If a Participant automatically may participate in a
subsequent Offering Period pursuant to this Section 7.2, then the Participant is
not required to file any additional subscription agreement for such subsequent
Offering Period in order to continue participation in the Plan. However, a
Participant may file a subscription agreement with respect to a subsequent
Offering Period if the Participant desires to
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change any of the Participant's elections contained in the Participant's then
effective subscription agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 PURCHASE RIGHT. Except as set forth below, during an Offering
Period each Participant in such Offering Period shall have a Purchase Right
consisting of the right to purchase that number of whole shares of Stock arrived
at by dividing Fifty Thousand Dollars ($50,000) by the Fair Market Value of a
share of Stock on the Offering Date of such Offering Period; provided, however,
that such number shall not exceed five thousand (5,000) shares (the "PER
OFFERING SHARE LIMIT"). Shares of Stock may only be purchased through a
Participant's payroll deductions pursuant to Section 10.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
foregoing, if the Board shall establish an Offering Period of less than
twenty-three and one-half (23 1/2) months or more than twenty-four and one-half
(24 1/2) months in duration, (a) the dollar amount in Section 8.1 shall be
determined by multiplying $2,083.33 by the number of months in the Offering
Period and rounding to the nearest whole dollar, and (b) the Per Offering Share
Limit shall be determined by multiplying 208.33 shares by the number of months
in the Offering Period and rounding to the nearest whole share. For purposes of
the preceding sentence, fractional months shall be rounded to the nearest whole
month.
9. PURCHASE PRICE. The Purchase Price at which each share of Stock may
be acquired in a given Offering Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan shall be set by the Board;
provided, however, that the Purchase Price shall not be less than eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on
the Offering Date of the Offering Period, or (b) the Fair Market Value of a
share of Stock on the Purchase Date of the Offering Period. Unless otherwise
provided by the Board prior to the commencement of an Offering Period, the
Purchase Price for that Offering Period shall be eighty-five percent (85%) of
the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date
of the Offering Period, or (b) the Fair Market Value of a share of Stock on the
Purchase Date of the Offering Period.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period. Except as set forth below, the amount of Compensation to be deducted
from a Participant's Compensation during each pay period shall be determined by
the Participant's subscription agreement.
10.1 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the
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end of the Offering Period unless sooner altered or terminated as provided in
the Plan.
10.2 LIMITATIONS ON PAYROLL DEDUCTIONS. The amount of payroll
deductions with respect to the Plan for any Participant during any pay period
shall be in one percent (1%) increments not to exceed ten percent (10%) of the
Participant's Compensation for such pay period. Notwithstanding the foregoing,
the Board may change the limits on payroll deductions effective as of a future
Offering Date, as determined by the Board. Amounts deducted from Compensation
shall be reduced by any amounts contributed by the Participant and applied to
the purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under Section 423 of the Code.
10.3 ELECTION TO INCREASE, DECREASE OR STOP PAYROLL DEDUCTIONS.
During an Offering Period, a Participant may elect to increase or decrease the
amount deducted or stop deductions from his or her Compensation by filing an
amended subscription agreement with the Company on or before the "Change Notice
Date." The "CHANGE NOTICE DATE" shall initially be the seventh (7th) day prior
to the end of the first pay period for which such election is to be effective;
however, the Company may change such Change Notice Date from time to time.
10.4 PARTICIPANT ACCOUNTS. Individual Plan accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
10.6 COMPANY ESTABLISHED PROCEDURES. The Company may, from time to
time, establish or change (a) a minimum required payroll deduction amount for
participation in an Offering, (b) limitations on the frequency or number of
changes in the rate of payroll deduction during an Offering, (c) an exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars, (d)
payroll deduction in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (e) the date(s) and manner by which the
Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan, or (f) such other limitations or procedures as
deemed advisable by the Company in the Company's sole discretion which are
consistent with the Plan and in accordance with the requirements of Section 423
of the Code.
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11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock arrived at by
dividing the total amount of the Participant's accumulated payroll deductions
for the Purchase Period by the Purchase Price; provided, however, in no event
shall the number of shares purchased by the Participant during an Offering
Period exceed the number of shares subject to the Participant's Purchase Right.
No shares of Stock shall be purchased on a Purchase Date on behalf of a
Participant whose participation in the Offering or the Plan has terminated on or
before such Purchase Date.
11.2 RETURN OF CASH BALANCE. Any cash balance remaining in the
Participant's Plan account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole share of Stock, the Company may establish
procedures whereby such cash is maintained in the Participant's Plan account and
applied toward the purchase of shares of Stock in the subsequent Purchase Period
or Offering Period.
11.3 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.4 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
12. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER.
12.1 FAIR MARKET VALUE LIMITATION. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase shares of
Stock under the Plan (or any other employee stock purchase plan which is
intended to meet the requirements of Section 423 of the Code sponsored by the
Company or a Parent Corporation or Subsidiary Corporation at a rate which
exceeds $25,000 in Fair Market Value, which Fair Market Value is determined for
shares purchased
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during a given Offering Period as of the Offering Date for such Offering Period
(or such other limit as may be imposed by the Code), for each calendar year in
which the Participant participates in the Plan (or any other employee stock
purchase plan described in this sentence).
12.2 PRO RATA ALLOCATION. In the event the number of shares of Stock
which might be purchased by all Participants in the Plan exceeds the number of
shares of Stock available in the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable.
12.3 RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have
no rights as a stockholder by virtue of the Participant's participation in the
Plan until the date of the issuance of a stock certificate for the shares of
Stock being purchased pursuant to the exercise of the Participant's Purchase
Right. No adjustment shall be made for cash dividends or distributions or other
rights for which the record date is prior to the date such stock certificate is
issued. Nothing herein shall confer upon a Participant any right to continue in
the employ of the Participating Company Group or interfere in any way with any
right of the Participating Company Group to terminate the Participant's
employment at any time.
13. WITHDRAWAL.
13.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an
Offering by signing and delivering to the Company's payroll or other designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period; provided, however, if a Participant withdraws after the
Purchase Date for a Purchase Period of an Offering, the withdrawal shall not
affect shares of Stock acquired by the Participant in such Purchase Period.
Unless otherwise indicated, withdrawal from an Offering shall not result in a
withdrawal from the Plan or any succeeding Offering therein. By withdrawing from
an Offering effective as of the close of a given Purchase Date, a Participant
may have shares of Stock purchased on such Purchase Date and immediately
commence participation in the new Offering commencing immediately after such
Purchase Date. A Participant is prohibited from again participating in an
Offering at any time following withdrawal from such Offering. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Company's payroll office or other designated office for a
reasonable period prior to the effectiveness of the Participant's withdrawal
from an Offering.
13.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the
Plan by signing and delivering to the Company's payroll office or other
designated office a written notice of withdrawal on a form provided by the
Company for such purpose. Withdrawals made after a Purchase Date shall not
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affect shares of Stock acquired by the Participant on such Purchase Date. In the
event a Participant voluntarily elects to withdraw from the Plan, the
Participant may not resume participation in the Plan during the same Offering
Period, but may participate in any subsequent Offering under the Plan by again
satisfying the requirements of Sections 5 and 7.1. The Company may impose, from
time to time, a requirement that the notice of withdrawal be on file with the
Company's payroll office or other designated office for a reasonable period
prior to the effectiveness of the Participant's withdrawal from the Plan.
13.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's withdrawal
from an Offering or the Plan pursuant to Sections 13.1 or 13.2, respectively,
the Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares of Stock shall be returned as soon as practicable
after the withdrawal, without the payment of any interest, to the Participant,
and the Participant's interest in the Offering or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
13.4 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair Market Value
of a share of Stock on a Purchase Date of an Offering (other than the final
Purchase Date of such Offering) is less than the Fair Market Value of a share of
Stock on the Offering Date for such Offering, then every Participant shall
automatically (a) be withdrawn from such Offering at the close of such Purchase
Date and after the acquisition of shares of Stock for such Purchase Period and
(b) be enrolled in the Offering commencing on the first business day subsequent
to such Purchase Period. A Participant may elect not to be automatically
withdrawn from an Offering Period pursuant to this Section 13.4 by delivering to
the Company not later than the close of business on the last day before the
Purchase Date a written notice indicating such election.
14. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
Participant's employment with a Participating Company for any reason, including
retirement, disability or death or the failure of a Participant to remain an
Eligible Employee, shall terminate the Participant's participation in the Plan
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 14. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
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15. TRANSFER OF CONTROL.
15.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company a party; (iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or (iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
15.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event
of a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan or
substitute substantially equivalent Purchase Rights for stock of the Acquiring
Corporation. If the Acquiring Corporation elects not to assume or substitute for
the outstanding Purchase Rights, the Board may, in its sole discretion and
notwithstanding any other provision herein to the contrary, adjust the Purchase
Date of the then current Purchase Period to a date on or before the date of the
Transfer of Control, but shall not adjust the number of shares of Stock subject
to any Purchase Right. All Purchase Rights which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Purchase Rights immediately prior to an Ownership Change
Event described in
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Section 15.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of section 1504(a) of the Code without
regard to the provisions of section 1504(b) of the Code, the outstanding
Purchase Rights shall not terminate unless the Board otherwise provides in its
sole discretion.
16. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. The Company, in its absolute discretion, may impose
such restrictions on the transferability of the shares purchasable upon the
exercise of a Purchase Right as it deems appropriate and any such restriction
shall be set forth in the respective subscription agreement and may be referred
to on the certificates evidencing such shares.
17. REPORTS. Each Participant who exercised all or part of his or her
Purchase Right for a Purchase Period shall receive, as soon as practicable after
the Purchase Date of such Purchase Period, a report of such Participant's Plan
account setting forth the total payroll deductions accumulated, the number of
shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the remaining cash balance to be refunded or retained in the
Participant's Plan account pursuant to Section 11.2, if any. Each Participant
shall be provided information concerning the Company equivalent to that
information generally made available to the Company's common stockholders.
18. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or state law with respect to such securities. A Purchase Right may not
be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable foreign, federal or state securities laws or other
law or regulations. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or
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regulation, and to make any representation or warranty with respect thereto as
may be requested by the Company.
19. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant in order to
carry out the provisions of this Section . Unless otherwise specified by the
Company, legends placed on such certificates may include but shall not be
limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE _______, 19__ . THE REGISTERED HOLDER
SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME
(AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (and not in the name of any
nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the
certificates evidencing shares acquired by exercise of a Purchase Right refer to
such requirement to give prompt notice of disposition.
21. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time
amend or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under the
Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the shares
of Stock under applicable foreign, federal or state securities laws). In
addition, an amendment to the Plan must be approved by the stockholders of the
Company within twelve (12) months of the adoption of such amendment if such
amendment
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would authorize the sale of more shares than are authorized for issuance under
the Plan or would change the definition of the corporations that may be
designated by the Board as Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the Jaycor Emerging Technologies, Inc. 1997 Employee Stock Purchase Plan
was duly adopted by the Board of Directors of the Company on February 25, 1997.
------------------------------------
Secretary
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PLAN HISTORY
February 25, 1997 Board adopts Plan, with an initial reserve of 200,000
shares.
___________, 1997 Stockholders approve Plan, with an initial reserve of
200,000 shares.
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JAYCOR EMERGING TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
/ / Original Application
/ / Change in Percentage of Payroll Deductions
I hereby elect to participate in the 1997 Employee Stock Purchase Plan
(the "PLAN") of Jaycor Emerging Technologies, Inc. (the "COMPANY") and subscribe
to purchase shares of the Company's common stock as determined in accordance
with the terms of the Plan.
I hereby authorize payroll deductions in the amount of ________ percent
(in 1% increments not to exceed 10%) of my "COMPENSATION" (as defined in the
Plan) from each paycheck throughout the "OFFERING PERIOD" (as defined in the
Plan) in accordance with the terms of the Plan. I understand that these payroll
deductions will be accumulated for the purchase of shares of common stock of the
Company at the applicable purchase price determined in accordance with the Plan.
I further understand that, except as otherwise set forth in the Plan, shares
will be purchased for me automatically on the last day of each Purchase Period
unless I withdraw from the Plan or from the Offering by giving written notice to
the Company or unless I terminate employment.
I further understand that I will automatically participate in each
subsequent Offering which commences immediately after the last day of an
Offering in which I am participating under the Plan until such time as I file
with the Company a notice of withdrawal from the Plan on such form as may be
established from time to time by the Company or I terminate employment.
Shares purchased for me under the Plan should be issued in the name set
forth below. (I understand that shares may be issued either in my name alone or
together with my spouse as community property or in joint tenancy.)
NAME: ________________________________________________________
ADDRESS: ________________________________________________________
________________________________________________________
MY SOCIAL SECURITY NUMBER: _________________________________________
I hereby authorize withholding from my compensation in order to satisfy
the foreign, federal, state and local tax withholding obligations, if any, which
may arise upon my purchase of shares under the Plan and/or upon my disposition
of shares I acquired under the Plan. I hereby agree that until I dispose of the
shares, unless otherwise permitted by the Company, I will hold all shares I
acquire under the Plan in the name entered above (and not in the name of any
nominee) for at least two (2) years from the first day of the Offering Period in
which, and at least one (1) year from the Purchase Date on which, I acquired
such shares. I further agree that I will promptly notify the Chief Financial
Officer of the Company in writing of any transfer of such shares prior to the
end of the periods referred to in the preceding sentence.
I am familiar with the provisions of the Plan and hereby agree to
participate in the Plan subject to all of the provisions thereof. I understand
that the Board of Directors of the Company reserves the right to amend the Plan
and my right to purchase stock under the Plan as may be necessary to qualify the
Plan as an employee stock purchase plan as defined in section 423 of the
Internal Revenue Code of 1986, as amended, or to obtain qualification or
registration of the Company's common stock to be issued out of the Plan under
applicable foreign, federal and state securities laws. I understand that the
effectiveness of this subscription agreement is dependent upon my eligibility to
participate in the Plan.
Date: ________________________ Signature:__________________________________
Name Printed:_______________________________
<PAGE> 18
JAYCOR EMERGING TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I hereby elect to withdraw from the current offering (the "CURRENT
OFFERING") of the common stock of Jaycor Emerging Technologies, Inc. (the
"COMPANY") under the Company's 1997 Employee Stock Purchase Plan (the "PLAN").
MAKE ONE ELECTION UNDER SECTION A AND ONE ELECTION UNDER SECTION B:
A. Current Offering. As to my participation in the current purchase period
(the "Current Purchase Period") of the Current Offering under the Plan, I
elect as follows (check one):
____ 1. I elect to terminate my participation in the Current Purchase Period
immediately.
I hereby request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares under
the Plan shall not be used to purchase shares on the last day of the
Current Purchase Period. Instead, I request that all such amounts be
paid to me as soon as practicable. I understand that this election
immediately terminates my interest in the Current Offering.
____ 2. I elect to terminate my participation in the Current Offering
following my purchase of shares on the last day of the Current
Purchase Period.
I hereby request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares under
the Plan shall be used to purchase shares on the last day of the
Current Purchase Period. I understand that this election will
terminate my interest in the Current Offering immediately following
such purchase. I request that any cash balance remaining in my
account under the Plan after my purchase of shares be returned to me
as soon as practicable.
I understand that if no election is made as to participation in the
Current Offering under the Plan, I will be deemed to have elected to participate
in the Current Offering.
B. Future Offerings. As to my participation in future offerings of common
stock under the Plan, I elect as follows (check one):
____ 1. I elect to participate in future offerings under the Plan.
I understand that by making this election I will participate in the
next offering under the Plan commencing subsequent to the Current
Offering, and in each subsequent offering commencing immediately
after the last day of an offering in which I participate, until such
time as I elect to withdraw from the Plan or from any such
subsequent offering.
____ 2. I elect not to participate in future offerings under the Plan.
I understand that by making this election I terminate my interest in
the Plan and that no further payroll deductions will be made unless
I elect in accordance with the Plan to become a participant in
another offering under the Plan.
I understand that if no election is made as to participation in future
offerings under the Plan, I will be deemed to have elected to participate in
such future offerings.
Date:____________________________
Signature:_______________________________________
Name Printed:____________________________________
<PAGE> 1
EXHIBIT 10.10
8/1/93
The CORPORATEplan for Retirement
THE PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 07
<PAGE> 2
8/1/93
THE CORPORATE PLAN FOR RETIREMENT
PROFIT SHARING/401(K) PLAN
ARTICLE I
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 - Definitions
ARTICLE 3
PARTICIPATION
3.01 - Date of Participation
3.02 - Resumption of Participation Following Reemployment
3.03 - Cessation or Resumption of Participation Following a Change in Status
3.04 - Participation by Owner-Employee; Controlled Businesses
3.05 - Omission of Eligible Employee
ARTICLE 4
CONTRIBUTIONS
4.01 - Deferral Contributions
4.02 - Additional Limit on Deferral Contributions
4.03 - Hatching Contributions
4.04 - Limit on Matching Contributions and Employee Contributions
4.05 - Special Rules
4.06 - Fixed/Discretionary Employer Contributions
4.07 - Time of Making Employer Contributions
4.08 - Return of Employer Contributions
4.09 - Employee Contributions
4.10 - Rollover Contributions
4.11 - Deductible Voluntary Employee Contributions
4.12 - Additional Rules for Paired Plans
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 - Individual Accounts
5.02 - Valuation of Accounts
5.03 - Code Section 415 Limitations
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 - Manner of Investment
6.02 - Investment Decisions
6.03 - Participant Directions to Trustee
ARTICLE 7
RIGHT TO BENEFITS
7.01 - Normal or Early Retirement
7.02 - Late Retirement
7.03 - Disability Retirement
7.04 - Death
7.05 - Other Termination of Employment
7.06 - Separate Account
7.07 - Forfeitures
7.08 - Adjustment for Investment Experience
7.09 - Participant Loans
7.10 - In-Service Withdrawals
7.11 - Prior Plan In-Service Distribution Rules
<PAGE> 3
8/1/93
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE
8.01 - Distribution of Benefits to Participants and Beneficiaries
8.02 - Annuity Distributions
8.03 - Joint and Survivor Annuities/Preretirement Survivor Annuities
8.04 - Installment Distributions
8.05 - Immediate Distributions
8.06 - Determination of Method of Distribution
8.07 - Notice to Trustee
8.08 - Time of Distribution
8.09 - Whereabouts of Participants and Beneficiaries
ARTICLE 9
TOP-HEAVY PROVISIONS
9.01 - Application
9.02 - Definitions
9.03 - Minimum Contribution
9.04 - Adjustment to the Limitation on Contributions and Benefits
9.05 - Minimum Vesting
ARTICLE 10
AMENDMENT AND TERMINATION
10.01 - Amendment by Employer
10.02 - Amendment by Prototype Sponsor
10.03 - Amendments Affecting Vested and/or Accrued Benefits
10.04 - Retroactive Amendments
10.05 - Termination
10.06 - Distribution upon Termination of that Plan
10.07 - Merger or Consolidation of Plan; Transfer of Plan Assets
ARTICLE 11
AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS
TO OR FROM OTHER QUALIFIED PLANS
11.01 - Amendment and Continuation of Predecessor Plan
11.02 - Transfer of Funds from an Existing Plan
11.03 - Acceptance of Assets by Trustee
11.04 - Transfer of Assets from Trust
ARTICLE 12
MISCELLANEOUS
12.01 - Communication to Participants
12.02 - Limitation of Rights
12.03 - Nonalienability of Benefits and Qualified Domestic Relations
Orders
12.04 - Facility of Payment
12.05 - Information Between Employer and Trustee
12.06 - Effect of Failure to Qualify Under Code
12.07 - Notices
12.08 - Governing Law
ARTICLE 13
PLAN ADMINISTRATION
13.01 - Powers and Responsibilities of the Administrator
13.02 - Nondiscriminatory Exercise of Authority
13.03 - Claims and Review Procedures
13.04 - Named Fiduciary
13.05 - Costs of Administration
<PAGE> 4
8/1/93
ARTICLE 14
TRUST AGREEMENT
14.01 - Acceptance of Trust Responsibilities
14.02 - Establishment of Trust Fund
14.03 - Exclusive Benefit
14.04 - Powers of Trustee
14.05 - Accounts
14.06 - Approving of Accounts
14.07 - Distribution from Trust Fund
14.08 - Transfer of Amounts from Qualified Plan
14.09 - Transfer of Assets from Trust
14.10 - Separate Trust or Fund for Existing Plan Assets
14.11 - Voting; Delivery of Information
14.12 - Compensation and Expenses of Trustee
14.13 - Reliance by Trustee on other Persons
14.14 - Indemnification by Employer
14.15 - Consultation by Trustee with Counsel
14.16 - Persons Dealing with the Trustee
14.17 - Resignation or Removal of Trustee
14.18 - Fiscal Year of the Trust
14.19 - Discharge of Duties by Fiduciaries
14.20 - Amendment
14.21 - Plan Termination
14.22 - Permitted Reversion of Funds to Employer
14.23 - Governing Law
<PAGE> 5
8/1/93
Article 1. Adoption Agreement.
Article 2. Definitions.
2.01. Definitions.
(a) Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
(1) "Account" means an account established on the books of the Trust
for the purpose of recording contributions made on behalf of a
Participant and any income, expenses, gains or losses incurred
thereon.
(2) "Administrator" means the Employer adopting this Plan, or other
person designated by the Employer in Section 1.01(c).
(3) "Adoption Agreement" means Article 1 under which the Employer
establishes and adopts, or amends, the Plan and Trust and designates
the optional provisions selected by the Employer, and the Trustee
accepts its responsibilities under Article 14. The provisions of the
Adoption Agreement shall be an integral part of the Plan.
(4) "Annuity Starting Date" means the first day of the first period
for which an amount is payable as annuity or in any other form.
(5) "Beneficiary" means that person or persons entitled under Section
7.04 to receive benefits under the Plan upon the death of a
Participant, provided that for purposes of Section 7.04 such term
shall be applied in accordance with Section 401(a)(9) of the Code and
the regulations thereunder.
(6) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(7) "Compensation" shall mean:
(A) for purposes of Article 4 (Contributions), compensation as
defined in Section 5.03(e)(2) excluding any items elected by the
Employer in Section 1.04(a), reimbursements or other expense
allowances, fringe benefits (cash and non-cash), moving expenses,
deferred compensation and welfare benefits, but including amounts
that are not includable in the gross income of the Participant
under a salary reduction agreement by reason of the application
of Sections 125, 402(a)(8), 402(h), or 403(b) of the Code; and
(B) for purposes of Section 2.01(a)(16) (Highly Compensated
Employees), Section 5.03 (Code Section 415 Limitations), and
Section 9.03 (Top Heavy Plan Minimum Contributions), compensation
as defined in Section 5.03(e)(2).
Compensation shall generally be based on the amount actually paid
to the Participant during the Plan Year or, for purposes of Article 4
if so elected by the Employer in Section 1.04(b), during that portion
of the Plan Year during which the Employee is eligible to participate.
Notwithstanding the preceding sentence, compensation for purposes of
Section 5.03 (Code Section 415 Limitations) shall be based on the
amount actually paid or made available to the Participant during the
Limitation Year. Compensation for the initial Plan Year for a new plan
<PAGE> 6
8/1/93
shall be based upon eligible Participant Compensation, subject to
Section 1.04(b), from the Effective Date listed in Section 1.01(g)(1)
through the end of the first Plan Year.
In the case of any Self-Employed Individual, Compensation shall
mean the Individual's Earned Income.
For years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account for determining
all benefits provided under the plan for any determination period
shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Section
415(d) of the Code, except that the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in
such calendar year and the first adjustment to the $200,000 limitation
is effected on January 1, 1990. If a plan determines Compensation on a
period of time that contains fewer than 12 calendar months, then
annual compensation limit is amount equal to the annual Compensation
limit for the calendar year in which the Compensation period begins
multiplied by the ratio obtained by dividing the number of full months
in the period by 12.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for the
current determination period, the Compensation for such prior year is
subject to the applicable annual compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1,
1990, the applicable annual compensation limit is $200,000.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
the year. If the $200,000 limitation is exceeded as a result of the
application of these rules, then the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application
of this limitation.
(8) "Earned Income" means the net earnings of a Self-Employed
Individual derived from the trade or business with respect to which
the Plan is established and for which the personal services of such
individual are a material income-providing factor, excluding any items
not included in gross income and the deductions allocated to such
items, except that for taxable years beginning after December 31, 1989
net earnings shall be determined with regard to the deduction allowed
under Section 164(f) of the Code, to the extent applicable to the
Employer. Net earnings shall be reduced by contributions of the
Employer to any qualified plan, to the extent a deduction is allowed
to the Employer for such contributions under Section 404 of the Code.
(9) "Eligibility Computation Period" means each 12-consecutive month
period beginning with the Employment Commencement Date and each
anniversary thereof or, in the case of an Employee who before
completing the eligibility requirements set forth in Section
1.03(a)(1) incurs a break in service for participation purposes and
thereafter returns to the employ of the Employer or
<PAGE> 7
8/1/93
Related Employer, each 12-consecutive month period beginning with the
first day of reemployment and each anniversary thereof.
A "break in service for participation purposes" shall mean an
Eligibility Computation Period during which the participant does not
complete more than 500 Hours of Service with the Employer.
(10) "Employee" means any employee of the Employer, any Self-Employed
Individual or Owner-Employee. The Employer must specify in section
1.03(a)(3) any Employee, or class of Employees, not eligible to
participate in the Plan. If the Employer elects to exclude collective
bargaining employees, the exclusion applies to any employee of the
Employer 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 unless the
collective bargaining agreement requires the employee to be included
within the Plan. The term "employee representatives" does not include
any organization more than half the members of which are owners,
officers, or executives of the Employer.
For purposes of the Plan, an individual shall be considered to
become an Employee on the date on which he first completes an Hour of
Service and he shall be considered to have ceased to be an Employee on
the date on which he last completes an Hour of Service. The term also
includes a Leased Employee, such that contributions or benefits
provided by the leasing organization which are attributable to
services performed for the Employer shall be treated as provided by
the Employer. Notwithstanding the above, a Leased Employee shall not
be considered an Employee if Leased Employees do not constitute more
than 20 percent of the Employer's non-highly compensated work force
(taking into account all Related Employers) and the Leased Employee is
covered by a money purchase pension plan maintained by the leasing
organization which plan provides (i) a nonintegrated employer
contribution rate of at least 10 percent of compensation, as defined
for purposes of Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are
excludable from gross income under Section 125, Section 402(a)(8),
Section 402(h) or Section 403(b) of the Code, (ii) full and immediate
vesting, and (iii) immediate participation by each employee of the
leasing organization.
(11) "Employer" means the employer named in Section 1.02(a) and any
Related Employers required by this Section 2.01(a)(11). If Article 1
of the Employer's Plan in the Standardized Adoption Agreement, the
term "Employer" includes all Related Employers. If Article 1 of the
Employer's Plan is the Non-Standardized Adoption Agreement, the term
"Employers" includes those Related Employers designated in Section
1.02(b).
(12) "Employment Commencement Dates" means the date on which the
Employee first performs an Hour of Service.
(13) "ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended.
(14) "Fidelity Fund" means any Registered Investment Company or
Managed Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans which is made available to plans utilizing the
CORPORATEplan for Retirement.
<PAGE> 8
8/1/93
(15) "Fund Share" means the share, unit, or other evidence of
ownership in a Fidelity Fund.
(16) "Highly Compensated Employee" means both highly compensated
active Employees and highly compensated former Employees.
A highly compensated active Employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (i) received compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section 415(d)
of the Code); (ii) received compensation from the Employer in excess
of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and
was a member of the top-paid group for such year; or (iii) was an
officer of the Employer and received compensation during such year
that is greater than 50 percent of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code. The term highly compensated
Employee also includes: (i) Employees who are both described in the
preceding sentence if the term "determination year" is substituted for
the term "look-back year" and the Employee is one of the 100 Employees
who received the most compensation from the Employer during the
determination year; and (ii) Employees who are 5 percent owners at any
time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a highly
compensated Employee.
For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve-month period immediately
preceding the determination year. The Employer may elect to make the
look-back year calculation for a determination on the basis of the
calendar year ending with or within the applicable determination year,
as prescribed by Section 414(q) of the Code and the regulations issued
thereunder.
A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year,
a family member of either a 5 percent owner who is an active or former
Employee or a highly compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid
by the Employer during such year, then the family member and the 5
percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and plan contributions or benefits
equal to the sum of such compensation and contributions or benefits of
the family member and 5 percent owner or top-ten highly compensated
Employee. For purposes of this Section, family member includes the
spouse, lineal ascendants and descendants of the Employee or former
Employee and the spouses of such lineal ascendants and descendants.
<PAGE> 9
The determination of who is a highly compensated Employee,
including the determinations of the number and identity of Employees
in the top-paid group, the top 100 Employees, the number of Employees
treated as officers and the compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the regulations
thereunder.
(17) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, for the performance of duties for
the Employer or a Related Employer, each such hour to be credited
to the Employee for the Eligibility Computation Period in which
the duties were performed;
(B) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer or Related Employer
(including payments made or due from a trust fund or insurer to
which the Employer contributes or pays premiums) on account of a
period of time during which no duties are performed (irrespective
of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity, disability, layoff, jury
duty, military duty, or leave of absence, each such hour to be
credited to the Employee for the Eligibility Computation Period
in which such period of time occurs, subject to the following
rules:
(i) No more than 501 Hours of Service shall be credited
under this paragraph (B) on account of any single continuous
period during which the Employee performs no duties;
(ii) Hours of Service shall not be credited under this
paragraph (B) for a payment which solely reimburses the
Employee for medically-related expenses, or which is made or
due under a plan maintained solely for the purpose of
complying with applicable workmen's compensation,
unemployment compensation or disability insurance laws; and
(iii) If the period during which the Employee performs no
duties falls within two or more Eligibility Computation
Periods, and if the payment made on account of such period
is not calculated on the basis of units of time, the Hours
of Service credited with respect to such period shall be
allocated between not more than the first two such
Eligibility Computation Periods on any reasonable basis
consistently applied with respect to similarly situated
Employees; and
(C) Each hour not counted under paragraph (A) or (B) for which
back pay, irrespective of mitigation of damages, has been either
awarded or agreed to be paid by the Employer or a Related
Employer, each such hour to be credited to the Employee for the
Eligibility Computation Period to which the award or agreement
pertains rather than the Eligibility Computation Period in which
the award agreement or payment is made.
For purposes of determining Hours of Service, Employees of
the Employer and of all Related Employers will be treated as
employed by a single employer. For purposes of paragraphs (B) and
(C) above, Hours of Service will be calculated in accordance with
the provisions of Section 2530.200b-2(b) of the Department of
Labor regulations which are incorporated herein by reference.
<PAGE> 10
Solely for purposes of determining whether a break in
service for participation purposes has occurred in a computation
period, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the hours of service
which would otherwise been credited to such individual but for
such absence, or in any case in which such hours cannot be
determined, 8 hours of service per day of such absence. For
purposes of this paragraph, an absence from work for maternity
reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of a birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
The hours of service credited under this paragraph shall be
credited (1) in the computation period in which the absence
begins if the crediting is necessary to prevent a break in
service in that period, or (2) in all other cases, in the
following computation period.
(18) "Leased Employee" means any individual who provides services to
the Employer or a Related Employer (the "recipient") but is not
otherwise an employee of the recipient if (i) such services are
provided pursuant to an agreement between the recipient and any other
person (the "leasing organization"), (ii) such individual has
performed services for the recipient (or for the recipient and any
related persons within the meaning of Section 414(n)(6) of the Code)
on a substantially full-time basis for at least one year, and (iii)
such services are of a type historically performed by employees in the
business field of the recipient.
(19) "Normal Retirement Age" means the normal retirement age specified
in Section 1.06(a) of the Adoption Agreement. If the Employer enforces
a mandatory retirement age, the Normal Retirement Age is the lesser of
that mandatory age or the age specified in Section 1.06(a).
(20) "Owner-Employee" means, if the Employer is a sole proprietorship,
the individual who is the sole proprietor, or if the Employer is a
partnership, a partner who owns more than 10 percent of either the
capital interest or the profits interest of the partnership.
(21) "Participant" means any Employee who participates in the Plan in
accordance with Article 3 hereof.
(22) "Plan" means the plan established by the Employer in the form of
the prototype plan as set forth herein as a new plan or as an
amendment to an existing plan, by executing the Adoption Agreement,
together with any and all amendments hereto.
(23) "Plan Year" means the 12-consecutive month period designated by
the Employer in Section 1.01(f).
(24) "Prototype Sponsor" means Fidelity Management and Research
Company, or its successor.
(25) "Registered Investment Company" means any one or more
corporations, partnerships or trusts registered under the Investment
Company Act of 1940 for which Fidelity Management and Research Company
serves as investment advisor.
<PAGE> 11
(26) "Related Employer" means any employer other than the Employer
named in Section 1.02(a), if the Employer and such other employer are
members of a controlled group of corporations (as defined in Section
414(b) of the Code) or an affiliated service group (as defined in
Section 414(m)), or are trades or businesses (whether or not
incorporated) which are under common control (as defined in Section
414(c)), or such other employer is required to be aggregated with the
Employer pursuant to regulations issued under Section 414(o).
(27) "Self-Employed Individual" means an individual who has Earned
Income for the taxable year from the Employer or who would have had
Earned Income but for the fact that the trade or business had no net
profits for the taxable year.
(28) "Trust" means the trust created by the Employer in accordance
with the provisions of Section 14.01.
(29) "Trust Agreement" means the agreement between the Employer and
the Trustee, as set forth in Article 14, under which the assets of the
plan are held, administered, and managed.
(30) "Trust Fund" means the property held in Trust by the Trustee for
the Accounts of the Participants and their Beneficiaries.
(31) "Trustee" means the Fidelity Management Trust Company, or its
successor.
(32) "Year of Service for Participation" means, with respect to any
Employee, an Eligibility Computation Period during which the Employee
has been credited with at least 1,000 Hours of Service. If the Plan
maintained by the Employer is the plan of a predecessor employer, an
Employee's Years of Service for Participation shall include years of
service with such predecessor employer. In any case in which the Plan
maintained by the Employer is not the plan maintained by a predecessor
employer, service for such predecessor shall be treated as service for
the Employer, to the extent provided in Section 1.08.
(33) "Years of Service for Vesting" means, with respect to any
Employee, the number of whole years of his periods of service with the
Employer or a Related Employer (the elapsed time method to compute
vesting service), subject to any exclusions elected by the Employer in
Section 1.07(b). An Employee will receive credit for the aggregate of
all time period(s) commencing with the Employee's Employment
Commencement Date and ending on the date a break in service begins,
unless any such years are excluded by Section 1.07(b). An Employee
will also receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be expressed in
terms of days.
In the case of a Participant who has 5 consecutive 1-year breaks
in service, all years of service after such breaks in service will be
disregarded for the purpose of vesting the Employer-derived account
balance that accrued before such breaks, but both pre-break and
post-break service will count for the purposes of vesting the
Employer-derived account balance that accrues after such breaks. Both
accounts will share in the earnings and losses of the fund.
In the case of a Participant who does not have 5 consecutive
1-year breaks in service, both the pre-break and post-break service
will count in vesting both the pre-break and post-break
employer-derived account balance.
<PAGE> 12
A break in service is a period of severance of at least 12
consecutive months. Period of severance is a continuous period of time
during which the Employee is not employed by the Employer. Such period
begins on the date the Employee retires, quite or is discharged, or if
earlier, the 12 month anniversary of the date on which the Employee
was otherwise first absent from service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12-consecutive month period
beginning on the first anniversary of the first date of such absence
shall not constitute a break in service. For purposes of this
paragraph, an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual, (2)
by reason of the birth of a child of the individual, (3) by reason of
the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of
caring for such child for a period beginning immediately following
such birth or placement.
If the Plan maintained by the Employer is the plan of a
predecessor employer, an Employee's Years of Service for Vesting shall
include years of service with such predecessor employer. In any case
in which the Plan maintained by the Employer is not the plan
maintained by a predecessor employer, service for such predecessor
shall be treated as service for the Employer to the extent provided in
Section 1.08.
(b) Pronouns used in the Plan are in the masculine gender but include the
feminine gender unless the context clearly indicates otherwise.
Article 3. Participation.
3.01. Date of Participation. All Employees in the eligible class (as defined in
Section 1.03(a)(3)) who are in the service of the Employer on the Effective Date
will become Participants on the date elected by the Employer in Section 1.03(c).
Any other Employee will become a Participant in the Plan as of the first Entry
Date on which he first satisfies the eligibility requirements set forth in
Section 1.03(a). In the event that an Employee who is not a member of an
eligible class (as defined in Section 1.03(a)(3)) becomes a member of an
eligible class, the individual shall participate immediately if such individual
had already satisfied the eligibility requirements and would have otherwise
previously become a Participant.
If an eligibility requirement other than one Year of Service is elected in
1.03(a)(1), an Employee may not be required to complete a minimum number of
Hours of Service before becoming a Participant. An otherwise eligible Employee
subject to a minimum months of service requirement shall become a Participant on
the first Entry Date following his completion of the required number of
consecutive months of employment measured from his Employment Commencement Date
to the coinciding date in the applicable following month. For purposes of
determining consecutive months of service, the Related Employer and predecessor
employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32) shall apply.
3.02. Resumption of Participation Following Reemployment. If a Participant
ceases to be an Employee and thereafter returns to the employ of the Employer he
will be treated as follows:
(a) he will again become a Participant on the first date on which he
completes an Hour of Service for the Employer following his reemployment
and is in the eligible class of Employees as defined in section 1.03(a)(3),
and
<PAGE> 13
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(b) any distribution which he is receiving under the Plan will cease except
as otherwise required under Section 8.08.
3.03. Cessation or Resumption of Participation Following a Change in Status. If
any Participant continues in the employ of the Employer or Related Employer but
ceases to be a member of an eligible class as defined in Section 1.03(a)(3), the
individual shall continue to be a Participant for most purposes until the entire
amount of his benefit is distributed; however, the individual shall not be
entitled to receive an allocation of contributions or forfeitures during the
period that he is not a member of the eligible class. Such Participant shall
continue to receive credit for service completed during the period for purposes
of determining his vested interest in his Accounts. In the event that the
individual subsequently again becomes a member of an eligible class of
Employees, the Individual shall resume full participation immediately upon the
date of such change in status.
3.04. Participation by Owner-Employee; Controlled Businesses. If the Plan
provides contributions or benefits for one or more Owner-Employees who control
both the trade or business with respect to which the Plan is established and one
or more other trades or businesses, the Plan and any plan established with
respect to such other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and 401(d) of the Code with respect to the
employees of this and all such other trades or businesses. If the Plan provides
contributions or benefits for one or more Owner-Employees who control one or
more other trades or businesses, the Employees of each such other trade or
business must be included in a plan which satisfies Sections 401(a) and 401(d)
of the Code and which provides contributions and benefits not less favorable
than provided for Owner-Employees under the Plan.
If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of this Section, an Owner-Employee, or two or more
Owner-Employees, shall be considered to control a trade or business if such
Owner-Employee, or such Owner-Employees together, (i) own the entire interest in
an unincorporated trade or business, or (ii) in the case of a partnership, own
more than 50 percent of either the capital interest or the profits interest in
such partnership. For this purpose, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership controlled by such
Owner-Employee or such Owner-Employees.
3.05. Omission of Eligible Employee. If any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution, if necessary, so that the
omitted Employee receives the total amount which the said Employee would have
received had he not been omitted. For purposes of this Section 3.05, the term
"contribution" shall not include Deferral Contributions and Matching
Contributions made pursuant to Sections 4.01 and 4.03, respectively.
<PAGE> 14
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Article 4. Contributions.
4.01. Deferral Contributions.
(a) 4.01. Deferral Contributions. If so provided by the Employer in Section
1.05(b), each Participant may elect to execute a salary reduction agreement
with the Employer to reduce his compensation by a specified percentage not
exceeding 15% per payroll period, subject to any exceptions elected by the
Employer in Section 1.05(b)(2) and 1.05(b)(3) and equal to a whole number
multiple of one (1) percent. Such agreement shall become effective on the
first day of the first payroll period for which the Employer can reasonably
process the request. The Employer shall make a Deferral Contribution on
behalf of the Participant corresponding to the amount of said reduction,
subject to the restrictions set forth below. Under no circumstances may a
salary reduction agreement be adopted retroactively.
(b) A Participant may elect to change or discontinue the percentage by
which his Compensation is reduced by notice to the Employer as provided in
Section 1.05(b)(1).
(c) No Participant shall be permitted to have Deferral Contributions made
under the Plan, or any other qualified plan maintained by the Employer,
during the taxable year, in excess of the dollar limitation contained in
Section 402(g) of the Code in effect at the beginning of such taxable year.
A Participant may assign to the Plan any Excess Deferrals made during
the taxable year of the Participant by notifying the Plan Administrator on
or before March 15 following the taxable year of the amount of the Excess
Deferrals to be assigned to the Plan. A Participant is deemed to notify the
Administrator of any Excess Deferrals that arise by taking into account
only those Deferral contributions made to the Plan and any other plan of
the Employer. Notwithstanding any other provision of the Plan, Excess
Deferrals, plus any income and minus any lose allocable thereto, shall be
distributed no later than April 15 to any Participant to whose account
Excess Deferrals were so assigned for the preceding year and who claims
Excess Deferrals for such taxable year.
"Excess Deferrals" shall mean those Deferral contributions that are
includable in a participant's gross income under Section 402(g) of the Code
to the extent such Participant's Deferral Contributions for a taxable year
exceed the dollar limitation under such code section. For purposes of
determining Excess Deferrals, the term "Deferral Contributions" shall
include the sum of all Employer contributions made on behalf of such
Participant pursuant to an election to defer under any qualified CODA as
described in Section 401(k) of the Code, any simplified employee pension
cash or deferred arrangement as described in Section 402(h)(1)(B) of the
Code, any eligible deferred compensation plan under Section 457, any plan
as described under Section 501(c)(18) of the Code, and any Employer
Contributions made on the behalf of a Participant for the purchase of an
annuity contract under Section 403(b) of the Code pursuant to a salary
reduction agreement. Deferral Contributions shall not include any deferrals
properly distributed as excess annual additions. Excess Deferrals shall be
treated as annual additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
Excess Deferrals shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess
<PAGE> 15
8/1/93
Deferrals is (1) income or loss allocable to the Participant's Deferral
Contributions account for the taxable year multiplied by a fraction, the
numerator of which is such Participant's Excess Deferrals for the year and
the denominator is the Participant's account balance attributable to
Deferral Contributions without regard to any income or loss occurring
during such taxable year, or (2) such other amount determined under any
reasonable method, provided that such method is used consistently for all
Participants in calculating the distributions required under this Section
4.01(c) and Sections 4.02(d) and 4.04(d) for the Plan Year, and is used by
the Plan in allocating income or loss to Participants' accounts. Income or
loss allocable to the period between the end of the Plan Year and the date
of distribution shall be disregarded in determining income or lose.
(d) In order for the Plan to comply with the requirements of Sections
401(k), 402(g) and 415 of the Code and the regulations promulgated
thereunder, at any time in a Plan Year the Administrator may reduce the
rate of Deferral Contributions to be made on behalf of any Participant, or
class of Participants, for the remainder of that Plan Year, or the
Administrator may require that all Deferral Contributions to be made on
behalf of a Participant be discontinued for the remainder of that Plan
Year. Upon the close of the Plan Year or such earlier date as the
Administrator may determine, any reduction or discontinuance in Deferral
Contributions shall automatically cease until the Administrator again
determines that such a reduction or discontinuance of Deferral
Contributions is required.
4.02. Additional Limit on Deferral Contributions.
(a) The Actual Deferral Percentage (hereinafter "ADP") for Participants who
are Highly Compensated Employees for each Plan Year and the ADP for
participants who are Non-highly Compensated Employees for the same Plan
Year must satisfy one of the following tests.
(1) The ADP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by
1.25; or
(2) The ADP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by
2.0, provided that the ADP for participants who are Highly Compensated
Employees does not exceed the ADP for Participants who are Non-highly
Compensated Employees by more than two (2) percentage points.
(b) The following special rules apply for the purposes of this Section:
(1) The ADP for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Deferral Contributions
(and Qualified Discretionary Contributions if treated as Deferral
Contributions for purposes of the ADP test) allocated to his or her
accounts under two or more arrangements described in Section 401(k) of
the Code, that are maintained by the Employer, shall be determined as
if such Deferral Contributions (and, if applicable, such Qualified
Discretionary Contributions) were made under a single arrangement. If
a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash
<PAGE> 16
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or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Section 401(k) of the Code.
(2) In the event that this Plan satisfies the requirements of Sections
401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one
or more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with this
plan, then this Section shall be applied by determining the ADP of
Employees as if all such plans were a single plan. For Plan Years
beginning after December 31, 1989, plans may be aggregated in order to
satisfy section 401(k) of the Code only if they have the same Plan
Year.
(3) For purposes of determining the ADP of a Participant who is a
5-percent owner or one of the ten most highly-paid Highly Compensated
Employees, the Deferral Contributions (and Qualified Discretionary
Contributions if treated as Deferral Contributions for purposes of the
ADP test) and Compensation of such Participant shall include the
Deferral Contributions (and, if applicable, Qualified Discretionary
Contributions) and compensation for the Plan Year of Family Members
(as defined in Section 414(q)(6) of the Code). Family Members, with
respect to such Highly Compensated Employees, shall be disregarded as
separate employees in determining the ADP both for Participants who
are Non-highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(4) For purposes of determining the ADP test, Deferral Contributions
and Qualified Discretionary Contributions must be made before the last
day of the twelve-month period immediately following the Plan Year to
which contributions relate.
(5) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Discretionary
Contributions used in such test.
(6) The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
(c) The following definitions shall apply for purposes of this Section:
(1) "Actual Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (1) the amount of
Employer contributions actually paid over to the trust on behalf of
such Participant for the Plan Year to (2) the Participant's
Compensation for such Plan Year. Employer contributions on behalf of
any Participant shall include: (1) any Deferral Contributions made
pursuant to the Participant's deferral election, including Excess
Deferrals of Highly Compensated Employees, but excluding (a) Excess
Deferrals of Non-Highly Compensated Employees that arise solely from
Deferral Contributions made under the Plan or plans of the Employer
and (b) Deferral Contributions that are taken into account in the
Contribution Percentage test (provided the ADP test is satisfied both
with and without exclusion of these Deferral contributions); and (2)
at the election of the Employer, Qualified Discretionary
Contributions. Matching Contributions, whether or not non-forfeitable
when made, shall not be
<PAGE> 17
8/1/93
considered as Employer Contributions for purposes of this paragraph.
For purposes of computing Actual Deferral Percentages, an Employee who
would be a Participant but for the failure to make Deferral
Contributions shall be treated as a Participant on whose behalf no
Deferral Contributions are made.
(2) "Excess Contributions" shall mean, with respect to any Plan Year,
the excess of:
(a) The aggregate amount of Employer contributions actually taken
into account in computing the ADP of Highly Compensated Employees
for such Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning with
the highest of such percentages).
(3) "Qualified Discretionary Contributions" shall mean contributions
made by the Employer as elected in Section 1.05(g) and allocated to
Participant accounts of Non-highly Compensated Employees that such
Participants may not elect to receive in cash until distributed from
the plan; that are nonforfeitable when made; and that are
distributable only in accordance with the distribution provisions that
are applicable to Deferral Contributions. Participants shall not be
required to satisfy any hours of service or employment requirement in
order to receive an allocation of such contributions.
(d) Notwithstanding any other provision of this plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed
no later than the last day of each Plan Year to participants to whose
accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than 2-1/2 months after
the last day of the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax will be imposed on the employer maintaining the
plan with respect to such amounts. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such employees. Excess
Contributions of Participants who are subject to the family member
aggregation rules of Section 414(q)(6) of the Code shall be allocated among
the family members in proportion to the Deferral Contributions (and amounts
treated as Deferral Contributions) of each family member that is combined
to determine the combined ADP.
Excess Contributions shall be treated as annual additions under the
plan.
Excess Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to Excess
Contributions is (1) income or loss allocable to the Participant's Deferral
Contribution account (and if applicable, the Qualified Discretionary
Contribution account) for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess Contributions for the year
and the denominator is the Participant's account balance attributable to
Deferral Contributions without regard to any income or loss occurring
during such Plan Year, or (2) an amount determined under any reasonable
method, provided that such method is used consistently for all Participants
in calculating any distributions required under Section 4.02(d) and
Sections 4.01(c) and 4.04(d) for the Plan Year, and is used by the Plan in
allocating income or loss to the
<PAGE> 18
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Participants' accounts. Income or loss allocable to the period between the
end of the Plan Year and the date of distribution shall be disregarded in
determining income or loss.
Excess Contributions shall be distributed from the Participant's
Qualified Discretionary Contribution account only to the extent that such
Excess Contributions exceed the balance in the Participant's Deferral
Contributions account.
4.03. Matching Contributions. If so provided by the Employer in Section 1.05(c),
the Employer shall make a Matching Contribution on behalf of each Participant
who had Deferral Contributions made on his behalf during the year and who meets
the requirement, if any, of Section 1.05(c)(4). The amount of the Matching
Contribution shall be determined in accordance with Section 1.05(c), subject to
the limitations set forth in Section 4.04 and Section 404 of the Code. Matching
Contributions will not be allowed to be made by the Employer on any voluntary
nondeductible Employee Contributions.
4.04. Limit on Matching Contributions and Employee Contributions.
(a) The Average Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and
the ACP for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
(1) The ACP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ACP for participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by
1.25; or
(2) The ACP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ACP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by
two (2), provided that the ACP for Participants who are Highly
Compensated Employees does not exceed the ACP for Participants who are
Non-highly Compensated Employees by more than two (2) percentage
points.
(b) The following special rules apply for purposes of this section:
(1) If one or more Highly Compensated Employees participate in both a
qualified cash or deferred arrangement described in Section 401(k) of
the Code (hereafter "CODA") and a plan subject to the ACP test
maintained by the Employer and the sum of the ADP and ACP of those
Highly Compensated Employees subject to either or both tests exceeds
the Aggregate Limit, then the ACP of those Highly Compensated
Employees who also participate in a CODA will be reduced (beginning
with such Highly Compensated Employee whose ACP is the highest) so
that the limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts is reduced
shall be treated as an Excess Aggregate Contribution. The ADP and ACP
of the Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests. Multiple use does
not occur if either the ADP or ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of the Non-highly
Compensated Employees.
(2) For purposes of this section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated to
<PAGE> 19
8/1/93
his or her account under two or more plans described in section 401(a)
of the Code, or arrangements described in section 401(k) of the Code
that are maintained by the Employer, shall be determined as if the
total of such Contribution Percentage Amounts was made under each
plan. If a Highly Compensated Employee participates in two or more
cash or deferred arrangements that have different plan years, all cash
or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Section 401(m) of the Code.
(3) In the event that this plan satisfies the requirements of Sections
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such sections of the code only if aggregated with this
plan, then this section shall be applied by determining the
Contribution Percentage of Employees as if all such plans were a
single plan. For plan years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(m) of the Code only
if they have the a Plan Year.
(4) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Contribution Percentage
Amounts and Compensation of such Participant shall include the
Contribution Percentage Amounts and Compensation for the Plan Year of
Family Members (as defined in Section 414(q)(6) of the Code). Family
Members, with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the Contribution
Percentage both for Participants who are Non-highly Compensated
Employees and for Participants who are Highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage test,
Employee Contributions made pursuant to Section 1.05(d)(l) are
considered to have been made in the Plan Year in which contributed to
the Trust. Matching Contributions and Qualified Discretionary
Contributions will be considered made for a Plan Year if made no later
on than the end of the twelve-month period beginning on the day after
the close of the Plan Year.
(6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Discretionary
Contributions used in such test.
(7) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of Treasury.
(c) The following definitions shall apply for purposes of this Section:
(1) "Aggregate Limit" shall mean the greater of (A) or (B) where (A)
is the sum of (i) 125 percent of the greater of the ADP of the
Non-highly Compensated Employees for the Plan Year or the ACP of
Non-highly Compensated Employees under the plan subject to Section
401(m) of the Code for the Plan Year beginning with or within the Plan
Year of the CODA and (ii) the lesser of 200% or two plus the lesser of
such ADP or ACP and where (B) is the sum of (i) 125 percent of the
lesser of the ADP of the Non-highly Compensated Employees for the Plan
Year or the
<PAGE> 20
8/1/93
ACP of Non-highly Compensated Employees under the Plan subject to
Section 401(m) of the Code for the Plan Year beginning with or within
the Plan Year of the CODA and (ii) the lesser of 200% or two plus the
greater of such ADP or ACP.
(2) "Average Contribution Percentage" or "ACP" shall mean the average
of the Contribution Percentages of the Eligible Participants in a
group.
(3) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage Amounts to
the Participant's Compensation for the Plan Year.
(4) "Contribution Percentage Amounts" shall mean the sum of the
Employee Contributions and Matching Contributions made under the plan
on behalf of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall not include Matching Contributions that are
forfeited either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals, Excess
Contributions or Excess Aggregate Contributions. If so elected by the
Employer in Section 1.05(b)(4), the Employer may include Qualified
Discretionary Contributions in the Contribution Percentage Amounts.
The Employer also may elect to use Deferral Contributions in the
Contribution Percentage Amounts so long as the ADP test is met before
the Deferral Contributions are used in the ACP test and continues to
be met following the exclusion of those Deferral Contributions that
are used to meet the ACP test.
(5) "Deferral Contribution" shall mean any contribution made at the
election of the Participant pursuant to a salary reduction agreement
in accordance with Section 4.01(a).
(6) "Eligible Participant" shall mean any Employee who is eligible to
make an Employee Contribution, or a Deferral Contribution (if the
employer takes such contributions into account in the calculation of
the Contribution Percentage), or to receive a Matching Contribution.
(7) "Employee Contribution" shall mean any voluntary nondeductible
contribution made to the plan by or on behalf of a Participant that is
included in the Participant's gross income in the year in which made
and that is maintained in a separate account to which earnings and
losses are allocated.
(8) "Matching Contribution" shall mean an Employer Contribution made
to this or any other defined contribution plan on behalf of a
Participant on account of a Participant's Deferral Contribution.
(9) "Excess Aggregate Contributions" shall mean, with respect to any
Plan Year, the excess of:
(A) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees for such
Plan Year, over
(B) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
<PAGE> 21
Such determination shall be made after first determining Excess
Deferrals pursuant to Section 4.01 and then determining Excess
Contributions pursuant to Section 4.02.
(d) Notwithstanding any other provision of the Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall
be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions of Participants who are subject to the
family member aggregation rules of Section 414(q)(6) of the Code shall be
allocated among the family members in proportion to the Employee and
Matching Contributions of each family member that is combined to determine
the combined ACP. If such Excess Aggregate Contributions are distributed
more than 2 1/2 months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be imposed on the
employer maintaining the plan with respect to those amounts. Excess
Aggregate Contributions shall be treated as annual additions under the
Plan.
Excess Aggregate Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable to Excess
Aggregate Contributions is (1) income or loss allocable to the
Participant's Employee Contribution account, Matching Contribution account
(if any, and if all amounts therein are not used in the ADP test) and if
applicable, Qualified Nonelective Contribution account for the Plan Year
multiplied by a fraction, the numerator of which is such Participant's
Excess Aggregate Contributions for the year and the denominator is the
Participant's account balance(s) attributable to Contribution Percentage
Amounts without regard to income or loss occurring during such Plan Year,
or (2) such other amount determined under any reasonable method, provided
that such method is used consistently for all Participants in calculating
any distributions required under Section 4.04(d) and Sections 4.01(c) and
4.02(d) for the Plan Year, and is used by the Plan in allocating income or
loss to the Participants' accounts. Income or loss allocable to the period
between the end of the Plan Year and the date of distribution shall be
disregarded in determining income or loss.
Forfeitures of Excess Aggregate Contributions shall be applied to
reduce Employer contributions; the forfeitures shall be held in the money
market fund, if any, listed in Section 1.14(b) pending such application.
Excess Aggregate Contributions shall be forfeited, if forfeitable, or
distributed on a prorata basis from the Participant's Employee Contribution
Account, Matching Contribution Account and if applicable, the Participant's
Deferral Contributions Account or Qualified Discretionary Contribution
Account or both.
4.05. Special Rules. Deferral Contributions and Qualified Discretionary
Contributions and income allocable to each are not distributable to a
Participant or his or her beneficiary or beneficiaries, in accordance with such
Participant's or beneficiary or beneficiaries election, earlier than upon
separation from service, death, or disability, except as otherwise provided in
Section 7.10, 7.11 or 10.06. Such amounts may also be distributed, but after
March 31, 1988 in the form of a lump sum only, upon:
(a) Termination of the Plan without establishment of another defined
contribution plan, other than an employee stock
<PAGE> 22
ownership plan (as defined in Section 4979(e) or Section 409 of the Code)
or a simplified employee pension plan as defined in Section 408(k) of the
Code.
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section 409(d)(2) of
the Code) used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the disposition, but only
with respect to employees who continue employment with the corporation
acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section
409(d)(2) of the Code) if such corporation continues to maintain this Plan,
but only with respect to employees who continue employment with such
subsidiary.
The Participant's accrued benefit derived from Deferral Contributions,
Qualified Discretionary Contributions and Employee Contributions (as defined in
Section 4.09) is nonforfeitable. Separate accounts for Deferral Contributions,
Qualified Discretionary Contributions, Employee Contributions and Matching
Contributions will be maintained for each Participant. Each account will be
credited with the applicable contributions and earnings thereon.
4.06. Fixed/Discretionary Employer Contributions. If so provided by the Employer
in Sections 1.05(a)(1) or 1.05(a)(2), for the Plan Year in which the Plan is
adopted and for each Plan Year thereafter, the Employer will make Fixed or
Discretionary Employer Contributions to the Trust in accordance with Section
1.05 to be allocated as follows:
(a) Fixed Employer Contributions shall be allocated among eligible
Participants (as determined in accordance with Section 1.05(a)(3)) in the
manner specified in Section 1.05(a).
(b) Discretionary Employer Contributions shall be allocated among
eligible Participants, as determined in accordance with Section 1.05(a)(3),
as follows:
(1) If the Non-Integrated Formula is elected in Section
1.05(a)(2)(A), such contributions shall be allocated to eligible
Participants in the ratio that each Participant's Compensation
bears to the total Compensation paid to all eligible Participants
for the Plan Year; and
(2) If the Integrated Formula is elected in Section
1.05(a)(2)(B), such contributions shall be allocated in the
following steps:
(A) First, to each eligible Participant in the same ratio
that the sum of the Participant's Compensation plus Excess
Compensation for the plan Year bears to the sum of the
Compensation plus Excess Compensation of all Participants
for the Plan Year. This allocation as a percentage of the
sum of each Participant's Compensation plus Excess
Compensation shall not exceed 5.7%.
(B) Any remaining Discretionary Employer Contribution shall
be allocated to each eligible Participant in the same ratio
that each Participant's Compensation for the Plan Year bears
<PAGE> 23
to the total Compensation of all Participants for the Plan
Year.
For purposes of this Section, "Excess Compensation" means
Compensation in excess of the taxable wage base, as determined
under Section 230 of the Social Security Act, in effect on the
first day of the Plan Year. Further, this Section 4.06(b)(2)
shall be modified as provided in Section 9.03 for years in which
the Plan is top heavy under Article 9.
4.07. Time of Making Employer Contributions. The Employer will pay its
contribution for each Plan Year not later than the time prescribed by law for
filing the Employer's Federal income tax return for the fiscal (or taxable) year
with or within which such Plan Year ends (including extensions thereof). The
Trustee will have no authority to inquire into the correctness of the amounts
contributed and paid over to the Trustee, to determine whether any contribution
is payable under this Article 4, or to enforce, by suit or otherwise, the
Employer's obligation, if any, to make a contribution to the Trustee.
4.08. Return of Employer Contributions. The Trustee shall, upon request by the
Employer, return to the Employer the amount (if any) determined under Section
14.22. Such amount shall be reduced by amounts attributable thereto which have
been credited to the Accounts of Participants who have since received
distributions from the Trust, except to the extent such amounts continue to be
credited to such Participants' Accounts at the time the amount is returned to
the Employer. Such amount shall also be reduced by the losses of the Trust
attributable thereto, if and to the extent such losses exceed the gains and
income attributable thereto, but will not be increased by the gains and income
of the Trust attributable thereto, if and to the extent such gains and income
exceed the losses attributable thereto. In no event will the return of a
contribution hereunder cause the balance of the individual Account of any
Participant to be reduced to less than the balance which would have been
credited to the Account had the mistaken amount not been contributed.
4.09. Employee Contributions. If the Employer elected to permit Deferral
Contributions in Section 1.05(b) and if so provided by the Employer in Section
1.05(d), each Participant may elect to make Employee Contributions to the Plan
in accordance with the rules and procedures established by the Employer and in
an amount not less than one percent (1%) and not greater than ten percent (10%)
of such Participant's Compensation for the Plan Year. Such contributions and all
Employee Contributions for Plan Years beginning after December 31, 1986 shall
be subject to the nondiscrimination requirements of Section 401(m) of the Code
as set forth in Section 4.04.
For purposes of this Plan, "Employee Contributions" shall mean any
voluntary non-deductible contribution made to a plan by or on behalf of a
Participant that is or was included in the Participant's gross income in the
year in which made and that is maintained under a separate account to which
applicable earnings and losses are allocated. Excess Contributions may not be
recharacterized as Employee Contributions.
Employee Contributions shall be paid over to the Trustee not later than
thirty (30) days following the end of the month in which the Participant makes
the contribution. A Participant shall have a fully vested 100% nonforfeitable
right to his Employee Contributions and the earnings or losses allocated
thereon. Distributions of Employee Contributions shall be made in accordance
with Section 7.10.
<PAGE> 24
4.10 Rollover Contributions.
(a) Rollover of Eligible Rollover Distributions
(1) An Employee who is or was a distributee of an "eligible rollover
distribution" (as defined in Section 402(c)(4) of the Code and the
regulations issued thereunder) from a qualified plan or Section
403(b) annuity may directly transfer all or any portion of such
distribution to the Trust or transfer all or any portion of such
distribution to the Trust within sixty (60) days of payment. The
transfer shall be made in the form of cash or allowable Fund Shares
only.
(2) The Employer may refuse to accept rollover contributions or
instruct the Trustee not to accept rollover contributions under the
Plan.
(b) Treatment of Rollover Amount.
(1) An account will be established for the transferring Employee under
Article 5, the rollover amount will be credited to the account and
such amount will be subject to the terms of the Plan, including
Section 8.01, except as otherwise provided in this Section 4.10.
(2) The rollover account will at all times be fully vested in and
nonforfeitable by the Employee.
(c) Entry into Plan by Transferring Employee. Although an amount may be
transferred to the Trust Fund under this Section 4.10 by an Employee who
has not yet become a Participant in accordance with Article 4, and such
amount in subject to the terms of the Plan as described in paragraph (b)
above, the Employee will not become a Participant entitled to share in
Employer contributions until he has satisfied such requirements.
(d) Monitoring of Rollovers.
(1) The Administrator shall develop such procedures and require such
information from transferring Employees as it deems necessary to
insure that amounts transferred under this Section 4.10 meet the
requirements for tax-free rollovers established by such Section and by
Section 402(c) of the Code. No such amount may be transferred until
approved by the Administrator.
(2) If a transfer made under this Section 4.10 is later determined by
the Administrator not to have met the requirements of this Section or
of the Code or Treasury regulations, the Trustee shall, within a
reasonable time after such determination is made, and on instructions
from the Administrator, distribute to the Employee the amounts then
held in the Trust attributable to the transferred amount.
4.11. Deductible Voluntary Employee Contributions. The Administrator will not
accept deductible employee contributions which are made for a taxable year
beginning after December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all times and
which will share in the gains and losses of the trust in the same manner as
described in Section 5.02. No part of the deductible voluntary contribution
account will be used to purchase life insurance. Subject to Article VIII, the
Participant may
<PAGE> 25
8/1/93
withdraw any part of the deductible voluntary contribution account upon request.
4.12. Additional Rules for Paired Plans. If the Employer has adopted a qualified
plan under Fidelity Basic Plan Document No. 09 which is to be considered as a
paired plan with this Plan, the elections in Section 1.03 must be identical to
the Employer's corresponding elections for the other plan. When the paired plans
are top-heavy or are deemed to be top-heavy as provided in Section 9.01, the
Plan paired with this Plan will provide a minimum contribution to each non-key
Employee which is equal to 3 percent (or such other percent elected by the
Employer in Section 1.12(c)) of such Employee's Compensation. Notwithstanding
the preceding sentence, the minimum contribution shall be provided by this Plan
if contributions under the other Plan paired with this Plan are frozen.
Article 5. Participants' Accounts.
5.01. Individual Accounts. The Administrator will establish and maintain an
Account for each Participant which will reflect Employer and Employee
Contributions made on behalf of the Participant and earnings, expenses, gains
and losses attributable thereto, and investments made with amounts in the
Participant's Account. The Administrator will establish and maintain such other
accounts and records as it decides in its discretion to be reasonably required
or appropriate in order to discharge its duties under the Plan.
5.02. Valuation of Accounts. Participant Accounts will be valued at their fair
market value at least annually as of a date specified by the Administrator in
accordance with a method consistently followed and uniformly applied, and on
such date earnings, expenses, gains and losses on investments made with amounts
in each Participant's Account will be allocated to such Account. Participants
will be furnished statements of their Account values at least once each Plan
Year.
5.03. Code Section 415 Limitations. Notwithstanding any other provisions of the
Plan:
Subsections (a)(1) through (a)(4)--(These subsections apply to Employers
who do not maintain any qualified Plan including a Welfare Benefit Fund, an
Individual Medical Account, or a simplified employee pension in addition to this
Plan.)
(a)(1) If the Participant does not participate in, and has never
participated in any other qualified plan, Welfare Benefit Fund, Individual
Medical Account, or a simplified employee pension, as defined in section
408(k) of the Code, maintained by the Employer, which provides an annual
addition as defined in Section 5.03(c)(1), the amount of Annual Additions
to a Participant's Account for a Limitation Year shall not exceed the
lesser of the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Employer contribution that would otherwise be
contributed or allocated to the Participant's account would cause the
annual additions for the limitation year to exceed the maximum permissible
amount, the amount contributed or allocated will be reduced so that the
annual additions for the limitation year will equal the maximum permissible
amount.
(a)(2) Prior to the determination of the Participant's actual compensation
for a Limitation Year, the Maximum Permissible Amount may be determined on
the basis of a reasonable estimation of the
<PAGE> 26
Participant's compensation for such Limitation year, uniformly determined
for all Participants similarly situated. Any Employer Contributions based
on estimated annual compensation shall be reduced by any Excess Amounts
carried over from prior years.
(a)(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year
shall be determined on the basis of the Participant's actual Compensation
for such Limitation Year.
(a)(4) If, pursuant to subsection (a)(3) or as a result of the allocation
of forfeitures, or a reasonable error in determining the total Elective
Deferrals there is an Excess Amount with respect to a Participant for a
Limitation Year, such Excess Amount shall be disposed of as follows:
(A) Any nondeductible voluntary employee contributions ("employee
contributions") or Elective Deferrals, to the extent they would reduce the
Excess Amount, will be returned to the Participant. Any gains attributable
to returned employee contributions will also be returned or will be treated
as additional employee contributions for the Limitation Year in which the
employee contributions were made.
(B) If after the application of paragraph (A) an Excess amount still
exists and the Participant is in the service of the Employer which is
covered by the Plan at the end of the Limitation Year, then such Excess
Amount shall be reapplied to reduce future Employer contributions under
this Plan for the next Limitation Year (and for each succeeding year, as
necessary) for such Participant, so that in each such Year the sum of
actual Employer contributions plus the reapplied amount shall equal the
amount of Employer contributions which would otherwise be made to such
Participant's Account.
(C) If after the application of paragraph (A) an Excess Amount still
exists and the Participant is not in the service of the Employer which is
covered by the Plan at the end of a Limitation Year, then such Excess
Amount will be held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions for all remaining
Participants in the next Limitation Year and each succeeding Limitation
Year if necessary.
(D) if a suspense account is in existence at any time during the
Limitation Year pursuant to this subsection, it will not participate in the
allocation of the Trust Fund's investment gains and losses. All amounts in
the suspense account must be allocated to the Accounts of Participants
before any Employer contribution may be made for the Limitation Year.
Except as provided in paragraph (A), Excess Amounts may not be distributed
to Participants or former Participants.
Subsections (b)(1) through (b)(6)--(These subsections apply to Employers
who, in addition to this Plan, maintain one or more plans, all of which are
qualified Master or Prototype defined contribution Plans, any Welfare Benefit
Fund, any Individual Medical Account, or any simplified employee pension.)
(b)(1) If, in addition to this Plan, the Participant is covered under any
other qualified defined contribution plans (all of which are qualified
Master or Prototype Plans), Welfare Benefit Funds, Individual Medical
Accounts, or simplified employee pension Plans, maintained by the Employer,
that provide an annual addition as
<PAGE> 27
8/1/93
defined in Section 5.03(e)(1), the amount of Annual Additions to a
Participant's Account for a Limitation Year, shall not exceed the lesser
of:
(A) the Maximum Permissible Amount, reduced by the sum of any Annual
Additions to the Participant's accounts for the same Limitation Year under
such other qualified master or Prototype defined contribution plans, and
Welfare Benefit Funds, Individual Medical Accounts, and simplified employee
pensions, or
(B) any other limitation contained in this Plan.
If the annual additions with respect to the Participant under other
qualified Master or Prototype defined contribution plans Welfare Benefit
Funds, Individual Medical Accounts and simplified employee pensions
maintained by the Employer are less than the maximum permissible amount and
the Employer contribution that would otherwise be contributed or allocated
to the Participant's Account under this plan would cause the annual
additions for the limitation year to exceed this limitation, the amount
contributed or allocated will be reduced so that the annual additions under
all such plans and funds for the limitation year will equal the maximum
permissible amount. If the annual additions with respect to the Participant
under such other qualified Master or Prototype defined contribution plans,
Welfare Benefit Funds, Individual Medical Accounts and simplified employee
pensions in the aggregate are equal to or greater than the maximum
permissible amount, no amount will be contributed or allocated to the
Participant's Amount under this plan for the limitation year.
(b)(2) Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the amounts referred to in (b)(1)(A) above may be
determined on the basis of a reasonable estimation of the Participant's
Compensation for such Limitation Year, uniformly determined for all
Participants similarly situated. Any Employer contribution based on
estimated annual Compensation shall be reduced by any Excess Amounts
carried over from prior years.
(b)(3) As soon as administratively feasible after the end of the
Limitation Year, the amounts referred to in (b)(1)(A) shall be determined
on the basis of the Participant's actual Compensation for such Limitation
Year.
(b)(4) If a Participant's Annual Additions under this Plan and all such
other plans result in an Excess Amount, such Excess Amount shall be deemed
to consist of the Annual Additions last allocated, except that Annual
Additions attributable to a simplified employee pension will be deemed to
have been allocated first, followed by Annual Additions to a Welfare
Benefit Fund or individual Medical Account regardless of the actual
allocation date.
(b)(5) If an Excess Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan,
the Excess Amount attributed to this Plan will be the product of:
(A) the total Excess Amount allocated as of such date (including any
amount which would have been allocated but for the limitations of
Section 415 of the Code), times
(B) the ratio of (i) the Annual Additions allocated to the Participant
as of such date under this Plan, divided by (ii) the Annual Additions
allocated as of such date under all
<PAGE> 28
qualified defined contribution plans (determined without regard to the
limitations of Section 415 of the Code).
(b)(6) Any Excess Amounts attributed to this Plan shall be disposed of as
provided in subsection (a)(4).
Subsection (c)--(This subsection applies only to Employers who, in addition
to this Plan, maintain one or more qualified plans which are qualified defined
contribution plans other than Master or Prototype Plans.)
(c) If the Employer also maintains another plan which is a qualified
defined contribution plan other than a Master or Prototype Plan, Annual
Additions allocated under this Plan on behalf of any Participant shall be
limited in accordance with the provisions of (b)(1) through (b)(6), as
though the other plan were a Master or Prototype Plan, unless the Employer
provides other limitations in the Adoption Agreement.
Subsection (d)--(This subsection applies only to Employers who, in addition
to this Plan, maintain or at any time maintained a qualified defined benefit
plan.)
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan, the sum of any Participant's Defined Benefit Fraction
and Defined Contribution Fraction shall not exceed the combined plan
limitation of 1.0 in any Limitation Year. The combined plan limitation will
be met as provided by the Employer in the Adoption Agreement.
Subsections (e)(1) through (e)(9)--(Definitions.)
(e)(1) "Annual Additions" means the sum of the following amounts credited
to a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all Employee contributions,
(C) all forfeitures,
(D) Amounts allocated, after March 31, 1984, to an Individual Medical
Account which is part of a pension or annuity plan maintained by the
Employer are treated as Annual Additions to a defined contribution
plan. Also, amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a key employee, as defined in Section 419A(d)(3)
of the Code, under a Welfare Benefit Fund maintained by the Employer
are treated as Annual Additions to a defined contribution plan, and
(E) Allocations under a simplified employee pension.
For purposes of this Section 5.03, amounts reapplied to reduce
Employer contributions under subsection (a)(4) shall also be included as
Annual Additions.
(e)(2) "Compensation" means wages as defined in Section 3401(a) of the Code
and all other payments of compensation to an employee by the employer (in
the course of the employer's trade or business) for which the employer is
required to furnish the employee a written statement under Sections 6041(d)
and 6051(a)(3) of the
<PAGE> 29
8/1/93
Code. Compensation must be determined without regard to any rules under
Section 3401(a) of the Code that limit the remuneration included in wages
based on the nature or location of the employment or the services performed
(such as the exception for agricultural labor in Section 3401(a)(2) of the
Code.)
For any Self-Employed Individual compensation will mean Earned Income.
For limitation years beginning after December 31, 1991, for purposes of
applying the limitations of this article, compensation for a limitation
year is the compensation actually paid or made available during such
limitation year.
(e)(3) "Defined Benefit Fraction" means a fraction, the numerator of which
is the sum of the Participant's annual benefits (adjusted to an actuarially
equivalent straight life annuity if such benefit is expressed in a form
other than a straight life annuity or qualified joint and survivor annuity)
under all the defined benefit plans (whether or not terminated) maintained
by the Employer, each such annual benefit computed on the assumptions that
the Participant will remain in employment until the normal retirement age
under each such plan (or the Participant's current age, if later) and that
all other factors used to determine benefits under such plan will remain
constant for all future Limitation Years, and the denominator of which is
the lesser of 125 percent of the dollar limitation determined for the
Limitation Year under Sections 415(b)(1)(A) and 415(d) of the Code or 140
percent of the Participant's average Compensation for the 3 highest
consecutive calendar years of service during which the Participant was
active in each such plan, including any adjustments under Section 415(b) of
the Code. However, if the Participant was a participant as of the first day
of the first Limitation Year beginning after December 31, 1986 in one or
more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986 then the denominator of the Defined Benefit
Fraction shall not be less than 125 percent of the Participant's total
accrued benefit as of the close of the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986, under all such defined benefit
plans as met, individually and in the aggregate, the requirements of
Section 415 of the Code for all Limitation Years beginning before January
1, 1987.
(e)(4) "Defined Contribution Fraction" means a fraction, the numerator of
which is the sum for the current and all prior Limitation Years of (A) all
Annual additions (if any) to the Participant's accounts under each defined
contribution plan (whether or not terminated) maintained by the Employer,
and (B) all Annual Additions attributable to the Participant's
nondeductible employee contributions to all defined benefit plans (whether
or not terminated) maintained by the Employer, and the Participant's Annual
Additions attributable to all Welfare Benefit Funds, Individual Medical
Accounts, and simplified employee pensions, maintained by the Employer, and
the denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years during which the Participant was
an Employee (regardless of whether the Employer maintained a defined
contribution plan in any such year).
The maximum aggregate amount in any Limitation Year is the lesser of
125 percent of the dollar limitation in effect under
<PAGE> 30
8/1/93
Section 415(c)(1) (A) of the Code for each such year or 35 percent of the
Participant's Compensation for each such year.
If the Participant was a participant as of the first day of the first
Limitation Year beginning after December 31, 1986 in one or more defined
contribution plans maintained by the Employer which were in existence on
May 6, 1986 then the numerator of the Defined Contribution Fraction shall
be adjusted if the sum of this fraction and the Defined Benefit Fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment an amount equal to the product of (i) the excess of the sum of
the fractions over 1.0 times (ii) the denominator of this fraction will be
permanently subtracted from the numerator of this fraction. The adjustment
is calculated using the fractions as they would be computed as of the end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the plan made after
May 6, 1986, but using the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before January
1, 1987 shall not be recomputed to treat all employee contributions as
annual additions.
(e)(5) "Employer" means the Employer and any Related Employer that adopts
this Plan. In the case of a group of employers which constitutes a
controlled group of corporations (as defined in Section 414(b) of the Code
as modified by Section 415(h)) or which constitutes trades or businesses
(whether or not incorporated) which are under common control (as defined in
Section 414(c) of the Code as modified by Section 415(h) of the Code) or
which constitutes an affiliated service group (as defined in Section 414(m)
of the Code) and any other entity required to be aggregated with the
Employer pursuant to regulations issued under Section 414(o) of the Code,
all such employers shall be considered a single employer for purposes of
applying the limitations of this Section 5.03.
(e)(6) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(e)(7) "Individual Medical Account" means an individual medical account as
defined in Section 415(l)(2) of the Code.
(e)(8) "Limitation Year" means the Plan Year. All qualified plans of the
Employer must use the same Limitation Year. If the Limitation Year is
amended to a different 12-consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which the amendment
is made.
(e)(9) "Master or Prototype Plan" means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
(e)(10) "Maximum Permissible Amount" means for a Limitation Year with
respect to any Participant the lesser of (i) $30,000 or, if greater, 25
percent of the dollar limitation set forth in Section 415(b)(1) of the
Code, as in effect for the Limitation Year, or (ii) 25 percent of the
Participant's Compensation for the Limitation Year. If a short Limitation
Year is created because of an amendment changing the Limitation Year to a
different 12-consecutive month period, the Maximum Permissible Amount will
not exceed the limitation in (e)(10)(i) multiplied by a fraction whose
<PAGE> 31
8/1/93
numerator is the number of months in the short Limitation Year and whose
denominator is 12.
The compensation limitation referred to in subsection (e)(10)(ii)
shall not apply to any contribution for medical benefits within the meaning
of Section 401(h) or Section 419A(f)(2) of the Code after separation from
service which is otherwise treated as an Annual Addition under Section
419A(d)(2) or Section 415(l)(1) of the Code.
(e)(11) "Welfare Benefit Fund" means a welfare benefit fund as defined in
Section 419(e) of the Code.
Article 6. Investment of Contributions.
6.01. Manner of Investment. All contributions made to the Accounts of
Participants shall be held for investment by the Trustee. The Accounts of
Participants shall be invested and reinvested only in eligible investments
selected by the Employer in Section 1.14(b), subject to Section 14.10.
6.02. Investment Decisions. Investments shall be directed by the Employer or by
each Participant or both, in accordance with the Employer's election in Section
1.14(a). Pursuant to Section 14.04, the Trustee shall have no discretion or
authority with respect to the investment of the Trust Fund.
(a) With respect to those Participant Accounts for which Employer
investment direction is elected, the Employer has the right to direct the
Trustee in writing with respect to the investment and reinvestment of
assets comprising the Trust Fund in the Fidelity Fund(s) designated in
Section 1.14(b) and as allowed by the Trustee.
(b) If Participant investment direction is elected, each Participant shall
direct the investment of his Account among the Fidelity Funds listed in
Section 1.14(b). The Participant shall file initial investment instructions
with the Administrator, on such form as the Administrator may provide,
selecting the Funds in which amounts credited to his Account will be
invested.
(1) Except as provided in this Section 6.02, only authorized Plan
contacts and the Participant shall have access to a Participant's
account. While any balance remains in the Account of a Participant
after his death, the Beneficiary of the Participant shall make
decisions as to the investment of the Account as though the
Beneficiary were the Participant. To the extent required by a
qualified domestic relations order as defined in Section 414(p) of the
Code, an alternate payee shall make investment decisions with respect
to a Participant's Account as though such alternate payee were the
Participant.
(2) If the Trustee receives any contribution under the Plan as to
which investment instructions have not been provided, the Trustee
shall promptly notify the Administrator and the Administrator shall
take steps to elicit instructions from the Participant. The Trustee
shall credit any such contribution to the Participant's Account and
such amount shall be invested in the Fidelity Fund selected by the
Employer for such purposes or, absent Employer selection, in the most
conservative Fidelity Fund listed in Section 1.14(b), until investment
instructions have been received by the Trustee.
<PAGE> 32
8/1/93
(c) All dividends, interest, gains and distributions of any nature received
in respect of Fund Shares shall be reinvested in additional shares of that
Fidelity Fund.
(d) Expenses attributable to the acquisition of investments shall be
charged to the Account of the Participant for which such Investment is
made.
6.03. Participant Directions to Trustee. All Participant initial investment
instructions filed with the Administrator pursuant to the provisions of Section
6.02 shall be promptly transmitted by the Administrator to the Trustee. A
Participant shall transmit subsequent investment instructions directly to the
Trustee by means of the telephone exchange system maintained by the Trustee for
such purposes. The method and frequency for change of investments will be
determined under the (1) rules applicable to the investments selected by the
Employer in Section 1.14(b) and (2) the additional rules of the Employer, if
any, limiting the frequency of investment changes, which are included in a
separate written administrative procedure adopted by the Employer and accepted
by the Trustee. The Trustee shall have no duty to inquire into the investment
decisions of a Participant or to advise him regarding the purchase, retention or
sale of assets credited to his Account.
Article 7. Right to Benefits.
7.01. Normal or Early Retirement. Each Participant who attains his Normal
Retirement Age or, if so provided by the Employer in Section 1.06(b), Early
Retirement Age will have a 100 percent nonforfeitable interest in his Account
regardless of any vesting schedule elected in Section 1.07. If a Participant
retires upon the attainment of Normal or Early Retirement Age, such retirement
in referred to as a normal retirement. Upon his normal retirement the balance of
the Participant's Account, plus any amounts thereafter credited to his Account,
subject to the provisions of Section 7.08, will be distributed to him in
accordance with Article 8.
If a Participant separates from service before satisfying the age
requirements for early retirement, but has satisfied the service requirement,
the Participant will be entitled to elect an early retirement distribution upon
satisfaction of such age requirement.
7.02. Late Retirement. If a Participant continues in the service of the Employer
after attainment of Normal Retirement Age, he will continue to have a 100
percent nonforfeitable interest in his Account and will continue to participate
in the Plan until the date he establishes with the Employer for his late
retirement. Until he retires, he has a continuing election to receive all or any
portion of his Account. Upon the earlier of his late retirement or the
distribution date required under Section 8.08, the balance of his Account, plus
any amounts thereafter credited to his Account, subject to the provisions of
Section 7.08, will be distributed to him in accordance with Article 8 below.
7.03. Disability Retirement. If so provided by the Employer in Section 1.06(c),
a Participant who becomes disabled will have a 100 percent nonforfeitable
interest in his Account, the balance of which Account, plus any amounts
thereafter credited to his Account, subject to the provisions of Section 7.08,
will be distributed to him in accordance with Article 8 below. A Participant is
considered disabled if he cannot
<PAGE> 33
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engage in any substantial, gainful activity because of a medically determinable
physical or mental impairment likely to result in death or to be of a continuous
period of not less than 12 months, and terminates his employment with the
employer. Such termination of employment is referred to as a disability
retirement. Determinations with respect to disability shall be made by the
Administrator who may rely on the criteria set forth in Section 1.06(c) as
evidence that the Participant is disabled.
7.04. Death. Subject, if applicable, to Section 8.04, if a Participant dies
before the distribution of his Account has commenced, or before such
distribution has been completed, his Account shall become 100 percent vested and
his designated Beneficiary or Beneficiaries will be entitled to receive the
balance or remaining balance of his Account, plus any amounts thereafter
credited to his Account, subject to the provisions of Section 7.08. Distribution
to the Beneficiary or Beneficiaries will be made in accordance with Article 8.
A Participant may designate a Beneficiary or Beneficiaries, or change any
prior designation of Beneficiary or Beneficiaries by giving notice to the
Administrator on a form designated by the Administrator. If more than one person
in designated as the Beneficiary, their respective interests shall be as
indicated on the designation form. In the case of a married Participant the
Participant's spouse shall be deemed to be the designated Beneficiary unless the
Participant's spouse has consented to another designation in the manner
described in section 8.03(d).
A copy of the death notice or other sufficient documentation must be filed
with and approved by the Administrator. If upon the death of the Participant
there is, in the opinion of the Administrator, no designated Beneficiary for
part or all of the Participant's Account, such amount will be paid to his
surviving spouse or, if none, to his estate (such spouse or estate shall be
deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies
after benefits to such Beneficiary have commenced, but before they have been
completed, and, in the opinion of the Administrator, no person has been
designated to receive such remaining benefits, then such benefits shall be paid
in a lump sum to the deceased Beneficiary's estate.
7.05. Other Termination of Employment. If a Participant terminates his
employment for any reason other than death or normal, late, or disability
retirement, he will be entitled to a termination benefit equal to (i) the vested
percentages of the value of the Matching and/or Fixed/Discretionary
Contributions to his Account, as adjusted for income, expense, gain, or loss,
such percentage(s) determined in accordance with the vesting schedule(s)
selected by the Employer in Section 1.07, and (ii) the value of the Deferral,
Employee, Qualified Discretionary and Rollover Contributions to his Account as
adjusted for income, expense, gain or loss. The amount payable under this
Section 7.05 will be subject to the provisions of Section 7.08 and will be
distributed in accordance with Article 8 below.
7.06. Separate Account. If a distribution from a Participant's Account has been
made to him at a time when he has a nonforfeitable right to less than 100
percent of his Account, the vesting schedule in Section 1.07 will thereafter
apply only to amounts in his Account attributable to Employer Contributions
allocated after such distribution. The balance of his Account immediately after
such distribution will be transferred to a separate account which will be
maintained for the purpose of determining his interest therein according to the
following provisions.
<PAGE> 34
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At any relevant time prior to a forfeiture of any portion thereof under
Section 7.07 a Participant's nonforfeitable interest in his Account held in a
separate account described in the preceding paragraph will be equal to P(AB +
(RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time
determined under Section 7.05; AB is the account balance of the separate account
at the relevant time; D is the amount of the distribution; and R is the ratio of
the account balance at the relevant time to the account balance after
distribution. Following a forfeiture of any portion of such separate account
under Section 7.07 below, any balance in the Participant's separate account will
remain fully vested and nonforfeitable.
7.07. Forfeitures. If a Participant terminates his employment, any portion of
his Account (including any amounts credited after his termination of employment)
not payable to him under Section 7.05 will be forfeited by him upon the complete
distribution to him of the vested portion of his Account, if any, subject to the
possibility of reinstatement as described in the following paragraph. For
purposes of this paragraph, if the value of an Employee's vested account balance
is zero, the Employee shall be deemed to have received a distribution of his
vested interest immediately following termination of employment. Such
forfeitures will be applied to reduce the contributions of the Employer next
payable under the Plan (or administrative expenses of the Plan); the forfeitures
shall be held in a money market fund pending such application.
If a Participant forfeits any portion of his Account under the preceding
paragraph but does again become an Employee after such date, then the amount so
forfeited, without any adjustment for the earnings, expenses, or losses or gains
of the assets credited to his Account since the date forfeited, will be
recredited to his Account (or to a separate account as described in Section
7.06, if applicable) but only if he repays to the Plan before the earlier of
five years after the date of his reemployment or the date he incurs 5
consecutive 1-year breaks in service following the date of the distribution the
amount previously distributed to him, without interest, under Section 7.05. If
an Employee is deemed to receive a distribution pursuant to this Section 7.07,
and the Employee resumes employment before 5 consecutive 1-year breaks in
service, the Employee shall be deemed to have repaid such distribution on the
date of his reemployment. Upon such an actual or deemed repayment, the
provisions of the Plan (including Section 7.06) will thereafter apply as if no
forfeiture had occurred. The amount to be recredited pursuant to this paragraph
will be derived first from the forfeitures, if any, which as of this date of
recrediting have yet to be applied as provided in the preceding paragraph and,
to the extent such forfeitures are insufficient, from a special Employer
contribution to be made by the Employer.
If a Participant elects not to receive the nonforfeitable portion of his
Account following his termination of employment, the non-vested portion of his
Account shall be forfeited after the Participant has incurred five consecutive
1-year breaks in service as defined in Section 2.01(a)(33).
No forfeitures will occur solely as a result of a Participant's withdrawal
of Employee contributions.
7.08. Adjustment for Investment Experience. If any distribution under this
Article 7 is not made in a single payment, the amount retained by the Trustee
after the distribution will be subject to adjustment until distributed to
reflect the income and gain or loss on the investments in which such amount is
invested and any expenses properly charged under the Plan and Trust to such
amounts.
<PAGE> 35
7.09. Participant Loans. If permitted under Section 1.09, the Administrator
shall allow Participants to apply for a loan from the Plan, subject to the
following:
(a) Loan Application. All Plan loans shall be administered by the
Administrator. Applications for loans shall be made to the Administrator on
forms available from the Administrator. Loans shall be made available to
all Participants on a reasonably equivalent basis. For this purpose, the
term "Participant" means any Participant or Beneficiary, including an
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, who is a party-in-interest (as determined under
ERISA Section 3(14)) with respect to the Plan except no loans will be made
to: (i) an Employee who makes a rollover contribution in accordance with
Section 4.10 who has not satisfied the requirements of Section 3.01, or
(ii) a shareholder-employee or Owner-Employee. For purposes of this
requirement, a shareholder-employee means an employee or officer of an
electing small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Section 318(a)(1) of the Code),
on any day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
A Participant with an existing loan may not apply for another loan
until the existing loan is paid in full and may not refinance an existing
loan or attain a second loan for the purpose of paying off the existing
loan. A Participant may not apply for more than one loan during each Plan
Year.
(b) Limitation of Loan Amount/Purpose of Loan. Loans shall not be made
available to Highly Compensated Employees in an amount greater than the
amount made available to other Employees. No loan to any Participant or
Beneficiary can be made to the extent that such loan when added to the
outstanding balance of all other loans to the Participant or Beneficiary
would exceed the lesser of (a) $50,000 reduced by the excess (if any) of
the highest outstanding balance of loans during the one year period ending
on the day before the loan is made over the outstanding balance of loans
from the plan on the date the loan is made, or (b) one-half the present
value of the nonforfeitable Account of the Participant. For the purpose of
the above limitation, all loans from all plans of the Employer and Related
Employers are aggregated. A Participant may not request a loan for less
than $1,000. The Employer may provide that loans only be made from certain
contribution sources within Participant Account(s) by notifying the Trustee
in writing of the restricted source.
Loans may be made for any purpose or if elected by the Employer in
Section 1.09(a), on account of hardship only. A loan will be considered to
be made on account of hardship only if made on account of an immediate and
heavy financial need described in Section 7.10(b)(1).
(c) Terms of Loan. All loans shall bear a reasonable rate of interest as
determined by the Administrator based on the prevailing interest rates
charged by persons in the business of lending money for loans which would
be made under similar circumstances. The determination of a reasonable rate
of interest must be based on appropriate regional factors unless the Plan
is administered on a national basis in which case the Administrator may
establish a uniform reasonable rate of interest applicable to all regions.
All loans shall by their terms require that repayment (principal and
interest) be amortized in level payments, not less
<PAGE> 36
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than quarterly, over a period not extending beyond five years from the date
of the loan unless such loan is for the purchase of a Participant's primary
residence, in which case the repayment period may not extend beyond ten
years from the date of the loan. A Participant may prepay the outstanding
loan balance prior to maturity without penalty.
(d) Security. Loans must be secured by the Participant's Accounts not to
exceed 50 percent of the Participant's vested Account. A Participant must
obtain the consent of his or her spouse, if any, to use a Participant
Account as security for the loan, if the provisions of Section 8.03 apply
to the Participant. Spousal consent shall be obtained no earlier than the
beginning of the 90-day period that ends on the date on which the loan is
to be so secured. The consent must be in writing, must acknowledge the
effect of the loan, and must be witnessed by a Plan representative or
notary public. Such consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to that loan.
(e) Default. The Administrator shall treat a loan in default if:
(1) any scheduled repayment remains unpaid more than 90 days;
(2) there is an outstanding principal balance existing on a loan after
the last scheduled repayment date.
Upon default or termination of employment, the entire outstanding
principal and accrued interest shall be immediately due and payable. If a
distributable event (as defined by the Code) has occurred, the
Administrator shall direct the Trustee to foreclose on the promissory note
and offset the Participant's vested Account by the outstanding balance of
the loan. If a distributable event has not occurred, the Administrator
shall direct the Trustee to foreclose on the promissory note and offset the
Participant's vested Account as soon as a distributable event occurs.
(f) Pre-existing loans. The provision in paragraph (a) of this Section 7.09
limiting a Participant to one outstanding loan shall not apply to loans
made before the Employer adopted this prototype plan document. A
Participant may not apply for a new loan until all outstanding loans made
before the Employer adopted this prototype plan have been paid in full. The
Trustee may accept any loans made before the Employer adopted this
prototype plan document except such loans which require the Trustee to hold
as security for the loan property other than the Participant's vested
Account.
As of the effective date of amendment of this Plan in Section
1.01(g)(2), the Trustee shall have the right to reamortize the outstanding
principal balance of any Participant loan that is delinquent. Such
reamortization shall be based upon the remaining life of the loan and the
original maturity date may not be extended.
Notwithstanding any other provision of this Plan, the portion of the
Participant's vested Account used as a security interest held by the plan
by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Account payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Participant's vested
Account (determined without regard to the preceding sentence) is payable to
the surviving spouse, then the Account shall be adjusted by first reducing
the vested Account by the amount of the security used as repayment of
<PAGE> 37
the loan, and then determining the benefit payable to the surviving spouse.
No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans to
the Participant or Beneficiary would exceed the lesser of (a) $50,000
reduced by the excess (if any) of the highest outstanding balance of loans
during the one year period ending on the day before the loan is made over
the outstanding balance of loans from the plan on the date the loan is
made, or (b) one-half the present value of the nonforfeitable Account of
the Participant. For the purpose of the above limitation, all loans from
all plans of the Employer and Related Employers are aggregated.
7.10. In-Service/Hardship Withdrawals. Subject to the provisions of Article 8, a
Participant shall not be permitted to withdraw any Employer or Employee
Contributions (and earnings thereon) prior to retirement or termination of
employment, except as follows:
(a) Age 59 1/2. If permitted under Section 1.11(b), a Participant who has
attained the age of 59 1/2 is permitted to withdraw upon request all or any
portion the Accounts specified by the Employer in 1.11(b).
(b) Hardship. If permitted under Section 1.10, a Participant may apply to
the Administrator to withdraw some or all of his Deferral Contributions (and
earnings thereon accrued as of December 31, 1988) and, if applicable, Rollover
Contributions and such other amounts allowed by a predecessor plan, if such
withdrawal is made on account of a hardship. For purposes of this Section, a
distribution is made on account of hardship if made on account of an immediate
and heavy financial need of the Employee where such Employee lacks other
available resources. Determinations with respect to hardship shall be made by
the Administrator and shall be conclusive for purposes of the Plan, and shall be
based on the following special rules:
(1) The following are the only financial needs considered immediate
and heavy: expenses incurred or necessary for medical care (within the
meaning of Section 213(d) of the Code) of the Employee, the Employee's
spouse, children, or dependents; the purchase (excluding mortgage
payments) of a principal residence for the Employee; payment of
tuition and related educational fees for the next twelve (12) months
of post-secondary education for the Employee, the Employee's spouse,
children or dependents; or the need to prevent the eviction of the
Employee from, or a foreclosure on the mortgage of, the Employee's
principal residence.
(2) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
(i) The Employee has obtained all distributions, other than the
hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by the
Employer;
(ii) The Employee suspends Deferral Contributions and Employee
Contributions to the Plan for the 12-month period following the
date of his hardship distribution. The suspension must also apply
to all elective contributions and employee contributions to all
other qualified plans and non-qualified plans maintained by the
Employer, other than any mandatory employer contribution portion
of a defined benefit plan, including stock option, stock purchase
and other
<PAGE> 38
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similar plans, but not including health and welfare benefit plans
(other than the cash or deferred arrangement portion of a
cafeteria plan);
(iii) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts necessary
to pay any Federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution); and
(iv) The Employee agrees to limit Deferral Contributions
(elective contributions) to the Plan and any other qualified plan
maintained by the Employer for the Employee's taxable year
immediately following the taxable year of the hardship
distribution to the applicable limit under Section 402(g) of the
Code for such taxable year less the amount of such Employee's
Deferral Contributions for the taxable year of the hardship
distribution.
(3) A Participant must obtain the consent of his or her spouse, if
any, to obtain a hardship withdrawal, if the provisions of Section
8.03 apply to the Participant.
(c) Employee Contributions. A Participant may elect to withdraw, in cash,
up to one hundred percent of the amount then credited to his Employee
Contribution Account. Such withdrawals shall be limited to one, (1) per
Plan Year unless this prototype plan document is an amendment of a prior
plan document, in which case the rules and restrictions governing employee
contribution withdrawals, If any, are incorporated herein by reference.
7.11. Prior Plan In-Service Distribution Rules. If designated by the Employer
in Section 1.11(b), a Participant shall be entitled to withdraw at anytime prior
to his termination of employment, subject to the provisions of Article 8 and the
prior plan, any vested Employer Contributions maintained in a Participant's
Account for the specified period of time.
Article 8. Distribution of Benefits Payable after Termination of Service.
8.01. Distribution of Benefits to Participants and Beneficiaries.
(a) Distributions from the Trust to a Participant or to the Beneficiary of
the Participant shall be made in a lump sum in cash or, if elected by the
Employer in Section 1.11, under a systematic withdrawal plan
(installment(s)) upon retirement, death, disability, or other termination
of employment, unless another form of distribution is required or permitted
in accordance with paragraph (d) of this section 8.01 or sections 1.11(c),
8.02, 8.03, 8.04 or 11.02. A distribution may be made in Fund Shares, at
the election of the Participant, pursuant to the qualifying rollover of
such distribution to a Fidelity Investments individual retirement account.
(b) Distributions under a systematic withdrawal plan must be made in
substantially equal annual, or more frequent, installments, in cash, over a
period certain which does not extend beyond the life expectancy of the
Participant or the joint life expectancies of the Participant and his
Beneficiary, or, if the Participant dies prior
<PAGE> 39
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to the commencement of his benefits the life expectancy of the
Participant's Beneficiary, as further described in Section 8.04.
(c) Notwithstanding the provisions of Section 8.01(b) above, if a
Participant's Account is, and at the time of any prior distribution(s) was,
$3,500 or less, the balance of such Account shall be distributed in a lump
sum as soon as practicable following retirement, disability, death or other
termination of employment.
(d) This paragraph (d) applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article 8, a
distributee may elect, at the time and in the manner prescribed by the
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. The following definitions shall apply for purposes of
this paragraph (d):
(1) 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 of ten years or
more; any distribution to the extent such distribution in required
under Section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the code,
an individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to a surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(3) 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.
(4) Direct rollover: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
8.02. Annuity Distributions. If so provided in Section 1.11(b), a Participant
may elect distributions made in whole or in part in the form of an annuity
contract subject to the provisions of Section 8.03.
(a) An annuity contract distributed under the Plan must be purchased from
an insurance company and must be nontransferable. The terms of an annuity
contract shall comply with the requirements
<PAGE> 40
of the Plan and distributions under such contract shall be made in
accordance with Section 401(a)(9) of the Code and the regulations
thereunder.
(b) The payment period of an annuity contract distributed to the
Participant pursuant to this Section may be as long as the Participant
lives. If the annuity is payable to the Participant and his spouse or
designated Beneficiary, the payment period of an annuity contract may
be for as long as either the Participant or his spouse or designated
Beneficiary lives. Such an annuity may provide for an annuity certain
feature for a period not exceeding the life expectancy of the
Participant. If the annuity is payable to the Participant and his
spouse such period may not exceed the joint life and last survivor
expectancy of the Participant and his spouse, or, if the annuity is
payable to the Participant and a designated Beneficiary, the joint
life and last survivor expectancy of the Participant and such
Beneficiary. If the Participant dies prior to the commencement of his
benefits, the payment period of an annuity contract distributed to the
Beneficiary of the Participant may be as long as the Participant's
Beneficiary lives, and may provide for an annuity certain feature for
a period not exceeding the life expectancy of the Beneficiary. Any
annuity contract distributed under the Plan must provide for
nonincreasing, payments.
8.03. Joint and Survivor Annuities/Proretirement Survivor Annuities.
(a) Application. The provisions of this Section supersede any
conflicting provisions of the Plan; provided, however, that paragraph
(b) of this Section shall not apply if the Participant's Account does
not exceed or at the time of any prior distribution did not exceed
$3,500. A Participant is described in this Section only if (i) the
Participant has elected distribution of his Account in the form of an
Annuity Contract in accordance with Section 8.02, or (ii) the Trustee
has directly or indirectly received a transfer of assets from another
plan (including a predecessor plan) to which Section 401(a)(11) of the
Code applies with respect to such Participant.
(b) Retirement Annuity. Unless the Participant elects to waive
the application of this subsection in a manner satisfying the
requirements of subsection (d) below, to the extent applicable to the
Participant, within the 90-day period preceding his Annuity Starting
Date (which election may be revoked, and if revoked, remade, at any
time in such period), the vested Account due any Participant to whom
this subsection (b) applies will be paid to him by the purchase and
delivery to him of an annuity contract described in Section 8.02
providing a life annuity only form of benefit or, if the Participant
is married as of his Annuity Starting Date, providing an immediate
annuity for this life of the Participant with a survivor annuity for
the life of the Participant's spouse (determined as of the date of
distribution of the contract) which is 50 percent of the amount of the
annuity which is payable during the joint lives of the Participant and
such spouse. The Participant may elect to receive distribution of his
benefits in the form of such annuity as of the earliest date on which
he could elect to receive retirement benefits under the Plan. Within
the period beginning 90 days prior to the Participant's Annuity
Starting Date and ending 30 days prior to such Date, the Administrator
will provide such Participant with a written explanation of (i) the
terms and conditions of the annuity contract described herein, (ii)
the Participant's right to make and the effect of an election to waive
application of this subsection, (iii) the rights of the Participant's
spouse under subsection (d),
<PAGE> 41
and (iv) the right to revoke and the period of time effect of a
revocation of the election to waive application of this subsection.
(c) Annuity Death Benefit. Unless the Participant elects to waive
the application of this subsection in a manner satisfying the
requirements of subsection (d) below at any time within the applicable
election period (which election may be revoked, and if revoked,
remade, at any time in such period), if a married Participant to whom
this Section applies dies before his Annuity Starting Date, then
notwithstanding any designation of a Beneficiary to the contrary, 50
percent of his vested Account will be applied to purchase an annuity
contract described in Section 8.02 providing an annuity for the life
of the Participant's surviving spouse, which contract will then be
promptly distributed to such spouse. In lieu of the purchase of such
an annuity contract, the spouse may elect in writing to receive
distributions under the Plan as if he or she had been designated by
the Participant as his Beneficiary with respect to 50 percent of his
Account. For purposes of this subsection, the applicable election
period will commence on the first day of the Plan Year In which the
Participant attains age 35 and will end on the date of the
Participant's death, provided that in the case of a Participant who
terminates his employment the applicable election period with respect
to benefits accrued prior to the date of much termination will in no
event commence later than the date of his termination of employment.
A participant may elect to waive the application of this subsection
prior to the Plan Year in which he attains age 35, provided that any
such waiver will cease to be effective as of the first day of the Plan
Year in which the Participant attains age 35.
The Administrator will provide a Participant to whom this subsection
applies with a written explanation with respect to the annuity death
benefit described in this subsection (c) comparable to that required
under subsection (b) above. Such explanation shall be furnished
within whichever of the following periods ends last: (i) the period
beginning with the first day at the Plan Year in which the Participant
reaches age 32 and ending with the end of the Plan Year preceding the
Plan Year in which he reaches age 35, (ii) a reasonable period ending
after the Employee becomes a Participant, (iii) a reasonable period
ending after this Section 8.04 first becomes applicable to the
Participant in accordance with Section 8.04(a), (iv) in the case of a
Participant who separates from service before age 35, a reasonable
period of time ending after separation from service. For purposes of
the preceding sentence, the two-year period beginning one year prior
to the date of the event described in clause (ii), (iii) or (iv),
whichever in applicable, and ending one year after such date shall be
considered reasonable, provided, that in the case of a Participant who
separates from service under (iv) above and subsequently recommences
employment with the Employer, the applicable period for such
Participant shall be redetermined in accordance with this subsection.
(d) Requirements of Elections. This subsection will be satisfied
with respect to a waiver or designation which is required to satisfy
this subsection if such waiver or designation is in writing and either
(1) the Participant's spouse consents thereto in writing,
which consent must acknowledge the effect of such waiver or
designation and be witnessed by a notary public or Plan
representative, or
<PAGE> 42
(2) the Participant establishes to the satisfaction of
the Administrator that the consent of the Participant's spouse
cannot be obtained because there is no spouse, because the
spouse cannot be located or because of such other
circumstances as the Secretary of Treasury may prescribe.
Any consent by a spouse, or establishment that the
consent of a spouse may not be obtained, will be effective
only with respect to a specific Beneficiary (including any
class of beneficiaries or any contingent beneficiaries) or
form of benefits identified in the Participant's waiver or
designation, unless the consent of the spouse expressly
permits designations by the Participant without any
requirement of further consent by the spouse. A consent which
permits such designations by the Participant shall acknowledge
that the spouse has the right to limit consent to a specific
Beneficiary and form of benefits and that the spouse
voluntarily elects to relinquish both such rights. A consent
by a spouse shall be irrevocable once made. Any such consent,
or establishment that such consent may not be obtained, will
be effective only with respect to such spouse. For purposes
of subsections (b) and (c) above, no consent of a spouse shall
be valid unless the notice required by such subsection,
whichever is applicable, has been provided to the Participant.
(e) Former Spouse. For purposes of this Section 8.03, a former
spouse of a Participant will be treated as the spouse or surviving
spouse of the Participant, and a current spouse will not be so
treated, to the extent required under a qualified domestic relations
order, as defined in Section 414(p) of the Code.
(f) Vested Account Balance. For purposes of this Section, vested
Account shall the aggregate value of the Participant's vested Account
derived from Employer and Employee contributions (including
rollovers), whether vested before or upon death. The provisions of
this Section shall apply to a Participant who is vested in amounts
attributable to Employer contributions, Employee contributions, or
both, upon death or at the time of distribution.
8.04 Installment Distributions. This Section shall be interpreted and
applied in accordance with the regulations under Section 401(a)(9) of the Code,
including the minimum distribution incidental benefit requirement of section
1.401(a)(9)-2 of the regulations.
(a) In General. If a Participant's benefit may be distributed in
accordance with Section 8.01(b), the amount to be distributed for each
calendar year for which a minimum distribution is required shall be at
least an amount equal to the quotient obtained by dividing the
Participant's interest in his Account by the life expectancy of the
Participant or Beneficiary or the joint life and last survivor
expectancy of the Participant and his Beneficiary, whichever is
applicable. For calendar years beginning before January 1, 1989, if a
Participant's Beneficiary is not his spouse, the method of
distribution selected must insure that at least 50 percent of the
present value of the amount available for distribution is paid within
the life expectancy of the Participant. For calendar years beginning
after December 31, 1988 the amount to be distributed for each calendar
year shall not be less than an amount equal to the quotient obtained
by dividing the Participant's interest in his Account by the lesser of
(i) the applicable life expectancy under Section 8.01(b), or (ii) if a
Participant's Beneficiary is not his spouse, the applicable divisor
determined under Section 1.401(a)(9)-2, Q&A 4 of the Proposed
Treasury Regulations, or any successor regulations of similar import.
<PAGE> 43
Distributions after the death of the Participant shall be made using
the applicable life expectancy under (i) above, without regard to
Section 1.401(a)(9)-2 of such regulations.
The minimum distribution required under this subsection (a) for the
calendar year immediately preceding the calendar year in which the
Participant's required beginning date, as determined under Section
8.08(b), occurs shall be made on or before the Participant's required
beginning date, an so determined. Minimum distributions for other
calendar years shall be made on or before the close of such calendar
year.
(b) Additional Requirements for Distributions After Death of
Participant.
(1) Distribution beginning before Death. If the
Participant dies before distribution of his benefits has
begun, distributions shall be made in accordance with the
provisions of this paragraph. Distributions under Section
8.01(a) shall be completed by the close of the calendar year
in which the fifth anniversary of the death of the Participant
occurs. Distributions under Section 8.01(b) shall commence,
if the Beneficiary is not the Participant's spouse, not later
than the close of the calendar year immediately following the
calendar year in which the death of the Participant occurs.
Distributions under Section 8.01(b) to a Beneficiary who is
the Participant's surviving spouse shall commence not later
than the close of the calendar year in which the Participant
would have attained age 70 1/2 or, if later, the close of the
calendar year immediately following the calendar year in which
the death of the Participant occurs. In the event such spouse
dies prior to the date distribution to him or her commences,
he or she will be treated for purposes of this subsection
(other than the preceding sentence) as if he or she were the
Participant. If the Participant has not designated a
Beneficiary, or the Participant or Beneficiary has not
effectively selected a method of distribution, distribution of
the Participant's benefit shall be completed by the close of
the calendar year in which the fifth anniversary of the death
of the Participant occurs.
Any amount paid to a child of the Participant will be treated
as if it had been paid to the surviving spouse if the amount
becomes payable to the surviving spouse when the child reaches
the age of majority.
For purposes of this subsection (b) (1), the life expectancy
of a Beneficiary who is the Participant's surviving spouse
shall be recalculated annually unless the Participant's spouse
irrevocably elects otherwise prior to the time distributions
are required to begin. Life expectancy shall be computed in
accordance with the provisions of subsection (a) above.
(2) Distribution beginning after Death. If the
Participant dies after distribution of his benefits has begun,
distributions to the Participant's Beneficiary will be made at
least as rapidly as under the method of distribution being
used as of the date of the Participant's death.
For purposes of this Section 8.04(b), distribution of a
Participant's interest in his Account will be considered to begin as of the
Participant's required beginning date, as determined under Section 8.08(b). If
distribution in the form of an annuity irrevocably commences prior to such
date, distribution will be considered to begin as of the actual date
distribution commences.
<PAGE> 44
(c) Life Expectancy. For purposes of this Section, life
expectancy shall be recalculated annually in the case of the
Participant or a Beneficiary who is the Participant's spouse unless
the Participant or Beneficiary irrevocably elects otherwise prior to
the time distributions are required to begin. If not recalculated in
accordance with the foregoing, life expectancy shall be calculated
using the attained age of the Participant or Beneficiary, whichever is
applicable, as of such individual's birth date in the first year for
which a minimum distribution is required reduced by one for each
elapsed calendar year since the date life expectancy was first
calculated. For purposes of this Section, life expectancy and joint
life and last survivor expectancy shall be computed by use of the
expected return multiples in Table V and VI of section 1.72-9 of the
income tax Regulations.
A Participant's interest in his Account for purposes of this
Section 8.04 shall be determined as of the last valuation date in the
calendar year immediately preceding the calendar year for which a
minimum distribution is required, increased by the amount of any
contributions allocated to, and decreased by any distributions from,
such Account after the valuation date. Any distribution for the first
year for which a minimum distribution is required made after the close
of such year shall be treated as if made prior to the close of such
year.
8.05. Immediate Distributions. If the Account distributable to a
Participant exceeds, or at the time of any prior distribution exceeded, $3,500,
no distribution will be made to the Participant before he reaches his Normal
Retirement Age (or age 62, if later), unless the written consent of the
Participant has been obtained. Such consent shall be made in writing within
the 90-day period ending on the Participant's Annuity Starting Date. Within the
period beginning 90 days before the Participant's Annuity Starting Date and
ending 30 days before such Date, the Administrator will provide such
Participant with written notice comparable to the notice described in Section
8.03(b) containing a general description of the material features and an
explanation of the relative values of the optional forms of benefit available
under the Plan and informing the Participant of his right to defer receipt of
the distribution until his Normal Retirement Age (or age 62, if later).
The consent of the Participant's spouse must also be obtained if the
Participant is subject to the provisions of Section 8.03(a), unless the
distribution will be made in the form of the applicable retirement annuity
contract described in Section 8.03(b). A spouse's consent to early
distribution, if required, must satisfy the requirements of section 8.03(d).
Neither the consent of the Participant nor the Participant's spouse
shall be required to the extent that a distribution is required to satisfy
Section 401(a)(9) or Section 415 of the Code. In addition, upon termination
of the Plan if it does not offer an annuity option (purchased from a commercial
provider) and if the Employer or any Related Employer does not maintain another
defined contribution plan (other than an employee stock ownership plan
as defined in Code Section 4975(e)(7)) the Participant's Account will, without
the Participant's consent, be distributed to the Participant. However, if any
Related Employer maintains another defined contribution plan (other than an
employee stock ownership plan an defined in Section 4975(e)(7) of the Code)
then the Participant's Account will be transferred, without the Participant's
consent, to the other plan if the Participant does not consent to an immediate
distribution.
<PAGE> 45
8.06. Determination of Method of Distribution. The Participant will
determine the method of distribution of benefits to himself and may determine
the method of distribution to his Beneficiary. Such determination will be made
prior to the time benefits become payable under the Plan. If the Participant
does not determine the method of distribution to his Beneficiary or if the
Participant permits his Beneficiary to override his determination, the
Beneficiary, in the event of the Participant's death, will determine the method
of distribution of benefits to himself as if he were the Participant. A
determination by the Beneficiary must be made no later than the close of the
calendar year in which distribution would be required to begin under Section
8.04(b) or, if earlier, the close of the calendar year in which the fifth
anniversary of the death of the Participant occurs.
8.07. Notice to Trustee. The Administrator will notify the Trustee in
writing whenever any Participant or Beneficiary is entitled to receive benefits
under the Plan. The Administrator's notice shall indicate the form of benefits
that such Participant or Beneficiary shall receive and (in the case of
distributions to a Participant) the name of any designated Beneficiary or
Beneficiaries.
8.08. Time of Distribution. In no event will distribution to a Participant
be made later than the earlier of the dates described in (a)and (b) below:
(a) Absent the consent of the Participant (and his spouse, if
appropriate), the 60th day after the close of the Plan Year in which
occurs the later of the date on which the Participant attains age 65,
the date on which the Participant ceases to be employed by the
Employer; or the 10th anniversary of the year in which the Participant
commenced participation in the Plan; and
(b) April 1 of the calendar year first following the calendar year
in which the Participant attains age 70 1/2 or, in the case of a
Participant who had attained age 70 1/2 before January 1, 1988, the
required beginning date determined in accordance with (1) or (2)
below:
(1) The required beginning date of a Participant who is
not a 5-percent owner in the first day of April of the
calendar year following the calendar year in which the later
of retirement or attainment of age 70-1/2 occurs.
(2) The required beginning date of a Participant who is a
5-percent owner during any year beginning after December 31,
1979, is the first day of April following the later of:
(i) the calendar year in which the participant
attains age 70-1/2, or
(ii) the earlier of the calendar year with or
within which ends the plan year in which the
participant becomes a 5-percent owner, or the
calendar year in which the participant retires.
Notwithstanding the foregoing, in the case of a Participant who
attained age 70 1/2 during 1988 and who had not retired prior to January 1,
1989, the required beginning date described in this paragraph shall be April 1,
1990.
Notwithstanding (a) above, the failure of a Participant (and spouse)
to consent to a distribution while a benefit is immediately distributable,
within the meaning of Section 8.05, shall be deemed to be
<PAGE> 46
an election to defer commencement of payment of any benefit sufficient to
satisfy (a) above.
Once distributions have begun to a 5-percent owner under (b) above,
they must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
For purposes of (b) above, a Participant is treated as a 5-percent
owner if such participant in a 5-percent owner as defined in Section 416(i) of
the Code (determined in accordance with Section 416 but without regard to
whether the plan is top-heavy) at any time during the plan year ending with or
within the calendar year in which such owner attains age 66-1/2 or any
subsequent plan year.
The Administrator shall notify the Trustee in writing whenever a
distribution is necessary in order to comply with the minimum distribution
rules set forth in this Section.
8.09. Whereabouts of Participants and Beneficiaries. The Administrator will
at all times be responsible for determining the whereabouts of each Participant
or Beneficiary who may be entitled to benefits under the Plan and will at all
times be responsible for instructing the Trustee in writing as to the current
address of each such Participant or Beneficiary. The Trustee will be entitled
to rely on the latest written statement received from the Administrator as to
such addresses. The Trustee will be under no duty to make any distributions
under the Plan unless and until it has received written instructions from the
Administrator satisfactory to the Trustee containing the name and address of
the distributee, the time when the distribution is to occur, and the form which
the distribution will take. Notwithstanding the foregoing, if the Trustee
attempts to make a distribution in accordance with the Administrator's
instructions but is unable to make such distribution because the whereabouts of
the distributee is unknown, the Trustee will notify the Administrator of such
situation and thereafter the Trustee will be under no duty to make any further
distributions to such distributee until it receives further written
instructions from the Administrator. If a benefit is forfeited because the
Administrator determines that the Participant or beneficiary cannot be found,
such benefit will be reinstated by the Sponsor if a claim is filed by the
Participant or Beneficiary with the Administrator and the Administrator
confirms the claim to the Sponsor.
Article 9. Top-Heavy Provisions.
9.01 Application. If the Plan is or becomes a Top-Heavy Plan in any Plan
Year or is automatically deemed to be Top-Heavy in accordance with the
Employer's election in Section 1.12(a)(1) of the Adoption Agreement, the
provisions of this Article 9 shall supersede any conflicting provision in the
Plan.
9.02 Definitions. For purposes of this Article 9, the following terms have
the meanings set forth below:
(a) Key Employee. Any Employee or former Employee (and the
Beneficiary of any such Employee) who at any time during the
determination period was (i) an officer of the Employer whose annual
compensation exceeds 50 percent of the dollar limitation under Section
415(b)(1)(A) of the Code, (ii) an owner (or considered an owner under
Section 318 of the Code) of one of the ten largest interests in the
Employer if such individual's annual compensation exceeds the dollar
limitation under Section 415(c)(1)(A) of the Code, (iii) a 5-percent
owner of the Employer, or (iv) a 1-percent owner of the Employer who
has annual compensation of more than $150,000. For purposes of this
<PAGE> 47
paragraph, the determination period is the Plan Year containing the
Determination Date and the four preceding Plan Years. The
determination of who is a Key Employee shall be made in accordance
with Section 416(i)(1) of the Code and the regulations thereunder.
Annual compensation means compensation as defined in Section
5.03(e)(2), but including amounts contributed by the Employer pursuant
to a salary reduction agreement which are excludable from the
employee's gross income under Section 125, Section 402(a)(8), and
Section 403(b) of the Code.
(b) Top-Heavy Plan. The Plan is a Top-Heavy Plan if any of the
following conditions exists:
(1) the Top-Heavy Ratio for the Plan exceeds 60 percent
and the Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group;
(2) the Plan is a part of a Required Aggregation Group
but not part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the Required Aggregation Group exceeds 60
percent; or
(3) the Plan is a part of a Required Aggregation Group
and a Permissive Aggregation Group and the Top-Heavy Ratio for
both Groups exceeds 60 percent.
(c) Top-Heavy Ratio.
(1) With respect to this Plan, or with respect to any
Required Aggregation Group or Permissive Aggregation Group
that consists solely of defined contribution plans (including
any simplified employee pension plans) and the Employer has
not maintained any defined benefit plan which during the
5-year period ending on the determination date(s) has or has
had accrued benefits, the Top-Heavy Ratio is a fraction, the
numerator of which is the sum of the account balances of all
Key Employees under the plans as of the Determination Date
(including any part of any account balance distributed in the
5-year period ending on the Determination Date), and the
denominator of which is the sum of all account balances
(including any part of any account balance distributed in the
5-year period ending on the Determination Date) of all
participants under the plans as of the Determination Date.
Both the numerator and denominator of the Top-Heavy Ratio
shall be increased, to the extent required by Section 416 of
the Code, to reflect any contribution which is due but unpaid
as of the Determination Date.
(2) With respect to any Required Aggregation Group or
Permissive Aggregation Group that includes one or more defined
benefit plans which, during the 5-year period ending on the
Determination Date, has covered or could cover a Participant
in this Plan, the Top-Heavy Ratio is a fraction, the numerator
of which is the sum of the account balances under the defined
contribution plans for all Key Employees and the present value
of accrued benefits under the defined benefit plans for all
Key Employees, and the denominator of which is the sum of the
account balances under the defined contribution plans for all
participants and the present value of accrued benefits under
the defined benefit plans for all participants. Both the
numerator and denominator of the Top-Heavy Ratio shall be
increased for any distribution of an account balance or an
accrued benefit made in the 5-year period ending on the
Determination Date and any contribution due but unpaid as of
the Determination Date.
<PAGE> 48
(3) For purposes of (1) and (2) above, the value of
Accounts and the present value of accrued benefits will be
determined as of the most recent Valuation Date that falls
within or ends with the 12-month period ending on the
Determination Date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The Account and accrued
benefits of a Participant (i) who is not a Key Employee but
who was a Key Employee in a prior year, or (ii) who has not
been credited with at least one Hour of Service with the
Employer at any time during the 5-year period ending on the
Determination Date, will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account, shall be made
in accordance with Section 416 of the Code and the regulations
thereunder. Deductible employee contributions shall not be
taken into account for purposes of computing the Top-Heavy
Ratio. When aggregating plans, the value of Accounts and
accrued benefits shall be calculated with reference to the
Determination Dates that fall within the same calendar year.
For purposes of determining if the Plan, or any other
plan included in a Required Aggregation Group of which this
Plan is a part, is a Top-Heavy Plan, the accrued benefit in a
defined benefit plan of an Employee other than a Key Employee
shall be determined under (a) the method, if any, that
uniformly applies for accrual purposes under all plans
maintained by the Employer, or (b) if there is no such method,
as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual rate of
Section 411(b)(1)(C) of the Code.
(d) Permissive Aggregation Group. The Required Aggregation Group
plus any other qualified plans of the Employer or a Related Employer
which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Sections 401(a)(4) and
410 of the Code.
(e) Required Aggregation Group.
(1) Each qualified plan of the Employer or Related
Employer in which at least one Key Employee participates, or
has participated at any time during the determination period
(regardless of whether the plan has terminated), and
(2) any other qualified plan of the Employer or Related
Employer which enables a plan described in (1) above to meet
the requirements of Sections 401(a)(4) or 410 of the Code.
(f) Determination Date. For any Plan Year of the Plan subsequent
to the first Plan Year, the last day of the preceding Plan Year. For
the first Plan Year of the Plan, the last day of that Plan Year.
(g) Valuation Date. The Determination Date.
(h) Present Value. Present value shall be based only on the
interest rate and mortality table specified in the Adoption Agreement.
9.03. Minimum Contribution.
<PAGE> 49
(a) Except as otherwise provided in (b) and (c) below, the
Fixed/Discretionary Contributions made on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of 3
percent (or such other percent elected by the Employer in Section
1.12(c)) of such Participant's Compensation or, in the case where the
Employer has no defined benefit plan which designates this Plan to
satisfy Section 401 of the Code, the largest percentage of Employer
contributions, as a percentage of the first $200,000 of the Key
Employee's Compensation, made on behalf of any Key Employee for that
year. If the Employer selected the Integrated Formula in Section
1.05(a)(2), the minimum contribution shall be determined under
paragraph (e) of this Section 9.03. Further, the minimum contribution
under this Section 9.03 shall be made even though, under other Plan
provisions, the Participant would not otherwise be entitled to receive
a contribution, or would have received a lesser contribution for the
year, because (i) the Participant failed to complete 1,000 Hours of
Service or any equivalent service requirement provided in the Adoption
Agreement; or (ii) the Participant's Compensation was less than a
stated amount.
(b) The provisions of (a) above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan Year.
(c) The Employer contributions for the Plan Year made on behalf of
each Participant who is not a Key Employee and who is a participant in
a defined benefit plan maintained by the Employee shall not be less
than 5 percent of such Participant's compensation, unless the Employer
has provided in Section 1.12(c) that the minimum contribution
requirement will be met in the other plan or plans of the Employer.
(d) The minimum contribution required under (a) above (to the
extent required to be nonforfeitable under Section 416(b) of the Code)
may not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the
Code.
(e) If the Employer elected an Integrated Formula in Section
1.05(a)(2), the allocation steps in Section 4.06(b)(2) shall be
preceded by the following steps:
(1) The Discretionary Employer Contributions will be
allocated to each eligible Participant (as determined under this
Section 9.03) in the ratio that the Participant's Compensation bears
to all Participants' Compensation, but not in excess of 3% (or such
other percent elected by the Employer in Section 1.12(c).
(2) Any Discretionary Employer Contributions remaining after
(e)(1) above will be allocated to each eligible Participant in the
ratio that the Participant's Excess Compensation for the Plan Year
bears to the Excess Compensation of all eligible Participants, but not
in excess of 3% (or such other percent elected by the Employer in
Section 1.12(c)).
9.04. Adjustment to the Limitation on Contributions and Benefits. If this
Plan is in Top-Heavy status, the number 100 shall be substituted for the number
125 in subsections (e)(3) and (e)(4) of Section 5.03. However, this
substitution shall not take effect with respect to this Plan in any Plan Year
in which the following requirements are satisfied:
(a) The Employer contributions for such Plan Year made on behalf
of each Participant who is not a Key Employee and who is a
<PAGE> 50
participant in a defined benefit plan maintained by the Employer is
not less than 7 1/2 percent of such Participant's Compensation.
(b) The sum of the present value as of the Determination Date of
(i) the aggregate accounts of all Key Employees under all defined
contribution plans of the Employer and (ii) the cumulative accrued
benefits of all Key Employees under all defined benefit plans of the
Employer does not exceed 90 percent of the same amounts determined for
all Participants under all plans of the Employer that are Top-Heavy
Plans, excluding Accounts and accrued benefits for Employees who
formerly were but are no longer Key Employees.
The substitutions of the number 100 for 125 shall not take
effect in any limitation Year with respect to any Participant for whom
no benefits are accrued or contributions made for such Year.
9.05. Minimum Vesting. For any Plan Year in which the Plan in a Top-Heavy
Plan and all Plan Years thereafter, the Top-Heavy vesting schedule elected in
Section 1.12(d) will automatically apply to the Plan. The Top-Heavy vesting
schedule applies to all benefits within the meaning of Section 411(a)(7) of the
Code except those attributable to Employee Contributions or those already
subject to a vesting schedule which vests at least as rapidly in all cases as
the schedule elected in Section 1.12(d), including benefits accrued before the
Plan becomes a Top-Heavy Plan. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year. However, this Section 9.O5 does not
apply to the Account of any Employee who does not have an Hour of Service after
the Plan has initially become a Top-Heavy Plan and such Employee's Account
attributable to Employer Contributions will be determined without regard to
this Section 9.05.
Article 10. Amendment and Termination.
10.01 Amendment by Employer. The Employer reserves the authority, subject
to the provisions of Article I and Section 10.03, to amend the Plan:
(a) Changing Elections Contained in the Adoption Agreement. By
filing with the Trustee an amended Adoption Agreement, executed by the
Employer only, on which said Employer has indicated a change or
changes in provisions previously elected by it. Such changes are to
be effective on the effective date of such amended Adoption Agreement
except that retroactive changes to a previous election or elections
pursuant to the regulations issued under Section 401(a)(4) of the Code
shall be permitted. Any such change notwithstanding, no Participant's
Account shall be reduced by such change below the amount to which the
Participant would have been entitled if he had voluntarily left the
employ of the Employer immediately prior to the date of the change.
The Employer may from time to time make any amendment to the Plan that
may be necessary to satisfy Sections 415 or 416 of the Code because of
the required aggregation of multiple plans by completing overriding
Plan language in the Adoption Agreement. The Employer may also add
certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan; or
(b) Other Changes. By amending any provision of the Plan for any
reason other than those specified in (a) above. However, upon making
such amendment, including a waiver of the minimum funding requirement
under Section 412(d) of the Code, the Employer may no longer
participate in this prototype plan arrangement and will be
<PAGE> 51
deemed to have an individually designed plan. Following such
amendment, the Trustee may transfer the assets of the Trust to the
trust forming part of such newly adopted plan upon receipt of
sufficient evidence (such as a determination letter or opinion letter
from the Internal Revenue Service or an opinion of counsel
satisfactory to the Trustee) that such trust will be a qualified trust
under the Code.
10.02. Amendment by Prototype Sponsor. The Prototype Sponsor may in its
discretion amend the Plan or the Adoption Agreement at any time, subject to the
provisions of Article I and Section 10.03, and provided that the Prototype
Sponsor mails a copy of such amendment to the Employer at its last known
address as shown on the books of the Prototype Sponsor.
10.03. Amendments Affecting Vested and/or Accrued Benefits.
(a) Except as permitted by Section 10.04, no amendment to the Plan
shall be effective to the extent that it has the effect of decreasing
a Participant's Account or eliminating an optional form of benefit
with respect to benefits attributable to service before the amendment.
Furthermore, if the vesting schedule of the Plan in amended, the
nonforfeitable interest of a Participant in his Account, determined as
of the later of the date the amendment is adopted or the date it
becomes effective, will not be less than the Participant's
nonforfeitable interest in his Account determined without regard to
such amendment.
(b) If the Plan's vesting schedule is amended, including any
amendment resulting from a change to or from Top-Heavy Plan status, or
the Plan is amended in any way that directly or indirectly affects the
computation of a Participant's nonforfeitable interest in his Account,
each Participant with at least three (3) Years of Service for Vesting
with the Employer may elect, within a reasonable period after the
adoption of the amendment, to have the nonforfeitable percentage of
his Account computed under the Plan without regard to such amendment.
The Participant's election may be made within 60 days from the latest
of (i) the date the amendment is adopted; (ii) the date the amendment
becomes effective; or (iii) the date the Participant is issued written
notice of the amendment by the Employer or the Administrator.
10.04. Retroactive Amendments. An amendment made by the sponsor in
accordance with Section 10.02 may be made effective on a date prior to the
first day of the Plan Year in which it is adopted if such amendment is
necessary or appropriate to enable the Plan and Trust to satisfy the applicable
requirements of the Code or to conform the Plan to any change in federal law,
or to any regulations or ruling thereunder. Any retroactive amendment by the
Employer shall be subject to the provisions of Section 10.01.
10.04. Termination. The Employer has adopted the Plan with the intention and
expectation that contributions will be continued indefinitely. However, said
Employer has no obligation or liability whatsoever to maintain the Plan for any
length of time and may discontinue contributions under the Plan or terminate
the Plan at any time by written notice delivered to the Trustee without any
liability hereunder for any such discontinuance or termination.
10.06. Distribution upon Termination of the Plan. Upon termination or
partial termination of the Plan or complete discontinuance of contributions
thereunder, each Participant (including a terminated Participant with respect
to amounts not previously forfeited by him) who is affected by such termination
or partial termination or discontinuance
<PAGE> 52
will have a fully vested interest in his Account, and, subject to section 4.05
and Article 8, the Trustee will distribute to each Participant or other person
entitled to distribution the balance of the Participant's Account in a single
lump sum payment. In the absence of such instructions, the Trustee will notify
the Administrator of such situation and the Trustee will be under no duty to
make any distributions under the Plan until it receives written instructions
from the Administrator. Upon the completion of such distributions, the Trust
will terminate, the Trustee will be relieved from all liability under the
Trust, and no Participant or other person will have any claims thereunder,
except as required by applicable law.
10.07. Merger or Consolidation of Plan; Transfer of Plan Assets. In case of
any merger or consolidation of the Plan with, or transfer of assets and
liabilities of the Plan to, any other plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which 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.
Article 11. Amendment and Continuation of Predecessor Plan: Transfer of Funds
to or from Other Qualified Plans.
11.01. Amendment and Continuation of Predecessor Plan. In the event the
Employer has previously established a plan (the "predecessor plan") which is a
defined contribution plan under the Code and which an the date of adoption of
the Plan meets the applicable requirements of section 401(a) of the code, the
Employer may, in accordance with the provisions of the predecessor plan, amend
and continue the predecessor plan in the form of the Plan and become the
Employer hereunder, subject to the following:
(a) Subject to the provisions of the Plan, each individual who was
a Participant or former Participant in the predecessor plan
immediately prior to the effective date of such amendment and
continuation will become a Participant or former Participant in the
Plan;
(b) No election may be made under the vesting provisions of the
Adoption Agreement if such election would reduce the benefits of a
Participant under the Plan to less than the benefits to which he would
have been entitled if he voluntarily separated from the service of the
Employer immediately prior to such amendment and continuation;
(c) No amendment to the Plan shall decrease a Participant's
accrued benefit or eliminate an optional form of benefit and if the
amendment of the predecessor plan in the form of the Plan results in a
change in the method of crediting service for vesting purposes between
the general method set forth in Section 2530.200b-2 of the Department
of Labor Regulations and the elapsed time method in Section
2.01(a)(33) of the Plan, each Participant with respect to whom the
method of crediting vesting service is changed shall be treated in the
manner set forth by the provisions of Section 1.410(a)-7(f)(1) of the
Treasury Regulations which are incorporated herein by reference.
(d) The amounts standing to the credit of a Participant's Account
immediately prior to such amendment and continuation which represent
the amounts properly attributable to (i) contributions by the
Participant and (ii) contributions by the Employer and
<PAGE> 53
forfeitures will constitute the opening balance of his Account or
Accounts under the Plan;
(e) Amounts being paid to a former Participant or to a Beneficiary
in accordance with the provisions of the predecessor plan will
continue to be paid in accordance with such provisions;
(f) Any election and waiver of the qualified pre-retirement
annuity in effect after August 23, 1984, under the predecessor plan
immediately before such amendment and continuation will be deemed a
valid election and waiver of Beneficiary under Section 8.04 if such
designation satisfies the requirements of Section 8.04(d), unless and
until the Participant revokes such election and waiver under the Plan;
and
(g) Unless the Employer and the Trustee agree otherwise, all
assets of the predecessor trust will be deemed to be assets of the
Trust as of the effective date of such amendment. Such assets will
be invested by the Trustee as soon as reasonably practicable pursuant
to Article 6. The Employer agrees to assist the Trustee in any way
requested by the Trustee in order to facilitate the transfer of
assets from the predecessor trust to the Trust Fund.
11.02. Transfer of Funds from an Existing Plan. The Employer may from time
to time direct the Trustee, in accordance with such rules as the Trustee may
establish, to accept cash, allowable Fund Shares or participant loan promissory
notes transferred for the benefit of Participants from a trust forming part of
another qualified plan under the Code, provided such plan is a defined
contribution plan. Such transferred assets will become assets of the Trust as
of the date they are received by the Trustee. Such transferred assets will be
credited to Participants' Account in accordance with their respective interests
immediately upon receipt by the Trustee. A Participant's interest under the
Plan in transferred assets which were fully vested and nonforfeitable under the
transferring plan will be fully vested and nonforfeitable at all times. Such
transferred assets will be invested by the Trustee in accordance with the
provisions of paragraph (g) of Section 11.01 as if such assets were transferred
from a predecessor plan. No transfer of assets in accordance with this Section
may cause a loss of an accrued or optional form of benefit protected by Section
411(d)(6) of the Code.
11.03. Acceptance of Assets by Trustee. The Trustee will not accept assets
which are not either in a medium proper for investment under the Plan, as set
forth in Section 1.14(b), or in cash. Such assets shall be accompanied by
written instructions showing separately the respective contributions by the
prior employer and by the Employee, and identifying the assets attributable to
such contributions. The Trustee shall establish such accounts as may be
necessary or appropriate to reflect such contributions under the Plan. The
Trustee shall hold such assets for investment in accordance with the provisions
of Article 6, and shall in accordance with the written instructions of the
Employer make appropriate credits to the Accounts of the Participants for whose
benefit assets have been transferred.
11.04. Transfer of Assets from Trust. The Employer may direct the Trustee to
transfer all or a specified portion of the Trust assets to any other plan or
plans maintained by the Employer or the employer or employers of a former
Participant or Participants, provided that the Trustee has received evidence
satisfactory to it that such other plan meets all applicable requirements of
the Code. The assets so transferred shall be accompanied by written
instructions from the Employer naming the persons for whose benefit such assets
have been
<PAGE> 54
transferred, showing separately the respective contributions by the Employer
and by each Participant, if any, and identifying the assets attributable to the
various contributions. The Trustee shall have no further liabilities with
respect to assets so transferred.
Article 12. Miscellaneous.
12.01. Communication to Participants. The Plan will be communicated to all
Participants by the Employer promptly after the Plan is adopted.
12.02. Limitation of Rights. Neither the establishment of the Plan and the
Trust, nor any amendment thereof, nor the creation of any fund or account, nor
the payment of any benefits, will be construed as giving to any Participant or
other person any legal or equitable right against the Employer, Administrator
or Trustee, except as provided herein; and in no event will the terms of
employment or service of any Participant be modified or in any way affected
hereby. It is a condition of the Plan, and each Participant expressly agrees
by his participation herein, that each Participant will look solely to the
assets held in the Trust for the payment of any benefit to which he is entitled
under the Plan.
12.03. Nonalienability of Benefits and Qualified Domestic Relations Orders.
The benefits provided hereunder will not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, either voluntarily or
involuntarily, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law. The
preceding sentence shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined by the Plan
Administrator to be a qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered before January 1,
1985. The Administrator must establish reasonable procedures to determine the
qualified status of a domestic relations order. upon receiving a domestic
relations order, the Administrator will promptly notify the Participant and any
alternate payee named in the order, in writing, of the receipt of the order and
the Plan's procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
Administrator must determine the qualified status of the order and must notify
the Participant and each alternate payee, in writing, of its determination.
The Administrator must provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with the Department of Labor regulations.
If any portion of the Participant's Account is payable during the
period the Administrator is making its determination of the qualified status of
the domestic relations order, the Administrator must make a separate accounting
of the amounts payable. If the Administrator determines the order is a
qualified domestic relations order within 18 months of the date amounts first
are payable following receipt of the order, the Administrator will direct the
Trustee to distribute the payable amounts in accordance with the order. If the
Administrator does not make his determination of the qualified status of the
order within the 18 month determination period, the Administrator will direct
the Trustee to distribute the payable amounts in the manner the Plan would
distribute if the order did not exist and will apply the order prospectively if
the Administrator later determines the order in a qualified domestic relations
order.
A domestic relations order will not fail to be deemed a qualified
domestic relations order merely because it requires the distribution or
segregation of all or part of a Participant's Account with respect to an
<PAGE> 55
alternate payee prior to the Participant's earliest retirement age (as defined
in Section 414(p) of the Code) under the Plan. A distribution to an alternate
payee prior to the Participant's attainment of the earliest retirement age is
available only if: (1) the order specifies distribution at that time; and (2)
if the present value of the alternate payee's benefits under the Plan exceeds
$3,500, and the order requires, the alternate payee consents to any
distribution occurring prior to the Participant's attainment of earliest
retirement age.
12.04. Facility of Payment. In the event the Administrator determines, on
the basis of medical reports or other evidence satisfactory to the
Administrator, that the recipient of any benefit payments under the Plan is
incapable of handling his affairs by reason of minority, illness, infirmity or
other incapacity, the Administrator may direct the Trustee to disburse such
payments to a person or institution designated by a court which has
jurisdiction over such recipient or a person or institution otherwise having
the legal authority under State law for the care and control of such recipient.
The receipt by such person or institution of any such payments shall be
complete acquittance therefore, and any such payment to the extent thereof,
shall discharge the liability of the Trust for the payment of benefits
hereunder to such recipient.
12.05. Information between Employer and Trustee. The Employer agrees to
furnish the Trustee, and the Trustee agrees to furnish the Employer with such
information relating to the Plan and Trust as may be required by the other in
order to carry out their respective duties hereunder, including without
limitation information required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or under the provisions of
ERISA and any regulations issued or forms adopted by the Labor Department
thereunder.
12.06. Effect of Failure to Qualify under Code. Notwithstanding any other
provision contained herein, if the Employer fails to obtain or retain approval
of the Plan by the Internal Revenue Service as a qualified Plan under the Code,
the Employer may no longer participate in this prototype Plan arrangement and
will be deemed to have an individually designed plan.
12.07. Notices. Any notice or other communication in connection with this
Plan shall be deemed delivered in writing if addressed as provided below and if
either actually delivered at said address or, in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in
the United States mails, first-class postage prepaid and registered or
certified:
(a) If to the Employer or Administrator, to it at the address set
forth in the Adoption Agreement, to the attention of the person
specified to receive notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the
Adoption Agreement;
or, in each case at such other address as the addressee shall have specified
by written notice delivered in accordance with the foregoing to the addressor's
then effective notice address.
12.08. Governing Law. The Plan and the accompanying Adoption Agreement will
be construed, administered and enforced according to ERISA, and to the extent
not preempted thereby, the laws of the Commonwealth of Massachusetts.
<PAGE> 56
Article 13. Plan Administration.
13.01. Powers and responsibilities of the Administrator. The Administrator
has the full power and the full responsibility to administer the Plan in all of
its details, subject, however, to the requirements of ERISA. The
Administrator's powers and responsibilities include, but are not limited to,
the following:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good
faith to be final and conclusive on all persons claiming benefits
under the Plan;
(c) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) To administer the claims and review procedures specified in
Section 13.03;
(e) To compute the amount of benefits which will be payable to any
Participant, former Participant or Beneficiary in accordance with the
provisions of the Plan;
(f) To determine the person or persons to whom such benefits will
be paid;
(g) To authorize the payment of benefits and provide for the
distribution of Code Section 402(f) notices;
(h) To comply with the reporting and disclosure requirements of
Part 1 of Subtitle B of Title I of ERISA;
(i) To appoint such agents, counsel, accountants, and consultants
as may be required to assist in administering the Plan;
(j) By written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA including the
formation of an Administrative Committee to administer the Plan;
(k) To provide bonding coverage as required under Section 412 of
ERISA.
13.02. Nondiscriminatory Exercise of Authority. Whenever, in the
administration of the Plan, any discretionary action by the Administrator is
required, the Administrator shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
13.03. Claims and Review Procedures.
(a) Claims Procedure. If any person believes he is being denied
any rights or benefits under the Plan, such person may file a claim in
writing with the Administrator. If any such claim is wholly or
partially denied, the Administrator will notify such person of its
decision in writing. Such notification will contain (i) specific
reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or
information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary, and (iv)
information as to the steps to be taken if the person wishes to submit
a request for review. Such notification will be given
<PAGE> 57
within 90 days after the claim is received by the Administrator (or
within 180 days, if special circumstances require an extension of time
for processing the claim, and if written notice of such extension and
circumstances is given to such person within the initial 90-day
period). If such notification in not given within such period, the
claim will be considered denied as of the last day of such period and
such person may request a review of his claim.
(b) Review Procedure. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial in considered to
have occurred), such person (or his duly authorized representative)
may (i) file a written request with the Administrator for a review of
his denied claim and of pertinent documents and (ii) submit written
issues and comments to the Administrator. The Administrator will
notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and
will contain specific reasons for the decision as well as specific
references to pertinent Plan provisions. The decision on review will
be made within 60 days after the request for review is received by the
Administrator (or within 120 days, if special circumstances require an
extension of time for processing the request, such as an election by
the Administrator to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the initial
60-day period). If the decision on review is not made within such
period, the claim will be considered denied.
13.04. Named Fiduciary. The Administrator is a "named fiduciary" for purposes
of Section 402(a)(1) of ERISA and has the powers and responsibilities with
respect to the management and operation of the Plan described herein.
13.05. Costs of Administration. Unless some or all are paid by the Employer,
all reasonable costs and expenses (including legal, accounting, and employee
communication fees) incurred by the Administrator and the Trustee in
administering the Plan and Trust will be paid first from the forfeitures (if
any) resulting under Section 7.07, then from the remaining Trust Fund. All
such costs and expenses paid from the Trust Fund will, unless allocable to the
Accounts of particular Participants, be charged against the Accounts of all
Participants on a prorata basis or in such other reasonable manner as may be
directed by the Employer.
ARTICLE 14. Trust Agreement.
14.01. Acceptance of Trust Responsibilities. By executing the Adoption
Agreement, the Employer establishes a trust to hold the assets of the plan. By
executing the Adoption Agreement, the Trustee agrees to accept the rights,
duties and responsibilities set forth in this Article 14.
14.02. Establishment of Trust Fund. A trust is hereby established under the
Plan and the Trustee will open and maintain a Trust account for the Plan and,
as part thereof, Participants' Accounts for such individuals as the Employer
shall from time to time give written notice to the Trustee are Participants in
the Plan. The Trustee will accept and hold in the Trust Fund such
contributions on behalf of Participants as it may receive from time to time
from the Employer. The Trust Fund shall be fully invested and reinvested in
accordance with the applicable provisions of the Plan in Fund Shares or as
otherwise provided in Section 14.10.
14.03. Exclusive Benefit. The Trustee shall hold the assets of the Trust
Fund for the exclusive purpose of providing benefits to
<PAGE> 58
Participants and Beneficiaries and defraying the reasonable expenses of
administering the Plan. No assets of the Plan shall revert to the Employer
except as specifically permitted by the terms of the Plan.
14.04. Powers of Trustee. The Trustee shall have no discretion or authority
with respect to the investment of the Trust Fund but shall act solely as a
directed trustee of the funds contributed to it. In addition to and not in
limitation of such powers as the Trustee has by law or under any other
provisions of the Plan, the Trustee will have the following powers, each of
which the Trustee exercises solely as directed Trustee in accordance with the
written direction of the Employer except to the extent a Plan asset is subject
to Participant direction of investment and provided that no such power shall be
exercised in any manner inconsistent with the provisions of ERISA:
(a) to deal with all or any part of the Trust Fund and to invest all
or a part of the Trust Fund in investments available under the Plan, without
regard to the law of any state regarding proper investment;
(b) to retain uninvested such cash as it may deem necessary or
advisable, without liability for interest thereon, for the administration of the
Trust;
(c) to sell, convert, redeem, exchange, or otherwise dispose of all or
any part of the assets constituting the Trust Fund;
(d) to enforce by suit or otherwise, or to waive, its rights an behalf
of the Trust, and to defend claims asserted against it or the Trust, provided
that the Trustee is indemnified to its satisfaction against liability and
expenses;
(e) to employ such agents and counsel an may be reasonably necessary
in collecting, managing, administering, investing, distributing and protecting
the Trust Fund or the assets thereof and to pay them reasonable compensation;
(f) to compromise, adjust and settle any and all claims against or in
favor of it or the Trust;
(g) to oppose, or participate in and consent to the reorganization,
merger, consolidation, or readjustment of the finances of any enterprise, to pay
assessments and expenses in connection therewith, and to deposit securities
under deposit agreements;
(h) to apply for or purchase annuity contracts in accordance with
Section 8.02;
(i) to hold securities unregistered, or to register them in its own
name or in the name of nominees;
(j) to appoint custodians to hold investments within the jurisdiction
of the district courts of the United States and to deposit securities with stock
clearing corporations or depositories or similar organizations;
(k) to make, execute, acknowledge and deliver any and all instruments
that it deems necessary or appropriate to carry out the powers herein granted;
and
(l) generally to exercise any of the powers of an owner with respect
to all or any part of the Trust Fund.
The Employer specifically acknowledges and authorizes that affiliates
of the Trustee may act as its agent in the performance of
<PAGE> 59
ministerial, nonfiduciary duties under the Trust. The expenses and
compensation of such agent shall be paid by the Trustee.
The Trustee shall provide the Employer with reasonable notice of any
claim filed against the Plan or Trust or with regard to any related matter, or
of any claim filed by the Trustee on behalf of the Plan or Trust or with regard
to any related matter.
14.O5. Accounts. The Trustee will keep full accounts of all receipts and
disbursements and other transactions hereunder. Within 60 days after the close
of each Plan Year, within 60 days after termination of the Trust, and at such
other times as may be appropriate, the Trustee will determine the then net fair
market value of the Trust Fund as of the close of the Plan Year, as of the
termination of the Trust, or as of such other time, whichever in applicable,
and will render to the Employer and Administrator an account of its
administration of the Trust during the period since the last such accounting,
including all allocations made by it during such period.
14.06. Approving of Accounts. To the extent permitted by law, the written
approval of any account by the Employer or Administrator will be final and
binding, as to all matters and transactions stated or shown therein, upon the
Employer, Administrator, Participants and all persons who then are or
thereafter become interested in the Trust. The failure of the Employer or
Administrator to notify the Trustee within six (6) months after the receipt of
any account of its objection to the account will, to the extent permitted by
law, be the equivalent of written approval. If the Employer or Administrator
files any objections within such six (6) month period with respect to any
matters or transactions stated or shown in the account, and the Employer or
Administrator and the Trustee cannot amicably settle the question raised by
such objections, the Trustee will have the right to have such questions settled
by judicial proceedings. Nothing herein contained will be construed so as to
deprive the Trustee of the right to have judicial settlement of its accounts.
In any proceeding for a judicial settlement of any account or for instructions,
the only necessary parties will be the Trustee, the Employer and the
Administrator.
14.07. Distribution from Trust Fund. The Trustee shall make such
distribution from the Trust Fund as the Employer or Administrator may in
writing direct, as provided by the terms of the Plan, upon certification by the
Employer or Administrator that the same is for the exclusive benefit of
Participants or their Beneficiaries, or for the payment of expenses of
administering the Plan.
14.08. Transfer of Amounts from Qualified Plan. If the Plan provides that
amounts may be transferred to the Plan from another qualified plan or trust
under Section 401(a) of the Code, such transfer shall be made in accordance
with the provisions of the Plan and with such rules as may be established by
the Trustee. The Trustee will only accept assets which are in a medium proper
for investment under this Agreement or in cash. Such amounts shall be
accompanied by written instructions showing separately the respective
contributions by the prior employer and the transferring Employee, and
identifying the assets attributable to such contributions. The Trustee shall
hold such assets for investment in accordance with the provisions of this
Agreement.
14.09. Transfer of Assets from Trust. Subject to the provisions of the Plan,
the Employer may direct the Trustee to transfer all or a specified portion of
the Trust assets to any other plan or plans maintained by the Employer or the
employer or employers of a former Participant or Participants, provided that
the Trustee has received evidence satisfactory to it that such other plan meets
all applicable requirements of the Code. The assets so transferred shall be
<PAGE> 60
accompanied by written instructions from the Employer naming the persons for
whose benefit such assets have been transferred, showing separately the
respective contributions by the Employer and by each Participant, if any, and
identifying the assets attributable to the various contributions. The Trustee
shall have no further liabilities with respect to assets so transferred.
14.10. Separate Trust or Fund for Existing Plan Assets. With the consent of
the Trustee, the Employer may maintain a trust or fund (including a group
annuity contract) under this prototype plan document separate from the Trust
Fund for Plan assets purchased prior to the adoption of this prototype plan
document which are not Fidelity Funds listed in Section 1.14(b). The Trustee
shall have no authority and no responsibility for the Plan assets held in such
separate trust or fund. The duties and responsibilities of the trustee of a
separate trust shall be provided by a separate trust agreement, between the
Employer and the trustee.
Notwithstanding the preceding paragraph, the Trustee or an affiliate
of the Trustee may agree in writing to provide ministerial recordkeeping
services for guaranteed investment contracts held in the separate trust or
fund. The guaranteed investment contract(s) shall be valued an directed by the
Employer or the Trustee of the separate trust.
The trustee of the separate trust (hereafter referred to as "trustee")
will be the owner of any insurance contract purchased prior to the adoption of
this prototype plan document. The insurance contract(s) must provide that
proceeds will be payable to the trustee, however the trustee shall be required
to pay over all proceeds of the contract(s) to the Participant's designated
Beneficiary in accordance with the distribution provisions of this plan. A
Participant's spouse will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance with
Article 8. Under no circumstances shall the trust retain any part of the
proceeds. In the event of any conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
Any life insurance contracts held in the Trust Fund or in the separate
trust are subject to the following limits:
(a) Ordinary life - For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If such
contracts are held, less than 1/2 of the aggregate employer
contributions allocated to any Participant will be used to pay the
premiums attributable to them.
(b) Term and universal life - No more than 1/4 of the aggregate
employer contributions allocated to any participant will be used to
pay the premiums on term life insurance contracts, universal life
insurance contracts, and all other life insurance contracts which are
not ordinary life.
(c) Combination - The sum of 1/2 of the ordinary life insurance
premiums and all other life insurance premiums will not exceed 1/4 of
the aggregate employer contributions allocated to any Participant.
14.11. Voting; Delivery of Information. The Trustee shall deliver, or cause
to be executed and delivered, to the Employer or Plan Administrator all
notices, prospectuses, financial statements, proxies and proxy soliciting
materials received by the Trustee relating to securities held by the Trust or,
if applicable, deliver these materials
<PAGE> 61
to the appropriate Participant or the Beneficiary of a deceased Participant.
The Trustee shall not vote any securities held by the Trust except in
accordance with the written instructions of the Employer, Participant or the
Beneficiary of the Participant, if the Participant is deceased; provided,
however, that the Trustee may, in the absence of instructions, vote "present"
for the sole purpose of allowing such shares to be counted for establishment of
a quorum at a shareholders' meeting. The Trustee shall have no duty to solicit
instructions from Participants, the Beneficiary or the Employer.
14.12. Compensation and Expenses of Trustee. The Trustee's fee for
performing its duties hereunder will be such reasonable amounts as the Trustee
may from time to time specify by written agreement with the Employer. Such
fee, any taxes of any kind which may be levied or assessed upon or in respect
of the Trust Fund and any and all expenses, including without limitation legal
fees and expenses of administrative and judicial proceedings, reasonably
incurred by the Trustee in connection with its duties and responsibilities
hereunder will, unless some or all have been paid by said Employer, be paid
first from forfeitures resulting under Section 7.07, then from the remaining
Trust Fund and will, unless allocable to the Accounts of particular
Participants, be charged against the respective Accounts of all Participants,
in such reasonable manner an the Trustee may determine.
14.13. Reliance by Trustee on Other Persons. The Trustee may rely upon and
act upon any writing from any person authorized by the Employer or
Administrator to give instructions concerning the Plan and may conclusively
rely upon and be protected in acting upon any written order from the Employer
or Administrator or upon any other notice, request, consent, certificate, or
other instructions or paper reasonably believed by it to have been executed by
a duly authorized person, so long as it acts in good faith in taking or
omitting to take any such action. The Trustee need not inquire as to the basis
in fact of any statement in writing received from the Employer or
Administrator.
The Trustee will be entitled to rely on the latest certificate it has
received from the Employer or Administrator as to any person or persons
authorized to act for the Employer or Administrator hereunder and to sign on
behalf of the Employer or Administrator any directions or instructions, until
it receives from the Employer or Administrator written notice that such
authority has been revoked.
Notwithstanding any provision contained herein, the Trustee will be
under no duty to take any action with respect to any Participant's Account
(other than an specified herein) unless and until the Employer or Administrator
furnishes the Trustee with written instructions on a form acceptable to the
Trustee, and the Trustee agrees thereto in writing. The Trustee will not be
liable for any action taken pursuant to the Employer's or Administrator's
written instructions (nor for the collection of contributions under the Plan,
nor the purpose or propriety of any distribution made thereunder).
14.14. Indemnification by Employer. The Employer shall indemnify and save
harmless the Trustee from and against any and all liability to which the
Trustee may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence) in its capacity as Trustee, including all
expenses reasonably incurred in its defense.
14.15. Consultation by Trustee with Counsel. The Trustee may consult with
legal counsel (who may be but need not be counsel for the Employer or the
Administrator) concerning any question which may arise with respect to its
rights and duties under the Plan and Trust, and the opinion of such counsel
will, to the extent permitted by law, be full and complete protection in
respect of any action taken or omitted by the
<PAGE> 62
Trustee hereunder in good faith and in accordance with the opinion of such
counsel.
14.16. Persons Dealing with the Trustee. No person dealing with the Trustee
be bound to see to the application of any money or property paid or delivered
to the Trustee or to inquire into the validity or propriety of any
transactions.
14.17. Resignation or Removal of Trustee. The Trustee may resign at any time
by written notice to the Employer, which resignation shall be effective 60 days
after delivery to the Employer. The Trustee may be removed by the Employer by
written notice to the Trustee, which removal shall be effective 60 days after
delivery to the Trustee.
Upon resignation or removal of the Trustee, the Employer may appoint a
successor trustee. Any such successor trustee will, upon written acceptance of
his appointment, become vested with the estate, rights, powers, discretion,
duties and obligations of the Trustee hereunder as if he had been originally
named as Trustee in this Agreement.
Upon resignation or removal of the Trustee, the Employer will no
longer participate in this prototype plan and will be deemed to have adopted an
individually designed plan. In such event, the Employer shall appoint a
successor trustee within said 60-day period and the Trustee will transfer the
assets of the Trust to the successor trustee upon receipt of sufficient
evidence (such as a determination letter or opinion letter from the Internal
Revenue Service or an opinion of counsel satisfactory to the Trustee) that such
trust will be a qualified trust under the Code.
The appointment of a successor trustee shall be accomplished by
delivery to the Trustee of written notice that the Employer has appointed such
successor trustee, and written acceptance of such appointment by the successor
trustee. The Trustee may, upon transfer and delivery of the Trust Fund to a
successor trustee, reserve such reasonable amount as it shall deem necessary to
provide for its fees, compensation, costs and expenses, or for the payment of
any other liabilities chargeable against the Trust Fund for which it may be
liable. The Trustee shall not be liable for the acts or omissions of any
successor trustee.
14.18. Fiscal Year of the Trust. The fiscal year of the Trust will coincide
with the Plan Year.
14.19. Discharge of Duties by Fiduciaries. The Trustee and the Employer and
any other fiduciary shall discharge their duties under the Plan and this Trust
Agreement solely in the interests of Participants and their Beneficiaries in
accordance with the requirements of ERISA.
14.20. Amendment. In accordance with provisions of the Plan, and subject to
the limitations set forth therein, this Trust Agreement may be amended by an
instrument in writing signed by the Employer and the Trustee. No amendment to
this Trust Agreement shall divert any part of the Trust Fund to any purpose
other than as provided in Section 2 hereof.
14.21. Plan Termination. Upon termination or partial termination of the Plan
or complete discontinuance of contributions thereunder, the Trustee will make
distributions to the Participants or other persons entitled to distributions as
the Employer or Administrator directs in accordance with the provisions of the
Plan. In the absence of such instructions and unless the Plan otherwise
provides, the Trustee will notify the Employer or Administrator of such
situation and the Trustee
<PAGE> 63
will be under no duty to make any distributions under the Plan until it
receives written instructions from the Employer or Administrator. Upon the
completion of such distributions, the Trust will terminate, the Trustee will be
relieved from all liability under the Trust, and no Participant or other person
will have any claims thereunder, except as required by applicable law.
14.22. Permitted Reversion of Funds to Employer. If it is determined by the
Internal Revenue Service that the Plan does not initially qualify under Section
401 of the Code, all assets then held under the Plan will be returned by the
Trustee, as directed by the Administrator, to the Employer, but only if the
application for determination is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan was adopted or
such later date as may be prescribed by regulations. Such distribution will be
made within one year after the date the initial qualification is denied. Upon
such distribution the Plan will be considered to be rescinded and to be of no
force or effect.
Contributions under Plan are conditioned upon their deductibility
under Section 404 of the Code. In the event the deduction of a contribution
made by the Employer is disallowed under Section 404 of the Code, such
contribution (to the extent disallowed) must be returned to the Employer within
one year of the disallowance of the deduction.
Any contribution made by the Employer because of a mistake of fact
must be returned to the Employer within one year of the contribution.
14.23. Governing Law. This Trust Agreement will be construed, administered
and enforced according to ERISA and, to the extent not preempted thereby, the
laws of the Commonwealth of Massachusetts.
<PAGE> 64
THE CORPORATEplan FOR RETIREMENT
(PROFIT SHARING/401(K) PLAN)
A FIDELITY PROTOTYPE PLAN
NON-STANDARDIZED ADOPTION AGREEMENT 002
BASIC PLAN NO. 07
<PAGE> 65
ADOPTION AGREEMENT
ARTICLE 1
NON-STANDARDIZED PROFIT SHARING PLAN
1.01 PLAN INFORMATION
----------------
(a) Name of Plan:
This is the JAYCOR 401 (K) PLAN
----------------------------------------------------
Plan (the "Plan").
---------------------------------------------
(b) Type of Plan:
(1) [ ] 401(k) and Profit Sharing
(2) [ ] Profit Sharing Only
(3) [X] 401(k) Only
(c) Name of Plan Administrator, if not the Employer:
401 (K) PLAN COMMITTEE
----------------------------------------------------------------
Address: 9775 Towne Center Drive, San Diego, CA 92121
------------------------------------------------
Phone Number: (619) 453-6580
------------------------------------------------
The Plan Administrator is the agent for service of legal process
for the Plan.
(d) Limitation Year (check one):
(1) [ ] Calendar Year
(2) [X] Plan Year
(3) [ ] Other:
-------
(e) Three Digit Plan Number: 004
--------
(f) Plan Year End (month/day): 12-31
--------
(g) Plan Status (check one):
(1) [ ] Effective Date of new Plan:
-----------------
<PAGE> 66
(2) [X] Amendment Effective Date: 01-01-94. This is
(check one):
[ ] (A) an amendment of The CORPORATE plan for
Retirement Adoption Agreement previously
executed by the Employer, or
[X] (B) a conversion from another plan document
into The CORPORATE plan for Retirement.
The original effective date of the Plan: 07-01-87
----------
The substantive provisions of the Plan shall apply
prior to the Effective Date to the extent required
by the Tax Reform Act of 1986 or other applicable
laws.
1.02 EMPLOYER
--------
(a) The Employer is: JAYCOR
------------------------------------------
Address: 9775 Towne Centre Drive
------------------------------------------
San Diego, CA 92121
------------------------------------------
Contact's Name: Dorothy K. Bidwell
------------------------------------------
Telephone Number: (619) 453-6580
------------------------------------------
(1) Employer's Tax Identification Number: 95-2936834
----------------
(2) Business form of Employer (check one):
(A) [X] Corporation (D) [ ] Governmental
(B) [ ] Sole proprietor (E) [ ] Tax-exempt
or partnership organization
(C) [ ] Subchapter S (F) [ ] Rural Electronic
Corporation Cooperative
(3) Employer's fiscal year end: Friday Closet To 1-31
--------------------------
(4) Date business commenced: 1-27-75
--------------------------
2
<PAGE> 67
(b) The term "Employer" includes the following Related Employer(s)
(as defined in Section 2.01(a)(26)):
JAYCOR TECHNICAL SERVICES, INC.
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
1.03 COVERAGE
--------
(a) All Non-excluded Employees who meet the conditions specified
below will be eligible to participate in the Plan:
(1) Service requirement (check one):
(A) [X] no service requirement.
(B) [ ] three consecutive months of service (no minimum
number Hours of Service can be required).
(C) [ ] six consecutive months of service (no minimum
number Hours of Service can be required).
(D) [ ] one Year of Service (1,000 Hours of Service is
required during the Eligibility Computation
Period.)
(2) Age requirement (check one):
(A) [X] no age requirement.
(B) [ ] must have attained age ____ (not to exceed 21).
(3) the class of Non-excluded Employees eligible to
participate in the Plan (check one):
(A) [ ] includes all Employees of the Employer.
3
<PAGE> 68
(B) [X] includes all Employees of the Employer except
for (check the appropriate box(es)):
(i) [X] Employees covered by a collective
bargaining agreement.
(ii) [ ] Highly Compensated Employees as
defined in Code Section 414(q).
(iii) [ ] Leased Employees as defined in Section
2.01(a)(18).
(iv) [X] Nonresident aliens who do not receive
any earned income from the Employer
which constitutes United States
source income.
(v) [X] Other
PART-TIME 1 AND TEMPORARY
--------------------------------------
EMPLOYEES
--------------------------------------
--------------------------------------
--------------------------------------
NOTE: No exclusion in this section may create a
discriminatory class of employees. An Employer's
plan must still pass the Internal Revenue Code
coverage and participation requirements if one or
more of the above groups of Employees have been
excluded from the Plan.
(b) The Entry Date(s) shall be (check one):
(1) [ ] the first day of each Plan Year (not if
Section 1.03(a)(1)(D) is elected).
(2) [X] the first day of each Plan Year and the
date six months later.
(3) [ ] the first day of each Plan Year and the
first day of the fourth, seventh, and
tenth months.
(4) [ ] the first day of each month.
(c) Date of Initial Participation - An Employee will become
a Participant unless excluded by Section 1.03(a)(3)
above on the Entry Date immediately following the date
the Employee completes the service and age
requirement(s) in Section 1.03(a), if any, except
(check one):
(1) [ ] No exceptions.
4
<PAGE> 69
(2) [X] Non-excluded Employees employed on the Effective
Date in Section 1. 01(g) will become Participants
on that date.
(3) [ ] Employees who meet the age and service
requirement(s) of Section 1. 03(a) on the Effective
Date in Section 1. 01(g) will become Participants
on that date.
1.04 COMPENSATION
(a) For purposes of determining Contributions under the Plan,
Compensation shall be as defined in Section 2.01(a)(7), but
excluding (check the appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [X] Bonuses.
(3) [X] Commissions.
(4) [X] The value of a qualified or a non-qualified stock
option granted to an Employee by the Employer to
the extent such value is includable in the
Employee's taxable income.
Note: These exclusions shall not apply for purposes of
the "Top Heavy" requirements in section 9.03, or
allocating Discretionary Employer Contributions if
an Integrated Formula is elected in Section
1.05(a)(2)(B).
(5) [ ] No exclusions.
(b) Compensation for the First Year of Participation
Contributions for the Plan Year in which an Employee first
becomes a Participant shall be determined based on the
Employee's Compensation (check one):
(1) [X] For the entire Plan Year
(2) [ ] For the portion of the Plan Year in which the
Employee is eligible to participate in the Plan.
1.05 CONTRIBUTIONS
(a) [ ] Employer Contributions:
(1) [ ] Fixed Formula - Nonintegrated Formula (check (A)
or (B)):
(A) [ ] Fixed Percentage Employer Contribution:
For each Plan Year, the Employer will
contribute for each eligible Participant
an amount equal to ____% (not to exceed
15%) of such Participant's Compensation.
5
<PAGE> 70
(2) [X] Non-excluded Employees employed on the Effective
Date in Section 1.01(g) will become Participants
on that date.
(3) [ ] Employees who meet the age and service
requirement(s) of Section 1.03(a) on the
Effective Date in Section 1.01(g) will become
Participants on that date.
1.04 COMPENSATION
------------
(a) For purposes of determining Contributions under the Plan,
Compensation shall be as defined in Section 2.01(a)(7), but
excluding (check the appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [ ] Bonuses.
(3) [ ] Commissions.
(4) [ ] The value of a qualified or a non-qualified stock
option granted to an Employee by the Employer to
the extent such value is includable in the
Employee's taxable income.
NOTE: These exclusions shall not apply for purposes of
the "Top Heavy" requirements in Section 9.03, or
allocating Discretionary Employer Contributions
if an Integrated Formula is elected in
Section 1.05(a)(2)(B).
(5) [X] No exclusions.
(b) Compensation for the First Year of Participation
Contributions for the Plan Year in which an Employee first
becomes a Participant shall be determined based on the
Employee's Compensation (check one):
(1) [X] For the entire Plan Year.
(2) [ ] For the portion of the Plan Year in which the
Employee is eligible to participate in the Plan.
1.05 CONTRIBUTIONS
-------------
(a) [ ] Employer Contributions:
(1) [ ] Fixed Formula - Nonintegrated Formula
(check (A) or (B)):
(A) [ ] Fixed Percentage Employer Contribution:
For each Plan Year, the Employer will
contribute for each eligible Participant an
amount equal to ___________% (not to exceed
15%) of such Participant's Compensation.
5
<PAGE> 71
(B) [ ] Fixed Flat Dollar Employer Contribution
For each Plan Year, the Employer will
contribute for each eligible Participant
an amount equal to $___________.
(2) [ ] Discretionary Formula.
The Employer may decide each Plan Year whether to make a
Discretionary Employer Contribution on behalf of
eligible Participants in accordance with Section 4.06.
Such contributions may only be funded by the Employer
after the Plan Year ends and shall be allocated to
eligible Participants based upon the following (check
(A) or (B)).
(A) [ ] Nonintegrated Allocation Formula:
In the ratio that each eligible
Participant's Compensation bears to the
total Compensation paid to all eligible
Participants for the Plan Year.
(B) [ ] Integrated Allocation Formula:
In accordance with Section 4.06.
NOTE: An Employer who maintains any other plan that
provides for Social Security Integration
(permitted disparity) may not elect (2)(B).
(3) Eligibility Requirement(s)
A Participant shall be entitled to Employer
Contributions for a Plan Year under this Subsection (a)
if the Participant satisfies the following
requirement(s) (Check the appropriated box(es) -
Options(B) and (C) may not be elected together):
(A) [ ] is employed by the Employer on the last
day of the Plan Year.
(B) [ ] earns at least 500 Hours of Service during
the Plan Year.
(C) [ ] earns at least 1,000 Hours of Service
during the Plan Year.
(D) [ ] no requirements.
NOTE: If option (A), (B) or (C) above is selected
then Employer Contributions can only be funded
by the Employer after Plan Year end.
(b) [X] Deferral Contributions
(1) Regular Contributions
The Employer shall make a Deferral Contribution in
accordance with Section 4.01 on behalf of each
Participant who has an executed salary reduction
agreement in effect with the Employer for the payroll
period in question, not to exceed 15% (NO MORE THAN
15%) of Compensation for that period.
6
<PAGE> 72
(A) A Participant may increase or decrease, on a
prospective basis, his salary reduction
agreement percentage (check one):
(i) [ ] As of the beginning of each
payroll period.
(ii) [ ] As of the first day of each month.
(iii) [X] As of the next Entry Date.
(iv) [ ] (Specify, but must be at least once
per Plan Year)
----------------------------------
----------------------------------
(B) A Participant may revoke, on a prospective
basis, a salary reduction agreement at any time
upon proper notice to the Administrator but in
such case may not file a new salary reduction
agreement until (check one):
(i) [ ] The first day of next Plan Year.
(ii) [X] Any subsequent Plan Entry Date.
(iii) [ ] (Specify, but must be at least
once per Plan Year)
----------------------------------
----------------------------------
(2) [ ] Catch-Up Contributions
The Employer may allow Participants upon proper notice
and approval to enter into a special salary reduction
agreement to make additional Deferral Contributions in
amount up to 100% of their Compensation for the payroll
period(s) in the final month of the Plan Year.
(3) [ ] Bonus Contributions
The Employer may allow Participants upon proper notice
and approval to enter into a special salary reduction
agreement to make Deferral Contributions in an amount up
to 100% of any Employer paid cash bonuses made for such
Participants during the Plan Year. The Compensation
definition elected by the Employer in Section 1.04(a)
must include bonuses if bonus contributions are
permitted.
NOTE: A Participant's Contributions under (2) and/or
(3) may not cause the Participant to exceed the
percentage limit specified by the Employer in (1)
after the Plan Year. The Employer has the right
to restrict a Participant's right to make
Deferral Contributions if they will adversely
effect the Plan's ability to pass the Actual
Deferral Percentage and/or the Actual
Contribution Percentage test.
7
<PAGE> 73
(4) [ ] Qualified Discretionary Contributions
The Employer may contribute an amount which it
designates as a Qualified Discretionary
Contribution to be included in the Actual Deferral
Percentage or Actual Contribution Percentage test.
Qualified Discretionary Contributions shall be
allocated to Non-highly Compensated Employees
(check one):
(A) [ ] in the ratio which each such Participant's
Compensation for the Plan Year bears to
the total of all such Participant's
Compensation for the Plan Year.
(B) [ ] as a flat dollar amount for each such
Participant for the Plan Year.
(c) [ ] Matching Contributions (only if Section 1.05(b) is checked)
(1) The Employer shall make a Matching Contribution on
behalf of each Participant in an amount equal to the
following percentage of a Participant's Deferral
Contributions during the Plan Year (check one):
(A) [ ] 50%
(B) [ ] 100%
(C) [ ] ______%
(D) [ ] (Tiered Match) ___% of the first ____% of
the Participant's Compensation contributed
to the Plan,
_____% of the next _____% of the
Participant's Compensation contributed to
the Plan,
-----% of the next _____% of the
Participant's Compensation contributed to
the Plan.
NOTE: THE PERCENTAGES SPECIFIED ABOVE FOR MATCHING
CONTRIBUTIONS MAY NOT INCREASE AS THE PERCENTAGE
OF COMPENSATION CONTRIBUTED INCREASES.
(E) [ ] The percentage declared for the year, if
any, by a Board of Directors' resolution.
(2) [ ] The Employer may at Plan Year end make an
additional Matching Contribution equal to a
percentage declared by the Employer, through a
Board of Directors' resolution, of the Deferral
Contributions made by each Participant during the
Plan Year (only if an option is checked under
Section 1.05(c)(1)).
(3) [ ] Matching Contribution Limits (check the
appropriate box(es)):
(A) [ ] Deferral Contributions in excess of ____%
of the Participant's Compensation for the
period in question shall not be considered
for Matching Contributions.
8
<PAGE> 74
Note: If the Employer elects a percentage limit in (A)
above and requests the Trustee to account
separately for matched and unmatched Deferral
Contributions, the Matching Contributions
allocated to each Participant must be computed,
and the percentage limit applied; based upon
each payroll period.
(B) [ ] Matching Contributions for each Participant for
each Plan Year shall be limited to $__________.
(4) Eligibility Requirement(s)
A Participant who makes Deferral Contributions during the Plan
Year under Section 1.05(b) shall be entitled to Matching
Contributions for that Plan Year if the Participant satisfies
the following requirement(s) (Check the appropriate box(es).
Options (B) and (C) may not be elected together):
(A) [ ] Is employed by the Employer on the last day of
the Plan Year.
(B) [ ] Earns at least 500 Hours of Service during the
Plan Year.
(C) [ ] Earns at least 1,000 Hours of Service during the
Plan Year.
(D) [ ] Is not a Highly Compensated Employee for the
Plan Year.
(E) [ ] Is not a Partner of the Employer, if the
Employer is a partnership.
(F) [ ] No requirements.
NOTE: If option (A), (B) or (C) above is selected then
Matching Contributions can only be funded by the
Employer after the Plan Year ends. Any Matching
Contribution funded before Plan Year end shall
not be subject to the eligibility requirements
of this Section 1.05(c)(4)). If option (A), (B),
or (C) is adopted during a Plan Year, such
option shall not become effective until the
first day of the next Plan Year.
(d) [ ] Employee After-Tax Contributions (check one):
(1) [ ] Future Contributions
Participants may make voluntary non-deductible Employee
Contributions pursuant to Section 4.09 of the Plan. This
option may only be elected if the Employer has elected
to permit Deferral Contributions under Section 1.05(b).
Matching Contributions by the Employer are not allowed
on any voluntary non-deductible Employee Contributions.
Withdrawals are limited to one per year unless Employee
Contributions were allowed under a previous plan
document which authorized more frequent withdrawals.
9
<PAGE> 75
(2) [ ] Frozen Contributions
Participants may not make voluntary non-deductible
Employee Contributions but the Employer does maintain
frozen Participant voluntary non-deductible Employee
Contribution accounts.
1.06 RETIREMENT AGE(S)
(a) The Normal Retirement Age under the Plan is (check one):
(1) [X] age 65.
(2) [ ] age _____ (specify between 55 and 64).
(3) [ ] later of the age _____ (can not exceed 65) or
the fifth anniversary of the Participant's
Commencement Date.
(b) [ ] The Early Retirement Age is the first day of the month
after the Participant attains age _____ (specify 55 or
greater) and completes _____Years of Service for
Vesting.
(c) [ ] A Participant is eligible for Disability Retirement if
he/she (check the appropriate box(es)):
(1) [ ] satisfies the requirements for benefits under
the Employer's Long-Term Disability Plan.
(2) [ ] satisfies the requirements for Social Security
disability benefits.
(3) [ ] is determined to be disabled by a physician
approved by the Employer.
10
<PAGE> 76
1.07 VESTING SCHEDULE
(a) The Participant's vested percentage in Employer Contributions
(Fixed or Discretionary) elected in Section 1.05(a) and/or
Matching Contributions elected in Section 1.05(c) shall be based
upon the schedule(s) selected below, except with respect to any
Plan Year during which the Plan is Top-Heavy. The schedule
elected in Section 1.12(d) shall automatically apply for a
Top-Heavy Plan Year and all Plan Years thereafter unless the
Employer has already elected a more favorable vesting schedule
below.
<TABLE>
<S> <C>
(1) Employer Contributions (2) Matching Contributions
(check one): (check one):
(A) [X] N/A - No Employer Contributions (A) [X] N/A - No Matching Contributions
(B) [ ] 100% Vesting immediately (B) [ ] 100% Vesting immediately
(C) [ ] 3 year cliff (see C below) (C) [ ] 3 year cliff (see C below)
(D) [ ] 5 year cliff (see D below) (D) [ ] 5 year cliff (see D below)
(E) [ ] 6 year graduated (see E below) (E) [ ] 6 year graduated (see E below)
(F) [ ] 7 year graduated (see F below) (F) [ ] 7 year graduated (see F below)
(G) [ ] Other vesting (complete G1 below) (G) [ ] Other vesting (complete G2 below)
</TABLE>
<TABLE>
<CAPTION>
Years of Vesting Schedule
Service for ----------------
Vesting C D E F G1 G2
----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
0-1 0% 0% 0% 0% ____ ____
2 0% 0% 20% 0% ____ ____
3 100% 0% 40% 20% ____ ____
4 100% 0% 60% 40% ____ ____
5 100% 100% 80% 60% ____ ____
6 100% 100% 100% 80% ____ ____
7 100% 100% 100% 100% 100% 100%
</TABLE>
NOTE: A schedule elected under G1 or G2 above must be at least as
favorable as one of the schedules in C, D, E or F above.
(b) [ ] Years of Service for Vesting shall exclude (check one):
(1) [ ] for new plans, service prior to the Effective
Date as defined in Section 1.01(g)(1)
(2) [ ] for existing plans converting from another plan
document, service prior to the original
Effective Date as defined in Section 1.01(g)(2).
11
<PAGE> 77
1.08 PREDECESSOR EMPLOYER SERVICE
[ ] Service for purposes of eligibility in Section 1.03(a)(1) and
vesting in Section 1.07(a) of this Plan shall include service
with the following employer(s):
(a) _____________________________________________________________
(b) _____________________________________________________________
(c) _____________________________________________________________
(d) _____________________________________________________________
1.09 PARTICIPANT LOANS
Participant loans (check (a) or (b)):
(a) [X] will be allowed in accordance with Section 7.09, subject
to a $1,000 minimum amount and will be granted (check
(1) or (2)):
(1) [X] for any purpose.
(2) [ ] for hardship withdrawal (as defined in Section
7.10) purposes only.
(b) [ ] will not be allowed.
1.10 HARDSHIP WITHDRAWALS
Participant withdrawals for hardship prior to termination of employment
(check one):
(a) [ ] will be allowed in accordance with Section 7.10, subject
to a $1,000 minimum amount.
(b) [X] will not be allowed.
1.11 DISTRIBUTIONS
(a) Subject to Articles 7 and 8 and (b) below, distributions under
the Plan will be paid (check the appropriate box(es)):
(1) [X] as a lump sum.
(2) [X] under a systematic withdrawal plan (installments).
12
<PAGE> 78
(b) [X] Check if a Participant will be entitled to receive
a distribution of all or any portion of the
following Accounts without terminating employment
upon attainment of age 59 1/2 (check one):
(1) [ ] Deferral Contribution Account
(2) [X] All Accounts
(c) [ ] Check if the Plan was converted (by plan
amendment) from another defined contribution plan,
and the benefits were payable as (check the
appropriate box(es)):
(1) [ ] a form of single or joint and survivor life
annuity.
(2) [ ] an in-service withdrawal of vested
Employer Contributions maintained in a
Participant's Account (check (A) and/or
(B)):
(A) [ ] for at least ____ (24 or more)
months.
(B) [ ] after the Participant has at
least 60 months of
participation.
(3) [ ] another distribution option that is a
"protected benefit" under Section 411(d)(6)
of the Internal Revenue Code. Please
attach a separate page identifying the
distribution option(s):
These additional forms of benefit may be provided for
such plans under Article 7 or 8.
NOTE: Under Federal Law, distributions to
Participants must generally begin no later than
April 1 following the year in which the
Participant attains age 70 1/2.
1.12 TOP HEAVY STATUS
(a) The Plan shall be subject to the Top-Heavy Plan requirements of
Article 9 (check one):
(1) [ ] for each Plan Year.
(2) [X] for each Plan Year, if any, for which the Plan is
Top-Heavy as defined in Section 9.02.
(3) [ ] Not applicable. (This option is available for
plans covering only employees subject to a
collective bargaining agreement and there are no
Employer or Matching Contributions elected in
Section 1.05.)
(b) In determining Top-Heavy status, if necessary, for an employer
with at least one defined benefit plan, the following
assumptions shall apply:
(1) Interest rate: ___% per annum
(2) Mortality table _____________
(3) [X] Not Applicable
13
<PAGE> 79
(c) In the event that the Plan is treated as Top-Heavy for a Plan
Year, each non-key Employee shall receive an Employer
Contribution of at least 3% (3,4,5,or 7-1/2)% of Compensation
for the Plan Year in accordance with Section 9.03 (check one):
(1) [ ] under this Plan in any event.
(2) [X] under this Plan only if the Participant is not
entitled to such contribution under another
qualified plan of the Employer.
(3) [ ] Not applicable. (This option is available for
plans covering only employees subject to a
collective bargaining agreement and there are no
Employer or Matching Contributions elected in
Section 1.05.)
Note: Such minimum Employer contribution may be less
than the percentage indicated in (c) above to
the extent provided in Section 9.03(a).
(d) In the event that the Plan is treated as Top-Heavy for a Plan
Year, the following vesting schedule shall apply instead of the
schedule(s) elected in Section 1.07(a) for such Plan Year and
each Plan Year thereafter (check one):
(1) [ ] 100% vested after _______ (not in excess of
3) Years of Service for Vesting.
<TABLE>
<CAPTION>
(2) [X] YEARS OF SERVICE FOR VESTING VESTING PERCENTAGE MUST BE AT LEAST
---------------------------- ------------------ ----------------
<S> <C> <C>
0 0% 0%
1 0% 0%
2 20% 20%
3 40% 40%
4 60% 60%
5 80% 80%
6 100% 100%
</TABLE>
NOTE: If one or both schedules elected in Section
1.07(a) is(are) more favorable in all cases than
the schedules elected in (d) above then such
schedule(s) will continue to apply even in Plan
Years in which the Plan is Top-Heavy.
14
<PAGE> 80
1.13 TWO OR MORE PLANS - Code Section 415 limitation on annual additions
If the Employer maintains or ever maintained another qualified plan in
which any Participant in this Plan is (or was) a participant or could
become a participant, the Employer must complete this section. The
Employer must also complete this section if it maintains a welfare
benefit fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(l)(2) of the Code, under
which amounts are treated as annual additions with respect to any
Participant in this Plan.
(a) If the Employer maintains, or had maintained, any other defined
contribution plan or plans which are not Master or Prototype
Plans, Annual Additions for any Limitation Year to this Plan
will be limited (check one):
(1) [X] in accordance with Section 5.03 of this Plan.
(2) [ ] in accordance with another method set forth on an
attached separate sheet
(3) [ ] Not Applicable
(b) If the Employer maintains, or had maintained, a defined benefit
plan or plans, the sum of the Defined Contribution Fraction and
Defined Benefit Fraction for a Limitation Year may not exceed
the limitation specified in Code Section 415(e), modified by
section 416(h)(1) of the Code. This combined plan limit will
be met as follows (check one):
(1) [X] Annual Additions to this Plan are limited so that the
sum of the Defined Contribution Fraction and the
Defined Benefit Fraction does not exceed 1.0.
(2) [ ] another method to limiting Annual Additions or reducing
projected annual benefits is set forth on an attached
schedule.
(3) [ ] Not Applicable.
1.14 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS
(a) Investment Directions
Participant Accounts will be invested (check one):
(1) [ ] in accordance with investment directions provided to
the Trustee by the Employer for allocating all
Participant Accounts among the options listed in (b)
below.
(2) [X] in accordance with investment directions provided to
the Trustee by each Participant for allocating his
entire Account among the options listed in (b) below.
15
<PAGE> 81
(3) [ ] in accordance with investment directions provided to the
Trustee by each Participant for all contribution sources
in a Participant's Account except the following sources
shall be invested as directed by the Employer (check (A)
and/or (B))
(A) [ ] Fixed or Discretionary Employer
Contributions
(B) [ ] Employer Matching Contributions
The Employer must direct the applicable sources among
the same investment options made available for
Participant directed sources listed in (b) below:
(b) Plan Investment Options
The Employer hereby establishes a Trust under the plan in
accordance with the provisions of Article 14, and the Trustee
signifies acceptance of its duties under Article 14 by its
signature below. Participant Accounts under the Trust will be
invested among the Fidelity Funds listed below pursuant to
Participant and/or Employer directors.
<TABLE>
<CAPTION>
FUND NAME FUND NUMBER
--------- -----------
<S> <C>
(1) FMMT Retirement Government Money March 631
(2) Investment Grade Bond Fund 26
(3) Fidelity Asset Manager 314
(4) Puritan Fund 4
(5) Growth & Income Portfolio 27
(6) Fidelity U.S. Equity Index Portfolio 650
(7) Contrafund 22
(8) Magellan Fund 21
(9)
(10)
</TABLE>
NOTE: An additional annual recordkeeping fee will be charged
for each fund in excess of five funds.
To the extent that the Employer selects as an investment
option the Managed Income Portfolio of the Fidelity
Group Trust for Employee Benefit Plans (the "Group
Trust"), the Employer hereby (A) agrees to the terms of
the Group Trust and adopts said terms as a part of this
Agreement and (B) acknowledges that it has received from
the Trustee a copy of the Group Trust, the Declaration
of Separate Fund for the Managed Income Portfolio of the
Group Trust, and the Circular for the Managed Income
Portfolio.
16
<PAGE> 82
Note: The method and frequency for change of investments will
be determined under the rules applicable to the selected
funds or, if applicable, the rules of the Employer
adopted in accordance with Section 6.03. Information will
be provided regarding expenses, if any, for changes in
investment options.
1.15 RELIANCE ON OPINION LETTER
An adopting 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 Code. If the Employer wishes
to obtain reliance that his or her plan(s) are qualified, application
for a determination letter should be made to the appropriate Key
District Director of the Internal Revenue Service. Failure to properly
fill out the Adoption Agreement may result in disqualification of the
Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Prototype Plan Basic Plan Document No. 07. The Prototype Sponsor shall
inform the adopting Employer of any amendments made to the Plan or of
the discontinuance or abandonment of the prototype plan documents.
1.16 PROTOTYPE INFORMATION:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the
following telephone number:
1-(800) 343-9184
17
<PAGE> 83
EXECUTION PAGE
(Employer's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this 12th day of October, 1993.
Employer JAYCOR
--------------------------------
By /s/ RANDY JOHNSON
--------------------------------
Title CHIEF FINANCIAL OFFICER
--------------------------------
Employer JAYCOR TECHNICAL SERVICES, INC.
--------------------------------
By /s/ RANDY JOHNSON
--------------------------------
Title CHIEF FINANCIAL OFFICER
--------------------------------
Accepted by
Fidelity Management Trust Company, as Trustee
By /s/ JUAN L. AVILES Date October 22, 1993
------------------------------- ---------------------------------
JUAN L. AVILES
Title Director
----------------------------
19
<PAGE> 84
AMENDMENT TO ADOPTION AGREEMENT
OF
JAYCOR 401(K) PLAN
This Amendment is made on February 28, 1995 to amend the JAYCOR 401(k) Plan,
effective as of January 1, 1995, as follows:
1. Section 1.03(a)(1) of the Adoption Agreement shall be modified to
select Option (D) in addition to the existing option (A), with Option (D) to
read as follows:
(D) One Year of Service (1,000 Hours of Service is required during
the Eligibility Computation Period) for any employee who is classified by the
Employer as a part-time 1 or temporary employee, using Hours of Service which
are credited on or after January 1, 1995.
2. Section 1.03(a)(3)(B)(v) of the Adoption Agreement shall be amended by
deleting the categories of excluded employees presently contained therein.
3. Except as so amended, the Adoption Agreement is ratified and confirmed.
JACOR
By: /s/ ERIC P. WENAAS
--------------------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
By: /s/ ERIC P. WENAAS
--------------------------------------
Eric P. Wenaas, President
<PAGE> 85
AMENDMENT TO ADOPTION AGREEMENT
OF
JAYCOR 401(K) PLAN
This Amendment is made on September 25, 1996 to amend the JAYCOR 401(k) Plan,
effective as of January 1, 1996, as follows:
1. Section 1.03(a)(3)(B)(v) of the Adoption Agreement shall be amended by
adding to following excluded employees:
All employees of JAYCOR Multimedia Services, Inc.
All employees of Howell Intelligence Services, Inc.
2. Except as so amended, the Adoption Agreement is ratified and confirmed.
JACOR
By: /s/ ERIC P. WENAAS
--------------------------------------
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
By: /s/ ERIC P. WENAAS
--------------------------------------
Eric P. Wenaas, President
<PAGE> 86
BOARD OF DIRECTORS RESOLUTION
JAYCOR
At a duly constituted meeting of the Board of Directors of JAYCOR, (the
"Corporation"), a Corporation organized under the laws of the State of
California, held on September 25, 1996, at which meeting a quorum was present
and voting throughout:
WHEREAS, the Corporation previously adopted the JAYCOR 401(k) Plan and
the JAYCOR Money Purchase Pension Plan (the "Plans") effective January 1, 1994,
WHEREAS, the Corporation reserves the authority to amend the Plans in
Section 10.01 (a) of the Fidelity CORPORATEplan for Retirement(SM) Basic Plan
Document by filing with the Trustee an amended Adoption Agreement, executed by
the Corporation, on which said Corporation has indicated a change or changes in
provisions previously elected;
WHEREAS, the Corporation desires to add two Fidelity Funds to the Plan;
NOW THEREFORE BE IT RESOLVED, that, effective November 1, 1996, the
Corporation amend Section 1.14(b) of the Adoption Agreements to add the
following Fidelity Funds:
Name of Fund Fund Number
------------ -----------
Fidelity Emerging Growth Fund 0324
Fidelity Diversified International Fund 0325
The Addendums to Section 1.14(b) of the Fidelity CORPORATEplan for
Retirement(SM) Adoption Agreements are attached hereto and made a part of the
minutes of this meeting; and
RESOLVED that Dorothy Bidwell, Corporate Secretary and/or Randy Johnson,
the Chief Financial Officer of the Corporation are hereby authorized and
directed to take such actions as may be necessary or desirable to effectuate the
foregoing resolution.
In witness whereof, I have hereunto set my hand and affixed the seal of the
Corporation this 26th day of September, 1996.
JAYCOR
By /s/Dorothy Bidwell
---------------------------------
Dorothy Bidwell, Corporate Secretary
A true copy
ATTEST:/s/Randy Johnson
-----------------------------
Randy Johnson, Chief Financial Officer
<PAGE> 87
Addendum To Section 1.14(b) of the
Fidelity CORPORATEplan for Retirement(SM)
Adoption Agreement - Plan Investment Options
Employer: JAYCOR
Plan Name: JAYCOR 401(k) Plan
Plan Number: 40536
The employer originally elected that Participant Accounts under the Plan would
be invested among the Fidelity Funds listed below pursuant to Participant and/or
Employer direction:
Fund Name Fund Number
--------- -----------
Fidelity Retirement Government Money Market 0631
Fidelity Investment Grade Bond Fund 0026
Fidelity Asset Manager Portfolio 0314
Fidelity Puritan Fund 0004
Fidelity Growth and Income Portfolio 0027
Fidelity U.S. Equity Index Portfolio 0650
Fidelity Magellan Fund 0021
Fidelity Contrafund 0022
The Employer amends the Plan to add the following Fidelity Funds effective
November 1, 1996:
Fund Name Fund Number
--------- -----------
Fidelity Emerging Growth Fund 0324
Fidelity Diversified International Fund 0325
Note: The Employer may elect up to ten Fidelity Funds. An additional annual
recordkeeping fee will be charged for each Fidelity Fund in excess of seven.
/s/ RANDY JOHNSON
--------------------------------------
Authorized Signature
9/26/96
--------------------------------------
Date Signed
<PAGE> 1
8/2/93
EXHIBIT 10.11
The CORPORATEplan for Retirement
THE MONEY PURCHASE PENSION PLAN
FIDELITY BASIC PLAN DOCUMENT No. 09
<PAGE> 2
8/2/93
THE CORPORATEplan FOR RETIREMENT
MONEY PURCHASE PENSION PLAN
ARTICLE 1
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 - Definitions
ARTICLE 3
PARTICIPATION
3.01 - Date of Participation
3.02 - Resumption of Participation Following Reemployment
3.03 - Cessation or Resumption of Participation Following
a Change in Status
3.04 - Participation by Owner-Employee; Controlled Businesses
3.05 - Omission of Eligible Employee
ARTICLE 4
CONTRIBUTIONS
4.01 - Employer Contributions (Nonintegrated Formula)
4.02 - Employer Contributions (Integrated Formula)
4.03 - (Reserved)
4.04 - (Reserved)
4.05 - (Reserved)
4.06 - (Reserved)
4.07 - Time of Making Employer Contributions
4.08 - Return of Employer Contributions
4.09 - No Contributions by Participants
4.10 - Rollover Contributions
4.11 - Deductible Voluntary Employee Contributions
4.12 - Additional Rules for Paired Plans
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 - Individual Accounts
5.02 - Valuation of Accounts
5.03 - Code Section 415 Limitations
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 - Manner of Investment
6.02 - Investment Decisions
6.03 - Participant Directions to Trustee
ARTICLE 7
RIGHT TO BENEFITS
7.01 - Normal or Early Retirement
7.02 - Late Retirement
7.03 - Disability Retirement
7.04 - Death
7.05 - Other Termination of Employment
7.06 - Separate Account
7.07 - Forfeitures
7.08 - Adjustment for Investment Experience
7.09 - Participant Loans
7.10 - In-Service Withdrawals
7.11 - Prior Plan In-Service distribution Rules
ii
<PAGE> 3
8/2/93
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE
8.01 - Distribution of Benefits to Participants and Beneficiaries
8.02 - Annuity distributions
8.03 - Joint and Survivor Annuities/Preretirement Survivor Annuities
8.04 - Installment Distributions
8.05 - Immediate Distributions
8.06 - Determination of Method of Distribution
8.07 - Notice to Trustee
8.08 - Time of Distribution
8.09 - Whereabouts of Participants and Beneficiaries
ARTICLE 9
TOP-HEAVY PROVISIONS
9.01 - Application
9.02 - Definitions
9.03 - Minimum Contribution
9.04 - Adjustment to the Limitation on Contributions and Benefits
9.05 - Minimum Vesting
ARTICLE 10
AMENDMENT AND TERMINATION
10.01 - Amendment by Employer
10.02 - Amendment by Prototype Sponsor
10.03 - Amendments Affecting Vested and/or Accrued Benefits
10.04 - Retroactive Amendments
10.05 - Termination
10.06 - Distribution Upon Termination of the Plan
10.07 - Merger or Consolidation of Plan; Transfer of Plan Assets
ARTICLE 11
AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS
TO OR FROM OTHER QUALIFIED PLANS
11.01 - Amendment and Continuation of Predecessor Plan
11.02 - Transfer of Funds from an Existing Plan
11.03 - Acceptance of Assets by Trustee
11.04 - Transfer of Assets from Trust
ARTICLE 12
MISCELLANEOUS
12.01 - Communication to Participants
12.02 - Limitation of Rights
12.03 - Nonalienability of Benefits and Qualified
Domestic Relations Orders
12.04 - Facility of Payment
12.05 - Information Between Employer and Trustee
12.06 - Effect of Failure to Qualify Under Code
12.07 - Notices
12.08 - Governing Law
ARTICLE 13
PLAN ADMINISTRATION
13.01 - Powers and Responsibilities of the Administrator
13.02 - Nondiscriminatory Exercise of Authority
13.03 - Claims and Review Procedures
13.04 - Named Fiduciary
13.05 - Costs of Administration
iii
<PAGE> 4
8/2/93
ARTICLE 14
TRUST AGREEMENT
14.01 - Acceptance of Trust Responsibilities
14.02 - Establishment of Trust Fund
14.03 - Exclusive Benefit
14.04 - Powers of Trustee
14.05 - Accounts
14.06 - Approving of Accounts
14.07 - Distribution from Trust Fund
14.08 - Transfer of Amounts from Qualified Plan
14.09 - Transfer of Assets from Trust
14.10 - Separate Trust or Fund for Existing Plan Assets
14.11 - Voting; Delivery of Information
14.12 - Compensation and Expenses of Trustee
14.13 - Reliance by Trustee on Other Persons
14.14 - Indemnification by Employer
14.15 - Consultation by Trustee with Counsel
14.16 - Persons Dealing with the Trustee
14.17 - Resignation or Removal of Trustee
14.18 - Fiscal Year of the Trust
14.19 - Discharge of Duties by Fiduciaries
14.20 - Amendment
14.21 - Plan Termination
14.22 - Permitted Reversion of Funds to Employer
14.23 - Governing Law
(iii) iv
<PAGE> 5
8/2/93
Article 1. Adoption Agreement.
Article 2. Definitions.
2.01. Definitions.
(a) Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
(1) "Account" means an account established on the books of the Trust
for the purpose of recording contributions made on behalf of a
Participant and any income, expenses, gains or losses incurred
thereon.
(2) "Administrator" means the Employer adopting this Plan, or other
person designated by the Employer in Section 1.01(c).
(3) "Adoption Agreement" means Article 1 under which the Employer
establishes and adopts, or amends, the Plan and Trust and designates
the optional provisions selected by the Employer, and the Trustee
accepts its responsibilities under Article 14. The provisions of the
Adoption Agreement shall be an integral part of the Plan.
(4) "Annuity Starting Date" means the first day of the first period
for which an amount is payable as an annuity or in any other form.
(5) "Beneficiary" means the person or persons entitled under Section
7.04 to receive benefits under the Plan upon the death of a
Participant, provided that for purposes of section 7.04 such term
shall be applied in accordance with Section 401(a)(9) of the Code and
the regulations thereunder.
(6) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(7) "Compensation" shall mean:
(A) for purposes of Article 4 (Contributions), compensation as
defined in Section 5.03(e)(2) excluding any items elected by the
Employer in Section 1.04(a), reimbursements or other expense
allowances, fringe benefits (cash and non-cash), moving expenses,
deferred compensation and welfare benefits, but including amounts
that are not includable in the gross income of the Participant
under a salary reduction agreement by reason of the application
of Sections 125, 402(a)(8), 402(h), or 403(b) of the Code; and
(B) for purposes of Section 2.01(a)(16) (Highly Compensated
Employees), Section 5.03 (Code Section 415 Limitations), and
Section 9.03 (Top Heavy Plan Minimum Contributions), compensation
as defined in Section 5.03(e)(2).
Compensation shall generally be based on the amount actually paid
to the Participant during the Plan Year or, for purposes of Article 4
if so elected by the Employer in Section 1.04(b), during that portion
of the Plan Year during which the Employee is eligible to participate.
Notwithstanding the preceding sentence, compensation for purposes of
Section 5.03 (Code Section 415 Limitations) shall be based on the
amount actually paid or made available to the Participant during the
Limitation Year. Compensation for the initial Plan Year for a new plan
<PAGE> 6
8/2/93
shall be based upon eligible Participant Compensation, subject to
Section 1.04(b), from the Effective Date listed in Section 1.01(g)(1)
through the end of the first Plan Year.
In the case of any Self-Employed Individual, Compensation shall
mean the Individual's Earned Income.
For years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account for determining
all benefits provided under the plan for any determination period
shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Section
415(d) of the Code, except that the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in
such calendar year and the first adjustment to the $200,000 limitation
is effected on January 1, 1990. If a plan determines Compensation on a
period of time that contains fewer than 12 calendar months, then
annual Compensation limit is amount equal to the annual Compensation
limit for the calendar year in which the Compensation period begins
multiplied by the ratio obtained by dividing the number of full months
in the period by 12.
If Compensation for any prior determination period in taken into
account in determining an Employee's allocations or benefits for the
current determination period, the Compensation for such prior year is
subject to the applicable annual compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1,
1990, the applicable annual compensation limit in $200,000.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
the year. If the $200,000 limitation is exceeded as a result of the
application of these rules, then the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application
of this limitation.
(8) "Earned Income" means the net earnings of a Self-Employed
Individual derived from the trade or business with respect to which
the Plan is established and for which the personal services of such
individual are a material income-providing factor, excluding any items
not included in gross income and the deductions allocated to such
items, except that for taxable years beginning after December 31, 1989
net earnings shall be determined with regard to the deduction allowed
under Section 164(f) of the Code, to the extent applicable to the
Employer. Net earnings shall be reduced by contributions of the
Employer to any qualified plan, to the extent a deduction in allowed
to the Employer for such contributions under Section 404 of the Code.
(9) "Eligibility Computation Period" means each 12-consecutive month
period beginning with the Employment Commencement Date and each
anniversary thereof or, in the case of an Employee who before
completing the eligibility requirements set forth in section
1.03(a)(1) incurs a break in service for participation purposes and
thereafter returns to the employ of the Employer or
2
<PAGE> 7
8/2/93
Related Employer, each 12-consecutive month period beginning with the
first day of reemployment and each anniversary thereof.
A "break in service for participation purposes" shall mean an
Eligibility Computation Period during which the participant does not
complete more than 500 Hours of Service with the Employer.
(10) "Employee" means any employee of the Employer, any Self-Employed
Individual or Owner-Employee. The Employer must specify in Section
1.03(a)(3) any Employee, or class of Employees, not eligible to
participate in the Plan. If the Employer elects to exclude collective
bargaining employees, the exclusion applies to any employee of the
Employer 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 unless the
collective bargaining agreement requires the employee to be included
within the Plan. The term "employee representatives" does not include
any organization more than half the members of which are owners,
officers, or executives of the Employer.
For purposes of the Plan, an individual shall be considered to
become an Employee on the date on which he first completes an Hour of
Service and he shall be considered to have ceased to be an Employee on
the date on which he last completes an Hour of Service. The term also
includes a Leased Employee, such that contributions or benefits
provided by the leasing organization which are attributable to
services performed for the Employer shall be treated as provided by
the Employer. Notwithstanding the above, a Leased Employee shall not
be considered an Employee if Leased Employees do not constitute more
than 20 percent of the Employer's non-highly compensated work force
(taking into account all Related Employers) and the Leased Employee is
covered by a money purchase pension plan maintained by the leasing
organization which plan provides (i) a nonintegrated employer
contribution rate of at least 10 percent of compensation, as defined
for purposes of Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are
excludable from gross income under Section 125, Section 402(a)(8),
Section 402(h) or Section 403(b) of the Code, (ii) full and immediate
vesting, and (iii) immediate participation by each employee of the
leasing organization.
(11) "Employer" means the employer named in Section 1.02(a) and any
Related Employers required by this Section 2.01(a)(11). If Article 1
of the Employer's Plan in the Standardized Adoption Agreement, the
term "Employer" includes all Related Employers. If Article 1 of the
Employer's Plan is the Non-standardized Adoption Agreement, the term
"Employer" includes those Related Employers designated in Section
1.02(b).
(12) "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service.
(13) "ERISA" means the Employee Retirement Income Security Act of
1974, an from time to time amended.
(14) "Fidelity Fund" means any Registered Investment Company or
Managed Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans which is made available to plans utilizing the
CORPORATEplan for Retirement.
3
<PAGE> 8
8/2/93
(15) "Fund Share" means the share, unit, or other evidence of
ownership in a Fidelity Fund.
(16) "Highly Compensated Employee" means both highly compensated
active Employees and highly compensated former Employees.
A highly compensated active Employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (i) received compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section 415(d)
of the Code); (ii) received compensation from the Employer in excess
of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and
was a member of the top-paid group for such year; or (iii) was an
officer of the Employer and received compensation during such year
that in greater than 50 percent of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code. The term highly compensated
Employee also includes: (i) Employees who are both described in the
preceding sentence if the term "determination year" is substituted for
the term "look-back year" and the Employee in one of the 100 Employees
who received the most compensation from the Employer during the
determination year; and (ii) Employees who are 5 percent owners at any
time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a highly
compensated Employee.
For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve-month period immediately
preceding the determination year. The Employer may elect to make the
look-back year calculation for a determination an the basis of the
calendar year ending with or within the applicable determination year,
as prescribed by Section 414(q) of the Code and the regulations issued
thereunder.
A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year,
a family member of either a 5 percent owner who is an active or former
Employee or a highly compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid
by the Employer during such year, then the family member and the 5
percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and plan contributions or benefits
equal to the sum of such compensation and contributions or benefits of
the family member and 5 percent owner or top-ten highly compensated
Employee. For purposes of this Section, family member includes the
spouse, lineal ascendants and descendants of the Employee or former
Employee and the spouses of such lineal ascendants and descendants.
4
<PAGE> 9
The determination of who is a highly compensated Employee,
including the determinations of the number and identity of Employees
in the top-paid group, the top 100 Employees, the number of Employees
treated as officers and the compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the regulations
thereunder.
(17) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, for the performance of duties for
the Employer or a Related Employer, each such hour to be credited
to the Employee for the Eligibility Computation Period in which
the duties were performed;
(B) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer or Related Employer
(including payments made or due from a trust fund or insurer to
which the Employer contributes or pays premiums) on account of a
period of time during which no duties are performed (irrespective
of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity, disability, layoff, jury
duty, military duty, or leave of absence, each such hour to be
credited to the Employee for the Eligibility Computation Period
in which such period of time occurs, subject to the following
rules:
(i) No more than 501 Hours of Service shall be credited
under this paragraph (B) on account of any single continuous
period during which the Employee performs no duties;
(ii) Hours of Service shall not be credited under this
paragraph (B) for a payment which solely reimburses the
Employee for medically-related expenses, or which is made or
due under a plan maintained solely for the purpose of
complying with applicable workmen's compensation,
unemployment compensation or disability insurance laws; and
(iii) If the period during which the Employee performs no
duties falls within two or more Eligibility Computation
Periods and if the payment made on account of such period is
not calculated on the basis of units of time, the Hours of
Service credited with respect to such period shall be
allocated between not more than the first two such
Eligibility Computation Periods on any reasonable basis
consistently applied with respect to similarly situated
Employees; and
(C) Each hour not counted under paragraph (A) or (B) for which
back pay, irrespective of mitigation of damages, has been either
awarded or agreed to be paid by the Employer or a Related
Employer, each such hour to be credited to the Employee for the
Eligibility Computation Period to which the award or agreement
pertains rather than the Eligibility Computation Period in which
the award agreement or payment is made.
For purposes of determining Hours of Service, Employees of
the Employer and of all Related Employers will be treated as
employed by a single employer. For purposes of paragraphs (B) and
(C) above, Hours of Service will be calculated in accordance with
the provisions of Section 2530.200b-2(b) of the Department of
Labor regulations which are incorporated herein by reference.
5
<PAGE> 10
8/2/93
Solely for purposes of determining whether a break in
service for participation purposes has occurred in a
computation period, an individual who is absent from work
for maternity or paternity reasons shall receive credit for
the hours of service which would otherwise been credited to
such individual but for such absence, or in any case in
which such hours cannot be determined, 8 hours of service
per day of such absence. For purposes of this paragraph, an
absence from work for maternity reasons means an absence (1)
by reason of the pregnancy of the individual, (2) by reason
of a birth of a child of the individual, (3) by reason of
the placement of a child with the individual in connection
with the adoption of such child by such individual, or (4)
for purposes of caring for such child for a period beginning
immediately following such birth or placement. The hours of
service credited under this paragraph shall be credited (1)
in the computation period in which the absence begins if the
crediting is necessary to prevent a break in service in that
period, or (2) in all other cases, in the following
computation period.
(18) "Leased Employee" means any individual who provides services
to the Employer or a Related Employer (the "recipient") but is
not otherwise an employee of the recipient if (i) such services
are provided pursuant to an agreement between the recipient and
any other person (the "leasing organization"), (ii) such
individual has performed services for the recipient (or for the
recipient and any related persons within the meaning of Section
414(n)(6) of the Code) on a substantially full-time basis for at
least one year, and (iii) such services are of a type
historically performed by employees in the business field of the
recipient.
(19 ) "Normal Retirement Age" means the normal retirement age
specified in Section 1.06(a) of the Adoption Agreement. If the
Employer enforces a mandatory retirement age, the Normal
Retirement Age is the lesser of that mandatory age or the age
specified in Section 1.06(a).
(20) "Owner-Employee" means, if the Employer is a sole
proprietorship, the individual who is the sole proprietor, or if
the Employer is a partnership, a partner who owns more than 10
percent of either the capital interest or the profits interest of
the partnership.
(21) "Participant" means any Employee who participates in the
Plan in accordance with Article 3 hereof.
(22) "Plan" means the plan established by the Employer in the
form of the prototype plan an set forth herein as a new plan or
as an amendment to an existing plan, by executing the Adoption
Agreement, together with any and all amendments hereto.
(23) "Plan Year" means the 12-consecutive month period designated
by the Employer in Section 1.01(f).
(24) "Prototype Sponsor" means Fidelity Management and Research
Company, or its successor.
(25) "Registered Investment Company" means any one or more
corporations, partnerships or trusts registered under the
Investment Company Act of 1940 for which Fidelity Management and
Research Company serves as investment advisor.
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(26) "Related Employer" means any employer other than the
Employer named in Section 1.02(a), if the Employer and such other
employer are members of a controlled group of corporations (as
defined in Section 414(b) of the Code) or an affiliated service
group (as defined in Section 414(m)), or are trades or businesses
(whether or not incorporated) which are under common control (as
defined in Section 414(c)), or such other employer is required to
be aggregated with the Employer pursuant to regulations issued
under Section 414(o).
(27) "Self-Employed Individual" means an individual who has
Earned Income for the taxable year from the Employer or who would
have had Earned Income but for the fact that the trade or
business had no net profits for the taxable year.
(28) "Trust" means the trust created by the Employer in
accordance with the provisions of Section 14.01.
(29) "Trust Agreement" means the agreement between the Employer
and the Trustee, as set forth in Article 14, under which the
assets of the Plan are held, administered, and managed.
(30) "Trust Fund" means the property held in Trust by the Trustee
for the Accounts of the Participants and their Beneficiaries.
(31) "Trustee" means the Fidelity Management Trust Company, or
its successor.
(32) "Year of Service for Participation" means, with respect to
any Employee, an Eligibility Computation Period during which the
Employee has been credited with at least 1,000 Hours of Service.
If the Plan maintained by the Employer is the plan of a
predecessor employer, an Employee's Years of Service for
Participation shall include years of service with such
predecessor employer. In any case in which the Plan maintained
by the Employer is not the plan maintained by a predecessor
employer, service for such predecessor shall be treated as
service for the Employer, to the extent provided in Section 1.08.
(33) "Years of Service for Vesting" means, with respect to any
Employee, the number of whole years of his periods of service
with the Employer or a Related Employer (the elapsed time method
to compute vesting service), subject to any exclusions elected by
the Employer in Section 1.07(b). An Employee will receive credit
for the aggregate of all time period(s) commencing with the
Employee's Employment Commencement Date and ending on the date a
break in service begins, unless any such years are excluded by
Section 1.07(b). An Employee will also receive credit for any
period of severance of less than 12 consecutive months.
Fractional periods of a year will be expressed in terms of days.
In the case of a Participant who has 5 consecutive 1-year
breaks in service, all years of service after such breaks in
service will be disregarded for the purpose of vesting the
Employer-derived account balance that accrued before such breaks,
but both pro-break and post-break service will count for the
purposes of vesting the Employer-derived account balance that
accrues after such breaks. Both accounts will share in the
earnings and losses of the fund.
In the case of a Participant who does not have 5 consecutive
1-year breaks in service, both the pre-break and post-break
service will count in vesting both the pre-break and post-break
employer-derived account balance.
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<PAGE> 12
A break in service is a period of severance of at least 12
consecutive months. Period of severance is a continuous period of
time during which the Employee is not employed by the Employer.
Such period begins on the date the Employee retires, quits or is
discharged, or if earlier, the 12 month anniversary of the date
on which the Employee was otherwise first absent from service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12-consecutive month period
beginning on the first anniversary of the first date of such
absence shall not constitute a break in service. For purposes of
this paragraph, an absence from work for maternity or paternity
reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
If the Plan maintained by the Employer is the plan of a
predecessor employer, an Employee's Years of Service for vesting
shall include years of service with such predecessor employer. In
any case in which the Plan maintained by the Employer is not the
plan maintained by a predecessor employer, service for such
predecessor shall be treated as service for the Employer to the
extent provided in Section 1.08.
(b) Pronouns used in the Plan are in the masculine gender but include the
feminine gender unless the context clearly indicates otherwise.
Article 3. Participation.
3.01. Date of Participation. All Employees in the eligible class (as defined in
Section 1.03(a)(3)) who are in the service of the Employer on the Effective Date
will become Participants on the date elected by the Employer in Section 1.03(c).
Any other Employee will become a Participant in the Plan as of the first Entry
Date on which he first satisfies the eligibility requirements set forth in
Section 1.03(a). In the event that an Employee who is not a member of an
eligible class (as defined in Section 1.03(a)(3)) becomes a member of an
eligible class, the individual shall participate immediately if such individual
had already satisfied the eligibility requirements and would have otherwise
previously become a Participant.
If an eligibility requirement other than one Year of Service is elected in
1.03(a)(1), an Employee may not be required to complete a minimum number of
Hours of Service before becoming a Participant. An otherwise eligible Employee
subject to a minimum months of service requirement shall become a Participant on
the first Entry Date following his completion of the required number of
consecutive months of employment measured from his Employment Commencement Date
to the coinciding date in the applicable following month. For purposes of
determining consecutive months of service, the Related Employer and predecessor
employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32) shall apply.
3.02. Resumption of Participation Following Reemployment. If a Participant
ceases to be an Employee and thereafter returns to the employ of the Employer he
will be treated as follows:
(a) he will again become a Participant on the first date on which he
completes an Hour of Service for the Employer following his reemployment
and is in the eligible class of Employees an defined in Section 1.03(a)(3),
and
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(b) any distribution which he is receiving under the Plan will cease except
as otherwise required under Section 8.08.
3.03. Cessation or Resumption of Participation Following a Change in Status. If
any Participant continues in the employ of the Employer or Related Employer but
ceases to be a member of an eligible class as defined in Section 1.03(a)(3), the
individual shall continue to be a Participant for most purposes until the entire
amount of his benefit is distributed; however, the individual shall not be
entitled to receive an allocation of contributions or forfeitures during the
period that he is not a member of the eligible class. Such Participant shall
continue to receive credit for service completed during the period for purposes
of determining his vented interest in his Accounts. In the event that the
individual subsequently again becomes a member of an eligible class of
Employees, the individual shall resume full participation immediately upon the
date of such change in status.
3.04. Participation by Owner-Employee: Controlled Businesses. If the Plan
provides contributions or benefits for one or more Owner-Employees who control
both the trade or business with respect to which the Plan is established and one
or more other trades or businesses, the Plan and any plan established with
respect to such other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and 401(d) of the Code with respect to the
employees of this and all such other trades or businesses. If the Plan provides
contributions or benefits for one or more Owner-Employees who control one or
more other trades or businesses, the Employees of each such other trade or
business must be included in a plan which satisfies Sections 401(a) and 401(d)
of the Code and which provides contributions and benefits not less favorable
than provided for Owner-Employees under the Plan.
If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
Employees under the plan of the trades or businesses which are controlled must
be as favorable as those provided for him under the most favorable plan of the
trade or business which is not controlled.
For purposes of this Section, an Owner-Employee, or two or more
Owner-Employees, shall be considered to control a trade or business if such
Owner-Employee, or such Owner-Employees together, (i) own the entire interest in
an unincorporated trade or business, or (ii) in the case of a partnership, own
more than 50 percent of either the capital interest or the profits interest in
such partnership. For this purpose, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership controlled by such
Owner-Employee or such Owner-Employees.
3.05. Omission of Eligible Employee. If any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution, if necessary, so that the
omitted Employee receives the total amount which the said Employee would have
received had he not been omitted. For purposes of this Section 3.05, the term
"contribution" shall not include Deferral Contributions and Matching
Contributions made pursuant to Sections 4.01 and 4.03, respectively.
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Article 4. Contributions.
4.01. Employer Contributions (Nonintegrated Formula). The Employer shall make a
contribution to the Plan for each Plan Participant in accordance with the
Employer's election in Section 1.05(a)(1). Each such contribution shall be
allocated to the Participant's account under the Plan.
4.02. Employer Contributions (Integrated Formula). The Employer shall make a
contribution to the Plan for each Plan Participant in accordance with the
Employer's election in Section 1.05(a)(2). Each such contribution shall be
allocated to the Participant's account under the Plan. This plan may not provide
for permitted disparity if the Employer maintains any other plan that provides
for permitted disparity and benefits any of the same participants.
4.03. (Reserved.)
4.04. (Reserved.)
4.05. (Reserved.)
4.06. (Reserved.)
4.07. Time of Making Employer Contributions. The Employer will pay its
contribution for each Plan Year not later than the time prescribed by law for
filing the Employer's Federal income tax return for the fiscal (or taxable) year
with or within which such Plan Year ends (including extensions thereof). The
Trustee will have no authority to inquire into the correctness of the amounts
contributed and paid over to the Trustee, to determine whether any contribution
is payable under this Article 4, or to enforce, by suit or otherwise, the
Employer's obligation, if any, to make a contribution to the Trustee.
4.08. Return of Employer Contributions. The Trustee shall, upon request by the
Employer, return to the Employer the amount (if any) determined under Section
14.22. Such Amount shall be reduced by amounts attributable thereto which have
been credited to the Accounts of Participants who have since received
distributions from the Trust, except to the extent such amounts continue to be
credited to such Participants' Accounts at the time the amount is returned to
the Employer. Such amount shall also be reduced by the losses of the Trust
attributable thereto, if and to the extent such losses exceed the gains and
income attributable thereto, but will not be increased by the gains and income
of the Trust attributable thereto, if and to the extent such gains and income
exceed the losses attributable thereto. In no event will the return of a
contribution hereunder cause the balance of the individual Account of any
Participant to be reduced to less than the balance which would have been
credited to the Account had the mistaken amount not been contributed.
4.09. No Contributions by Participants. No Participant is required or permitted
to make contributions under the Plan. A Participant's account may include
Employee Contributions (but not deductible voluntary employee contributions)
made prior to the first Plan Year in which this Plan was adopted as a
replacement plan. Employee Contributions for plan years beginning after December
31, 1986, and prior to the adoption of this Plan, will be limited so as to meet
the nondiscrimination requirements of the Section 401(m) of the Code. The
Participant's accrued benefit derived from such Employee Contributions is always
nonforfeitable. For purposes of this Plan, "Employee Contributions" shall mean
any contribution made to a plan by or on behalf of a Participant that was
included in the Participant's gross income in the
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year in which made and that is maintained under a separate account to which
applicable earnings and losses are allocated.
4.10. Rollover Contributions.
(a) Rollover of Eligible Rollover Distributions
(1) An Employee who is or was a distributee of an "eligible rollover
distribution" (as defined in Section 402(c)(4) of the Code and the
regulations issued thereunder) from a qualified plan or Section 403(b)
annuity may directly transfer all or any portion of such distribution
to the Trust or transfer all or any portion of such distribution to
the Trust within sixty (60) days of payment. The transfer shall be
made in the form of cash or allowable Fund Shares only.
(2) The Employer may refuse to accept rollover contributions or
instruct the Trustee not to accept rollover contributions under the
Plan.
(b) Treatment of Rollover Amount.
(1) An account will be established for the transferring Employee under
Article 5, the rollover amount will be credited to the account and
such amount will be subject to the terms of the Plan, including
Section 8.01, except as otherwise provided in this Section 4.10.
(2) The rollover account will at all times be fully vested in and
nonforfeitable by the Employee.
(c) Entry into Plan by Transferring Employee. Although an amount may be
transferred to the Trust Fund under this Section 4.10 by an Employee who
has not yet become a Participant in accordance with Article 4, and such
amount is subject to the terms of the Plan as described in paragraph (b)
above, the Employee will not become a Participant entitled to share in
Employer contributions until he has satisfied such requirements.
(d) Monitoring of Rollovers.
(1) The Administrator shall develop such procedures and require such
information from transferring Employees as it deems necessary to
insure that amounts transferred under this Section 4.10 most the
requirements for tax-free rollovers established by such Section and
by Section 402(c) of the Code. No such amount may be transferred
until approved by the Administrator.
(2) If a transfer made under this Section 4.10 is later determined by
the Administrator not to have met the requirements of this Section or
of the Code or Treasury regulations, the Trustee shall, within a
reasonable time after such determination is made, and on instructions
from the Administrator, distribute to the Employee the amounts then
hold in the Trust attributable to the transferred amount.
4.11. Deductible Voluntary Employee Contributions. The Administrator will not
accept deductible employee contributions which are made for a taxable year
beginning after December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all times and
which will share in the gains and losses of the trust in the same manner as
described in Section 5.02. No part of the deductible voluntary contribution
account will be used to
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purchase life insurance. Subject to Article VIII, the Participant may withdraw
any part of the deductible voluntary contribution account upon request.
4.12. Additional Rules for Paired Plans. If the Employer has adopted a qualified
plan under Fidelity Basic Plan Document No. 07 which is to be considered as a
paired plan with this Plan, the elections in Section 1.03 must be identical to
the Employer's corresponding elections for the other plan. When the paired plans
are top-heavy as provided in Section 9.01, this Plan will provide a minimum
contribution to each non-key Employee which is equal to 3 percent (or such other
percent elected by the Employer in Section 1.12(c)) of such Employee's
Compensation. Notwithstanding the preceding sentence, the minimum contribution
shall be provided by the other paired plan if contributions under this Plan are
frozen.
Article 5. Participants' Accounts.
5.01. individual Accounts. The Administrator will establish and maintain an
Account for each Participant which will reflect Employer and Employee
Contributions made on behalf of the Participant and earnings, expenses, gains
and losses attributable thereto, and investments made with amounts in the
Participant's Account. The Administrator will establish and maintain such other
accounts and records as it decides in its discretion to be reasonably required
or appropriate in order to discharge its duties under the Plan.
5.02. Valuation of Accounts. Participant Accounts will be valued at their fair
market value at least annually as of a date specified by the Administrator in
accordance with a method consistently followed and uniformly applied, and on
such date earnings, expenses, gains and losses on investments made with amounts
in each Participant's Account will be allocated to such Account. Participants
will be furnished statements of their Account values at least once each Plan
Year.
5.03. Code Section 415 Limitations. Notwithstanding any other provisions of the
Plan:
Subsections (a)(1) through (a)(4)--(These subsections apply to Employers
who do not maintain any qualified Plan including a welfare Benefit Fund, an
Individual Medical Account, or a simplified employee Pension in addition to this
Plan.)
(a)( 1) If the Participant does not participate in, and has never
participated in any other qualified plan, Welfare Benefit fund, Individual
Medical Account, or a simplified employee pension, as defined in section
408(k) of the Code, maintained by the Employer, which provides an annual
addition as defined in Section 5.03(e)(1), the amount of Annual Additions
to a Participant's Account for a Limitation Year shall not exceed the
lesser of the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Employer contribution that would otherwise be
contributed or allocated to the Participant's account would cause the
annual additions for the limitation year to exceed the maximum permissible
amount, the amount contributed or allocated will be reduced so that the
annual additions for the limitation year will equal the maximum permissible
amount.
(a)(2) Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Maximum Permissible Amount
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may be determined on the basis of a reasonable estimation of the
Participant's compensation for such Limitation Year, uniformly determined
for all Participants similarly situated. Any Employer contributions based
on estimated annual compensation shall be reduced by any Excess Amounts
carried over from prior years.
(a)(3) An soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year
shall be determined on the basis of the Participant's actual Compensation
for such Limitation Year.
(a)(4) If, pursuant to subsection (a)(3) or as a result of the allocation
of forfeitures there in an Excess Amount with respect to a Participant for
a Limitation Year, such Excess Amount shall be disposed of as follows:
(A) In the event that the Participant is in the service of the
Employer which is covered by the Plan at the end of the Limitation Year,
then such Excess Amount shall be reapplied to reduce future Employer
contributions under this Plan for the next Limitation Year (and for each
succeeding year, as necessary) for such Participant, so that in each such
Year the sum of actual Employer contributions plus the reapplied amount
shall equal the amount of Employer contributions which would otherwise be
made to such Participant's Account.
(B) In the event that the Participant is not in the service of the
Employer which is covered by the Plan at the end of a Limitation Year, then
such Excess Amount will be held unallocated in a suspense account. The
suspense account will be applied to reduce future Employer contributions
for all remaining Participants in the next Limitation Year and each
succeeding Limitation Year if necessary.
(C) If a suspense account is in existence at any time during the
Limitation Year pursuant to this subsection, it will not participate in the
allocation of the Trust Fund's investment gains and losses. All amounts in
the suspense account must be allocated to the Accounts of Participants
before any Employer contribution may be made for the Limitation Year.
Excess Amounts may not be distributed to Participants or former
Participants.
Subsections (b)(1) through (b)(6)--(These subsections apply to
Employers who, in addition to this Plan, maintain one or more plans, all of
which are qualified Master or Prototype defined contribution Plans, any Welfare
Benefit Fund, any Individual Medical Account, or any simplified employee
pension.)
(b)(1) If, in addition to this Plan, the Participant is covered under any
other qualified defined contribution plans (all of which are qualified
Master or Prototype Plans), Welfare Benefit Funds, Individual Medical
Accounts, or simplified employee pension Plans, maintained by the Employer,
that provide an annual addition as defined in Section 5.03(e)(1), the
amount of Annual Additions to a Participant's Account for a Limitation
Year, shall not exceed the lesser of:
(A) the Maximum Permissible Amount, reduced by the sum of any Annual
Additions to the Participant's accounts for the same Limitation Year under
such other qualified Master or Prototype defined contribution plans, and
Welfare Benefit Funds, Individual Medical Accounts, and simplified employee
pensions, or
(B) any other limitation contained in this Plan.
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If the annual additions with respect to the Participant under other
qualified Master or Prototype defined contribution plans Welfare
Benefit Funds, Individual Medical Accounts and simplified employee
pensions maintained by the Employer are less than the maximum
permissible amount and the Employer contribution that would otherwise
be contributed or allocated to the Participant's Account under this
plan would cause the annual additions for the limitation year to
exceed this limitation, the amount contributed or allocated will be
reduced so that the annual additions under all such plans and funds
for the limitation year will equal the maximum permissible amount. If
the annual additions with respect to the Participant under such other
qualified Master or Prototype defined contribution plans, Welfare
Benefit Funds, Individual Medical Accounts and simplified employee
pensions in the aggregate are equal to or greater than the maximum
permissible amount, no amount will be contributed or allocated to the
Participant's Account under this plan for the limitation year.
(b)(2) Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
(b)(1)(A) above may be determined on the basis of a reasonable
estimation of the Participant's Compensation for such Limitation Year,
uniformly determined for all Participants similarly situated. Any
Employer contribution based on estimated annual Compensation shall be
reduced by any Excess Amounts carried over from prior years.
(b)(3) As soon as is administratively feasible after the end of the
Limitation Year, the amounts referred to in (b)(1)(A) shall be
determined on the basis of the Participant's actual Compensation for
such Limitation Year.
(b)(4) If a Participant's Annual Additions under this Plan and all
such other plans result in an Excess Amount, such Excess Amount shall
be deemed to consist of the Annual Additions last allocated, except
that Annual Additions attributable to a simplified employee pension
will be deemed to have been allocated first, followed by Annual
Additions to a Welfare Benefit Fund or Individual Medical Account
regardless of the actual allocation date.
(b)(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of another plan, the Excess Amount attributed to this Plan will be the
product of:
(A) the total Excess Amount allocated an of such date (including
any amount which would have been allocated but for the
limitations of Section 415 of the Code), times
(B) the ratio of (i) the Annual Additions allocated to the
Participant as of such date under this Plan, divided by (ii) the
Annual Additions allocated as of such date under all qualified
defined contribution plans (determined without regard to the
limitations of Section 415 of the Code).
(b)(6) Any Excess Amounts attributed to this Plan shall be disposed of
as provided in subsection (a)(4).
Subsection (c)--(This subsection applies only to Employers who,
in addition to this Plan, maintain one or more qualified plans which
are qualified defined contribution plans other than Master or
Prototype Plans.)
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(c) If the Employer also maintains another plan which is a qualified
defined contribution plan other than a Master or Prototype Plan,
Annual Additions allocated under this Plan on behalf of any
Participant shall be limited in accordance with the provisions of
(b)(1) through (b)(6), as though the other plan were a Master or
Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
Subsection (d)--(This subsection applies only to Employers who, in
addition to this Plan, maintain or at any time maintained a qualified
defined benefit plan.)
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan, the sum of any Participant's Defined Benefit
Fraction and Defined Contribution Fraction shall not exceed the
combined plan limitation of 1.0 in any Limitation Year. The combined
plan limitation will be met as provided by the Employer in the
Adoption Agreement.
Subsections (e)(1) through (e)(9)--(Definitions.)
(e)(1) "Annual Additions" means the sum of the following amounts
credited to a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all Employee contributions,
(C) all forfeitures,
(D) Amounts allocated, after March 31, 1984, to an Individual
Medical Account which is part of a pension or annuity plan
maintained by the Employer are treated as Annual Additions to a
defined contribution plan. Also, amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate
account of a key employee, as defined in Section 419A(d)(3) of
the Code, under a Welfare Benefit Fund maintained by the Employer
are treated as Annual Additions to a defined contribution plan,
and
(E) Allocations under a simplified employee pension.
For purposes of this Section 5.03, amounts reapplied to reduce
Employer contributions under subsection (a)(4) shall also be included
as Annual Additions.
(e)(2) "Compensation" means wages an defined in Section 3401(a) of the
Code and all other payments of compensation to an employee by the
employer (in the course of the employer's trade or business) for which
the employer is required to furnish the employee a written statement
under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must
be determined without regard to any rules under section 3401(a) of the
Code that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code.)
For any Self-Employed Individual compensation will mean Earned Income.
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For limitation years beginning after December 31, 1991, for purposes
of applying the limitations of this article, compensation for a
limitation year is the compensation actually paid or made available
during such limitation year.
(e)(3) "Defined Benefit Fraction" means a fraction, the numerator of
which is the sum of the Participant's annual benefits (adjusted to an
actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor annuity) under all the defined benefit plans
(whether or not terminated) maintained by the Employer, each such
annual benefit computed on the assumptions that the Participant will
remain in employment until the normal retirement age under each such
plan (or the Participant's current age, if later) and that all other
factors used to determine benefits under such plan will remain
constant for all future Limitation Years, and the denominator of which
is the lesser of 125 percent of the dollar limitation determined for
the Limitation Year under Sections 415(b)(1)(A) and 415(d) of the Code
or 140 percent of the Participant's average Compensation for the 3
highest consecutive calendar years of service during which the
Participant was active in each such plan, including any adjustments
under Section 415(b) of the Code. However, if the Participant was a
participant as of the first day of the first Limitation Year beginning
after December 31, 1986 in one or more defined benefit plans
maintained by the Employer which were in existence on May 6, 1986 then
the denominator of the Defined Benefit Fraction shall not be less than
125 percent of the Participant's total accrued benefit as of the close
of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the plan after
May 5, 1986, under all such defined benefit plans as met, individually
and in the aggregate, the requirements of Section 415 of the Code for
all Limitation Years beginning before January 1, 1987.
(e)(4) "Defined Contribution Fraction" means a fraction, the numerator
of which is the sum for the current and all prior Limitation Years of
(A) all Annual Additions (if any) to the Participant's accounts under
each defined contribution plan (whether or not terminated) maintained
by the Employer, and (B) all Annual Additions attributable to the
Participant's nondeductible employee contributions to all defined
benefit plans (whether or not terminated) maintained by the Employer,
and the Participant's Annual Additions attributable to all Welfare
Benefit Funds, Individual Medical Accounts, and simplified employee
pensions, maintained by the Employer, and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
Limitation Years during which the Participant was an Employee
(regardless of whether the Employer maintained a defined contribution
plan in any such year).
The maximum aggregate amount in any Limitation Year is the lesser
of 125 percent of the dollar limitation in effect under Section
415(c)(1)(A) of the Code for each such year or 35 percent of the
Participant's Compensation for each such year.
If the Participant was a participant as of the first day of the
first Limitation Year beginning after December 31, 1986 in one or more
defined contribution plans maintained by the Employer which were in
existence on May 6, 1986 then the numerator of the Defined
Contribution Fraction shall be adjusted if the sum of this fraction
and the Defined Benefit Fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment an amount equal to
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the product of (i) the excess of the sum of the fractions over 1.0
times (ii) the denominator of this fraction will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end
of the last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the plan made
after May 6, 1986, but using the Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before
January 1, 1987 shall not be recomputed to treat all employee
contributions as annual additions.
(e)(5) "Employer" means the Employer and any Related Employer that
adopts this Plan. In the case of a group of employers which
constitutes a controlled group of corporations (as defined in Section
414(b) of the Code as modified by Section 415(h)) or which constitutes
trades or businesses (whether or not incorporated) which are under
common control (as defined in Section 414(c) of the Code as modified
by Section 415(h) of the Code) or which constitutes an affiliated
service group (as defined in Section 414(m) of the Code) and any other
entity required to be aggregated with the Employer pursuant to
regulations issued under Section 414(o) of the Code, all such
employers shall be considered a single employer for purposes of
applying the limitations of this Section 5.03.
(e)(6) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(e)(7) "Individual Medical Account" means an individual medical
account as defined in Section 415(l)(2) of the Code.
(e)(8) "Limitation Year" means the Plan Year. All qualified plans of
the Employer must use the same Limitation Year. If the Limitation Year
is amended to a different 12-consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year in
which the amendment in made.
(e)(9) "Master or Prototype Plan" means a plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(e)(10) "Maximum Permissible Amount" means for a Limitation Year with
respect to any Participant the lesser of (i) $30,000 or, if greater,
25 percent of the dollar limitation set forth in Section 415(b)(1) of
the Code, as in effect for the Limitation Year, or (ii) 25 percent of
the Participant's Compensation for the Limitation Year. If a short
Limitation Year is created because of an amendment changing the
Limitation Year to a different 12-consecutive month period, the
Maximum Permissible Amount will not exceed the limitation in
(e)(10)(i) multiplied by a fraction whose numerator is the number of
months in the short Limitation Year and whose denominator is 12.
The compensation limitation referred to in subsection (e)(10)(ii)
shall not apply to any contribution for medical benefits within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code after
separation from service which is otherwise treated an an Annual
Addition under Section 419A(d)(2) or Section 415(l)(1) of the code.
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(e)(11) "Welfare Benefit Fund" means a welfare benefit fund as defined
in Section 419(e) of the Code.
Article 6. Investment of Contributions.
6.01. Manner of Investment. All contributions made to the Accounts of
Participants shall be held for investment by the Trustee. The Accounts of
Participants shall be invested and reinvested only in eligible investments
selected by the Employer in Section 1.14(b), subject to section 14.10.
6.02. Investment Decisions. Investments shall be directed by the Employer or
by each Participant, in accordance with the Employer's election in Section
1.14(a). Pursuant to Section 14.04, the Trustee shall have no discretion or
authority with respect to the investment of the Trust Fund.
(a) If Employer investment direction is elected, the Employer has the right
to direct the Trustee in writing with respect to the investment and
reinvestment of assets comprising the Trust Fund in the Fidelity Fund(s)
designated in Section 1.14(b) and as allowed by the Trustee.
(b) If Participant investment direction is elected, each Participant shall
direct the investment of his Account among the Fidelity Funds listed in
Section 1.14(b). The Participant shall file initial investment instructions
with the Administrator, on such form as the Administrator may provide,
selecting the Funds in which amounts credited to his Account will be
invested.
(1) Except an provided in this Section 6.02, only authorized Plan
contacts and the Participant shall have access to a Participant's
account. While any balance remains in the Account of a Participant
after his death, the Beneficiary of the Participant shall make
decisions as to the investment of the Account as though the
Beneficiary were the Participant. To the extent required by a
qualified domestic relations order as defined in Section 414(p) of the
Code, an alternate payee shall make investment decisions with respect
to a Participant's Account as though such alternate payee were the
Participant.
(2) If the Trustee receives any contribution under the Plan as to
which investment instructions have not been provided, the Trustee
shall promptly notify the Administrator and the Administrator shall
take steps to elicit instructions from the Participant. The Trustee
shall credit any such contribution to the Participant's Account and
such amount shall be invested in the Fidelity Fund selected by the
Employer for such purposes or, absent Employer selection, in the most
conservative Fidelity Fund listed in Section 1.14(b), until investment
instructions have been received by the Trustee.
(c) All dividends, interest, gains and distributions of any nature received
in respect of Fund Shares shall be reinvested in additional shares of that
Fidelity Fund.
(d) Expenses attributable to the acquisition of investments shall be
charged to the Account of the Participant for which such investment is
made.
6.03. Participant Directions to Trustee. All Participant initial investment
instructions filed with the Administrator pursuant to the
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provisions of section 6.02 shall be promptly transmitted by the Administrator to
the Trustee. A Participant shall transmit subsequent investment instructions
directly to the Trustee by means of the telephone exchange system maintained by
the Trustee for such purposes. The method and frequency for change of
investments will be determined under the (1) rules applicable to the investments
selected by the Employer in Section 1.14(b) and (2) the additional rules of the
Employer, if any, limiting the frequency of investment changes, which are
included in a separate written administrative procedure adopted by the Employer
and accepted by the Trustee. The Trustee shall have no duty to inquire into the
investment decisions of a Participant or to advise him regarding the purchase,
retention or sale of assets credited to his Account.
Article 7. Right to Benefits.
7.01. Normal or Early Retirement. Each Participant who attains his Normal
Retirement Age or, if so provided by the Employer in Section 1.06(b), Early
Retirement Age will have a 100 percent nonforfeitable interest in his Account
regardless of any vesting schedule elected in Section 1.07. If a Participant
retires upon the attainment of Normal or Early Retirement Age, such retirement
is referred to as a normal retirement. Upon his normal retirement the balance of
the Participant's Account, plus any amounts thereafter credited to his Account,
subject to the provisions of Section 7.08, will be distributed to him in
accordance with Article 8.
If a Participant separates from service before satisfying the age
requirements for early retirement, but has satisfied the service requirement,
the Participant will be entitled to elect an early retirement distribution upon
satisfaction of such age requirement.
7.02. Late Retirement. If a Participant continues in the service of the Employer
after attainment of Normal Retirement Age, he will continue to have a 100
percent nonforfeitable interest in his Account and will continue to participate
in the Plan until the date he establishes with the Employer for his late
retirement. Upon the earlier of his late retirement or the distribution date
required under Section 8.08, the balance of his Account, plus any amounts
thereafter credited to his Account, subject to the provisions of Section 7.08,
will be distributed to him in accordance with Article 8 below.
7.03. Disability Retirement. If so provided by the Employer in Section 1.06(c),
a Participant who becomes disabled will have a 100 percent nonforfeitable
interest in his Account, the balance of which Account, plus any amounts
thereafter credited to his Account, subject to the provisions of Section 7.08,
will be distributed to him in accordance with Article 8 below. A Participant is
considered disabled if he cannot engage in any substantial, gainful activity
because of a medically determinable physical or mental impairment likely to
result in death or to be of a continuous period of not less than 12 months, and
terminates his employment with the employer. Such termination of employment is
referred to as a disability retirement. Determinations with respect to
disability shall be made by the Administrator who may rely on the criteria set
forth in section 1.06(c) as evidence that the Participant is disabled.
7.04. Death. Subject, if applicable, to Section 8.04, if a Participant dies
before the distribution of his Account has commenced, or before such
distribution has been completed, his Account shall become 100
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percent vested and his designated Beneficiary or Beneficiaries will be entitled
to receive the balance or remaining balance of his Account, plus any amounts
thereafter credited to his Account, subject to the provisions of Section 7.08.
Distribution to the Beneficiary or Beneficiaries will be made in accordance with
Article 8.
A Participant may designate a Beneficiary or Beneficiaries, or change any
prior designation of Beneficiary or Beneficiaries by giving notice to the
Administrator on a form designated by the Administrator. If more than one person
is designated as the Beneficiary, their respective interests shall be as
indicated on the designation form. In the case of a married Participant the
Participant's spouse shall be deemed to be the designated Beneficiary unless the
Participant's spouse has consented to another designation in the manner
described in Section 8.03(d).
A copy of the death notice or other sufficient documentation must be filed
with and approved by the Administrator. If upon the death of the Participant
there is, in the opinion of the Administrator, no designated Beneficiary for
part or all of the Participant's Account, such amount will be paid to his
surviving spouse or, if none, to his estate (such spouse or estate shall be
deemed to be the Beneficiary for purposes of the Plan). If a Beneficiary dies
after benefits to such Beneficiary have commenced, but before they have been
completed, and, in the opinion of the Administrator, no person has been
designated to receive such remaining benefits, then such benefits shall be paid
in a lump sum to the deceased Beneficiary's estate.
7.05. Other Termination of Employment. If a Participant terminates his
employment for any reason other than death or normal, late, or disability
retirement, he will be entitled to a termination benefit equal to (i) the vested
percentage of the value of the Employer Contributions in his Account, as
adjusted for income, expense, gain, or loss, such percentage determined in
accordance with the venting schedule selected by the Employer in Section 1.07,
and (ii) the value of the Employee and Rollover Contributions in his Account as
adjusted for income, expense, gain or loss. The amount payable under this
Section 7.05 will be subject to the provisions of Section 7.08 and will be
distributed In accordance with Article 8 below.
7.06. Separate Account. If a distribution from a Participant's Account has been
made to him at a time when he has a nonforfeitable right to less than 100
percent of his Account, the vesting schedule in Section 1.07 will thereafter
apply only to amounts in his Account attributable to Employer Contributions
allocated after such distribution. The balance of his Account immediately after
such distribution will be transferred to a separate account which will be
maintained for the purpose of determining his interest therein according to the
following provisions.
At any relevant time prior to a forfeiture of any portion thereof under
Section 7.07 a Participant's nonforfeitable interest in his Account hold in a
separate account described in the preceding paragraph will be equal to (NAB +
(RxD))-(RxD), where P in the nonforfeitable percentage at the relevant time
determined under Section 7.05; AB is the account balance of the separate account
at the relevant time; D is the amount of the distribution; and R is the ratio of
the account balance at the relevant time to the account balance after
distribution. Following a forfeiture of any portion of such separate account
under Section 7.07 below, and balance in the Participant's separate account will
remain fully vested and nonforfeitable.
7.07. Forfeitures. If a Participant terminates his employment, any
portion of his Account (including any amounts credited after his
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termination of employment) not payable to him under Section 7.05 will be
forfeited by him upon the complete distribution to him of the vested portion of
his Account, if any, subject to the possibility of reinstatement as described in
the following paragraph. For purposes of this paragraph, if the value of an
Employee's vested account balance is zero, the Employee shall be deemed to have
received a distribution of his vested interest immediately following termination
of employment. Such forfeitures will be applied to reduce the contributions of
the Employer next payable under the Plan (or administrative expenses of the
Plan); the forfeitures shall be held in a money market fund pending such
application.
If a Participant forfeits any portion of his Account under the preceding
paragraph but does again become an Employee after such date, then the amount so
forfeited, without any adjustment for the earnings, expenses, or losses or gains
of the assets credited to his Account since the date forfeited, will be
recredited to his Account (or to a separate account as described in Section
7.06, if applicable) but only if he repays to the Plan before the earlier of
five years after the date of his reemployment or the date he incurs 5
consecutive 1-year breaks in service following the date of the distribution the
amount previously distributed to him, without interest, under Section 7.05. If
an Employee is deemed to receive a distribution pursuant to this Section 7.07,
and the Employee resumes employment before 5 consecutive 1-year breaks in
service, the Employee shall be deemed to have repaid such distribution on the
date of his reemployment. Upon such an actual or deemed repayment, the
provisions of the Plan (including Section 7.06) will thereafter apply as if no
forfeiture had occurred. The amount to be recredited pursuant to this paragraph
will be derived first from the forfeitures, if any, which as of the date of
recrediting have yet to be applied as provided in the preceding paragraph and,
to the extent such forfeitures are insufficient, from a special Employer
contribution to be made by the Employer.
If a Participant elects not to receive the nonforfeitable portion of his
Account following his termination of employment, the non-vested portion of his
Account shall be forfeited after the Participant has incurred five consecutive
1-year breaks in service as defined in Section 2.01(a)(33).
No forfeitures will occur solely an a result of a Participant's
withdrawal of Employee contributions.
7.08. Adjustment for Investment Experience. If any distribution under this
Article 7 is not made in a single payment, the amount retained by the Trustee
after the distribution will be subject to readjustment until distributed to
reflect the income and gain or loss on the investments in which such amount is
invested and any expenses properly charged under the Plan and Trust to such
amounts.
7.09. Participant Loans. If permitted under Section 1.09, the
Administrator shall allow Participants to apply for a loan from the
Plan, subject to the following
(a) Loan Application. All Plan loans shall be administered by the
Administrator. Applications for loans shall be made to the Administrator on
forms available from the Administrator. Loans shall be made available to
all Participants on a reasonably equivalent basis. For this purpose, the
term "Participant" means any Participant or Beneficiary, including an
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, who is a party-in-interest (as determined under
ERISA Section 3(14)) with respect to the Plan except no loans will be made
to: (i) an Employee who makes a rollover contribution in
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accordance with Section 4.10 who has not satisfied the requirements of
Section 3.01, or (ii) a shareholder-employee or Owner-Employee. For
purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns
(or is considered as owning within the meaning of Section 318(a)(1) of the
Code), on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation.
A Participant with an existing loan may not apply for another loan
until the existing loan in paid in full and may not refinance an existing
loan or attain a second loan for the purpose of paying off the existing
loan. A Participant may not apply for more than one loan during each Plan
Year.
(b) Limitation of Loan Amount/Purpose of Loan. Loans shall not be made
available to Highly Compensated Employees in an amount greater than the
amount made available to other employees. No loan to any Participant or
Beneficiary can be made to the extent that such loan when added to the
outstanding balance of all other loans to the Participant or Beneficiary
would exceed the lesser of (a) $50,000 reduced by the excess (if any) of
the highest outstanding balance of loans during the one year period ending
on the day before the loan is made over the outstanding balance of loans
from the plan on the date the loan is made, or (b) one-half the present
value of the nonforfeitable Account of the Participant. For the purpose of
the above limitation, all loans from all plans of the Employer and Related
Employers are aggregated. A Participant may not request a loan for less
than $1,000. The Employer may provide that loans only be made from certain
contribution sources within Participant Account(s) by notifying the Trustee
in writing of the restricted source.
Loans may be made for any purpose or if elected by the Employer in
Section 1.09(a), on account of hardship only. A loan will be considered to
be made on account of hardship only if made on account of the following
immediate and heavy financial needs: expenses incurred or necessary for
medical care (within the meaning of Section 213(d) of the Code) of the
Employee, the Employee's spouse, children or dependents; the purchase
(excluding mortgage payments) of a principal residence for the Employee;
payment of tuition and related educational fees for the next twelve (12)
months of post-secondary education for the Employee, the Employee's spouse,
children or dependents; or the need to prevent the eviction of the Employee
from, or a foreclosure on the mortgage of, the Employee's principal
residence.
(c) Terms of Loan. All loans shall bear a reasonable rate of interest as
determined by the Administrator based on the prevailing interest rates
charged by persons in the business of lending money for loans which would
be made under similar circumstances. The determination of a reasonable
rate of interest must be based on appropriate regional factors unless the
Plan is administered on a national basis in which case the Administrator
may establish a uniform reasonable rate of interest applicable to all
regions.
All loans shall by their terms require that repayment (principal and
interest) be amortized in level payments, not less than quarterly, over a
period not extending beyond five years from the date of the loan unless
such loan is for the purchase of a Participant's primary residence, in
which case the repayment period may not extend beyond ten years from the
date of the loan. A Participant may prepay the outstanding loan balance
prior to maturity without penalty.
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(d) Security. Loans must be secured by the Participant's Accounts not to
exceed 50 percent of the Participant's vested Account. A Participant must
obtain the consent of his or her spouse, if any, to use a Participant
Account as security for the loan, if the provisions of Section 8.03 apply
to the Participant. Spousal consent shall be obtained no earlier than the
beginning of the 90-day period that ends on the date on which the loan is
to be so secured. The consent must be in writing, must acknowledge the
effect of the loan, and must be witnessed by a Plan representative or
notary public. Such consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to that loan.
(e) Default. The Administrator shall treat a loan in default if:
(1) any scheduled repayment remains unpaid more than 90 days;
(2) there is an outstanding principal balance existing on a loan after
the last scheduled repayment date.
Upon default or termination of employment, the entire outstanding
principal and accrued interest shall be immediately due and payable. If a
distributable event (as defined by the Code) has occurred, the
Administrator shall direct the Trustee to foreclose on the promissory note
and offset the Participant's vested Account by the outstanding balance of
the loan. If a distributable event has not occurred, the Administrator
shall direct the Trustee to foreclose on the promissory note and offset the
Participant's vested Account an soon as a distributable event occurs.
(f) Pre-existing loans. The provision in paragraph (a) of this Section 7.09
limiting a Participant to one outstanding loan shall not apply to loans
made before the Employer adopted this prototype plan document. A
Participant may not apply for a new loan until all outstanding loans made
before the Employer adopted this prototype plan have been paid in full. The
Trustee may accept any loans made before the Employer adopted this
prototype plan document except such loans which require the Trustee to hold
as security for the loan property other than the Participant's vested
Account.
As of the effective date of amendment of this Plan in Section
1.01(g)(2), the Trustee shall have the right to reamortize the outstanding
principal balance of any Participant loan that is delinquent. Such
reamortization shall be based upon the remaining life of the loan and the
original maturity date may not be extended.
Notwithstanding any other provision of this Plan, the portion of the
Participant's vested Account used as a security interest held by the plan
by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Account payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Participant's vested
Account (determined without regard to the preceding sentence) is payable to
the surviving spouse, then the Account shall be adjusted by first reducing
the vested Account by the amount of the security used as repayment of the
loan, and then determining the benefit payable to the surviving spouse.
No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans to
the Participant or Beneficiary would exceed the
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lesser of (a) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans during the one year period ending on the day
before the loan is made over the outstanding balance of loans from the plan
on the date the loan is made, or (b) one-half the present value of the
nonforfeitable Account of the Participant. For the purpose of the above
limitation, all loans from all plans of the Employer and Related Employers
are aggregated.
7.10. In-Service Withdrawals. A Participant shall not be permitted to
withdraw any Employer Contributions (and earnings thereon) prior to the
termination of employment. A Participant shall be permitted to withdraw some or
all of his Rollover Contributions (and earnings thereon) upon request.
7.11. Prior Plan In-Service Distribution Rules. If designated by the Employer in
Section 1.11(b), a Participant shall be entitled to withdraw any after-tax
contributions made prior to the adoption of this Plan at anytime prior to his
termination of employment, subject to the provisions of Section 8.05.
Article 8. Distribution of Benefits Payable after Termination of Service.
8.01. Distribution of Benefits to Participants and Beneficiaries.
(a) Distributions from the Trust to a Participant or to the Beneficiary of
the Participant shall be made in a lump sum in cash or, if elected by the
Employer in Section 1.11, under a systematic withdrawal plan
(installment(s)) upon retirement, death, disability, or other termination
of employment, unless another form of distribution is required or permitted
in accordance with paragraph (d) of this Section 8.01 or Sections 1.11(c),
8.02, 8.03, 8.04 or 11.02. A distribution may be made in Fund Shares, at
the election of the Participant, pursuant to the qualifying rollover of
such distribution to a Fidelity Investments individual retirement account.
(b) Distributions under a systematic withdrawal plan must be made in
substantially equal annual, or more frequent, installments, in cash, over a
period certain which does not extend beyond the life expectancy of the
Participant or the joint life expectancies of the Participant and his
Beneficiary, or, if the Participant dies prior to the commencement of his
benefits the life expectancy of the Participant's Beneficiary, as further
described in Section 8.04.
(c) Notwithstanding the provisions of Section 8.01(b) above, if a
Participant's Account is, and at the time of any prior distribution(s) was,
$3,500 or less, the balance of such Account shall be distributed in a lump
sum as soon as practicable following retirement, disability, death or other
termination of employment.
(d) This paragraph (d) applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article 8, a
distributee may elect, at the time and in the manner prescribed by the
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.
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The following definitions shall apply for purposes of this paragraph (d):
(1) 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 of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an individual
retirement account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the code, or a qualified trust described in
Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(3) 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.
(4) Direct rollover: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
8.02. Annuity Distributions. A Participant may elect distributions made in
whole or in part in the form of an annuity contract, subject to the provisions
of Section 8.03.
(a) An annuity contract distributed under the Plan must be purchased from
an insurance company and must be nontransferable. The terms of an annuity
contract shall comply with the requirements of the Plan and distributions
under such contract shall be made in accordance with Section 401(a)(9) of
the Code and the regulations thereunder.
(b) The payment period of an annuity contract distributed to the
Participant pursuant to this Section may be as long as the Participant
lives. If the annuity is payable to the Participant and his spouse or
designated Beneficiary, the payment period of an annuity contract may be
for as long as either the Participant or his spouse or designated
Beneficiary lives. Such an annuity may provide for an annuity certain
feature for a period not exceeding the life expectancy of the Participant.
If the annuity is payable to the Participant and his spouse such period may
not exceed the joint life and last survivor expectancy of the Participant
and his spouse, or, if the annuity is payable to the Participant and a
designated Beneficiary, the joint life and last survivor expectancy
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of the Participant and such Beneficiary. If the Participant dies prior to
the commencement of his benefits, the payment period of an annuity
contract distributed to the Beneficiary of the Participant may be as long
as the Participant's Beneficiary lives, and may provide for an annuity
certain feature for a period not exceeding the life expectancy of the
Beneficiary. Any annuity contract distributed under the Plan must provide
for nonincreasing payments.
8.03. Joint and Survivor Annuities/Preretirement Survivor Annuities.
(a) Application. The provisions of this Section supersede any conflicting
provisions of the Plan; provided, however, that paragraph (b) of this
Section shall not apply if the Participant's Account does not exceed or
at the time of any prior distribution did not exceed $3,500.
(b) Retirement Annuity. Unless the Participant elects to waive the
application of this subsection in a manner satisfying the requirements of
subsection (d) below, to the extent applicable to the Participant, within
the 90-day period preceding his Annuity Starting Date (which election may
be revoked, and if revoked, remade, at any time in such period), the
vested Account due any Participant to whom this subsection (b) applies
will be paid to him by the purchase and delivery to him of an annuity
contract described in Section 8.02 providing a life annuity only form of
benefit or, if the Participant is married as of his Annuity Starting
Date, providing an immediate annuity for the life of the Participant with
a survivor annuity for the life of the Participant's spouse (determined
as of the date of distribution of the contract) which is 50 percent of
the amount of the annuity which is payable during the joint lives of the
Participant and such spouse. The Participant may elect to receive
distribution of his benefits in the form of such annuity as of the
earliest date on which he could elect to receive retirement benefits
under the Plan. Within the period beginning 90 days prior to the
Participant's Annuity Starting Date and ending 30 days prior to such
Date, the Administrator will provide such Participant with a written
explanation of (i) the terms and conditions of the annuity contract
described herein, (ii) the Participant's right to make and the effect of
an election to waive application of this subsection, (iii) the rights of
the Participant's spouse under subsection (d), and (iv) the right to
revoke and the period of time effect of a revocation of the election to
waive application of this subsection.
(c) Annuity Death Benefit. Unless the Participant elects to waive the
application of this subsection in a manner satisfying the requirements of
subsection (d) below at any time within the applicable election period
(which election may be revoked, and if revoked, remade, at any time in
such period), if a married Participant to whom this Section applies dies
before his Annuity Starting Date, then notwithstanding any designation of
a Beneficiary to the contrary, 50 percent of his vested Account will be
applied to purchase an annuity contract described in Section 8.02
providing an annuity for the life of the Participant's surviving spouse,
which contract will then be promptly distributed to such spouse. In lieu
of the purchase of such an annuity contract, the spouse may elect in
writing to receive distributions under the Plan as if he or she had been
designated by the Participant as his Beneficiary with respect to 50
percent of his Account. For purposes of this subsection, the applicable
election period will commence on the first day of the Plan Year in which
the Participant attains age 35 and will end on the date of the
Participant's death, provided that in the case of a Participant who
terminates his employment the applicable election period with
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respect to benefits accrued prior to the date of such termination will in
no event commence later than the date of his termination of employment. A
Participant may elect to waive the application of this subsection prior
to the Plan Year in which he attains age 35, provided that any such
waiver will cease to be effective as of the first day of the Plan Year in
which the Participant attains age 35.
The Administrator will provide a Participant to whom this
subsection applies with a written explanation with respect to the annuity
death benefit described in this subsection (c) comparable to that
required under subsection (b) above. Such explanation shall be furnished
within whichever of the following periods ends last: (i) the period
beginning with the first day of the Plan Year in which the Participant
reaches age 32 and ending with the end of the Plan Year preceding the
Plan Year in which he reaches age 35, (ii) a reasonable period ending
after the Employee becomes a Participant, (iii) a reasonable period
ending after this Section 8.04 first becomes applicable to the
Participant in accordance with Section 8.04(a), (iv) in the case of a
Participant who separates from service before age 35, a reasonable period
of time ending after separation from service. For purposes of the
preceding sentence, the two-year period beginning one year prior to the
date of the event described in clause (ii), (iii) or (iv), whichever is
applicable, and ending one year after such date shall be considered
reasonable, provided, that in the case of a Participant who separates
from service under (iv) above and subsequently recommences employment
with the Employer, the applicable period for such Participant shall be
redetermined in accordance with this Subsection.
(d) Requirements of Elections. This subsection will be satisfied with
respect to a waiver or designation which is required to satisfy this
subsection if such waiver or designation is in writing and either
(1) the Participant's spouse consents thereto in writing, which
consent must acknowledge the effect of such waiver or designation
and be witnessed by a notary public or Plan representative, or
(2) the Participant establishes to the satisfaction of the
Administrator that the consent of the Participant's spouse cannot
be obtained because there is no spouse, because the spouse cannot
be located or because of such other circumstances as the Secretary
of Treasury may prescribe.
Any consent by a spouse, or establishment that the consent of a
spouse may not be obtained, will be effective only with respect to
a specific Beneficiary (including any class of beneficiaries or
any contingent beneficiaries) or form of benefits identified in
the Participant's waiver or designation, unless the consent of the
spouse expressly permits designations by the Participant without
any requirement of further consent by the spouse. A consent which
permits such designations by the Participant shall acknowledge
that the spouse has the right to limit consent to a specific
Beneficiary and form of benefits and that the spouse voluntarily
elects to relinquish both such rights. A consent by a spouse shall
be irrevocable once made. Any such consent, or establishment that
such consent may not be obtained, will be effective only with
respect to such spouse. For purposes of subsections (b) and (c)
above, no consent of a spouse shall be valid unless the notice
required by such subsection, whichever is applicable, has been
provided to the Participant.
27
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(e) Former Spouse. For purposes of this Section 8.03, a former spouse of a
Participant will be treated as the spouse or surviving spouse of the
Participant, and a current spouse will not be so treated, to the extent
required under a qualified domestic relations order, as defined in Section
414(p) of the Code.
(f) Vested Account. For purposes of this Section, vested Account shall
include the aggregate value of the Participant's vested Account derived
from Employer and Employee contributions (including rollovers), whether
vested before or upon death. The provisions of this Section shall apply to
a Participant who is vested in amounts attributable to Employer
contributions, Employee contributions, or both, upon death or at the time
of distribution.
8.04 Installment Distributions. This Section shall be interpreted and applied in
accordance with the regulations under Section 401(a)(9) of the Code, including
the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2
of the regulations.
(a) In General. If a Participant's benefit may be distributed in
accordance with Section 8.01(b), the amount to be distributed for each
calendar year for which a minimum distribution in required shall be at
least an amount equal to the quotient obtained by dividing the
Participant's interest in his Account by the life expectancy of the
Participant or Beneficiary or the joint life and last survivor expectancy
of the Participant and his Beneficiary, whichever is applicable. For
calendar years beginning before January 1, 1989, if a Participant's
Beneficiary is not his spouse, the method of distribution selected must
insure that at least 50 percent of the present value of the amount
available for distribution is paid within the life expectancy of the
Participant. For calendar years beginning after December 31, 1988 the
amount to be distributed for each calendar year shall not be less than an
amount equal to the quotient obtained by dividing the Participant's
interest in his Account by the lesser of (i) the applicable life
expectancy under Section 8.01(b), or (ii) if a Participant's Beneficiary
is not his spouse, the applicable divisor determined under Section
1.401(a)(9)-2, Q&A 4 of the Proposed Treasury Regulations, or any
successor regulations of similar import. Distributions after the death of
the Participant shall be made using the applicable life expectancy under
(i) above, without regard to Section 1.401(a)(9)-2 of such regulations.
The minimum distribution required under this subsection (a) for the
calendar year immediately preceding the calendar year in which the
Participant's required beginning date, as determined under Section
8.08(b), occurs shall be made on or before the Participant's required
beginning date, as so determined. Minimum distributions for other calendar
years shall be made on or before the close of such calendar year.
(b) Additional Requirements for Distributions After Death of Participant.
(1) Distribution beginning before Death. If the Participant dies
before distribution of his benefits has begun, distributions shall be made
in accordance with the provisions of this paragraph. Distributions under
Section 8.01(a) shall be completed by the close of the calendar year in
which the fifth anniversary of the death of the Participant occurs.
Distributions under Section 8.01(b) shall commence, if the Beneficiary is
not the Participant's spouse, not later than the close of the calendar
year immediately following the calendar
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year in which the death of the Participant occurs.
Distributions under Section 8.01(b) to a Beneficiary who is
the Participant's surviving spouse shall commence not later
than the close of the calendar year in which the
Participant would have attained age 70 1/2 or, if later,
the close of the calendar year immediately following the
calendar year in which the death of the Participant occurs.
In the event such spouse dies prior to the date
distribution to him or her commences, he or she will be
treated for purposes of this subsection (other than the
preceding sentence) as if he or she were the Participant.
If the Participant has not designated a Beneficiary, or the
Participant or Beneficiary has not effectively selected a
method of distribution, distribution of the Participant's
benefit shall be completed by the close of the calendar
year in which the fifth anniversary of the death of the
Participant occurs.
Any amount paid to a child of the Participant will be
treated as if it had been paid to the surviving spouse if
the Amount becomes payable to the surviving spouse when the
child reaches the age of majority.
For purposes of this subsection (b)(1), the life expectancy
of a Beneficiary who is the Participant's surviving spouse
shall be recalculated annually unless the Participant's
spouse irrevocably elects otherwise prior to the time
distributions are required to begin. Life expectancy shall
be computed in accordance with the provisions of subsection
(a) above.
(2) Distribution beginning after Death. If the Participant
dies after distribution of his benefits has begun,
distributions to the Participant's Beneficiary will be made
at least as rapidly as under the method of distribution
being used as of the date of the Participant's death.
For purposes of this Section 8.04(b), distribution of a
Participant's interest In his Account will be considered to begin as of
the Participant's required beginning date, as determined under Section
8.08(b). If distribution in the form of an annuity irrevocably commences
prior to such date, distribution will be considered to begin as of the
actual date distribution commences.
(c) Life Expectancy. For purposes of this Section, life expectancy shall
be recalculated annually in the case of the Participant or a Beneficiary
who is the Participant's spouse unless the Participant or Beneficiary
irrevocably elects otherwise prior to the time distributions are required
to begin. If not recalculated in accordance with the foregoing, life
expectancy shall be calculated using the attained age of the Participant
or Beneficiary, whichever in applicable, as of such individual's birth
date in the first year for which a minimum distribution is required
reduced by one for each elapsed calendar year since the date life
expectancy was first calculated. For purposes of this Section, life
expectancy and joint life and last survivor expectancy shall be computed
by use of the expected return multiples in Table V and VI of section
1.72-9 of the income tax Regulations.
A Participant's interest in his Account for purposes of this
Section 8.04 shall be determined as of the last valuation date in the
calendar year immediately preceding the calendar year for which a minimum
distribution is required, increased by the amount of any contributions
allocated to, and decreased by any distributions from, such Account after
the valuation date. Any distribution for the first year for which a
minimum distribution is required made
29
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after the close of such year shall be treated as if made prior to the
close of such year.
8.05. Immediate Distributions. If the Account distributable to a Participant
exceeds, or at the time of any prior distribution exceeded, $3,500, no
distribution will be made to the Participant before he reaches his Normal
Retirement Age (or age 62, if later), unless the written consent of the
Participant has been obtained. Such consent shall be made in writing Within the
90-day period ending on the Participant's Annuity Starting Date. Within the
period beginning 90 days before the Participant's Annuity Starting Date and
ending 30 days before such Date, the Administrator will provide such Participant
with written notice comparable to the notice described in Section 8.03(b)
containing a general description of the material features and an explanation of
the relative values of the optional forms of benefit available under the Plan
and informing the Participant of his right to defer receipt of the distribution
until his Normal Retirement Age (or age 62, if later).
The consent of the Participant's spouse must also be obtained if the
Participant is subject to the provisions of Section 8.03(a), unless the
distribution will be made in the form of the applicable retirement annuity
contract described in Section 8.03(b). A spouse's consent to early distribution,
if required, must satisfy the requirements of Section 8.03(d).
Neither the consent of the Participant nor the Participant's spouse shall
be required to the extent that a distribution is required to satisfy Section
401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan
if it does not offer an annuity option (purchased from a commercial provider)
and if the Employer or any Related Employer does not maintain another defined
contribution plan (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7)) the Participant's Account will, without the
Participant's consent, be distributed to the Participant. However, if any
Related Employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the Code) then
the Participant's Account will be transferred, without the Participant's
consent, to the other plan if the Participant does not consent to an immediate
distribution.
8.06. Determination of Method of Distribution. The Participant will determine
the method of distribution of benefits to himself and may determine the method
of distribution to his Beneficiary. Such determination will be made prior to the
time benefits become payable under the Plan. If the Participant does not
determine the method of distribution to his Beneficiary or if the Participant
permits his Beneficiary to override his determination, the Beneficiary, in the
event of the Participant's death, will determine the method of distribution of
benefits to himself as if he were the Participant. A determination by the
Beneficiary must be made no later than the close of the calendar year in which
distribution would be required to begin under Section 8.04(b) or, if earlier,
the close of the calendar year in which the fifth anniversary of the death of
the Participant occurs.
8.07. Notice to Trustee. The Administrator will notify the Trustee in writing
whenever any Participant or Beneficiary in entitled to receive benefits under
the Plan. The Administrator's notice shall indicate the form of benefits that
such Participant or Beneficiary shall receive and (in the case of distributions
to a Participant) the name of any designated Beneficiary or Beneficiaries.
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8.08. Time of Distribution. In no event will distribution to a Participant be
made later than the earlier of the dates described in (a) and (b) below:
(a) Absent the consent of the Participant (and his spouse, if
appropriate), the 60th day after the close of the Plan Year in which
occurs the later of the date on which the Participant attains age 65, the
date on which the Participant ceases to be employed by the Employer; or
the 10th anniversary of the year in which the Participant commenced
participation in the Plan; and
(b) April 1 of the calendar year first following the calendar year in
which the Participant attains age 70 1/2 or, in the case of a Participant
who had attained age 70 1/2 before January 1, 1988, the required
beginning date determined in accordance with (1) or (2) below:
(1) The required beginning date of a Participant who is not a
5-percent owner is the first day of April of the calendar year
following the calendar year in which the later of retirement or
attainment of age 70-1/2 occurs.
(2) The required beginning date of a Participant who in a 5
percent owner during any year beginning after December 31, 1979,
in the first day of April following the later of:
(i) the calendar year in which the participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the plan year in which the participant becomes a
5 percent owner, or the calendar year in which the
participant retires.
Notwithstanding the foregoing, in the case of a Participant who attained
age 70 1/2 during 1988 and who had not retired prior to January 1, 1989, the
required beginning date described in this paragraph shall be April 1, 1990.
Notwithstanding (a) above, the failure of a Participant (and spouse) to
consent to a distribution while a benefit is immediately distributable, within
the meaning of Section 8.05, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy (a) above.
Once distributions have begun to a 5-percent owner under (b) above, they
must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
For purposes of (b) above, a Participant is treated as a 5-percent owner
if such participant is a 5-percent owner an defined in Section 416(i) of the
Code (determined in accordance with Section 416 but without regard to whether
the plan is top-heavy) at any time during the plan year ending with or within
the calendar year in which such owner attains age 66-1/2 or any subsequent plan
year.
The Administrator shall notify the Trustee in writing whenever a
distribution is necessary in order to comply with the minimum distribution rules
set forth in this Section.
8.09. Whereabouts of Participants and Beneficiaries. The Administrator will at
all times be responsible for determining the whereabouts of each Participant or
Beneficiary who may be entitled to benefits under the Plan and will at all times
be responsible for instructing the Trustee in
<PAGE> 36
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writing as to the current address of each such Participant or Beneficiary. The
Trustee will be entitled to rely on the latest written statement received from
the Administrator as to such addresses. The Trustee will be under no duty to
make any distributions under the Plan unless and until it has received written
instructions from the Administrator satisfactory to the Trustee containing the
name and address of the distributee, the time when the distribution is to occur,
and the form which the distribution will take. Notwithstanding the foregoing, if
the Trustee attempts to make a distribution in accordance with the
Administrator's instructions but is unable to make such distribution because the
whereabouts of the distributee is unknown, the Trustee will notify the
Administrator of such situation and thereafter the Trustee will be under no duty
to make any further distributions to such distributee until it receives further
written instructions from the Administrator. If a benefit is forfeited because
the Administrator determines that the Participant or beneficiary cannot be
found, such benefit will be reinstated by the Sponsor if a claim is filed by the
Participant or Beneficiary with the Administrator and the Administrator confirms
the claim to the Sponsor.
Article 9. Top-Heavy Provisions.
9.01 Application. If the Plan is or becomes a Top-Heavy Plan in any Plan Year or
is automatically deemed to be Top-Heavy in accordance with the Employer's
election in Section 1.12(a)(1) of the Adoption Agreement, the provisions of this
Article 9 shall supersede any conflicting provision in the Plan.
9.02 Definitions. For purposes of this Article 9, the following terms have the
meanings set forth below:.
(a) Key Employee. Any Employee or former Employee (and the Beneficiary of
any such Employee) who at any time during the determination period was
(i) an officer of the Employer whose annual compensation exceeds 50
percent of the dollar limitation under Section 415(b)(1)(A) of the Code,
(ii) an owner (or considered an owner under Section 318 of the Code) of
one of the ten largest interests in the Employer if such individual's
annual compensation exceeds the dollar limitation under Section
415(c)(1)(A) of the Code, (iii) a 5-percent owner of the Employer, or
(iv) a 1-percent owner of the Employer who has annual compensation of
more than $150,000. For purposes of this paragraph, the determination
period is the Plan Year containing the Determination Date and the four
preceding Plan Years. The determination of who is a Key Employee shall be
made in accordance with Section 416(i)(1) of the Code and the regulations
thereunder. Annual compensation means compensation as defined in Section
5.03(e)(2), but including amounts contributed by the Employer pursuant to
a salary reduction agreement which are excludable from the employee's
gross income under Section 125, Section 402(a)(8), and Section 403(b) of
the Code.
(b) Too-Heavy Plan. The Plan is a Top-Heavy Plan if any of the following
conditions exists:
(1) the Top-Heavy Ratio for the Plan exceeds 60 percent and the
Plan is not part of any Required Aggregation Group or permissive
Aggregation Group;
(2) the Plan is a part of a Required Aggregation Group but not
part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Required Aggregation Group exceeds 60 percent; or
32
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8/2/93
(3) the Plan is a part of a Required Aggregation Group and a
Permissive Aggregation Group and the Top-Heavy Ratio for both
Groups exceeds 60 percent.
(c) Top-Heavy Ratio.
(1) With respect to this Plan, or with respect to any Required
Aggregation Group or Permissive Aggregation Group that consists
solely of defined contribution plans (including any simplified
employee pension plans) and the Employer has not maintained any
defined benefit plan which during the 5-year period ending on the
determination date(s) has or has had accrued benefits, the
Top-Heavy Ratio is a fraction, the numerator of which is the sum
of the account balances of all Key Employees under the plans as of
the Determination Date (including any part of any account balance
distributed in the 5-year period ending on the Determination
Date), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in
the 5-year period ending on the Determination Date) of all
participants under the plans as of the Determination Date. Both
the numerator and denominator of the Top-Heavy Ratio shall be
increased, to the extent required by Section 416 of the Code, to
reflect any contribution which is due but unpaid as of the
Determination Date.
(2) With respect to any Required Aggregation Group or Permissive
Aggregation Group that includes one or more defined benefit plans
which, during the 5-year period ending on the Determination Date,
has covered or could cover a Participant in this Plan, the
Top-Heavy Ratio in a fraction, the numerator of which is the sum
of the account balances under the defined contribution plans for
all Key Employees and the present value of accrued benefits under
the defined benefit plans for all Key Employees, and the
denominator of which is the sum of the account balances under the
defined contribution plans for all participants and the present
value of accrued benefits under the defined benefit plans for all
participants. Both the numerator and denominator of the Top-Heavy
Ratio shall be increased for any distribution of an account
balance or an accrued benefit made in the 5-year period ending on
the Determination Date and any contribution due but unpaid as of
the Determination Date.
(3) For purposes of (1) and (2) above, the value of Accounts and
the present value of accrued benefits will be determined as of the
most recent Valuation Date that falls within or ends with the
12-month period ending on the Determination Date, except as
provided in Section 416 of the Code and the regulations thereunder
for the first and second plan years of a defined benefit plan. The
Account and accrued benefits of a Participant (i) who is not a Key
Employee but who was a Key Employee in a prior year, or (ii) who
has not been credited with at least one Hour of Service with the
Employer at any time during the 5-year period ending on the
Determination Date, will be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers,
and transfers are taken into account, shall be made in accordance
with Section 416 of the Code and the regulations thereunder.
Deductible employee contributions shall not be taken into account
for purposes of computing the Top-Heavy Ratio. When aggregating
plans, the value of Accounts and accrued benefits shall be
calculated with reference to the Determination Dates that fall
within the same calendar year.
For purposes of determining if the Plan, or any other plan
included in a Required Aggregation Group of which this Plan is a
33
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8/2/93
part, is a Top-Heavy Plan, the accrued benefit in a defined
benefit plan of an Employee other than a Key Employee shall be
determined under (a) the method, if any, that uniformly applies
for accrual purposes under all plans maintained by the Employer,
or (b) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the
fractional accrual rate of Section 411(b)(1)(C) of the Code.
(d) Permissive Aggregation Group. The Required Aggregation Group plus any
other qualified plans of the Employer or a Related Employer which, when
considered as a group with the Required Aggregation Group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required Aggregation Group.
(1) Each qualified plan of the Employer or Related Employer in
which at least one Key Employee participates, or has participated
at any time during the determination period (regardless of whether
the plan has terminated), and
(2) any other qualified plan of the Employer or Related Employer
which enables a plan described in (1) above to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(f) Determination Date. For any Plan Year of the Plan subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that Plan Year.
(g) Valuation Date. The Determination Date.
(h) Present Value. Present value shall be based only on the interest rate
and mortality table specified in the Adoption Agreement.
9.03. Minimum Contribution.
(a) Except as otherwise provided in (b) and (c) below, the Employer
Contributions made on behalf of any Participant who is not a Key Employee
shall not be less than the lesser of 3 percent (or such other percent
elected by the Employer in Section 1.12(c)) of such Participant's
Compensation or, in the case where the Employer has no defined benefit
plan which designates this Plan to satisfy Section 401 of the Code, the
largest percentage of Employer contributions, as a percentage of the
first $200,000 of the Key Employee's Compensation, made on behalf of any
Key Employee for that year. The minimum contribution under this Section
9.03 shall be determined without regard to permitted disparity under
Section 4.02. Further, the minimum contribution under this Section 9.03
shall be made even though, under other Plan provisions, the Participant
would not otherwise be entitled to receive a contribution, or would have
received a lesser contribution for the year, because (i) the Participant
failed to complete 1,000 Hours of Service or any equivalent service
requirement provided in the Adoption Agreement; or (ii) the Participant's
Compensation was less than a stated amount.
(b) The provisions of (a) above shall not apply to any Participant who
was not employed by the Employer on the last day of the Plan Year.
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(c) The Employer contributions for the Plan Year made on behalf of each
Participant who is not a Key Employee and who is a participant in a
defined benefit plan maintained by the Employer shall not be less than 5
percent of such Participant's Compensation, unless the Employer has
provided in Section 1.12(c) that the minimum contribution requirement
will be met in the other plan or plans of the Employer.
(d) The minimum contribution required under (a) above (to the extent
required to be nonforfeitable under Section 416(b) of the Code) may not
be forfeited under Sections 411(a)(3)(B) or 411(a)(3)(D) of the Code.
9.04. Adjustment to the Limitation on Contributions and Benefits. If this Plan
is in Top-Heavy status, the number 100 shall be substituted for the number 125
in subsections (e)(3) and (e)(4) of Section 5.03. However, this substitution
shall not take effect with respect to this Plan in any Plan Year in which the
following requirements are satisfied:
(a) The Employer contributions for such Plan Year made on behalf of each
Participant who is not a Key Employee and who is a participant in a
defined benefit plan maintained by the Employer is not less than 7 1/2
percent of such Participant's Compensation.
(b) The sum of the present value as of the Determination Date of (i) the
aggregate accounts of all Key Employees under all defined contribution
plans of the Employer and (ii) the cumulative accrued benefits of all Key
Employees under all defined benefit plans of the Employer does not exceed
90 percent of the same amounts determined for all Participants under all
plans of the Employer that are Top-Heavy Plans, excluding Accounts and
accrued benefits for Employees who formerly were but are no longer Key
Employees.
The substitutions of the number 100 for 125 shall not take effect
in any limitation Year with respect to any Participant for whom no
benefits are accrued or contributions made for such Year.
9.05. Minimum Vesting. For any Plan Year in which the Plan in a Top-Heavy Plan
and all Plan Years thereafter, the Top-Heavy vesting schedule elected in Section
1.12(d) will automatically apply to the Plan. The Top-Heavy vesting schedule
applies to all benefits within the meaning of Section 411(a)(7) of the Code
except those attributable to Employee Contributions or those already subject to
a vesting schedule which vests at least as rapidly in all cases as the schedule
elected in Section 1.12(d), including benefits accrued before the Plan becomes a
Top-Heavy Plan. Further, no decrease in a Participant's nonforfeitable
percentage may occur in the event the Plan's status as a Top-Heavy Plan changes
for any Plan Year. However, this Section 9.05 does not apply to the Account of
any Employee who does not have an Hour of Service after the Plan has initially
become a Top-Heavy Plan and such Employee's Account attributable to Employer
contributions will be determined without regard to this Section 9.05.
Article 10. Amendment and Termination.
10.01 Amendment by Employer. The Employer reserves the authority, subject to the
provisions of Article 1 and Section 10.03, to amend the Plan:
(a) Changing Elections Contained in the Adoption Agreement. By filing
with the Trustee an amended Adoption Agreement, executed by the Employer
only, on which said Employer has indicated a change or
35
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changes in provisions previously elected by it. Such changes are to be
effective on the effective date of such amended Adoption Agreement except
that retroactive changes to a previous election or elections pursuant to
the regulations issued under Section 401(a)(4) of the Code shall be
permitted. Any such change notwithstanding, no Participant's Account
shall be reduced by such change below the amount to which the Participant
would have been entitled if he had voluntarily left the employ of the
Employer immediately prior to the date of the change. The Employer may
from time to time make any amendment to the Plan that may be necessary to
satisfy Sections 415 or 416 of the Code because of the required
aggregation of multiple plans by completing overriding Plan language in
the Adoption Agreement. The Employer may also add certain model
amendments published by the Internal Revenue Service which specifically
provide that their adoption will not cause the Plan to be treated as an
individually designed plan; or
(b) Other Changes. By amending any provision of the Plan for any reason
other than those specified in (a) above. However, upon making such
amendment, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, the Employer may no longer participate in
this prototype plan arrangement and will be deemed to have an
individually designed plan. Following such amendment, the Trustee may
transfer the assets of the Trust to the trust forming part of such newly
adopted plan upon receipt of sufficient evidence (such as a determination
letter or opinion letter from the Internal Revenue Service or an opinion
of counsel satisfactory to the Trustee) that such trust will be a
qualified trust under the Code.
10.02. Amendment by Prototype Sponsor. The Prototype Sponsor may in its
discretion amend the Plan or the Adoption Agreement at any time, subject to the
provisions of Article 1 and Section 10.03, and provided that the Prototype
Sponsor mails a copy of such amendment to the Employer at its last known address
as shown on the books of the Prototype Sponsor.
10.03. Amendments Affecting Vested and/or Accrued Benefits.
(a) Except as permitted by Section 10.04, no amendment to the Plan shall
be effective to the extent that it has the effect of decreasing a
Participant's Account or eliminating an optional form of benefit with
respect to benefits attributable to service before the amendment.
Furthermore, if the vesting schedule of the Plan is amended, the
nonforfeitable interest of a Participant in his Account, determined as of
the later of the date the amendment is adopted or the date it becomes
effective, will not be less than the Participant's nonforfeitable
interest in his Account determined without regard to such amendment.
(b) If the Plan's vesting schedule is amended, including any amendment
resulting from a change to or from Top-Heavy Plan status, or the Plan is
amended in any way that directly or indirectly affects the computation of
a Participant's nonforfeitable interest in his Account, each Participant
with at least three (3) Years of Service for Vesting with the Employer
may elect, within a reasonable period after the adoption of the
amendment, to have the nonforfeitable percentage of his Account computed
under the Plan without regard to such amendment. The Participant's
election may be made within 60 days from the latest of (i) the date the
amendment is adopted; (ii) the date the amendment becomes effective; or
(iii) the date the Participant is issued written notice of the amendment
by the Employer or the Administrator.
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10.04. Retroactive Amendments. An amendment made by the sponsor in accordance
with Section 10.02 may be made effective on a date prior to the first day of the
Plan Year in which it is adopted if such amendment is necessary or appropriate
to enable the Plan and Trust to satisfy the applicable requirements of the Code
or to conform the Plan to any change in federal law, or to any regulations or
ruling thereunder. Any retroactive amendment by the Employer shall be subject to
the provisions of Section 10.01.
10.05. Termination. The Employer has adopted the Plan with the intention and
expectation that contributions will be continued indefinitely. However, said
Employer has no obligation or liability whatsoever to maintain the Plan for any
length of time and may discontinue contributions under the Plan or terminate the
Plan at any time by written notice delivered to the Trustee without any
liability hereunder for any such discontinuance or termination.
10.06. Distribution upon Termination of the Plan. Upon termination or partial
termination of the Plan or complete discontinuance of contributions thereunder,
each Participant (including a terminated Participant with respect to amounts
not previously forfeited by him) who is affected by such termination or partial
termination or discontinuance will have a fully vested interest in his Account,
and, subject to Article 8, the Trustee will distribute to each Participant or
other person entitled to distribution the balance of the Participant's Account
in a single lump sum payment. In the absence of such instructions, the Trustee
will notify the Administrator of such situation and the Trustee will be under no
duty to make any distributions under the Plan until it receives written
instructions from the Administrator. Upon the completion of such distributions,
the Trust will terminate, the Trustee will be relieved from all liability under
the Trust, and no Participant or other person will have any claims thereunder,
except as required by applicable law.
10.07. Merger or Consolidation of Plan; Transfer of Plan Assets. In case of any
merger or consolidation of the Plan with, or transfer of assets and liabilities
of the Plan to, any other plan, provision must be made so that each Participant
would, if the Plan then terminated, receive a benefit immediately after the
merger, consolidation or transfer which 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.
Article 11. Amendment and Continuation of Predecessor Plan; Transfer of Funds to
or from Other Qualified Plans.
11.01. Amendment and Continuation of Predecessor Plan. In the event the Employer
has previously established a plan (the "predecessor plan") which is a defined
contribution plan under the Code and which on the date of adoption of the Plan
meets the applicable requirements of section 401(a) of the Code, the Employer
may, in accordance with the provisions of the predecessor plan, amend and
continue the predecessor plan in the form of the Plan and become the Employer
hereunder, subject to the following:
(a) Subject to the provisions of the Plan, each individual who was a
Participant or former Participant in the predecessor plan immediately
prior to the effective date of such amendment and continuation will
become a Participant or former Participant in the Plan;
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(b) No election may be made under the vesting provisions of the Adoption
Agreement if such election would reduce the benefits of a Participant
under the Plan to less than the benefits to which he would have been
entitled if he voluntarily separated from the service of the Employer
immediately prior to such amendment and continuation;
(c) No amendment to the Plan shall decrease a Participant's accrued
benefit or eliminate an optional form of benefit and if the amendment of
the predecessor plan in the form of the Plan results in a change in the
method of crediting service for vesting purposes between the general
method set forth in Section 2530.200b-2 of the Department of Labor
Regulations and the elapsed time method in Section 2.01(a)(33) of the
Plan, each Participant with respect to whom the method of crediting
vesting service is changed shall be treated in the manner set forth by
the provisions of Section 1.410(a)-7(f)(1) of the Treasury Regulations
which are incorporated herein by reference.
(d) The amounts standing to the credit of a Participant's Account
immediately prior to such amendment and continuation which represent the
amounts properly attributable to (i) contributions by the Participant and
(ii) contributions by the Employer and forfeitures will constitute the
opening balance of his Account or Accounts under the Plan;
(e) Amounts being paid to a former Participant or to a Beneficiary in
accordance with the provisions of the predecessor plan will continue to
be paid in accordance with such provisions;
(f) Any election and waiver of the qualified pre-retirement annuity in
effect after August 23, 1984, under the predecessor plan immediately
before such amendment and continuation will be deemed a valid election
and waiver of Beneficiary under Section 8.04 if such designation
satisfies the requirements of Section 8.04(d), unless and until the
Participant revokes such election and waiver under the Plan; and
(g) Unless the Employer and the Trustee agree otherwise, all assets of
the predecessor trust will be deemed to be assets of the Trust as of the
effective date of such amendment. Such assets will be invested by the
Trustee as soon as reasonably practicable pursuant to Article 6. The
Employer agrees to assist the Trustee in any way requested by the
Trustee in order to facilitate the transfer of assets from the
predecessor trust to the Trust Fund.
11.02. Transfer of Funds from an Existing Plan. The Employer may from time to
time direct the Trustee, in accordance with such rules as the Trustee may
establish, to accept cash, allowable Fund Shares or participant loan promissory
notes transferred for the benefit of Participants from a trust forming part of
another qualified plan under the Code, provided such plan is a defined
contribution plan. Such transferred assets will become assets of the Trust as of
the date they are received by the Trustee. Such transferred assets will be
credited to Participants' Account in accordance with their respective interests
immediately upon receipt by the Trustee. A Participant's interest under the Plan
in transferred assets which were fully vested and nonforfeitable under the
transferring plan will be fully vested and nonforfeitable at all times. Such
transferred assets will be invested by the Trustee in accordance with the
provisions of paragraph (g) of Section 11.01 as if such assets were transferred
from a predecessor plan. No transfer of assets in accordance with this Section
may cause a loss of an accrued or optional form of benefit protected by Section
411(d)(6) of the Code.
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11.03. Acceptance of Assets by Trustee. The Trustee will not accept assets which
are not either in a medium proper for investment under the Plan, as set forth in
Section 1.14(b), or in cash. Such assets shall be accompanied by written
instructions showing separately the respective contributions by the prior
employer and by the Employee, and identifying the assets attributable to such
contributions. The Trustee shall establish such accounts as may be necessary or
appropriate to reflect such contributions under the Plan. The Trustee shall hold
such assets for investment in accordance with the provisions of Article 6, and
shall in accordance with the written instructions of the Employer make
appropriate credits to the Accounts of the Participants for whose benefit assets
have been transferred.
11.04. Transfer of Assets from Trust. The Employer may direct the Trustee to
transfer all or a specified portion of the Trust assets to any other plan or
plans maintained by the Employer or the employer or employers of a former
Participant or Participants, provided that the Trustee has received evidence
satisfactory to it that such other plan meets all applicable requirements of the
Code. The assets so transferred shall be accompanied by written instructions
from the Employer naming the persons for whose benefit such assets have been
transferred, showing separately the respective contributions by the Employer and
by each Participant, if any, and identifying the assets attributable to the
various contributions. The Trustee shall have no further liabilities with
respect to assets so transferred.
Article 12. Miscellaneous.
12.01. Communication to Participants. The Plan will be communicated to all
Participants by the Employer promptly after the Plan is adopted.
12.02. Limitation of Rights. Neither the establishment of the Plan and the
Trust, nor any amendment thereof, nor the creation of any fund or account, nor
the payment of any benefits, will be construed as giving to any Participant or
other person any legal or equitable right against the Employer, Administrator or
Trustee, except as provided herein; and in no event will the terms of employment
or service of any Participant be modified or in any way affected hereby. It is a
condition of the Plan, and each Participant expressly agrees by his
participation herein, that each Participant will look solely to the assets held
in the Trust for the payment of any benefit to which he is entitled under the
Plan.
12.03. Nonalienability of Benefits and Qualified Domestic Relations Orders. The
benefits provided hereunder will not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, either voluntarily or
involuntarily, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law. The
preceding sentence shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined by the Plan
Administrator to be a qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered before January 1,
1985. The Administrator must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Administrator will promptly notify the Participant and any
alternate payee named in the order, in writing, of the receipt of the order and
the Plan's procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
Administrator must determine the qualified status of the order and must notify
the Participant and each alternate payee, in writing, of its determination. The
Administrator must provide notice under this
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paragraph by mailing to the individual's address specified in the domestic
relations order, or in a manner consistent with the Department of Labor
regulations.
If any portion of the Participant's Account is payable during the period
the Administrator is making its determination of the qualified status of the
domestic relations order, the Administrator must make a separate accounting of
the amounts payable. If the Administrator determines the order is a qualified
domestic relations order within 18 months of the date amounts first are payable
following receipt of the order, the Administrator will direct the Trustee to
distribute the payable amounts in accordance with the order. If the
Administrator does not make his determination of the qualified status of the
order within the 18 month determination period, the Administrator will direct
the Trustee to distribute the payable amounts in the manner the Plan would
distribute if the order did not exist and will apply the order prospectively if
the Administrator later determines the order is a qualified domestic relations
order.
A domestic relations order will not fail to be deemed a qualified domestic
relations order merely because it requires the distribution or segregation of
all or part of a Participant's Account with respect to an alternate payee prior
to the Participant's earliest retirement ago (as defined in Section 414(p) of
the Code) under the Plan. A distribution to an alternate payee prior to the
Participant's attainment of the earliest retirement age is available only if:
(1) the order specifies distribution at that time; and (2) if the present value
of the alternate payee's benefits under the Plan exceeds $3,500, and the order
requires, the alternate payee consents to any distribution occurring prior to
the Participant's attainment of earliest retirement age.
12.04. Facility of Payment. In the event the Administrator determines, on the
basis of medical reports or other evidence satisfactory to the Administrator,
that the recipient of any benefit payments under the Plan is incapable of
handling his affairs by reason of minority, illness, infirmity or other
incapacity, the Administrator may direct the Trustee to disburse such payments
to a person or institution designated by a court which has jurisdiction over
such recipient or a person or institution otherwise having the legal authority
under State law for the care and control of such recipient. The receipt by such
person or institution of any such payments shall be complete acquittance
therefore, and any such payment to the extent thereof, shall discharge the
liability of the Trust for the payment of benefits hereunder to such recipient.
12.05. Information between Employer and Trustee. The Employer agrees to furnish
the Trustee, and the Trustee agrees to furnish the Employer with such
information relating to the Plan and Trust as may be required by the other in
order to carry out their respective duties hereunder, including without
limitation information required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or under the provisions of
ERISA and any regulations issued or forms adopted by the Labor Department
thereunder.
12.06. Effect of Failure to Qualify under Code. Notwithstanding any other
provision contained herein, if the Employer fails to obtain or retain approval
of the Plan by the Internal Revenue Service as a qualified Plan under the Code,
the Employer may no longer participate in this prototype Plan arrangement and
will be deemed to have an individually designed plan.
12.07. Notices. Any notice or other communication in connection with this Plan
shall be deemed delivered in writing if addressed as provided below and if
either actually delivered at said address or, in the case
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of a letter, three business days shall have elapsed after the same shall have
been deposited in the United States mails, first-class postage prepaid and
registered or certified:
(a) If to the Employer or Administrator, to it at the address set forth
in the Adoption Agreement, to the attention of the person specified to
receive notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the Adoption
Agreement;
or, in each case at such other address as the addressee shall have specified by
written notice delivered in accordance with the foregoing to the addressor's
then effective notice address.
12.08. Governing Law. The Plan and the accompanying Adoption Agreement will be
construed, administered and enforced according to ERISA, and to the extent not
preempted thereby, the laws of the Commonwealth of Massachusetts.
Article 13. Plan Administration.
13.01. Powers and responsibilities of the Administrator. The Administrator has
the full power and the full responsibility to administer the Plan in all of its
details, subject, however, to the requirements of ERISA. The Administrator's
powers and responsibilities include, but are not limited to, the following:
(a) To make and enforce such rules and regulations as it deems necessary
or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good faith to be
final and conclusive on all persons claiming benefits under the Plan;
(c) To decide all questions concerning the Plan and the eligibility of
any person to participate in the Plan;
(d) To administer the claims and review procedures specified in Section
13.03;
(e) To compute the amount of benefits which will be payable to any
Participant, former Participant or Beneficiary in accordance with the
provisions of the Plan;
(f) To determine the person or persons to whom such benefits will be
paid;
(g) To authorize the payment of benefits and provide for the distribution
of Code Section 402(f) notices;
(h) To comply with the reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA;
(i) To appoint such agents, counsel, accountants, and consultants as may
be required to assist in administering the Plan;
(j) By written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA including the
formation of an Administrative Committee to administer the Plan;
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(k) To provide bonding coverage as required under Section 412 of ERISA.
13.02. Nondiscriminatory Exercise of Authority. Whenever, in the administration
of the Plan, any discretionary action by the Administration is required, the
Administrator shall exercise its authority in a nondiscriminatory manner so that
all persons similarly situated will receive substantially the same treatment.
13.03. Claims and Review Procedures.
(a) claims Procedure. If any person believes he is being denied any
rights or benefits under the Plan, such person may file a claim in
writing with the Administrator. If any such claim is wholly or partially
denied, the Administrator will notify such person of its decision in
writing. Such notification will contain (i) specific reasons for the
denial, (ii) specific reference to pertinent Plan provisions, (iii) a
description of any additional material or information necessary for such
person to perfect such claim and an explanation of why such material or
information is necessary, and (iv) information as to the steps to be
taken if the person wishes to submit a request for review. Such
notification will be given within 90 days after the claim is received by
the Administrator (or within 180 days, if special circumstances require
an extension of time for processing the claim, and if written notice of
such extension and circumstances is given to such person within the
initial 90-day period). If such notification in not given within such
period, the claim will be considered denied as of the last day of such
period and such person may request a review of his claim.
(b) Review Procedure. Within 60 days after the date on which a person
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred), such person (or his duly authorized representative) may (i)
file a written request with the Administrator for a review of his denied
claim and of pertinent documents and (ii) submit written issues and
comments to the Administrator. The Administrator will notify such person
of its decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Administrator (or within 120 days,
if special circumstances require an extension of time for processing the
request, such as an election by the Administrator to hold a hearing, and
if written notice of such extension and circumstances is given to such
person within the initial 60-day period). If the decision on review is
not made within such period, the claim will be considered denied.
13.04. Named Fiduciary. The Administrator is a "named fiduciary" for purposes of
Section 402(a)(1) of ERISA and has the powers and responsibilities with respect
to the management and operation of the Plan described herein.
13.05. Costs of Administration. Unless some or all are paid by the Employer, all
reasonable costs and expenses (including legal, accounting, and employee
communication fees) incurred by the Administrator and the Trustee in
administering the Plan and Trust will be paid first from the forfeitures (if
any) resulting under Section 7.07, then from the remaining Trust Fund. All such
costs and expenses paid from the Trust Fund will, unless allocable to the
Accounts of particular Participants, be charged against the Accounts of all
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by the Employer or Administrator that the same is for the exclusive benefit of
Participants or their Beneficiaries, or for the payment of expenses of
administering the Plan.
14.08. Transfer of Amounts from Qualified Plan. If the Plan provides that
amounts may be transferred to the Plan from another qualified plan or trust
under Section 401(a) of the Code, such transfer shall be made in accordance with
the provisions of the Plan and with such rules as may be established by the
Trustee. The Trustee will only accept assets which are in a medium proper for
investment under this Agreement or in cash. Such amounts shall be accompanied by
written instructions showing separately the respective contributions by the
prior employer and the transferring Employee, and identifying the assets
attributable to such contributions. The Trustee shall hold such assets for
investment in accordance with the provisions of this Agreement.
14.09. Transfer of Assets from Trust. Subject to the provisions of the Plan, the
Employer may direct the Trustee to transfer all or a specified portion of the
Trust assets to any other plan or plans maintained by the Employer or the
employer or employers of a former Participant or Participants, provided that the
Trustee has received evidence satisfactory to it that such other plan meets all
applicable requirements of the Code. The assets so transferred shall be
accompanied by written instructions from the Employer naming the persons for
whose benefit such assets have been transferred, showing separately the
respective contributions by the Employer and by each Participant, if any, and
identifying the assets attributable to the various contributions. The Trustee
shall have no further liabilities with respect to assets so transferred.
14.10. Separate Trust or Fund for Existing Plan Assets. With the consent of the
Trustee, the Employer may maintain a trust or fund (including a group annuity
contract) under this prototype plan document separate from the Trust Fund for
Plan assets purchased prior to the adoption of this prototype plan document
which are not Fidelity Funds listed in Section 1.14(b). The Trustee shall have
no authority and no responsibility for the Plan assets held in such separate
trust or fund. The duties and responsibilities of the trustee of a separate
trust shall be provided by a separate trust agreement, between the Employer and
the trustee.
Notwithstanding the preceding paragraph, the Trustee or an affiliate of
the Trustee may agree in writing to provide ministerial recordkeeping services
for guaranteed investment contracts held in the separate trust or fund. The
guaranteed investment contract(s) shall be valued as directed by the Employer or
the Trustee of the separate trust.
The trustee of the separate trust (hereafter referred to as "trustee")
will be the owner of any insurance contract purchased prior to the adoption of
this prototype plan document. The insurance contract(s) must provide that
proceeds will be payable to the trustee, however the trustee shall be required
to pay over all proceeds of the contract(s) to the Participant's designated
Beneficiary in accordance with the distribution provisions of this plan. A
Participant's spouse will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance with
Article 8. Under no circumstances shall the trust retain any part of the
proceeds. In the event of any conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
Any life insurance contracts held in the Trust Fund or in the separate
trust are subject to the following limits:
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(a) Ordinary life - For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If such
contracts are held, less than 1/2 of the aggregate employer contributions
allocated to any Participant will be used to pay the premiums
attributable to them.
(b) Term and universal life - No more than 1/4 of the aggregate employer
contributions allocated to any participant will be used to pay the
premiums on term life insurance contracts, universal life insurance
contracts, and all other life insurance contracts which are not ordinary
life.
(c) Combination - The sum of 1/2 of the ordinary life insurance premiums
and all other life insurance premiums will not exceed 1/4 of the
aggregate employer contributions allocated to any Participant.
14.11. Voting; Delivery of Information. The Trustee shall deliver, or cause to
be executed and delivered, to the Employer or Plan Administrator all notices,
prospectuses, financial statements, proxies and proxy soliciting materials
received by the Trustee relating to securities held by the Trust or, if
applicable, deliver these materials to the appropriate Participant or the
Beneficiary of a deceased Participant. The Trustee shall not vote any
securities hold by the Trust except in accordance with the written instructions
of the Employer, Participant or the Beneficiary of the Participant, if the
Participant in deceased; provided, however, that the Trustee may, in the absence
of instructions, vote "present" for the sole purpose of allowing such shares to
be counted for establishment of a quorum at a shareholders' meeting. The Trustee
shall have no duty to solicit instructions from Participants, the Beneficiary or
the Employer.
14.12. Compensation and Expenses of Trustee. The Trustee's fee for performing
its duties hereunder will be such reasonable amounts as the Trustee may from
time to time specify by written agreement with the Employer. Such fee, any taxes
of any kind which may be levied or assessed upon or in respect of the Trust Fund
and any and all expenses, including without limitation legal fees and expenses
of administrative and judicial proceedings, reasonably incurred by the Trustee
in connection with its duties and responsibilities hereunder will, unless some
or all have been paid by said Employer, be paid first from forfeitures resulting
under Section 7.07, then from the remaining Trust Fund and will, unless
allocable to the Accounts of particular Participants, be charged against the
respective Accounts of all Participants, in such reasonable manner as the
Trustee may determine.
14.13. Reliance by Trustee on Other Persons. The Trustee may rely upon and act
upon any writing from any person authorized by the Employer or Administrator to
give instructions concerning the Plan and may conclusively rely upon and be
protected in acting upon any written order from the Employer or Administrator or
upon any other notice, request, consent, certificate, or other instructions or
paper reasonably believed by it to have been executed by a duly authorized
person, so long as it acts in good faith in taking or omitting to take any such
action. The Trustee need not inquire as to the basis in fact of any statement in
writing received from the Employer or Administrator.
The Trustee will be entitled to rely on the latest certificate it has
received from the Employer or Administrator as to any person or persons
authorized to act for the Employer or Administrator hereunder and to sign on
behalf of the Employer or Administrator any directions or instructions, until it
receives from the Employer or Administrator written notice that such authority
has been revoked.
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Notwithstanding any provision contained herein, the Trustee will be under
no duty to take any action with respect to any Participant's Account (other than
as specified herein) unless and until the Employer or Administrator furnishes
the Trustee with written instructions on a form acceptable to the Trustee, and
the Trustee agrees thereto in writing. The Trustee will not be liable for any
action taken pursuant to the Employer's or Administrator's written instructions
(nor for the collection of contributions under the Plan, nor the purpose or
propriety of any distribution made thereunder).
14.14. Indemnification by Employer. The Employer shall indemnify and save
harmless the Trustee from and against any and all liability to which the Trustee
may be subjected by reason of any act or conduct (except willful misconduct or
gross negligence) in its capacity as Trustee, including all expenses reasonably
incurred in its defense.
14.15. Consultation by Trustee with Counsel. The Trustee may consult with legal
counsel (who may be but need not be counsel for the Employer or the
Administrator) concerning any question which may arise with respect to its
rights and duties under the Plan and Trust, and the opinion of such counsel
will, to the extent permitted by law, be full and complete protection in respect
of any action taken or omitted by the Trustee hereunder in good faith and in
accordance with the opinion of such counsel.
14.16. Persons Dealing with the Trustee. No person dealing with the Trustee will
be bound to see to the application of any money or property paid or delivered to
the Trustee or to inquire into the validity or propriety of any transactions.
14.17. Resignation or Removal of Trustee. The Trustee may resign at any time by
written notice to the Employer, which resignation shall be effective 60 days
after delivery to the Employer. The Trustee may be removed by the Employer by
written notice to the Trustee, which removal shall be effective 60 days after
delivery to the Trustee.
Upon resignation or removal of the Trustee, the Employer may appoint a
successor trustee. Any such successor trustee will, upon written acceptance of
his appointment, become vested with the estate, rights, powers, discretion,
duties and obligations of the Trustee hereunder as if he had been originally
named as Trustee in this Agreement.
Upon resignation or removal of the Trustee, the Employer will no longer
participate in this prototype plan and will be deemed to have adopted an
individually designed plan. In such event, the Employer shall appoint a
successor trustee within said 60-day period and the Trustee will transfer the
assets of the Trust to the successor trustee upon receipt of sufficient evidence
(such as a determination letter or opinion letter from the Internal Revenue
Service or an opinion of counsel satisfactory to the Trustee) that such trust
will be a qualified trust under the Code.
The appointment of a successor trustee shall be accomplished by delivery
to the Trustee of written notice that the Employer has appointed such successor
trustee, and written acceptance of such appointment by the successor trustee.
The Trustee may, upon transfer and delivery of the Trust Fund to a successor
trustee, reserve such reasonable amount as it shall deem necessary to provide
for its fees, compensation, costs and expenses, or for the payment of any other
liabilities chargeable against the Trust Fund for which it may be liable. The
Trustee shall not be liable for the acts or omissions of any successor trustee.
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14.18. Fiscal Year of the Trust. The fiscal year of the Trust will coincide with
the Plan Year.
14.19. Discharge of Duties by Fiduciaries. The Trustee and the Employer and any
other fiduciary shall discharge their duties under the Plan and this Trust
Agreement solely in the interests of Participants and their Beneficiaries in
accordance with the requirements of ERISA.
14.20. Amendment. In accordance with provisions of the Plan, and subject to the
limitations set forth therein, this Trust Agreement may be Amended by an
instrument in writing signed by the Employer and the Trustee. No amendment to
this Trust Agreement shall divert any part of the Trust Fund to any purpose
other than as provided in Section 2 hereof.
14.21. Plan Termination. Upon termination or partial termination of the Plan or
complete discontinuance of contributions thereunder, the Trustee will make
distributions to the Participants or other persons entitled to distributions as
the Employer or Administrator directs in accordance with the provisions of the
Plan. In the absence of such instructions and unless the Plan otherwise
provides, the Trustee will notify the Employer or Administrator of such
situation and the Trustee will be under no duty to make any distributions under
the Plan until it receives written instructions from the Employer or
Administrator. Upon the completion of such distributions, the Trust will
terminate, the Trustee will be relieved from all liability under the Trust, and
no Participant or other person will have any claims thereunder, except as
required by applicable law.
14.22. Permitted Reversion of Funds to Employer. If it is determined by the
Internal Revenue Service that the Plan does not initially qualify under Section
401 of the Code, all assets then held under the Plan will be returned by the
Trustee, as directed by the Administrator, to the Employer, but only if the
application for determination is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan was adopted or such
later date as may be prescribed by regulations. Such distribution will be made
within one year after the date the initial qualification is denied. Upon such
distribution the Plan will be considered to be rescinded and to be of no force
or effect.
Contributions under Plan are conditioned upon their deductibility under
Section 404 of the Code. In the event the deduction of a contribution made by
the Employer is disallowed under Section 404 of the Code, such contribution (to
the extent disallowed) must be returned to the Employer within one year of the
disallowance of the deduction.
Any contribution made by the Employer because of a mistake of fact must be
returned to the Employer within one year of the contribution.
14.23. Governing Law. This Trust Agreement will be construed, administered and
enforced according to ERISA and, to the extent not preempted thereby, the laws
of the Commonwealth of Massachusetts.
48
<PAGE> 51
THE CORPORATEPLAN FOR RETIREMENT
(MONEY PURCHASE PENSION PLAN)
A FIDELITY PROTOTYPE PLAN
Non-Standardized Adoption Agreement 002
Basic Plan No. 09
<PAGE> 52
ADOPTION AGREEMENT
ARTICLE I
NON-STANDARDIZED MONEY PURCHASE PENSION PLAN
1.01 PLAN INFORMATION
(a) Name of Plan:
This is the MONEY PURCHASE PENSION PLAN OF JAYCOR
-------------------------------------------------------
(the "Plan").
-----------------------------------------------------
(b) Type of Plan: Money Purchase Pension Plan
-------------------------------------------------------
(c) Name of Plan Administrator, if not the Employer.
Money Purchase Pension Plan Committee
--------------------------------------------------
9775 Towne Centre Drive
Address: San Diego, CA 92121
--------------------------------------------------
Phone Number: (619) 453-6580
--------------------------------------------------
The Plan Administrator is the agent for service of legal process
for the Plan.
(d) Limitation Year (check one):
(1) [ ] Calendar Year
(2) [X] Plan Year
(3) [ ] Other:_______
(e) Three Digit Plan Number: 002
--------------------------------------------
(f) Plan Year End (month/day): 12-31
------------------------------------------
(g) Plan Status (chock one):
(1) [ ] Effective Date of new Plan:
-------------------------
(2) [X] Amendment Effective Date: 01-01-94. This is (check one):
---------
[ ] (A) an amendment of The CORPORATEplan for
Retirement Adoption Agreement previously executed
by the Employer; or
<PAGE> 53
[X] (B) a conversion from another plan document into
The CORPORATEplan for Retirement.
The original effective date of the Plan: 07-01-81
--------------
The substantive provisions of the Plan shall apply
prior to the Effective Date to the extent required
by the Tax Reform Act of 1986 or other applicable laws.
1.02 EMPLOYER
(a) The Employer is: JAYCOR
-------------------------------------------------
Address: 9775 Towne Centre Drive
-------------------------------------------------
San Diego, CA 92121
-------------------------------------------------
Contact's Name: Dorothy K. Bidwell
-------------------------------------------------
Telephone Number: (619)453-6580
-------------------------------------------------
(1) Employer's Tax Identification Number: 95-2936834
----------------------
(2) Business form of Employer (check one):
(A) [X] Corporation (D) [ ] Governmental
(B) [ ] Sole proprietor or partnership (E) [ ] Tax-exempt
organization
(C) [ ] Subchapter S Corporation (F) [ ] Rural
Electric
Cooperative
(3) Employer's fiscal year end: FRIDAY CLOSEST TO 1-31
--------------------------------
(4) Date business commenced: 1-27-75
-----------------------------------
(b) The term "Employer" includes the following Related Employer(s) (as
defined in Section 2.01(a)(26)):
JAYCOR TECHNICAL SERVICES, INC.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
2
<PAGE> 54
1.03 COVERAGE
Non-excluded
(a) All Employees who meet the conditions specified below will be
eligible to participate in the Plan:
(1) Service requirement (check one):
(A) [ ] no service requirement.
(B) [X] three consecutive months of service (no minimum
number Hours of Service can be required).
(C) [ ] six consecutive months of service (no minimum
number Hours of Service can be required).
(D) [ ] one Year of Service (1,000 Hours of Service is
required during the Eligibility Computation
Period.)
(2) Age requirement (check one):
(A) [X] no age requirement.
(B) [ ] must have attained age ____ (not to exceed 21).
(3) The class of Employees eligible to participate in the Plan
(check one):
(A) [ ] includes all Employees of the Employer.
(B) [X] includes all Employees of the Employer except
for (check the appropriate box(es)):
(i) [X] Employees covered by a collective
bargaining agreement.
(ii) [ ] Highly Compensated Employees as defined
in Code Section 414(q).
(iii) [ ] Leased Employees as defined in Section
2.01(a)(18).
(iv) [X] Nonresident aliens who do not receive
any earned income from the Employer
which constitutes United States source
income.
(v) [X] Other
PART-TIME 1 AND TEMPORARY EMPLOYEES
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
3
<PAGE> 55
Note: No exclusion in this section may create a
discriminatory class of employees. An Employer's
plan must still pass the Internal Revenue Code
coverage and participation requirements if one or
more of the above groups of Employees have been
excluded from the Plan.
(b) The Entry Date(s) shall be (check one):
(1) [ ] the first day of each Plan Year (not if Section
1.03(a)(1)(D) is elected).
(2) [ ] the first day of each Plan Year and the date six months
later.
(3) [ ] the first day of each Plan Year and the first day of
the fourth, seventh, and tenth months.
(4) [X] the first day of each month.
(c) Date of Initial Participation - An Employee will become a
Participant unless excluded by Section 1.03(a)(3) above on the
Entry Date coinciding with or next following the date the Employee
completes the service and age requirement(s) in Section 1.03(a),
if any, except (check one): (see Section 3.01 of Master Plan)
(1) [ ] No exceptions.
(2) [ ] Employees employed on the Effective Date in Section
1.01(g) will become Participants on that date.
(3) [X] Employees who meet the age and service requirement(s)
of Section 1.03(a) on the Effective Date in Section
1.01(g) will become Participants on that date.
1.04 COMPENSATION
(a) For purposes of determining Contributions under the Plan,
Compensation shall be as defined in Section 2.01(a)(7), but
excluding (check the appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [ ] Bonuses.
(3) [ ] Commissions.
(4) [ ] The value of a qualified or a non-qualified stock
option granted to an Employee by the Employer to the
extent such value is includable in the Employee's
taxable income.
Note: These exclusions shall not apply for purposes of the "Top
Heavy" requirements in Section 9.03, or allocating
Discretionary Employer Contributions if an Integrated
Formula is elected in Section 1.05(a)(2)(B).
(5) [X] No exclusions.
4
<PAGE> 56
(b) Compensation for the First Year of Participation
Contributions for the Plan Year in which an Employee first becomes
a Participant shall be determined based on the Employee's
Compensation (check one):
(1) [X] For the entire Plan Year.
(2) [ ] For the portion of the Plan Year in which the Employee
is eligible to participate in the Plan.
1.05 CONTRIBUTIONS
(a) Employer Contributions (check (1) or (2)):
(1) [ ] Nonintegrated Formula:
For each Plan Year, the Employer will contribute for
each eligible Participant an amount equal to ___ % (not
to exceed 25%) of such Participant's Compensation.
(2) [X] Integrated Formula:
For each Plan Year, the Employer shall contribute
for each Participant an amount equal to (complete
both (A) and (B)):
(A) 5% (not less than 3%) of each Participant's
--
Compensation.
PLUS
(B) 5% of each Participant's Compensation in
--
excess of the Integration Level as defined in
(2)(A) below. This percentage may not exceed the
lesser of:
(i) the percentage elected in (A) above, or
(ii) the Applicable Percentage as defined in
(2)(B) below.
The following definitions apply for the purposes of
(1) above (check one):
(A) "Integration Level" shall mean the Taxable
Wage Base as defined in (C) on the next page,
unless the Employer elects a lesser amount in
(i) or (ii) below:
(i) $ xxxx (a flat dollar amount that is
------
less than the Taxable Wage Base), or
(ii) xxxx % (not to exceed 100%) of the
----
Taxable Wage Base.
5
<PAGE> 57
(B) "Applicable Percentage" shall mean the percentage provided
by the following table:
<TABLE>
<CAPTION>
If the Integration Level But Less Than
is at Least __% of the __% of the The Applicable
Taxable Wage Base Taxable Wage Base Percentage Is:
------------------------------------------------------------------
<S> <C> <C>
0% 20% 5.7%
------------------------------------------------------------------
20% 80% 4.3%
------------------------------------------------------------------
80% 100% 5.4%
------------------------------------------------------------------
100% N/A 5.7%
------------------------------------------------------------------
</TABLE>
(C) "Taxable Wage Base" is the contribution and benefit base in
effect under Section 230 of the Social Security Act at the
beginning of the Plan Year. The Taxable Wage Base for 1993
is $57,600.
Note: An Employer who maintains any other plan that provides for
Social Security Integration (permitted disparity) may not
elect (a)(2).
(3) Eligibility Requirement(s)
A Participant shall be entitled to Employer Contributions for a
Plan Year under this Subsection (a) if the Participant satisfies
the following requirement(s) (Check the appropriate box(es) -
Options (B) and (C) may not be elected together):
(A) [X] is employed by the Employer on the last day of the Plan
Year.
(B) [ ] earns at least 500 Hours of Service during the Plan Year.
(C) [X] earns at least 1,000 Hours of Service during the Plan
Year.
(D) [ ] no requirements.
1.06 RETIREMENT AGE(S)
(a) The Normal Retirement Age under the Plan is (check one):
(1) [X] age 65:
(2) [ ] age (specify between 55 and 64).
--
(3) [ ] later of the age (cannot exceed 65) or the fifth
--
anniversary of the Participant's Commencement Date.
(b) [X] The Early Retirement Age is the first day of the month after
the Participant attains age 55 (specify 55 or greater) and
--
completes 5 Years of Service for Vesting,
6
<PAGE> 58
(c) [X] A Participant is eligible for Disability Retirement if he/she
(check the appropriate box(es)):
(1) [ ] satisfies the requirements for benefits under the
Employer's Long-Term Disability Plan.
(2) [X] satisfies the requirements for Social Security
disability benefits.
(3) [ ] is determined to be disabled by a physician approved
by the Employer.
1.07 VESTING SCHEDULE
(a) The Participant's vested percentage in Employer Contributions
elected in Section 1.05(a) shall be based upon the schedule
selected below, except with respect to any Plan Year during which
the Plan is Top-Heavy. The schedule elected in Section 1.12(d)
shall automatically apply for a Top-Heavy Plan Year and all Plan
Years thereafter unless the Employer has already elected a more
favorable vesting schedule below.
(1) Employer Contributions (check one):
(A) [Reserved]
(B) [ ] 100% Vesting immediately
(C) [ ] 3 year cliff (see C below)
(D) [X] 5 year cliff (see D below)
(E) [ ] 6 year graduated (see E below)
(F) [ ] 7 year graduated (see F below)
(G) [ ] Other vesting (complete G below)
<TABLE>
<CAPTION>
Years of Vesting Schedule
Service for ----------------
Vesting C D E F G
----------- - - - - -
<S> <C> <C> <C> <C> <C>
0-1 0% 0% 0% 0% __
2 0% 0% 20% 0% __
3 100% 0% 40% 20% __
4 100% 0% 60% 40% __
5 100% 100% 80% 60% __
6 100% 100% 100% 80% __
7 100% 100% 100% 100% 100%
</TABLE>
NOTE: A schedule elected under G above must be at least as favorable as one of
the schedules in C, D, E or F above.
7
<PAGE> 59
(b) [ ] Years of Service for Vesting shall exclude (check one):
(1) [ ] for new plans, service prior to the Effective Date as
defined in Section 1.01(g)(1).
(2) [ ] for existing plans converting from another plan
document, service prior to the original Effective
Date as defined in Section 1.01(g)(2).
1.08 PREDECESSOR EMPLOYER SERVICE
[ ] Service for purposes of eligibility in Section 1.03(a)(1) and
vesting in Section 1.07(a) of this Plan shall include service
with the following employer(s):
(a) _____________________________________________________________
(b) _____________________________________________________________
(c) _____________________________________________________________
(d) _____________________________________________________________
1.09 PARTICIPANT LOANS
[X] Participant loans (check (a) or (b)):
(a) [X] will be allowed in accordance with Section 7.09, subject to a
$1,000 minimum amount and will be granted (check (1) or (2)):
(1) [X] for any purpose.
(2) [ ] for hardship purposes (as defined in Section 7.09)
only.
(b) [ ] will not be allowed.
1.10 RESERVED
1.11 DISTRIBUTIONS
(a) Subject to Articles 8 and (b) below, distributions under the Plan
will be paid as a single lump sum or under a systematic withdrawal
plan (installments) following retirement, death, disability or
other termination of employment.
(b) [X] Check if the Plan was converted (by plan amendment) from
another defined contribution plan, and the benefits were
payable with respect to voluntary after-tax employee
contributions, prior to termination of employment.
NOTE: Under Federal Law, distributions to Participants must generally
begin no later than April 1 following the year in which the
Participant attains age 70 1/2.
8
<PAGE> 60
1.12 TOP HEAVY STATUS
(a) The Plan shall be subject to the Top-Heavy Plan requirements of
Article 9 (check one):
(1) [ ] for each Plan Year.
(2) [X] for each Plan Year, if any, for which the Plan is
Top-Heavy as defined in Section 9.02.
(b) In determining Top-Heavy status, if necessary, for an employer
with at least one defined benefit plan, the following assumptions
shall apply:
(1) Interest rate: ____% per annum
(2) Mortality table: __________
(3) [X] Not Applicable
(c) In the event that the Plan is treated as Top-Heavy for a Plan
Year, each non-key Employee shall receive an Employer Contribution
of at least 3% (3, 4, 5, or 7 1/2) % of Compensation for the Plan
Year in accordance with Section 9.03 (check one):
(1) [ ] under this Plan in any event.
(2) [X] under this Plan only if the Participant is not
entitled to such contribution under another qualified
plan of the Employer.
NOTE: Such minimum Employer contribution may be less than
the percentage indicated in (c) above to the extent
provided in Section 9.03(a).
(d) In the event that the Plan is treated as Top-Heavy for a Plan
Year, the following vesting schedule shall apply instead of the
schedule elected in Section 1.07(a) for such Plan Year and each
Plan Year thereafter (check one):
(1) [ ] 100% vested after _____________ (not in excess of 3)
Years of Service for Vesting.
<TABLE>
<CAPTION>
(2) [X] Years of Service for Vesting Vesting Percentage Must be at Least
---------------------------- ------------------ ----------------
<S> <C> <C>
0 0% 0%
--------
1 0% 0%
--------
2 20% 20%
--------
3 40% 40%
--------
4 60% 60%
--------
5 80% 80%
--------
6 100% 100%
--------
</TABLE>
9
<PAGE> 61
NOTE: If the schedule elected in Section 1.07(a) is more
favorable in all cases than the schedule elected in
(d) above then such schedule will continue to apply
even in Plan Years in which the Plan is Top-Heavy.
1.13 TWO OR MORE PLANS - Code Section 415 limitation on annual additions
If the Employer maintains or ever maintained another qualified plan in
which any Participant in this Plan is (or was) a participant or could
become a participant, the Employer must complete this section. The
Employer must also complete this section if it maintains a welfare
benefit fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(1)(2) of the Code, under which
amounts are treated as annual additions with respect to any Participant
in this Plan.
(a) If the Employer maintains, or had maintained, any other defined
contribution plan or plans which are not Master or Prototype
Plans, Annual Additions for any Limitation Year to this Plan will
be limited (check one):
(1) [X] in accordance with Section 5.03 of this Plan.
(2) [ ] in accordance with another method set forth on an
attached separate sheet.
(3) [ ] Not Applicable.
(b) If the Employer maintains, or had maintained, a defined benefit
plan or plans, the sum of the Defined Contribution Fraction and
Defined Benefit Fraction for a Limitation Year may not exceed the
limitation specified in Code Section 415(e), modified by section
416(h)(1) of the Code. This combined plan limit will be met as
follows (check one):
(1) [X] Annual Additions to this Plan are limited so that the
sum of the Defined Contribution Fraction and the
Defined Benefit Fraction does not exceed 1.0.
(2) [ ] another method of limiting Annual Additions or reducing
projected annual benefits is set forth on an attached
schedule.
(3) [ ] Not Applicable.
1.14 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS
(a) Investment Directions
Participant Accounts will be invested (check one):
(1) [ ] in accordance with investment directions provided to
the Trustee by the Employer for allocating all
Participant Accounts among the options listed in (b)
below.
10
<PAGE> 62
(2) [X] in accordance with investment directions provided to
the Trustee by each Participant for allocating his
entire Account among the options listed in (b) below.
(b) Plan Investment Options
The Employer hereby establishes a Trust under the plan in accordance with
the provisions of Article 14, and the Trustee signifies acceptance of its
duties under Article 14 by its signature below. Participant Accounts
under the Trust will be invested among the Fidelity Funds listed below
pursuant to Participant or Employer directions.
Fund Name Fund Number
--------- -----------
(A) FMMT Retirement Government Money Market 631
------------------------------------------------- -----------
(B) Investment Grade Bond Fund 26
------------------------------------------------- -----------
(C) Fidelity Asset Manager 314
------------------------------------------------- -----------
(D) Puritan Fund 4
------------------------------------------------- -----------
(E) Growth & Income Portfolio 27
------------------------------------------------- -----------
(F) Fidelity U.S. Equity Index Portfolio 650
------------------------------------------------- -----------
(G) Contrafund 22
------------------------------------------------- -----------
(H) Magellan Fund 21
------------------------------------------------- -----------
(I)
------------------------------------------------- -----------
(J)
------------------------------------------------- -----------
NOTE: An additional annual recordkeeping fee will be charged for each
fund in excess of five funds.
To the extent that the Employer selects as an investment option
the Managed Income Portfolio of the Fidelity Group Trust for
Employee Benefit Plans (the "Group Trust"), the Employer hereby
(A) agrees to the terms of the Group Trust and adopts said terms
as a part of this Agreement and (B) acknowledges that it has
received from the Trustee a copy of the Group Trust, the
Declaration of Separate Fund for the Managed Income Portfolio of
the Group Trust, and the Circular for the Managed Income
Portfolio.
11
<PAGE> 63
NOTE: The method and frequency for change of investments will be
determined under the rules applicable to the selected funds or, if
applicable, the rules of the Employer adopted in accordance with
Section 6.03. Information will be provided regarding expenses, if
any, for changes in investment options.
1.15 RELIANCE ON OPINION LETTER
An adopting 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 Code. If the Employer wishes
to obtain reliance that his or her plan(s) are qualified, application for
a determination letter should be made to the appropriate Key District
Director of the Internal Revenue Service. Failure to properly fill out
the Adoption Agreement may result in disqualification of the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Prototype Plan Basic Plan Document No. 09. The Prototype Sponsor shall
inform the adopting Employer of any amendments made to the Plan or of the
discontinuance or abandonment of the prototype plan document.
1.16 PROTOTYPE INFORMATION:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the
following telephone number:
1-(800) 343-9184.
12
<PAGE> 64
EXECUTION PAGE
(Employer's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this 12th day of October 1993
--------- ----------------,-------.
Employer JAYCOR
_______________________________
By /s/ RANDY JOHNSON
_______________________________
Title CHIEF FINANCIAL OFFICER
_______________________________
Employer JAYCOR TECHNICAL SERVICES, INC.
_______________________________
By /s/ RANDY JOHNSON
_______________________________
Title CHIEF FINANCIAL OFFICER
_______________________________
Accepted by
Fidelity Management Trust Company, as Trustee
By /s/ JUAN L AVILES Date October 22, 1993
___________________________________ _____________________
Title Director
________________________________
14
<PAGE> 65
AMENDMENT TO ADOPTION AGREEMENT
OF
MONEY PURCHASE PENSION PLAN
OF JAYCOR
This Amendment is made on September 25, 1996 to amend the Money Purchase Pension
Plan of JAYCOR, effective as of January 1, 1996, as follows:
1. Section 1.03(a)(3)(B)(v) of the Adoption Agreement shall be amended by
adding to following excluded employees:
All employees of JAYCOR Multimedia Services, Inc.
All employees of Howell Intelligence Services, Inc.
2. Except as so amended, the Adoption Agreement is ratified and confirmed.
JAYCOR
by: /s/ Eric P. Wenaas
__________________________________
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
by: /s/ Eric P. Wenaas
__________________________________
Eric P. Wenaas, President
<PAGE> 66
BOARD OF DIRECTORS RESOLUTION
JAYCOR
At a duly constituted meeting of the Board of Directors of JAYCOR, (the
"Corporation"), a Corporation organized under the laws of the State of
California, held on September 25, 1996, at which meeting a quorum was present
and voting throughout:
WHEREAS, the Corporation previously adopted the JAYCOR 401(k) Plan and
the JAYCOR Money Purchase Pension Plan (the "Plans") effective January 1, 1994,
WHEREAS, the Corporation reserves the authority to amend the Plans in
Section 10.01(a) of the Fidelity CORPORATEplan for Retirement(SM) Basic Plan
Document by filing with the Trustee an amended Adoption Agreement, executed by
the Corporation, on which said Corporation has indicated a change or changes in
provisions previously elected;
WHEREAS, the Corporation desires to add two Fidelity Funds to the Plan;
NOW THEREFORE BE IT RESOLVED, that, effective November 1, 1996, the
Corporation amend Section 1.14(b) of the Adoption Agreements to add the
following Fidelity Funds:
Name of Fund Fund Number
------------ -----------
Fidelity Emerging Growth Fund 0324
Fidelity Diversified International Fund 0325
The Addendums to Section 1.14(b) of the Fidelity CORPORATEplan for
Retirement(SM) Adoption Agreements are attached hereto and made a part of the
minutes of this meeting; and
RESOLVED that Dorothy Bidwell, Corporate Secretary and/or Randy Johnson,
the Chief Financial Officer of the Corporation are hereby authorized and
directed to take such actions as may be necessary or desirable to effectuate the
foregoing resolution.
In witness whereof, I have hereunto set my hand and affixed the seal of the
Corporation this 26th day of September, 1996.
JAYCOR
By /s/ Dorothy Bidwell
_____________________________________
Dorothy Bidwell, Corporate Secretary
A true copy
ATTEST: /s/ Randy Johnson
_________________________________
Financial Officer
<PAGE> 67
Addendum To Section 1.14(b) of the
Fidelity CORPORATEplan for Retirement(SM)
Adoption Agreement - Plan Investment Options
Employer: JAYCOR
Plan Name: JAYCOR Money Purchase Pension Plan
Plan Number: 40537
The employer originally elected that Participant Accounts under the Plan would
be invested among the Fidelity Funds listed below pursuant to Participant and/or
Employer direction:
Fund Name Fund Number
--------- -----------
Fidelity Retirement Government Money Market 0631
Fidelity Investment Grade Bond Fund 0026
Fidelity Asset Manager Portfolio 0314
Fidelity Puritan Fund 0004
Fidelity Growth and Income Portfolio 0027
Fidelity U.S. Equity Index Portfolio 0650
Fidelity Magellan Fund 0021
Fidelity Contrafund 0022
The Employer amends the Plan to add the following Fidelity Funds effective
November 1, 1996:
Fund Name Fund Number
--------- -----------
Fidelity Emerging Growth Fund 0324
Fidelity Diversified International Fund 0325
Note: The Employer may elect up to ten Fidelity Funds. An additional annual
recordkeeping fee will be charged for each Fidelity Fund in excess of seven.
/s/ RANDY JOHNSON
--------------------------------------
Authorized Signature
9/26/96
--------------------------------------
Date Signed
<PAGE> 68
AMENDMENT TO ADOPTION AGREEMENT
OF
MONEY PURCHASE PENSION PLAN
OF JAYCOR
This Amendment is made on February 28, 1995 to amend the Money Purchase Pension
Plan of JAYCOR, effective as of January 1, 1995, as follows:
1. Section 1.03(a)(1) of the Adoption Agreement shall be modified to select
Option (D) in addition to the existing Option (B), with Option (D) to read as
follows:
(D) One Year of Service (1,000 Hours of Service is required during the
Eligibility Computation Period) for any employee who is classified by the
Employer as a part-time or temporary employee, using Hours of Service which
are credited on or after January 1, 1995.
2. Section 1.03(a)(3)(B)(v) of the Adoption Agreement shall be amended by
deleting the categories of excluded employees presently described therein.
3. Section 1.03(b) of the Adoption Agreement shall be modified to select Option
(2) in addition to the existing Option (4), with Option (2) to read as follows:
(1) The first day of the Plan Year and the date six months later, for any
employee who is classified by the Employer as a part-time 1 or temporary
employee.
4. Except as so amended, the Adoption Agreement is ratified and confirmed.
JAYCOR
By: /s/ E. P. WENAAS
_______________________________________
Eric P. Wenaas, President
JAYCOR Technical Services, Inc.
By: /s/ E. P. WENAAS
_______________________________________
Eric P. Wenaas, President
<PAGE> 1
EXHIBIT 10.12
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of October 1, 1996, by and between
JAYCOR, a California Corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including October 1, 1997, not to exceed at any time the aggregate
principal amount of Six Million Dollars ($6,000,000.00) ("Line of Credit"), the
proceeds of which shall be used for working capital purposes. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note"), all terms of which are incorporated herein by this reference.
(b) Limitation on Borrowings. Notwithstanding any other provision of this
Agreement, the aggregate amount of all outstanding borrowings under the Line of
Credit shall not at any time exceed a maximum of the following:
(i) eighty percent (80%) of Borrower's billed eligible accounts
receivable, as determined by Bank upon receipt and review of Borrower's monthly
collateral reports and such other documents as Bank may require; plus
(ii) fifty percent (50%) of Borrower's unbilled eligible accounts
receivable (net of claims and retentions), as determined by Bank upon receipt
and review of said collateral reports and other documents; provided, however,
that the outstanding principal balance against Borrower's eligible unbilled
accounts receivable shall not at any time exceed the lesser of (a) an aggregate
of One Million and No/100 Dollars
<PAGE> 2
($1,000,000.00); or (b) thirty percent (30%) of the total borrowing base as
determined by Bank.
All of the foregoing shall be determined by Bank upon receipt and review
of all collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require. Borrower
acknowledges that said borrowing base was established by Bank with the
understanding that, among other items, the aggregate of all returns, rebates,
discounts, credits and allowances for the immediately preceding three (3) months
at all times shall be less than five percent (5%) of Borrower's gross sales for
said period. If such dilution of Borrower's accounts for the immediately
preceding three (3) months at any time exceeds five percent (5%) of Borrower's
gross sales for said period, or if there at any time exists any other matters,
events, conditions or contingencies which Bank reasonably believes may affect
payment of any portion of Borrower's accounts, Bank, in its sole discretion, may
reduce the foregoing advance rate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution and/or establish
additional reserves against Borrower's eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of Borrower's business, upon which
Borrower's right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:
(i) any account which is more than sixty (60) days past due, except
with respect to any account for which Borrower has provided extended
payment terms not to exceed one hundred eighty (180) days, any such
account which is more than thirty (30) days past due;
(ii) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(iii) any account which represents an obligation of an account debtor
located in a foreign country, except for any account disclosed to Bank
which is supported by a letter of credit acceptable to Bank and/or of a
foreign account debtor acceptable to Bank;
(iv) any account which arises from the sale or lease to or performance
of services for, or represents an obligation
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of, an employee, affiliate, partner, member, parent or subsidiary of
Borrower;
(v) that portion of any account which represents retention rights on
the part of the account debtor;
(vi) any account which arises from Borrower's claims. As used herein
claims refers to amounts billed to the U. S. government but not yet paid
because of a dispute;
(vii) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to
be unsatisfactory.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit.
(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
five-eighths of one percent (5/8%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and shall be
due and payable by Borrower in arrears on each October 31, January 31, April 30
and July 31.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under the Line of Credit by charging
Borrower's demand deposit account number 4650-033152 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
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<PAGE> 4
account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
hereby grants to Bank security interests of first priority in all Borrower's
accounts receivable and other rights to payment, general intangibles, inventory,
equipment and all proceeds of the foregoing.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
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<PAGE> 5
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated July 31, 1996, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no
knowledge of any pending assessments or adjustments of its income tax payable
with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
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<PAGE> 6
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
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<PAGE> 7
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Such other documents as Bank may require under any other Section of
this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(B) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
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<PAGE> 8
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of the Line of Credit at
any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by an independent certified
public accountant acceptable to Bank, to include balance sheet, income
statement, statement of cash flows and all footnotes;
(b) not later than 45 days after and as of the end of each month, a
financial statement of Borrower, prepared by Borrower, to include balance sheet
and income statement;
(c) not later than 20 days after and as of the end of each month, an aged
listing of accounts receivable, and a reconciliation of
accounts; and
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to
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<PAGE> 9
Bank, and deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing
to Bank of any litigation pending or threatened against Borrower with a claim
in excess of $100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the
definitions herein):
(a) Tangible Net Worth not at any time less than $5,200,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less the aggregate of any treasury stock, any intangible
assets and any obligations due from stockholders, and/or affiliates.
(b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 5.5 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.
(c) EBITDA Coverage Ratio not less than 1.25 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior period current maturity of
long-term debt.
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<PAGE> 10
(d) Profitable operations (excluding gains on asset sales) not less than
$1.00 on a quarterly basis, determined as of each fiscal quarter.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $150,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof, and (c) indebtedness incurred to finance fixed asset purchase
money transactions.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity, except for acquisitions up
to an aggregate amount of $500,000.00 during the term of this
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agreement; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the ordinary
course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans
or advances to or investments in any person or entity in excess
of $50,000.00 other than in the normal course of Borrower's business.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding except
as previously disclosed in writing to Bank, and Borrower shall provide to Bank,
upon request, any documentation required by Bank to substantiate the
appropriateness of amounts paid or to be paid, except for Retirement of Company
stock up to an aggregate of $550,000.00 during the term of the agreement.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist
a security interest in, or lien upon, all or any portion of Borrower's assets
now owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof and except any pledged to other lenders as previously disclose to Bank
and purchase money, security interests as collateral for indebtedness incurred
under section 5.2 (c).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
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NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 12
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors.
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(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each Borrower;
(b) the obligation, if any, of Bank to extend any further credit under any of
the Loan Documents shall immediately cease and terminate; and (c) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any or
all security for any credit accommodation from Bank subject hereto and to
exercise any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other
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<PAGE> 14
party under any provision of this Agreement must be in writing delivered to each
party at the following address:
BORROWER: JAYCOR
9775 Towne Center Drive
San Diego, California 92121
Attn: Randy Johnson, Vice President
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
San Diego Regional Commercial Banking Office
101 West Broadway, Suite 300
San Diego California
Attn: Donald S. Green, Vice President
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer,
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<PAGE> 15
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Bank may disclose all documents and information which Bank now has or
may hereafter acquire relating to any credit extended by Bank to Borrower,
Borrower or its business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
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<PAGE> 16
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver: Provisional Remedies. Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve
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<PAGE> 17
Disputes by summary rulings in response to motions filed prior to the final
arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance
with the substantive law of the state of California, (ii) may grant any remedy
or relief that a court of the state of California could order or grant within
the scope hereof and such ancillary relief as is necessary to make effective any
award, and (iii) shall have the power to award recovery of all costs and fees,
to impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
California Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000
shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings
and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral: Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien
or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any
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<PAGE> 18
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
JAYCOR NATIONAL ASSOCIATION
By: /s/ RANDY JOHNSON By: /s/
-------------------------- -------------------------------
Donald S. Green
Title: VP FINANCE/CFO Vice President
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<PAGE> 19
"EXHIBIT A"
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
$6,000,000.00 SAN DIEGO, CALIFORNIA
OCTOBER 1, 1996
FOR VALUE RECEIVED, the undersigned JAYCOR ("Borrower") promises to pay to the
order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank') at its office at SAN
DIEGO RCBO, 401 B STREET SUITE 2201, SAN DIEGO, CA 92101, or at such other place
as the holder hereof may designate, in lawful money of the United States of
America and in immediately available funds, the principal sum of $6,000,000.00,
or so much thereof as may be advanced and be outstanding, with interest thereon,
to be computed on each advance from the date of its disbursement as set forth
herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .87500% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on the
1st day of each month, commencing NOVEMBER 1, 1996.
(c) Default Interest. From and after the maturity date of this Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the term of
this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of the Credit Agreement between Borrower and Bank defined below; provided
however, that the total outstanding borrowings under this Note shall not at any
time exceed the principal amount stated above. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the holder.
The outstanding principal balance of this Note shall be due and payable in full
on OCTOBER 1, 1997.
(b) Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(i) RANDY JOHNSON or PAUL ATKISS or JOANN MUCILLO or KARIN SEKULA, any one
acting alone, who are authorized to request advances and direct the disposition
of any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (ii) any person, with
respect to advances deposited to the credit of any account of any Borrower with
the holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances may have authority
to draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of OCTOBER 01,
1996, as amended from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in the
Credit Agreement, the holder of this Note, at the holder's option, may declare
all sums of principal and interest outstanding hereunder to be immediately due
and payable without presentment, demand, notice of nonperformance, notice of
protest, protest or notice of dishonor, all of which are expressly waived by
each Borrower, and the obligation, if any, of the holder to extend any further
credit hereunder shall immediately cease and terminate. Each Borrower shall pay
to the holder immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's in-house counsel),
expended or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any
REVOLVING LINE OF CREDIT NOTE (08/96), PAGE 1
<PAGE> 20
way related to this Note, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
JAYCOR
By: /s/ RANDY JOHNSON
-------------------------------------
Title: VP FINANCE/CFO
-------------------------------------
REVOLVING LINE OF CREDIT NOTE (08/96), PAGE 2
<PAGE> 21
CONTINUING SECURITY AGREEMENT
WELLS FARGO BANK RIGHTS TO PAYMENT AND INVENTORY
- --------------------------------------------------------------------------------
1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned
JAYCOR, or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all accounts, deposit
accounts, chattel paper, instruments, documents and general intangibles
(collectively called "Rights to Payment"), now existing or at any time
hereafter, and prior to the termination hereof, arising (whether they arise from
the sale, lease or other disposition of inventory or from performance of
contracts for service, manufacture, construction, repair or otherwise or from
any other source whatsoever), including all securities, guaranties, warranties,
indemnity agreements, insurance policies and other agreements pertaining to the
same or the property described therein, and in all goods returned by or
repossessed from Debtor's customers, together with a security interest in all
inventory, goods held for sale or lease or to be furnished under contracts for
service, goods so leased or furnished, raw materials, component parts, work in
process or materials used or consumed in Debtor's business and all warehouse
receipts, bills of lading and other documents evidencing goods owned or acquired
by Debtor, and all goods covered thereby, now or at any time hereafter, and
prior to the termination hereof, owned or acquired by Debtor, wherever located,
and all products thereof (collectively called "Inventory"), whether in the
possession of Debtor, warehousemen, bailees or any other person, or in process
of delivery and whether located at Debtor's places of business or elsewhere
(with all Rights to Payment and Inventory referred to herein collectively as the
"Collateral"), together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, leased, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary,
including without limitation, all Rights to Payment, including returned
premiums, with respect to any insurance relating to any of the foregoing, and
all Rights to Payment with respect to any cause of action affecting or relating
to any of the foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)
all obligations of Debtor and rights of Bank under this Agreement; and (c) all
present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder.
Any money received by Bank in respect of the Collateral may be deposited, at
Bank's option, into a non-interest bearing account over which Debtor shall have
no control, and the same shall, for all purposes, be deemed Collateral
hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank
that: (a) Debtor is the owner and has possession or control of the Collateral
and Proceeds; (b) Debtor has the right to grant a security interest in the
Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from
liens, adverse claims, setoffs, default, prepayment, defenses and conditions
precedent of any kind or character, except the lien created hereby or as
otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in
writing; (d) all statements contained herein and, where applicable, in the
Collateral are true and complete in all material respects; (e) no financing
statement covering any of the Collateral or Proceeds, and naming any secured
party other than Bank, is on file in any public office; (f) all persons
appearing to be obligated on Rights to Payment and Proceeds have authority and
capacity to contract and are bound as they appear to be; (g) all property
subject to chattel paper has been properly registered and filed in compliance
with law and to perfect the interest of Debtor in such property; and (h) all
Rights to Payment and Proceeds comply with all applicable laws concerning form,
content and manner of preparation and execution, including where applicable
Federal Reserve Regulation Z and any State consumer credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in general: (i) to pay indebtedness secured hereby when due;
(ii) to indemnify Bank against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto; (iii) to pay all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; and (vi) not to change its chief
place of business or the places where Debtor keeps any of the Collateral or
Debtor's records concerning the Collateral and Proceeds without first giving
Bank written notice of the address to which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) to insure Inventory and, where applicable,
Rights to Payment with Bank as loss payee, in form, substance and amounts, under
agreements, against risks and liabilities, and with insurance companies
satisfactory to Bank; (ii) not to use any Inventory for any unlawful purpose or
in any way that would void any insurance required to be carried in connection
therewith; (iii) not to remove Inventory from Debtor's premises, except for
deliveries to buyers in the
CONTINUING SECURITY AGREEMENT (08/96), PAGE 1
<PAGE> 22
ordinary course of Debtor's business and except Inventory which consists of
mobile goods as defined in the California Uniform Commercial Code, in which case
Debtor agrees not to remove or permit the removal of the Inventory from its
state of domicile for a period in excess of 30 calendar days; (iv) not to permit
any lien on the Collateral or Proceeds, including without limitation, liens
arising from the storage of Inventory, except in favor of Bank; (v) not to sell,
hypothecate or otherwise dispose of, nor permit the transfer by operation of law
of, any of the Collateral or Proceeds or any interest therein, except sales of
Inventory to buyers in the ordinary course of Debtor's business; (vi) to furnish
reports to Bank of all acquisitions, returns, sales and other dispositions of
the Inventory in such form and detail and at such times as Bank may require;
(vii) to permit Bank to inspect the Collateral at any time; (viii) to keep, in
accordance with generally accepted accounting principles, complete and accurate
records regarding all Collateral and Proceeds, and to permit Bank to inspect the
same and make copies thereof at any reasonable time; (ix) if requested by Bank,
to receive and use reasonable diligence to collect Rights to Payment and
Proceeds, in trust and as the property of Bank, and to immediately endorse as
appropriate and deliver such Rights to Payment and Proceeds to Bank daily in the
exact form in which they are received together with a collection report in form
satisfactory to Bank; (x) not to commingle Rights to Payment, Proceeds or
collections thereunder with other property; (xi) to give only normal allowances
and credits and to advise Bank thereof immediately in writing if they affect any
Rights to Payment or Proceeds in any material respect; (xii) on demand, to
deliver to Bank returned property resulting from, or payment equal to, such
allowances or credits on any Rights to Payment or Proceeds or to execute such
documents and do such other things as Bank may reasonably request for the
purpose of perfecting, preserving and enforcing its security interest in such
returned property; (xiii) from time to time, when requested by Bank, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Bank all accounts, contracts, leases and
other chattel paper, instruments, documents and other evidences thereof; (xiv)
in the event Bank elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Bank in connection therewith,
including expenses of accounting, correspondence, collection efforts, reporting
to account or contract debtors, filing, recording, record keeping and expenses
incidental thereto; and (xv) to provide any service and do any other acts which
may be necessary to maintain, preserve and protect all Collateral and, as
appropriate and applicable, to keep all Collateral in good and saleable
condition in accordance with the standards and practices adhered to generally by
users and manufacturers of like property, and to keep all Collateral and
Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform
any of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not Debtor is in
default: (a) to perform any obligation of Debtor hereunder in Debtor's name or
otherwise; (b) to give notice to account debtors or others of Bank's rights in
the Collateral and Proceeds, to enforce the same and make extension agreements
with respect thereto; (c) to release persons liable on Proceeds and to give
receipts and acquittances and compromise disputes in connection therewith; (d)
to release security; (e) to resort to security in any order; (f) to prepare,
execute, file, record or deliver notes, assignments, schedules, designation
statements, financing statements, continuation statements, termination
statements, statements of assignment, applications for registration or like
papers to perfect, preserve or release Bank's interest in the Collateral and
Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take
cash, instruments for the payment of money and other property to which Bank is
entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry
of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to
endorse, collect, deliver and receive payment under instruments for the payment
of money constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and receive
payment of and endorse any instrument in payment of loss or returned premiums or
any other insurance refund or return, and to apply such amounts received by
Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement
of the Collateral; (l) to exercise all rights, powers and remedies which Debtor
would have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; (m) to enter onto Debtor's premises in inspecting the
Collateral; (n) to make withdrawals from and to close deposit accounts or other
accounts with any financial institution, wherever located, into which Proceeds
may have been deposited, and to apply funds so withdrawn to payment of the
Indebtedness; (o) to preserve or release the interest evidenced by chattel paper
to which Bank is entitled hereunder and to endorse and deliver evidences of
title incidental thereto; and (p) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees
to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and
assessments against the Collateral and Proceeds, and upon the failure of Debtor
to do so, Bank at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of Section 15 herein, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default under this Agreement: (a) any default in the payment or
performance of any obligation, or any defined event of default, under (i) any
contract or instrument evidencing any Indebtedness, or (ii) any other agreement
between any Debtor and Bank, including without limitation any loan agreement,
relating to or executed in connection with any Indebtedness; (b) any
representation or warranty made by any Debtor herein shall prove to be incorrect
in any material respect when made; (c) any Debtor shall fail to observe or
perform any obligation or agreement contained herein; (d) any attachment or like
levy on any property of any Debtor, and (e) Bank, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
CONTINUING SECURITY AGREEMENT (08/96), PAGE 2
<PAGE> 23
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the
right to declare immediately due and payable all or any indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Bank shall have all other rights, powers, privileges and remedies
granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right to
contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank. All rights, powers, privileges and remedies of Bank shall be cumulative.
No delay, failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from time to
time, as requested by Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any of the Collateral or Proceeds except on terms
approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all
Collateral and Proceeds, and books and records pertaining thereto, to Bank at a
reasonably convenient place designated by Bank; and (d) Bank may, without notice
to Debtor, enter onto Debtor's premises and take possession of the Collateral.
With respect to any sale by Bank of any Collateral subject to this Agreement,
Debtor hereby expressly grants to Bank the right to sell such Collateral using
any or all of Debtor's trademarks, trade names, trade name rights and/or
proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any
part of the Indebtedness, Bank may transfer all or any part of the Collateral or
Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the
transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Collateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as Bank
may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in
full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several; (b)
Debtor hereby waives any right (i) to require Bank to make any presentment or
demand, or give any notice of nonpayment or nonperformance, protest, notice of
protest or notice of dishonor hereunder, (ii) to direct the application of
payments or security for Indebtedness of Debtor or indebtedness of customers of
Debtor, or (iii) to require proceedings against others or to require exhaustion
of security; and (c) Debtor hereby consents to extensions, forbearances or
alterations of the terms of Indebtedness, the release or substitution of
security, and the release of any guarantors; provided however, that in each
instance, Bank believes in good faith that the action in question is
commercially reasonable in that it does not unreasonably increase the risk of
nonpayment of the Indebtedness to which the action applies. Until all
Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank.
14. NOTICES. All notices, requests and demands required under this Agreement
must be in writing, addressed to Bank at the address specified in any other loan
documents entered into between Debtor and Bank and to Debtor at the address of
its chief executive office (or personal residence, if applicable) specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed to have been given or made as follows: (a)
if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U. S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of Bank's in-house counsel), expended or incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Debtor or in any way affecting any of
the Collateral or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor with interest from
the date of demand until paid in full at a rate per annum equal to the greater
of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those
CONTINUING SECURITY AGREEMENT (08/96), PAGE 3
<PAGE> 24
loans making reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal residence, if
applicable) is located at the following address:
9775 TOWNE CENTER DRIVE, SAN DIEGO, CA 92121
Debtor warrants that the Collateral (except goods in transit) is located or
domiciled at the following additional addresses:
See Exhibit A attached hereto for additional addresses, all terms of which are
incorporated herein by this reference.
IN WITNESS WHEREOF, this Agreement has been duly executed as of
October 1,1996.
JAYCOR
By: /s/ RANDY JOHNSON
-------------------------------------
Title: VP FINANCE/CFO
-------------------------------------
CONTINUING SECURITY AGREEMENT (08/96), PAGE 4
<PAGE> 25
EXHIBIT "A" To Continuing Security Agreement Rights to Payment and Inventory,
Dated October 1, 1996, executed by JAYCOR, as Debtor, for the benefit of Wells
Fargo Bank, National Association, as Bank.
<TABLE>
<S> <C>
ALBUQUERQUE, NEW MEXICO OMAHA, NEBRASKA
700 Comanche Road, NE 901 SAC Boulevard, Suite 3A3
Albuquerque, NM 87107 Offut AFB, NE 68114
3825 Edith Boulevard , NE ORANGE PARK, FLORIDA
Albuquerque, NM 87107
1539 Gano Avenue
5154 Edith Avenue Orange Park, FL 32073
Albuquerque, NM 87107
SANTA BARBARA, CALIFORNIA
COLORADO SPRINGS, COLORADO
3700 State Street, Suite 300
25 North Cascade Avenue, Santa Barbara, CA 93105
Suite 300
Colorado Springs, CO 80903
ST. LOUIS, MISSOURI
2575 Weston Road
Colorado Springs, CO 80910 580 North Highway 67
Florissant, MO 63031
DAYTON, OHIO
VENTURA, CALIFORNIA
1430 Oak Court, Suite 202
Beavercreek, OH 45430 2186 Eastman Avenue,
Suites 107, 108, 109
4035 Colonel Glenn Highway, Ventura, CA 93003
Suite 100
Beavercreek, OH 45431 MCLEAN, VIRGINIA - 22102
1410 Spring Hill Road, Suite 300
HUNTSVILLE, ALABAMA 7927 Jones Branch Road,
Suite G-01S
4970 Corporate Drive, Suite 110
Huntsville, AL 35805 11410 Isaac Newton Sq North
Reston, VA 22090
NORTHAMPTON, MASSACHUSETTS
88 Maple Ridge Road OKLAHOMA CITY, OKLAHOMA
Northampton, MA 01060
5636 Greenview Drive
OAK RIDGE, TENNESSEE Oklahoma City, OK 73135
601 D Scarboro Road
Oak Ridge, TN 37830
</TABLE>
<PAGE> 26
SECURITY AGREEMENT
WELLS FARGO BANK EQUIPMENT
1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned
JAYCOR, or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all goods, tools,
machinery, furnishings, furniture and other equipment, now or at any time
hereafter, and prior to the termination hereof, owned or acquired by Debtor,
wherever located, whether in the possession of Debtor or any other person and
whether located on Debtor's property or elsewhere, and all improvements,
replacements, accessions and additions thereto (collectively called
"Collateral"), together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, leased, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary,
including without limitation, (a) all accounts, contract rights, chattel paper,
instruments, documents, general intangibles and rights to payment of every kind
now or at any time hereafter arising from any such sale, lease, collection,
exchange or other disposition of any of the foregoing, (b) all rights to
payment, including returned premiums, with respect to any insurance relating to
any of the foregoing, and (c) all rights to payment with respect to any cause of
action affecting or relating to any of the foregoing (hereinafter called
"Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)
all obligations of Debtor and rights of Bank under this Agreement; and (c) all
present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder.
Any money received by Bank in respect of the Collateral may be deposited, at
Bank's option, into a non-interest bearing account over which Debtor shall have
no control, and the same shall, for all purposes, be deemed Collateral
hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank
that: (a) Debtor is the owner and has possession or control of the Collateral
and Proceeds; (b) Debtor has the right to grant a security interest in the
Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from
liens, adverse claims, setoffs, default, prepayment, defenses and conditions
precedent of any kind or character, except the lien created hereby or as
otherwise agreed to by Bank, or heretofore by Debtor to Bank, in writing; (d)
all statements contained herein are true and complete in all material respects;
(e) no financing statement covering any of the Collateral or Proceeds, and
naming any secured party other than Bank, is on file in any public office; and
(f) Debtor is not in the business of selling goods of the kind included within
the Collateral subject to this Agreement, and Debtor acknowledges that no sale
of any Collateral, including without limitation, any Collateral which Debtor may
deem to be surplus, has been or shall be consented to or acquiesced in by Bank,
except as specifically set forth in writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in general: (i) to pay Indebtedness secured hereby when due;
(ii) to indemnify Bank against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto; (iii) to pay all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; and (vi) not to change its chief
place of business or the places where Debtor keeps any of the Collateral or
Debtor's records concerning the Collateral and Proceeds without first giving
Bank written notice of the address to which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) to insure the Collateral with Bank as loss
payee, in form, substance and amounts, under agreements, against risks and
liabilities, and with insurance companies satisfactory to Bank; (ii) to operate
the Collateral in accordance with all applicable statutes, rules and regulations
relating to the use and control thereof, and not to use the Collateral for any
unlawful purpose or in any way that would void any insurance required to be
carried in connection therewith; (iii) not to permit any lien on the Collateral
or Proceeds, including without limitation, liens arising from repairs to or
storage of the Collateral, except in favor of Bank; (iv) to pay when due all
license fees, registration fees and other charges in connection with any
Collateral; (v) not to remove the Collateral from Debtor's premises unless the
Collateral consists of mobile goods as defined in the California Uniform
Commercial Code, in which case Debtor agrees not to remove or permit the removal
of the Collateral from its state of domicile for a period in excess of 30
calendar days; (vi) not to sell, hypothecate or otherwise dispose of, nor permit
the transfer by operation of law of, any of the Collateral or Proceeds or any
interest therein; (vii) not to rent, lease or charter the Collateral; (viii) to
permit Bank to inspect the Collateral at any time; (ix) to keep, in accordance
with generally accepted accounting principles, complete and accurate records
regarding all Collateral and Proceeds, and to permit Bank to inspect the same
and make copies
SECURITY AGREEMENT (08/96) PAGE 1
<PAGE> 27
thereof at any reasonable time; (x) if requested by Bank, to receive and use
reasonable diligence to collect Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Proceeds to Bank
daily in the exact form in which they are received together with a collection
report in form satisfactory to Bank; (xi) not to commingle Proceeds or
collections thereunder with other property; (xii) to give only normal allowances
and credits and to advise Bank thereof immediately in writing if they affect any
Collateral or Proceeds in any material respect; (xiii) in the event Bank elects
to receive payments of Proceeds hereunder, to pay all expenses incurred by Bank
in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xiv) to provide any service
and do any other acts which may be necessary to maintain, preserve and protect
all Collateral and, as appropriate and applicable, to keep the Collateral in
good and saleable condition and repair, to deal with the Collateral in
accordance with the standards and practices adhered to generally by owners of
like property, and to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform
any of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not Debtor is in
default: (a) to perform any obligation of Debtor hereunder in Debtor's name or
otherwise; (b) to give notice to account debtors or others of Bank's rights in
the Collateral and Proceeds, to enforce the same and make extension agreements
with respect thereto; (c) to release persons liable on Proceeds and to give
receipts and acquittances and compromise disputes in connection therewith; (d)
to release security; (e) to resort to security in any order; (f) to prepare,
execute, file, record or deliver notes, assignments, schedules, designation
statements, financing statements, continuation statements, termination
statements, statements of assignment, applications for registration or like
papers to perfect, preserve or release Bank's interest in the Collateral and
Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take
cash, instruments for the payment of money and other property to which Bank is
entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry
of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to
endorse, collect, deliver and receive payment under instruments for the payment
of money constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and receive
payment of and endorse any instrument in payment of loss or returned premiums or
any other insurance refund or return, and to apply such amounts received by
Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement
of the Collateral; (1) to exercise all rights, powers and remedies which Debtor
would have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; (m) to enter onto Debtor's premises in inspecting the
Collateral; and (n) to do all acts and things and execute all documents in the
name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient
in connection with the preservation, perfection or enforcement of its rights
hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees
to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and
assessments against the Collateral and Proceeds, and upon the failure of Debtor
to do so, Bank at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of Section 15 herein, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement: (a) any default in the payment or
performance of any obligation, or any defined event of default, under (i) any
contract or instrument evidencing any Indebtedness, or (ii) any other agreement
between any Debtor and Bank, including without limitation any loan agreement,
relating to or executed in connection with any Indebtedness; (b) any
representation or warranty made by any Debtor herein shall prove to be incorrect
in any material respect when made; (c) any Debtor shall fail to observe or
perform any obligation or agreement contained herein; (d) any attachment or like
levy on any property of any Debtor; and (e) Bank, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the
right to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Bank shall have all other rights, powers, privileges and remedies
granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right to
contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank. All rights, powers, privileges and remedies of Bank shall be cumulative.
No delay, failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from time to
time, as requested by Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any of the Collateral or Proceeds except on terms
SECURITY AGREEMENT (08/96) PAGE 2
<PAGE> 28
approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all
Collateral and Proceeds, and books and records pertaining thereto, to Bank at a
reasonably convenient place designated by Bank; and (d) Bank may, without notice
to Debtor, enter onto Debtor's premises and take possession of the Collateral.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any
part of the Indebtedness, Bank may transfer all or any part of the Collateral or
Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the
transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Collateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as Bank
may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in
full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several; (b)
Debtor hereby waives any right (i) to require Bank to make any presentment or
demand, or give any notice of nonpayment or nonperformance, protest, notice of
protest or notice of dishonor hereunder, (ii) to direct the application of
payments or security for Indebtedness of Debtor or indebtedness of customers of
Debtor, or (iii) to require proceedings against others or to require exhaustion
of security; and (c) Debtor hereby consents to extensions, forbearances or
alterations of the terms of Indebtedness, the release or substitution of
security, and the release of any guarantors; provided however, that in each
instance, Bank believes in good faith that the action in question is
commercially reasonable in that it does not unreasonably increase the risk of
nonpayment of the Indebtedness to which the action applies. Until all
Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank.
14. NOTICES. All notices, requests and demands required under this Agreement
must be in writing, addressed to Bank at the address specified in any other loan
documents entered into between Debtor and Bank and to Debtor at the address of
its chief executive office (or personal residence, if applicable) specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed to have been given or made as follows: (a)
if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U. S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of Bank's in-house counsel), expended or incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Debtor or in any way affecting any of
the Collateral or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor with interest from
the date of demand until paid in full at a rate per annum equal to the greater
of ten percent (10%) or the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal residence, if
applicable) is located at the following address:
9775 TOWNE CENTER DRIVE, SAN DIEGO, CA 92121
SECURITY AGREEMENT (08/96) PAGE 3
<PAGE> 29
Debtor warrants that the Collateral (except goods in transit) is located or
domiciled at the following additional addresses:
See Exhibit A attached hereto for additional addresses, all terms of
which are incorporated herein by this reference.
IN WITNESS WHEREOF, this Agreement has been duly executed as of
October 1, 1996.
JAYCOR
By: /s/ RANDY JOHNSON
-------------------------------------
Title: VP FINANCE/CFO
-------------------------------------
SECURITY AGREEMENT (08/96) PAGE 4
<PAGE> 30
EXHIBIT "A" To Security Agreement Equipment, Dated October 1, 1996, executed
by JAYCOR, as Debtor, for the benefit of Wells Fargo Bank, National Association,
as Bank.
<TABLE>
<S> <C>
ALBUQUERQUE, NEW MEXICO OMAHA, NEBRASKA
700 Comanche Road, NE 901 SAC Boulevard, Suite 3A3
Albuquerque, NM 87107 Offut AFB, NE 68114
3825 Edith Boulevard, NE ORANGE PARK, FLORIDA
Albuquerque, NM 87107
1539 Gano Avenue
5154 Edith Avenue Orange Park, FL 32073
Albuquerque, NM 87107
SANTA BARBARA, CALIFORNIA
COLORADO SPRINGS, COLORADO
3700 State Street, Suite 300
25 North Cascade Avenue, Santa Barbara, CA 93105
Suite 300
Colorado Springs, CO 80903
ST. LOUIS, MISSOURI
2575 Weston Road
Colorado Springs, CO 80910 580 North Highway 67
Florissant, MO 63031
DAYTON, OHIO
VENTURA, CALIFORNIA
1430 Oak Court, Suite 202
Beavercreek, OH 45430 2186 Eastman Avenue,
Suites 107, 108, 109
4035 Colonel Glenn Highway, Ventura, CA 93003
Suite 100
Beavercreek, OH 45431 MCLEAN, VIRGINIA
1410 Spring Hill Road,
Suite 300
HUNTSVILLE, ALABAMA 7927 Jones Branch Road,
Suite G-01S
4970 Corporate Drive, Suite 110
Huntsville, AL 35805 11410 Isaac Newton Sq North
Reston, VA 22090
NORTHAMPTON, MASSACHUSETTS
88 Maple Ridge Road OKLAHOMA CITY, OKLAHOMA
Northampton, MA 01060
5636 Greenview Drive
OAK RIDGE, TENNESSEE Oklahoma City, OK 73135
601 D Scarboro Road
Oak Ridge, TN 37830
</TABLE>
<PAGE> 1
EXHIBIT 10.13
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Loeb and Loeb
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: Ronald Weinstein, Esg.
- - - - - - - -SPACE ABOVE THIS LINE FOR RECORDER'S USE - - - - - - -
ASSIGNMENT, MODIFICATION AND ASSUMPTION
AGREEMENT AND CONSENT
THIS ASSIGNMENT, MODIFICATION AND ASSUMPTION AGREEMENT AND CONSENT
(this "Agreement" ), executed as of the 3rd day of February, 1993, by and among
UNION BANK, a California corporation ("Lender"), Westerra Pacific Associates, a
California general partnership ("Borrower"), and JAYCOR, a California
corporation ("New Borrower"), is made with reference to the following facts:
A. Lender and Borrower entered into a Building Loan Agreement dated
September 1, 1989, pursuant to which Lender agreed to make a loan (the "Loan")
to Borrower in the principal sum of $17,500,000 to finance the cost of
constructing an office building containing approximately 103,800 square feet
(the "Improvements"), located on certain real property in San Diego County,
California. Said Building Loan Agreement, as modified by the Modification
Agreements referred to in Recital F below, shall be referred to herein as the
"Building Loan Agreement."
B. The Loan is evidenced by a Note Secured by Deed of Trust executed
by Borrower in favor of Lender, dated September 1, 1989, in the original
principal amount of $17,500,000. Said Note Secured by Deed of Trust, as
modified by the Modification Agreements referred to in Recital F below, shall
be referred to herein as the "Note."
C. The Note is secured by, among other things, a Construction Deed
of Trust and Assignment of Rents dated September 1, 1989, executed by Borrower,
as Trustor, to Lender, as Trustee, in favor of Lender, as Beneficiary, and
recorded on September 11, 1989, as Instrument No. 89-488385 in the Official
Records of San Diego County, California (the "Official Records"). Said
Construction Deed of Trust and Assignment of Rents, as modified by the
Modification Agreements referred to in Recital F below, shall be referred to
herein as the "Deed of Trust." The Deed of Trust currently encumbers certain
real property (the "Property"), together with the Improvements thereon
(collectively, the "Project") located in the County of San Diego, State of
California, which Property is more particularly described on Exhibit "A"
attached hereto and made a part hereof.
D. The Note is also secured by, among other things, an Assignment of
Real Property Lease dated September
<PAGE> 2
1, 1989, executed by Borrower in favor of Lender, and recorded on September 11,
1989, as Instrument No. 89-488386 in the Official Records. Said Assignment of
Real Property Lease, as modified by the Modification Agreements referred to in
Recital F below, shall be referred to herein as the "Assignment of Lease". Said
Assignment of Lease assigns to Lender, as security for the Loan, Borrower's
interest as lessor under that certain lease agreement dated December 7, 1988
(the "JAYCOR Lease"), entered into by and between Borrower, as lessor, and New
Borrower, as lessee.
E. The Note is also secured by, among other things, a Security
Agreement/Chattel Mortgage dated September 1, 1989, executed by Borrower in
favor of Lender. Said Security Agreement/Chattel Mortgage, as modified by the
Modification Agreements referred to in Recital F below, shall be referred to
herein as the "Security Agreement."
F. Borrower and Lender entered into the following modification
agreements (collectively, the "Modification Agreements"): (i) that certain
Letter Amendment dated September 1, 1989, (ii) that certain Amendment Agreement
dated May 23, 1991, and that certain Amendment Agreement (Short Form) dated May
23, 1991 recorded on July 3, 1991, as Instrument No. 91-0328337 in the Official
Records, (iii) that certain Letter Amendment dated May 23, 1991, (iv) that
certain Amendment Agreement dated September 4, 1991, and that certain Amendment
Agreement (Short Form) dated September 4, 1991, recorded on December 6, 1991,
as Instrument No. 91-0629258 in the Official Records, and (v) that certain
Modification Agreement dated March 11, 1992, recorded as Instrument No.
92-0292952 in the Official Records.
G. The Building Loan Agreement, the Note, the Deed of Trust, and the
Security Agreement are hereinafter collectively referred to as the "Existing
Loan Documents."
H. In connection with the making of the Loan, Edward B. Romanow, Jr.
("Romanow"), and E. Steven Hamilton ("Hamilton") each executed and delivered to
Lender a Continuing Guaranty dated September 1, 1989 (collectively, the
"Guaranties"), guaranteeing the obligation of Borrower under the Loan.
I. New Borrower has entered into a purchase agreement with Borrower
to purchase the Project. In connection therewith, Lender has issued to New
Borrower a commitment letter dated December 7, 1992 (the "Commitment Letter"),
pursuant to which Lender has agreed to approve New Borrower's assumption of the
Loan and modify the Loan subject to the terms and conditions set forth in the
Commitment Letter.
J. Borrower desires to sell the Project to New Borrower and to
assign to New Borrower all of Borrower's rights and obligations under the
Existing Loan Documents. New Borrower has agreed to acquire title to the
Project and, upon such acquisition of title, to assume all of Borrower's
obligations under the Existing Loan Documents, as modified by the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter contained, and other
2
<PAGE> 3
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Lender, Borrower and New Borrower hereby agree as follows:
1. Assignment. Effective upon the Closing Date, Borrower hereby
assigns and transfers to New Borrower all of Borrower 's rights and obligations
under the Existing Loan Documents, as modified by this Agreement.
2. Assumption. Effective upon the Closing Date, New Borrower hereby
assumes and agrees to be bound by and to perform and observe all of the
obligations, covenants, terms and conditions to be performed or observed by
Borrower under the Existing Loan Documents, as modified by this Agreement.
3. Consent. Effective upon the Closing Date, Lender hereby consents
to the transfer of title to the Project to New Borrower (subject to and
encumbered by the liens and security interests in favor of Lender arising under
the Deed of Trust and the other Existing Loan Documents as modified by this
Agreement) concurrently with the assignment and assumption as described in
paragraphs 1 and 2 above. Effective upon the Closing Date, Lender hereby
releases Borrower from the performance and observance of all the obligations,
covenants, terms and conditions to be performed or observed by Borrower under
the Existing Loan Documents. Lender hereby agrees with and for the benefit of
New Borrower that, effective upon the Closing Date, Lender will perform and
observe all of the obligations, covenants, terms and conditions to be performed
or observed by Lender under the Existing Loan Documents, as modified by this
Agreement.
4. Release of Guarantor. Effective upon the Closing Date, Romanow
and Hamilton shall be released from all obligations under the Guaranties, which
Guaranties shall be of no further force or effect.
5. Loan Fee. New Borrower shall pay to Lender, in cash or
cash-equivalent funds, a non-refundable loan fee (the "Loan Fee"), in the total
amount of Three Hundred Twenty-Eight Thousand Eight Hundred Forty-One and
30/100 Dollars ($328,841.30), payable as follows:
(a) On or before the Closing Date, and as a condition
precedent thereto, New Borrower shall have paid to Lender, in cash or cash
equivalent funds, the total sum of One Hundred Fifty One Thousand Eight Hundred
Twenty Six Dollars ($151,826.00) (Lender acknowledges that it has heretofore
received $15,000.00 of said $151,826.00 fee);
(b) The sum of $35,403.06 shall be due and payable on March 2,
1998, provided any portion of the Loan remains outstanding as of such date;
(c) The sum of $35,403.06 shall be due and payable on March 1,
1999, provided any portion of the Loan remains outstanding as of such date;
(d) The sum of $35,403.06 shall be due and payable on March 1,
2000, provided any portion of the Loan remains outstanding as of such date;
3
<PAGE> 4
(e) The sum of $35,403.06 shall be due and payable on March 1,
2001, provided any portion of the Loan remains outstanding as of such date; and
(f) The sum of $35,403.06 shall be due and payable on March 3,
2002, provided any portion of the Loan remains outstanding as of such date.
6. Extension of Maturity Date. Effective upon the Closing Date, the
term of the Loan shall be extended for a period of ten (10) years commencing as
of the Closing Date.
7. Amended and Restated Note/Acknowledgement of Fully Disbursed
Loan. On or before the Closing Date, New Borrower shall execute and deliver to
Lender an amended and restated note (the "Amended Note"), in an amount equal to
the outstanding principal balance of the Note as of the Closing Date, which as
of the date hereof is $15,182,645.00. The Amended Note shall be in form and
substance a Exhibit "B" attached hereto and made a part hereof, and shall
supercede and replace the Note effective upon the Closing Date. The Amended
Note shall be dated as of the Closing Date and shall mature ten (10) years
after the Closing Date. New Borrower agrees to pay to Lender the monthly
installments of principal and interest in the amounts and on the dates set
forth in the Amended Note. New Borrower acknowledges that the Loan has been
fully disbursed and that New Borrower will not receive disbursement of any loan
proceeds through New Borrower's assumption of the Loan.
8. Modifications to Deed of Trust. Effective upon the Closing Date,
the Deed of Trust is modified as follows:
(a) The term "Construction" shall be deleted from the heading
on the first page of the Deed of Trust, which heading shall read "Deed of Trust
and Assignment of Rents".
(b) The term "Trustor" shall mean New Borrower.
(c) Paragraph 29 of the Deed of Trust shall be deleted in its
entirety; and
(d) The last sentence of paragraph 23 of the Deed of Trust
commencing with the words "Except as to the partnership interest of E. Stevens
Hamilton" is deleted in its entirety and the following sentence is inserted in
its place and stead:
"Notwithstanding the foregoing, Trustor shall be permitted to
transfer or issue stock in the ordinary course of business;
provided, however, that in connection therewith, Trustor shall
not, without the prior written consent of Beneficiary (which
consent shall not be unreasonably withheld or delayed)
transfer stock or shares which (i) during any one (1) year
period aggregate more than twenty-five percent (25%) of
Trustor's then outstanding shares, and (ii) result in any
person or entity acquiring controlling
4
<PAGE> 5
interest in Trustor (i.e., more than 49% of the then
outstanding shares or stock of Trustor)."
9. Modifications to Security Agreement. Effective upon the Closing
Date, the Security Agreement is modified as follows:
(a) The term "Debtor" shall mean New Borrower.
(b) The description of the collateral described in Section B
of the Security Agreement is deleted in its entirety and the following
description is inserted in its lace and stead:
"Debtor's interest in all machinery, equipment, appliances and
fixtures for generating or distributing air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating
or sanitary purposes, or for the exclusion of vermin or
insects, or for the removal of dust, refuse or garbage, all
wall-beds, wall-safes, built in furniture and installations,
shelving, lockers, partitions, door-stops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light
fixtures, fire hoses and brackets and boxes for same, fire
sprinklers, alarm systems, drapery rods and brackets, screens,
linoleum, carpets, plumbing, laundry tubs and trays, ice
boxes, refrigerators, heating units, stoves, water heaters,
incinerators, and communication systems, together with any
additions to, substitutions for, changes in or replacements
thereof which are affixed to, attached to, placed upon or used
in any way in connection with all or any portion of that
certain property described on Exhibit "A" attached hereto (the
"Property"), including all right, title and interest of Debtor
in any proceeds thereof, including insurance proceeds."
10. Hazardous Materials Indemnity. On or before the Closing Date,
New Borrower shall execute and deliver to Lender a hazardous materials
indemnity in form and substance as that attached hereto as Exhibit "C" (the
"Hazardous Materials Indemnity").
11. Termination of Building Loan Agreement. Lender and New Borrower
acknowledge that the Improvements have been fully constructed and that all Loan
proceeds have been fully disbursed. Therefore, effective upon the Closing Date,
the Building Loan Agreement shall be terminated in its entirety.
12. Insurance Requirements. Effective upon the Closing Date, the
following provisions shall constitute the insurance requirements required by
Lender pursuant to the provisions of paragraph (3) of the Deed of Trust:
5
<PAGE> 6
(a) New Borrower shall, at its sole cost and expense, insure
and keep insured the Projects against such perils and hazards and in such
amounts as set forth below:
<TABLE>
<CAPTION>
Coverage
Type Occurrence/Agreements Deductible
---- ---------------------- -----------
<S> <C> <C>
(i) All Risk $15,000,000 $10,000
(ii) Business Interruption $1,000,000 blanket None 20%% co-insurance
(iii) Boiler and Machinery $2,500,000 $5,000
(iv) Public Liability $1,000,000/$2,000,000
</TABLE>
(b) All insurance shall: (i) be carried in companies with a
Best's rating of A-/VII or better, or otherwise acceptable to Lender (provided,
however, that the rating of A/X or better shall be required for the insurance
carrier covering the Improvements, (ii) be in form and content acceptable to
Lender, and (iii) provide thirty (30) days' advance written notice to Lender
before any cancellation, adverse material modification or notice of
non-renewal.
All physical damage policies and renewals shall contain (i) a
standard mortgagee clause naming Lender as mortgagee, if such clause is
generally commercially available, which clause shall expressly state that any
breach of any condition or warranty by New Borrower shall not prejudice the
rights of Lender under such insurance, and (ii) a loss payable clause in favor
of Lender for any personal property, contents, inventory, or equipment which is
secured by the Deed of Trust, loss of rents and business interruption. All
liability policies and renewals shall name Lender as additional insured. No
additional parties shall appear in the mortgagee or loss payable clause with
respect to coverage of property secured by the Deed of Trust, without Lender's
prior written consent.
(c) New Borrower shall use its best efforts to deliver
originals of all policies and renewals (or certificates evidencing the same),
(or evidence satisfactory to Lender of the continuing coverage) to Lender at
least five (5) days before the expiration of existing policies and, in any
event, New Borrower shall deliver originals (or copies certified by the
insurance carrier to be true, correct and complete) of such policies or
certificates to Lender at least five (5) days before the expiration of existing
policies; provided, however, that such policies or certificates shall require
that Lender be given at least thirty (30) days prior written notification
before any policy or certificate may be cancelled. If New Borrower has not
received satisfactory evidence of such renewal or substitute insurance in the
time frame herein specified, Lender shall have the right, but not the
obligation, to purchase such insurance for Lender's interest only. Any amounts
so disbursed by Lender pursuant to this paragraph 12 shall be a part of the
debt secured by the Deed of Trust and shall bear interest at the default rate
set forth in paragraph E.3 of the Amended Note. Nothing contained in this
paragraph 12 shall require Lender to incur any expense or take any action
hereunder, and inaction by Lender shall never be considered a waiver of any
right accruing to Lender on account of this paragraph 12.
6
<PAGE> 7
13. Extinguishment of JAYCOR Lease/Return of Letter of Credit.
Effective upon the Closing Date, and as a result of New Borrower obtaining
title to the Project (which title shall merge with its possessory interests in
the Project under the JAYCOR Lease), the JAYCOR Lease shall terminate and be of
no further force and effect and Lender shall cause, at New Borrower's sole cost
and expense, a termination of the Assignment of Lease to be recorded in the
Official Records. Lender agrees to return to New Borrower on the first business
day following the Closing Date that certain letter of credit number NBS127851
in the amount of $1,000,000 which was issued pursuant to the requirements of
the JAYCOR Lease.
14. Approval of Future Leases. New Borrower agrees not to enter into
any lease for all or any portion of the Project without obtaining Lender's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Notwithstanding anything contained in the Existing Loan Documents to
the contrary, New Borrower shall be permitted to lease (without Lender's prior
written consent) up to an aggregate of two thousand-five hundred (2,500) square
feet of the rentable space in the Project provided such lease or leases contain
the following minimum terms: (i) the rent thereunder shall not be less than One
Dollar ($1.00) per square foot on a triple net basis, (ii) the term of the
lease shall not exceed the term of the Loan, as modified hereby, and (iii) such
lessee(s) must agree at Lender's request, to execute estoppel certificates and
either subordination agreements or subordination, non-disturbance and
attornment agreements in form and substance acceptable to Lender.
15. Appraisals. Lender shall have the right, in its reasonable
discretion, to obtain new appraisals or update existing appraisals at any time
while the Loan or any portion thereof remains outstanding. New Borrower agrees
to pay, upon demand, a sum not to exceed Fifteen Thousand Dollars ($15,000) per
appraisal for the appraisal fees and related expenses incurred by Lender in
obtaining any appraisal report performed pursuant to or in connection with the
requirement of any governmental agency or regulatory body having jurisdiction
over Lender.
16. Access to the Project. At all reasonable times prior to the
payment in full of the unpaid principal balance of the Loan and all accrued but
unpaid interest thereon, Lender shall, upon reasonable notice to New Borrower,
have the right of access to the Project for itself and its representatives and
to inspect the Project and the physical condition thereof, to take samples from
the soil and the components of the Improvements included within the Project, to
review the books and records of New Borrower wherever situated with respect to
the Project, to interview New Borrower's employees, officers and tenants, and
to conduct other similar activities on the Project. During said period, New
Borrower shall furnish to Lender such statements and other financial data as
Lender shall from time to time reasonably request. Lender agrees to cooperate
with New Borrower to comply with all governmental security regulations
concerning access to the Project.
17. Confirmation of Obligations. The obligations of New Borrower
under the Amended Note, the Deed of Trust
7
<PAGE> 8
(as modified by this Agreement), the Security Agreement (as modified by this
Agreement), and the other Existing Loan Documents (as modified by this
Agreement), and as assumed by New Borrower pursuant to this Agreement, shall be
secured by the Deed of Trust, the Security Agreement, and any other Existing
Loan Documents securing the Loan, as modified hereby.
18. Notices. Notwithstanding anything to the contrary contained in
the Existing Loan Documents, all communications, notices and demands of any
kind which any party hereto may be required or may desire to serve upon any
other party shall be in writing and shall be personally served upon such party,
mailed by United States registered or certified mail, postage prepaid, return
receipt requested, or sent by a locally recognized courier service for same day
or next day delivery, to be confirmed in writing by such courier, addressed as
follows:
If to Lender: Union Bank
San Diego Loan Center
4660 La Jolla Village Drive
Suite 930
San Diego, California 92122
Attention: Mr. Kevin Simmons
With a copy to: Loeb and Loeb
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: Ronald Weinstein,
Esq.
If to Borrower: Westerra Pacific Associates
5405 Morehouse Drive
Suite 330
San Diego, California 92121
Attention: Mr. Edward
Romanow, Jr.
With a copy to: Arlington Ray Robbins, Esq.
Robbins & Keehn
530 "B" Street, Suite 1700
San Diego, California 92101
If to New Borrower: JAYCOR
9775 Towne Center Drive
San Diego, California 92121
Attention: Mr. Randy Johnson
With a copy to: Brobeck, Phleger & Harrison
550 West "C" Street
Suite 1300
San Diego, California 92101
Attn: Ellen Kaulbach, Esq.
Any party may change its address by giving the other parties written
notice of its new address as herein provided. Notices given in the manner
aforesaid shall be deemed delivered when actually received or refused by the
party to whom sent, unless such notice is mailed as aforesaid, in which event
such notice shall be deemed complete on the day of actual delivery as shown by
the return receipt or at the expiration of the third (3rd)
8
<PAGE> 9
business day after the date of mailing, whichever first occurs.
19. Additional Conditions.
(a) Borrower: Borrower shall satisfy all of
the conditions set forth below on or before the Closing
Date:
(i) Borrower shall execute and deliver to Lender four
(4) counterpart originals of this Agreement.
(ii) Borrower shall pay to Lender in cash or cash
equivalent funds an amount which will bring current all accrued but unpaid
interest on the Note as of the Closing Date, and the amount of any costs or
expenses payable by Borrower to Lender under the Loan.
(iii) Borrower shall execute and deliver to Lender, and
cause Romanow to execute and deliver to Lender, a Release in favor of Lender in
form and substance satisfactory to Lender.
(iv) Borrower shall cause to be delivered to Lender such
additional documents, resolutions, certificates, articles of incorporation,
bylaws, certificates of good standing, consents, opinions and other items as
Lender may require in order to consummate the transactions contemplated by this
Agreement.
(v) On the Closing Date, Borrower shall transfer title
to the Project to New Borrower by causing a grant deed in favor of New Borrower
to be recorded in the Official Records.
(b) New Borrower. New Borrower shall satisfy all of the
conditions set forth below on or before the Closing Date:
(i) New Borrower shall have paid to Lender, in cash or
cash equivalent funds that portion of the Loan Fee in the amount of
$151,826.00, as set forth in paragraph 5 of this Agreement.
(ii) New Borrower shall execute and deliver to Lender
four (4) counterpart originals of this Agreement.
(iii) New Borrower shall execute and deliver to Lender
the Amended Note described in paragraph 7 of this Agreement.
(iv) New Borrower shall execute and deliver to Lender
the Hazardous Materials Indemnity described in paragraph 10 of this Agreement.
(v) New Borrower shall execute and deliver to Lender a
UCC-1 Financing Statement covering the collateral described in paragraph 9 (b)
of this Agreement.
(vi) New Borrower shall deliver to Lender the written
consent of Romanow to the transactions contemplated by this Agreement.
9
<PAGE> 10
(vii) New Borrower shall cause to be delivered to Lender
such additional documents, financing statements, resolutions, certificates,
articles of incorporation, bylaws, certificates of good standing, consents,
opinions and other items as Lender may require in order to consummate the
transactions contemplated by this Agreement.
(viii) New Borrower shall pay to Lender in immediately
available funds all costs and expenses incurred by Lender in connection with
the negotiation, documentation and execution of this Agreement, including
without limitation, all recording fees and the fees and expenses of Lender's
counsel; provided, however, that New Borrower shall not be required to pay an
amount in excess of Fifteen Thousand Dollars ($15,000.00) for the preparation
of the loan documents for New Borrower's assumption of the Loan.
(ix) New Borrower shall, prior to the Closing Date, at
New Borrower's sole cost and expense, either (i) cause Founders Title Insurance
Company to issue such endorsements as Lender shall reasonably require (the
"Title Endorsements") to that certain ALTA Loan Policy of Title Insurance No.
AC883198 (the "Title Policy"), including, without limitation, CLTA Endorsement
No. 110. 5 (with only those exceptions acceptable to Lender), insuring that the
lien of the Deed of Trust retains priority as a first lien on the Property
after the recording of this Agreement, or (ii) cause Lawyers Title Insurance
Corporation to issue in favor of Lender its ALTA Loan Policy of Title Insurance
(October 21, 1987 Form) (the "Title Policy"), with a liability limit in the
amount of the Amended Note, insuring the priority of the lien of the Deed of
Trust as a first lien upon the Property, with the fee title to the Property
vested in New Borrower, subject only to such exceptions as approved in writing
by Lender, and including such endorsements as Lender shall reasonably require.
New Borrower shall, at its sole cost and expense, do all things necessary to
maintain the Deed of Trust as a valid first lien on the Property during the
term of the Loan.
(x) New Borrower shall cause Wells Fargo Bank to execute
and deliver to Lender an acknowledgement, effective not more than five (5) days
prior to the Closing Date, that New Borrower is not in default under any of its
agreements or obligations with Wells Fargo Bank.
(xi) New Borrower shall cause to be delivered to Lender
evidence of insurance pursuant to the provisions of paragraph 12 of this
Agreement.
(xii) New Borrower shall deliver to Lender evidence
satisfactory to Lender that New Borrower has satisfied all of the conditions
required to be satisfied by New Borrower under the Commitment Letter,
including, without limitation, the condition that New Borrower has at all times
during the term of the Commitment Letter maintained the minimum financial
requirements set forth in paragraph 10 of the Commitment Letter.
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<PAGE> 11
(xiii) New Borrower shall cause to be delivered to
Lender the legal opinion referred to in paragraph 22 of this Agreement.
(xiv) New Borrower shall deliver to Lender a current
balance sheet and income and expense statement reflecting New Borrower's assets
and liabilities and New Borrower's income and expenses, certified by New
Borrower's chief financial officer to be true, correct, and complete.
20. Closing Date. As used in this Agreement, the Closing Date shall
mean the date of recordation of this Agreement in the Official Records. The
Closing Date shall not be later than March 1, 1993.
21. Reasonable Approval. Wherever in the Existing Loan Documents, as
hereby modified, the Amended Note, or the Hazardous Materials Indemnity, the
approval of Lender or its counsel is required, such approvals shall not be
unreasonably withheld or delayed unless there is an express provision to the
contrary (i.e., where Lender is given sole discretion).
22. Legal Opinion. Lender shall have received a legal opinion from
New Borrower's attorneys, prepared at New Borrower's expense, in form
reasonably satisfactory to Lender and its counsel (substantially in accordance
with the guidelines contained in the Legal Opinions in California Real Estate
Transactions (1986) and Legal Opinions in California Real Estate Transactions:
An Addendum (1990), published by the Real Property Law Section of the State Bar
of California), opining: (a) that New Borrower is a California corporation,
duly organized, in good standing and validly existing under the laws of the
State of California, with full power and authority to make the covenants,
warranties and representations set forth in this Agreement and all of the other
documents and instruments evidencing, securing or pertaining to the Loan and to
enter into and execute this Agreement and all of such other documents and
instruments; (b) that the laws of the State of California will be applicable to
the Loan, and all of the other documents and instruments evidencing, securing
or pertaining thereto; (c) that New Borrower's execution of this Agreement and
all of the other documents and instruments evidencing, securing or pertaining
to the Loan have been duly authorized; (d) that this Agreement and all of the
other documents and instruments evidencing, securing or pertaining to the Loan
as modified by this Agreement have been duly executed and constitute the valid
and legal obligations of New Borrower enforceable in accordance with their
respective terms; and (e) as to such other matters as Lender may reasonably
require.
23. Brokerage Fees. New Borrower hereby represents that there are no
parties entitled to a brokerage commission, finder's fee or other like payment
in connection with this Agreement and New Borrower's assumption of the Loan.
New Borrower hereby agrees to indemnify and hold Lender harmless from and
against any and all loss, cost, liability or expense (including reasonable
attorneys' fees) which may be incurred by Lender on account of any claim by any
party for a brokerage commission, finder's fee or other like payment (other
than such commissions, fees or payments
11
<PAGE> 12
resulting from Lender hiring a loan or mortgage broker or other acts of
Lender), in connection with Lender's agreeing to approve New Borrower's
assumption of the Loan and the modification of the Existing Loan Documents.
24. Reaffirmation of Obligations. As of the Closing Date, New
Borrower hereby ratifies and reaffirms all its obligations, representations and
warranties under the Existing Loan Documents, as amended by this Agreement and
agrees to pay the indebtedness evidenced by the Amended Note, the Deed of
Trust, the Hazardous Materials Indemnity, and the other Existing Loan Documents
according to the terms and provisions thereof, as hereby modified. Except as
hereby modified, all of the terms, covenants and provisions of the Amended
Note, the Deed of Trust, the Hazardous Materials Indemnity and the other
Existing Loan Documents shall remain in full force and effect. Without limiting
the generality of the foregoing, New Borrower hereby expressly acknowledges and
agrees that, as of the Closing Date, New Borrower does not have any offsets,
claims or defenses whatsoever against any of its obligations under the Amended
Note, the Deed of Trust, the Hazardous Materials Indemnity, or any of the other
Existing Loan Documents.
25. Entire Agreement. This Agreement contains the entire
understanding between Lender, Borrower and New Borrower with respect to the
subject matter hereof. The Amended Note, the Deed of Trust, the Hazardous
Materials Indemnity and the other Existing Loan Documents shall not be further
amended except by a writing signed by Lender and New Borrower.
26. Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, Borrower, New Borrower and Lender and their
respective successors and assigns. Without limiting Lender's rights under the
Existing Loan Documents, Lender shall have the right to assign the Amended
Note, the Deed of Trust, the Hazardous Materials Indemnity and the other
Existing Loan Documents and to disclose any information regarding said
documents to any assignee.
27. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
28. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
29. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
30. Independent Investigation. Borrower represents and warrants to
Lender that Borrower has conducted its own independent investigation and
analysis and has reached its own independent conclusions concerning the
transfer of title to the Project to New Borrower and that said transfer is in
the best interests of Borrower, and that no information with respect thereto
has been furnished to Borrower by Lender. Borrower acknowledges that Lender is
12
<PAGE> 13
relying on the representations and warranties contained in this paragraph in
its decision to enter into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first hereinabove written.
"Lender"
UNION BANK,
a California corporation
By: /s/
-------------------------------------------
Its: Vice President
--------------------------------------
By: /s/
-------------------------------------------
Its: AVP
--------------------------------------
"Borrower"
WESTERRA PACIFIC ASSOCIATES,
a California general partnership
By: /s/ EDWARD B. ROMANOW, JR.
-------------------------------------------
Edward B. Romanow, Jr.
General Partner
"New Borrower"
JAYCOR, a California corporation
By:
--------------------------------------------
Its:
---------------------------------------
By:
--------------------------------------------
Its:
---------------------------------------
13
<PAGE> 14
relying on the representations and warranties contained in this paragraph in
its decision to enter into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first hereinabove written.
"Lender"
UNION BANK,
a California corporation
By: /s/
-------------------------------------------
Its: Vice President
--------------------------------------
By: /s/
-------------------------------------------
Its: AVP
--------------------------------------
"Borrower"
WESTERRA PACIFIC ASSOCIATES,
a California general partnership
By:
-------------------------------------------
Edward B. Romanow, Jr.
General Partner
"New Borrower"
JAYCOR, a California corporation
By: /s/ Randy Johnson
--------------------------------------------
Its: Vice President - Finance
---------------------------------------
By: /s/ Dorothy K. Bidwell
--------------------------------------------
Its: Corporate Secretary
---------------------------------------
13
<PAGE> 15
<TABLE>
<S> <C>
State of Pennsylvania ) CAPACITY CLAIMED BY SIGNER
County of Montgomery ) [ ] INDIVIDUAL(S)
[ ] CORPORATE
On 2/01/93, before me, Edward B. Romanow, Jr. General Partner
----------- -------------------------------------- -------------------
Date NAME, TITLE OF OFFICER Officer(s)
- E.G., "JANE DOE, NOTARY PUBLIC" ---------------
personally appeared Edward B. Romanow, Jr. Title(s)
-------------------------------------
NAME(S) OF SIGNER(S)
[X] personnally known to me - OR - [ ] proved to me on the basis of [X] GENERAL PARTNER(S)
satisfactory evidence to be the person(s) [ ] ATTORNEY-IN-FACT
whose name(s) is/are subscribed to the [ ] TRUSTEE(S)
within instrument and acknowledged to me [ ] SUBSCRIBING WITNESS
that he/she/they executed the same in [ ] GUARDIAN/CONSERVATOR
his/her/their authorized capacity(ies), [ ] OTHER:
[SEAL] and that by his/her/their signature(s) on the ___________________________
instrument the person(s), or the entity ___________________________
upon behalf of which the person(s) acted, ___________________________
executed the instrument.
SIGNER IS REPRESENTING:
Witness my hand and official seal. NAME OF PERSON(S) OR ENTITY(IES)
/S/ Yvonne M. Kratz, Notary Public
-----------------------------------------
SIGNATURE OF NOTARY ------------------------------------
------------------------------------
------------------------------------
</TABLE>
14
<PAGE> 16
<TABLE>
<S> <C>
State of California ) CAPACITY CLAIMED BY SIGNER
County of San Diego ) [ ] INDIVIDUAL(S)`
[x] CORPORATE
On 2/4/93 before me, Kathy M. Galvin, Notary Public Vice President
----------- ------------------------------------ -------------------
Date NAME, TITLE OF OFFICER Officer(s) Ass't Vice President
- E.G., "JANE DOE, NOTARY PUBLIC" --------------------
personally appeared Dale Stevens and Kevin Simmons Title(s)
-------------------------------------
NAME(S) OF SIGNER(S)
[X] personnally known to me - OR - [ ] proved to me on the basis [ ] PARTNER(S)
of satisfactory evidence to be the person(s) [ ] ATTORNEY-IN-FACT
whose name(s) are subscribed to the [ ] TRUSTEE(S)
within instrument and acknowledged to [ ] SUBSCRIBING WITNESS
me that they executed the same in [ ] GUARDIAN/CONSERVATOR
their authorized capacity(ies), [ ] OTHER:
[SEAL] and that by their signature(s) on the ___________________________
instrument the person(s), or the entity ___________________________
upon behalf of which the person(s) acted, ___________________________
executed the instrument.
SIGNER IS REPRESENTING:
Witness my hand and official seal. NAME OF PERSON(S) OR ENTITY(IES)
/S/ Kathy M. Galvin
----------------------------------------- /S/ Union Bank
SIGNATURE OF NOTARY ------------------------------------
------------------------------------
------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
State of California ) CAPACITY CLAIMED BY SIGNER
County of San Diego ) [ ] INDIVIDUAL(S)`
[x] CORPORATE
On Feb 3, 1993, before me, Patricia A. Hernandez, Notary Public VP-Finance
----------- ------------------------------------ -------------------
Date NAME, TITLE OF OFFICER Officer(s) Corp. Secretary
- E.G., "JANE DOE, NOTARY PUBLIC" ---------------
personally appeared Randy Johnson and Dorothy K. Bidwell Title(s)
-------------------------------------
NAME(S) OF SIGNER(S)
[X] personnally known to me - OR - [ ] proved to me on the basis [ ] PARTNER(S)
of satisfactory evidence to be the person(s) [ ] ATTORNEY-IN-FACT
whose name(s) are subscribed to the [ ] TRUSTEE(S)
within instrument and acknowledged to [ ] SUBSCRIBING WITNESS
me that they executed the same in [ ] GUARDIAN/CONSERVATOR
their authorized capacity(ies), [ ] OTHER:
[SEAL] and that by their signature(s) on the ___________________________
instrument the person(s), or the entity ___________________________
upon behalf of which the person(s) acted, ___________________________
executed the instrument.
SIGNER IS REPRESENTING:
Witness my hand and official seal. NAME OF PERSON(S) OR ENTITY(IES)
/S/ Patricia A. Hernandez
----------------------------------------- /S/ JAYCOR
SIGNATURE OF NOTARY ------------------------------------
------------------------------------
------------------------------------
</TABLE>
<PAGE> 18
EXHIBIT "A"
LEGAL DESCRIPTION
Parcel 1 of Parcel Map No. 15937, in the City of San Diego, County of San Diego,
State of California, filed in the Office of the County Recorder of San Diego
County, January 4, 1990 as File/Page No. 90-006036 of Official Records.
Excepting therefrom all oil, gas, hydrocarbon substances and minerals of every
kind and character lying more than 500 feet below the surface, together with the
right to drill into, through, and to use and occupy all parts of the site lying
more than 500 feet below the surface thereof for any and all purposes incidental
to the exploration for any production of oil, gas, hydrocarbon, substances or
mineral from the site, but without, however, any right to use or disturb either
the surface of the site or any portion thereof within 500 feet of the surface
for any purpose or purposes whatsoever, as reserved in Deed from the City of San
Diego recorded September 11, 1989 as File/Page No. 89-488383 of Official
Records.
<PAGE> 19
AMENDED AND RESTATED PROMISSORY
NOTE SECURED BY DEED OF TRUST
(BASE RATE - PRINCIPAL PAYMENTS)
$15,182,645.00 San Diego, California
February 1, 1993
On February 8, 2003, for value received, the undersigned, Jointly and
severally, promise(s) to pay to the order of UNION BANK at its office at 4660 La
Jolla Village Drive, Suite 930, San Diego, California, or at such other place as
the holder of this Note may from time to time designate in writing, the
principal sum of Fifteen Million One Hundred Eighty-Two Thousand Six Hundred
Forty-Five Dollars ($15,182,645) plus interest from the date hereof computed on
principal balances hereof from time to time outstanding payable at the interest
rates and at the times set forth below. Principal and interest shall be payable
in lawful money of the United States.
A. DEFINITIONS
For purposes of this Note, unless the context otherwise requires, the
following terms have the meanings and definitions respectively set forth below:
1. "Adjusted CD-Rate" shall mean the sum, expressed as a percentage,
of (a) the quotient of the CD Base Rate divided by 1 minus the
Reserve Rate, and (b) the Insurance Rate.
2. "Adjusted LIBOR-Rate" shall mean the quotient, expressed as a
percentage, obtained by dividing the LIBOR Base Rate by 1 minus
the Reserve Rate.
3. "Base Interest Rate" shall mean a rate of interest based on either
the Adjusted CD-Rate or the Adjusted LIBOR-Rate.
4. "Base Interest Rate Loan" shall mean amounts outstanding under
this Note that bear interest at a Base Interest Rate.
5. "Base Rate Maturity Date" shall mean the last day of the Interest
Period with respect to principal outstanding on which a Base
Interest Rate has been selected by the undersigned.
6. "Business Day" shall mean a day on which Union Bank is open for
business in California and, with respect to the rate of interest
based on the Adjusted LIBOR-Rate, a day on which dealings in U.S.
dollar deposits outside of the United States may be carried on by
Union Bank.
7. "CD Base Rate" shall mean, with respect to each election by the
undersigned of an interest rate based on the Adjusted CD-Rate, the
rate of interest offered by Union Bank on its bearer certificates
of deposit which are in amounts equal to the amount of principal
covered by the
<PAGE> 20
undersigned's interest rate election and are for a term coinciding
with the applicable Interest Period as are sold on the national
market by Union Bank on the first day of the applicable Interest
Period.
8. "Insurance Rates shall mean, in computing the Adjusted CD-Rate,
the annual assessment rate expressed as a decimal (rounded upward,
if necessary, to the next higher 1/100 of 1%) paid by Union Bank
on its insured deposits to the Federal Deposit Insurance
Corporation which rate is in effect on the first day of the
applicable Interest Period, subject to any amendments thereto.
9. "Interest Period" shall mean (i) with respect to funds bearing
interest at a rate based on the Adjusted CD-Rate, any period of
not lest than one (1) year nor more than five (5) years, or (ii)
with respect to funds bearing interest at a rate based on the
Adjusted LIBOR-Rate, for a period of one (1) year. In determining
an Interest Period, a month means a period that starts on one day
in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in
which there is no such numerically corresponding day, then as to
that month, such day shall be deemed to be the last calendar day
of such month. Any Interest Period which would otherwise end on a
non-Business Day shall end on the next succeeding Business Day
unless that is the first day of a month, in which event such
Interest Period shall end on the day before the next preceding
Business Day.
10. "LIBOR Base Rate" shall mean for each Interest Period the rate per
annum (rounded upward, if necessary, to the nearest 1/100 of 1%)
at which dollar deposits, in immediately available funds and in
lawful money of the United States would be offered to Union Bank,
outside, of the United States, for a term coinciding with such
Interest Period and for an amount equal to the amount of principal
covered by the undersigned's interest rate election.
11. "Origination Date" shall mean the Business Day on which funds are
made available to the undersigned relating to the undersigned's
selection of a Base Interest Rate.
12. "Reference Rate" shall mean the rate of interest announced by
Union Bank at its Corporate Headquarters as its Reference Rate or
equivalent, and which shall vary concurrently with any change in
such rate.
13. "Reserve Rates shall mean, for purposes of computing the Adjusted
CD-Rate only, the reserve requirement expressed as a decimal
imposed by the Board of Governors of the Federal Reserve System
(or any successor thereto) on Union Bank on nonpersonal time
deposits of the type used as a reference in determining the CD
Base Rate and for
<PAGE> 21
a term coinciding with the applicable Interest Period in effect on
the first day of the applicable Interest Period, but subject to
any amendments of such reserve requirements and taking into
accounts any adjustment s thereto becoming effective during such
Interest Period. "Reserve Rate" shall mean, for purposes of
computing the Adjusted LIBOR-Rate only, the reserve requirement
expressed as a decimal imposed by the Board of Governors of the
Federal Reserve System (or any successor thereto) under Regulation
D on Eurocurrency liabilities for the applicable Interest Period
as of the first day of such Interest Period, but subject to any
amendments of such reserve requirements and taking into account
any adjustments thereto becoming effective during such Interest
Period; for purposes hereof, any funds bearing interest at a rate
based on the Adjusted LIBOR-Rate shall be deemed to be
Eurocurrency liabilities as defined in Regulation D.
14. "U.S. Securities" shall mean treasury bills, notes or bonds issued
by the United States Treasury Department.
B. INTEREST
1. Interest shall be payable on the first day of each calendar month
following the date hereof and shall be computed daily at the
applicable rates stated below on the basis of the actual number of
days in which all or any portion of the principal amount hereof is
outstanding computed on the basis of a 360 day year. Should
interest not be paid when due it shall become part of the
principal and bear interest as herein provided.
a. Base Interest Rate. At the undersigned's option, amounts
outstanding hereunder in increments of at least the then
full outstanding principal balance payable hereunder shall
bear interest at a rate to be selected by the undersigned
which is three and one-quarter percent (3-1/4%) per annum
in excess of the following, during the period prior to
March 2, 1998, and three and three-fifths percent (3-3/5%)
per annum in excess of the following for any period on or
after March 2, 1998:
(i) Union Bank's Adjusted CD-Rate for the Interest
Period if so selected by the undersigned, or
(ii) Union Bank's Adjusted LIBOR-Rate for the Interest
Period if so selected by the undersigned.
Any Base Interest Rate selected by the undersigned may not
be changed, altered or other wise modified until the Base Maturity
Date. The exercise of interest options by the undersigned
<PAGE> 22
shall be as recorded on Union Bank's ledger, which ledger shall be
prima facie evidence of the amount borrowed under either interest
option and the interest rate; provided however, that failure of
Union Bank to make any such notation on the ledger shall not
discharge the undersigned from its obligations to repay in full
with interest all amounts borrowed. In no event shall any Interest
Period extend beyond the maturity date of this Note.
To select a Base Interest Rate, the undersigned may, from
time to time with respect to principal outstanding on which a Base
Interest Rate has not been selected and on the expiration of any
Interest Period with respect to principal outstanding on which a
Base Interest Rate has been selected, select a Base Interest Rate
by an authorized representative of the undersigned either
telephoning, mailing, telecopying or hand delivering to an
authorized lending officer of the Bank located in ___________,
California which selection notice must be received by said
authorized lender officer of Bank prior to 10:00 a.m., California
time, on any Business Day and advising that officer of the Base
Interest Rate, the Interest Period and the Origination Date
selected (which Origination Date shall follow the date of such
election by no more than two (2) Business Days).
Union Bank will confirm the terms of the election in
writing by mail to the undersigned promptly after the election is
made. Failure to send such confirmation shall not affect Union
Bank's rights to collect interest at the rates selected. The
election of a Base Interest Rate must be made on a Business Day.
Union Bank reserves the right to fund the principal from any
source of funds notwithstanding any Base Interest Rate selected by
the undersigned.
b. Variable Interest Rate. All principal outstanding hereunder
which is not bearing interest at a Base Interest Rate shall
bear interest at the rate of two and one-half percent (2
1/2%) per annum in excess of the Union Bank Reference Rate.
2. CHANGES, LEGAL RESTRICTIONS. If Union Bank determines at any time in the
future that the effect of any applicable law, rule or regulation, or
change therein, or any change in the interpretation or administration
thereof by any court or other governmental authority, central bank or
comparable agency charged with the interpretation or administration
therefor, or compliance by Union Bank (or its lending office) with any
requirement or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency is to increase the cost
to Union Bank (or its lending office), of making or maintaining any Base
Interest Rate loan or to reduce the amount of any sum received or
receivable by Union Bank (or its lending office) with respect thereto by
an amount
<PAGE> 23
deemed by Union Bank to be material and such cost or reduction is not
already reflected in the interest rate charged by Union Bank for the Base
Interest Rate loans, then the undersigned shall pay to Union Bank, on
demand, such additional amounts as Union Bank may determine to be
required to compensate Union Bank for such additional cost or reduction.
Any additional payment under this clause will be computed from the
effective date at which such additional costs have to be borne by Union
Bank. For the purposes of this clause, the determination of Union Bank
shall be conclusive if made reasonably and in good faith.
Except as provided above, this Note and the provisions contained herein
cannot be changed, modified or amended except by a written instrument
executed by both the undersigned and the holder hereof.
C. PRINCIPAL REDUCTION
If not sooner repaid, Borrower shall repay the aggregate unpaid principal
amount outstanding hereunder in One Hundred Twenty (120) installments in
the amounts set forth on Exhibit "c" attached hereto, payable on the
first (1st) day of each calendar month (commencing on the first such day
to occur following the date hereof).
The availability under this Note shall be reduced on a monthly basis on
the same day and in the same amount as each scheduled principal payment.
D. PREPAYMENTS
1. Amounts outstanding hereunder bearing interest at a rate of
interest based on the Reference Rate may be prepaid in whole or in
part at any time.
2. Amounts outstanding hereunder bearing interest at a Base Interest
Rate may only be prepaid in whole or in part provided Union Bank
has received not less than five (5) Business Days prior written
notice of an intention to make such prepayment, and the Base
Interest Rate Loan to which such prepayment applies and the
undersigned pays a prepayment fee, to Union Bank in an amount
equal to:
(a) the difference between
1) the Base Interest Rate on the principal amount which
the undersigned intends to prepay, and
2) the return which Union Bank could obtain if it used
the amount of such prepayment of principal to
purchase at bid price regularly quoted U.S.
Securities having a maturity date most closely
coinciding with the relevant Base Rate Maturity Date
and such U.S. Securities were held by Union Bank
until the end of the relevant Interest Period
("Yield Rate").
<PAGE> 24
(b) the above difference, if greater than zero, is multiplied
by
1) a fraction the numerator of which is the number of
days in the period between the date of prepayment
and the relevant Base Rate Maturity Date and the
denominator of which is 360 days.
(c) multiplied by
1) the lesser of the amount prepaid or 50% of the total
of the amount prepaid and the amount of principal
scheduled under the terms of this Note to be
outstanding at the Base Rate Maturity Date.
(d) the above product is then discounted to present value using
the Yield Rate as the annual discount factor.
In no event shall Union Bank be obligated to make any payment or refund
to the undersigned, nor shall the undersigned be entitled to any setoff or other
claim against Union Bank, should the return which Union Bank could obtain under
the prepayment formula exceed the interest that Union Bank would have received
if no prepayment had occurred.
Such prepayment fee, if any, shall also be payable if prepayment occurs
as the result of the acceleration of the principal hereof by Union Bank because
of any default hereunder by-the undersigned. If, following such acceleration,
all or any portion of the unpaid principal is satisfied, whether through sale of
the property encumbered by any security agreement or other agreement securing
this Note, if any, at a foreclosure held thereunder or through the tender of
payment at any time following such acceleration, but prior to such a foreclosure
sale, then such satisfaction of such portion of the principal shall be deemed an
evasion of the prepayment prohibition set forth above, and Union Bank shall,
automatically and without notice or demand, be entitled to receive, concurrently
with such satisfaction, the prepayment fee set forth above, and the obligation
to pay such prepayment fee shall be added to the principal hereof. THE
UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES THAT UNION BANK WOULD NOT LEND TO THE
UNDERSIGNED THE LOAN EVIDENCED BY THIS NOTE WITHOUT THE UNDERSIGNED'S AGREEMENT,
AS SET FORTH ABOVE IN THIS PARAGRAPH, TO PAY UNION BANK A PREPAYMENT FEE UPON
THE SATISFACTION OF ALL OR ANY PORTION OF THE PRINCIPAL BEARING INTEREST AT A
BASE INTEREST RATE FOLLOWING THE ACCELERATION OF THE MATURITY DATE HEREOF BY
REASON OF A DEFAULT HEREUNDER. THE UNDERSIGNED HAS CAUSED THOSE PERSONS SIGNING
THIS NOTE ON THE UNDERSIGNED'S BEHALF TO SEPARATELY INITIAL THE AGREEMENT
CONTAINED IN THIS PARAGRAPH BY PLACING THEIR INITIALS BELOW:
INITIALS: ________________ _______________ _______________
3. All prepayments shall include payment of accrued interest on the
principal amount so prepaid and shall be applied to payment of
interest before application to principal. A determination by Union
Bank as to the amount, if any, payable
<PAGE> 25
pursuant to this section, shall be made in accordance with the
provisions herein.
E. DEFAULT
1. The occurrence or existence of any one or more of the following
shall constitute a default hereunder:
(a) The failure of undersigned to make any payment required
under this Note when due; or
(b) Any breach, misrepresentation or other default (after
expiration of any applicable notice or cure period) by undersigned
or any maker, co-maker, endorser or guarantor (hereafter
individually and collectively referred to as "Obligor") under any
deed of trust, security agreement, guaranty or other document or
agreement securing or pertaining to this Note, as any of the same
may be amended, modified, supplemented or extended from time to
time (individually and collectively the "Related Documents"), or
any breach, misrepresentation or other default by undersigned or
any Obligor (after expiration of any applicable notice or cure
period) under the Related Documents or agreement between Bank and
undersigned or any Obligor which is not a Related Document,
including without limitation the failure of undersigned or any
Obligor to pay any other indebtedness to Bank when due; or
(c) The undersigned or any Obligor shall (i) apply for or
consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to
pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be
dissolved or liquidated in full or in part, (v) commence a
voluntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any
official in an involuntary case or other proceeding commenced
against it, or (vi) take any corporate or partnership action for
the purpose of effecting any of the foregoing; or
(d) There shall be commenced proceedings for the
appointment of a receiver, trustee, liquidator or custodian of the
undersigned or any Obligor or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect
to undersigned or any Obligor or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in
effect which case or proceedings are not
<PAGE> 26
dismissed within sixty (60) days after the filing thereof; or
(e) The filing or recording against the undersigned or any
Obligor, or the property of the undersigned or any Obligor, of any
notice of levy, notice to withhold or other legal process for
taxes other than property taxes, or the issuance against
undersigned or any Obligor, or the property of undersigned or any
Obligor, of any writ of attachment, execution or other judicial
lien in an amount exceeding Fifteen Thousand Dollars ($15,000),
which notice of levy or writ of attachment is not dismissed within
thirty (30) days after the filing or recording thereof; or
(f) The failure of undersigned or any Obligor to comply
with any final order, judgment, injunctions, decree, writ or
demand of any court or other public authority having a material
effect on the financial condition of Obligor; or
2. Immediately and without notice upon the occurrence of a default
specified in Section E(l)(c), (d) or (e) hereof, or, at the option
and upon the declaration of the holder of this Note, upon the
occurrence of any other default hereunder, the entire balance of
principal, accrued interest and other amounts then remaining
unpaid hereunder and under the Related Documents shall immediately
become due and payable, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived, and
the holder hereof may immediately, and without the expiration of
any period of grace (other than such periods of grace, if any, as
may be expressly set forth herein or in the Related Documents),
enforce payment of such obligations of Debtor and exercise any and
other rights and remedies granted to it hereunder, under any of
the Related Documents, or at law, in equity or otherwise.
3. If this Note is not paid when due (whether by acceleration or
otherwise), the undersigned promises to pay all costs of
collection, including but not limited to reasonable attorneys'
fees (which may include the reasonable allocation of costs and
expenses of any in-house attorneys and legal staff), incurred by
the holder hereof on account of such collection, whether or not
suit is filed hereon. Should default be made in the payment of
principal or interest when due or in the performance or observance
when due of any term, covenant or condition of any deed of trust,
security agreement or other agreement (including amendments and
extensions thereof) securing or pertaining to this Note, without
notice or demand, the entire balance of principal and accrued
interest then remaining unpaid shall become immediately due and
payable and thereafter bear interest, until paid in full, at a
rate five percent (5%) greater than the interest rate contracted
for herein or at a rate which is five percent (5%) greater than
the Reference Rate, as
<PAGE> 27
it may vary from time to time, whichever is higher.
F. MISCELLANEOUS
1. Undersigned agrees that all notations made by Bank in such account
or accounts shall constitute prima facie evidence of the matters
noted.
2. This Note and the provisions contained herein may not be changed,
modified or amended except by a written instrument executed by
both undersigned and the holder hereof.
3. The undersigned submits to the jurisdiction of any competent court
within San Diego County, California, both with respect to its
person and to its property, and to service or process upon each of
them by any means authorized by California law.
4. This Note, the Related Documents, and all transactions
contemplated hereunder and/or evidenced hereby shall be subject
to, governed by and construed according to the laws of, the State
of California.
5. The captions or headings in this Note are for convenience of
reference only, are not intended to constitute any part of its
body or text, and shall not be used or considered in any respect
in the construction or interpretation of this Note.
6. If any provision of this Note is found to be illegal, invalid or
unenforceable, such provision shall be fully severable, this Note
shall be construed as if such provision had never been a part
hereof; and, the remaining provisions of this Note shall remain in
full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by severance from this Note.
7. This Note is secured by a deed of trust (as amended) to UNION
BANK, a California corporation, as Trustee, and shall be governed
and construed in accordance with California law. The Deed of Trust
securing the obligation evidenced hereby contains the following
provision: "that should trustor sell, convey, transfer, dispose of
or further encumber said property or any part thereof or any
interest therein, or enter into a lease covering all or a portion
thereof or an undivided interest therein, either voluntary,
involuntarily or otherwise, or enter into an agreement so to do,
without the prior written consent of Beneficiary being first had
and obtained, then Beneficiary
<PAGE> 28
may, at its option, declare all sums secured hereby immediately
due and payable. Consent to one such transaction shall not be
deemed to be a waiver of the right to require such consent to
future or successive transactions."
8. This Note amends and restates that certain Note Secured by Deed of
Trust (Floating Rate Note) dated September 1, 1989, in the
original principal amount of $17,500,000, executed by Westerra
Pacific Associates, a California general partnership in favor of
Union Bank, a California corporation.
JAYCOR, a
California corporation
By: /s/ Randy Johnson
------------------------------------
Its: VP-Finance
By: /s/ Dorothy K. Bidwell
------------------------------------
Its: Corporate Secretary
<PAGE> 29
LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
300 9.000% 15,182,645.00
TERM INTEREST ORIGINAL
MONTHS RATE PRINCIPAL PAYMENT PRINCIPAL
- --------------------------------------------------------------------------------
DUE DATE INSTALLMENT PRINCIPAL
DATE PAID NUMBER INTEREST PRINCIPAL BALANCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 13,542.37 15,169,102.63
2 13,643.93 15,155,458.70
3 13,746.26 15,141,712.43
4 13,849.36 15,127,863.07
5 13,953.23 15,113,909.84
6 14,057.88 15,099,851.96
7 14,163.32 15,085,688.64
8 14,269.54 15,071,419.10
9 14,376.56 15,057,042.54
10 14,484.39 15,042,558.16
11 14,593.02 15,027,965.14
12 14,702.47 15,013,262.67
13 14,812.73 14,998,449.94
14 14,923.83 14,983,526.11
15 15,035.76 14,968,490.35
16 15,148.53 14,953,341.82
17 15,262.14 14,938,079.68
18 15,376.61 14,922,703.07
19 15,491.93 14,907,211.14
20 15,608.12 14,891,603.02
21 15,725.18 14,875,877.84
22 15,843.12 14,860,034.72
23 15,961.94 14,844,072.77
24 16,081.66 14,827,991.11
25 16,202.27 14,811,788.84
26 16,323.79 14,795,465.05
27 16,446.22 14,779,018.84
28 16,569.56 14,762,449.27
29 16,693.84 14,745,755.44
30 16,819.04 14,728,936.40
31 16,945.18 14,711,991.22
32 17,072.27 14,694,918.95
33 17,200.31 14,677,718.63
34 17,329.31 14,660,389.32
35 17,459.28 14,642,930.03
36 17,590.23 14,625,339.81
37 17,722.16 14,607,617.65
38 17,855.07 14,589,762.58
39 17,988.99 14,571,773.59
40 18,123.90 14,553,649.69
</TABLE>
-------
INITIAL
HERE
[SIG]
-------
EXHIBIT "A"
<PAGE> 30
LOAN AUTHORIZATION SCHEDULE
<TABLE>
<CAPTION>
300
TERM 9.000% 15,182,645.00
MONTHS INTEREST RATE PRINCIPAL PAYMENT PRINCIPAL
- ------------------------------------------------------------------------------
DUE DATE INSTALLMENT PRINCIPAL
DATE PAID NUMBER INTEREST PRINCIPAL BALANCE
- ------------------------------------------------------------------------------
<S> <C>
41 18,259.83 14,535,389.86
42 18,396.78 14,516,993.08
43 18,534.76 14,498,458.32
44 18,673.77 14,479,784.55
45 18,813.82 14,460,970.73
46 18,954.92 14,442,015.81
47 19,097.09 14,422,918.72
48 19,240.31 14,403,678.41
49 19,384.62 14,384.293.79
50 19,530.00 14,364,763.79
51 19,676.48 14,345,087.31
52 19,824.05 14,325,263.26
53 19,972.73 14,305,290.53
54 20,122.53 14,285,168.01
55 20,273.44 14,264,894.56
56 20,425.50 14,244,469.07
57 20,578.69 14,223,890.38
58 20,733.03 14,203,157.35
59 20,888.52 14,182,268.83
60 21,045.19 14,161,223.64
61 21,203.03 14,140,020.61
62 21,362.05 14,118,658.56
63 21,522.27 14,097,136.30
64 21,683.68 14,075,452.61
65 21,346.31 14,053,606.30
66 22,010.16 14,031,596.15
67 22,175.23 14,009,420.91
68 22,341.55 13,987,079.36
69 22,509.11 13,964,570.25
70 22,677.93 13,941,392.33
71 22,848.01 13,919,044.31
72 23,019.37 13,896,024.94
73 23,192.02 13,872,832.92
74 23,365.96 13,849,466.97
75 23,541.20 13,825,925.76
76 23,717.76 13,802,208.00
77 23,895.64 13,778,312.36
78 24,074.86 13,754,237.50
79 24,255.42 13,729,982.07
80 24,437.34 13,705,544.73
</TABLE>
EXHIBIT "A"
<PAGE> 31
LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
100 9.000% 15.182,645.00
TERM INTEREST ORIGINAL
MONTHS RATE PRINCIPAL PAYMENT PRINCIPAL
- -------------------------------------------------------------------------------------
DUE DATE INSTAL- INTEREST PRINCIPAL PRINCIPAL
DATE PAID MENT BALANCE
NUMBER
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
81 24,620.62 13,680,924.11
82 24,805.27 13,656,118.84
83 24,991.31 13,631,127.53
84 25,178.75 13,605,948.78
85 25,367.59 13,580,581.19
86 25,557.85 13,555,023.34
87 25,749.53 13,529,273.81
88 25,942.65 13,503,331.16
89 26,137.22 13,477,193.94
90 26,333.25 13,450,860.69
91 26,530.75 13,424,329.94
92 26,729.73 13,397,600.21
93 26,930.20 13,370,670.01
94 27,132.18 13,343,537.83
95 27,335.67 13,316,202.16
96 27,540.69 13,288,661.47
97 27,747.24 13,260,914.23
98 27,955.35 13,232,958.88
99 28,165.01 13,204,793.86
100 28,376.25 13,176,417.61
101 28,589.07 13,147,828.54
102 28,803.49 13,119,025.05
103 29,019.52 13,090,005.53
104 29,237.16 13,060,768.37
105 29,456.44 13,031,011.93
106 29,677.37 13,001,634.56
107 29,899.95 12,971,734.62
108 30,124.20 12,941,610.42
109 30,350.13 12,911,260.30
110 30,577.75 12,880,682.54
111 30,807.09 12,849,875.46
112 31,038.14 12,818,837.32
113 31,270.92 12,787,566.39
114 31,505.46 12,756,060.94
115 31,741.75 12,724,319.19
116 31,979.81 12,692,339.38
117 32,219.66 12,660,119.72
118 32,461.31 12,627,658.41
119 32,704.77 12,594,953.65
120 32,950.05 12,562,003.59
</TABLE>
-------
INITIAL
HERE
[SIG]
-------
EXHIBIT "A"
<PAGE> 32
HAZARDOUS MATERIALS INDEMNITY
Re: Loan No. 4160669-343-900343
Amount $15,182,645.00
As additional consideration to Union Bank for the making of this loan, the
undersigned represent and warrant as follows:
1. Definitions:
A. Hazardous Materials: substances defined as "hazardous substances,"
"hazardous material," "contaminants," "pollutants," "hazardous wastes" or "toxic
substances" (A) in (1) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 9601 et seq., (2) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., (3) the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., (4) the Federal
Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq., (5)
the Clean Air Act, 33 U.S.C. Section 7401 et seq., (6) the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., (7) the Safe Drinking Water Act, 42
U.S.C. section 300f et seq., (8) applicable state or local law, or (9) the
rules, orders or regulations adopted or proposed or in the publications
promulgated pursuant to said laws; or (B) in any reported decision of a state or
federal court.
B. Preliminary Site Assessment: a report (and all amendments,
modifications, updates and reviews thereof) on the presence of Hazardous
Materials on, in, under or about the Property issued by or reviewed and approved
by an entity knowledgeable in environmental matters acceptable to Bank, in form
and content acceptable to Bank and delivered or caused to be delivered to Bank
by Borrower at Borrower's cost and expense.
C. Loan: That certain Loan granted to Borrower by Union Bank, the
proceeds of which are being disbursed pursuant to those loan disbursement
instructions to which this Rider is attached.
D. Property: That certain Real Property described in the Trust Deed
collateralizing the Loan.
2. Hazardous Materials: Except as may be set forth in the Environmental Audit
dated June 16, 1989, prepared by Tetra Tech, Inc., Borrower hereby warrants and
represents that to the best of Borrower's actual knowledge, the Property is not
now and shall not at any time in the future be in violation of any federal,
state or local law, ordinance or regulation relating to environmental conditions
on, under or about the Property including, but not limited to, soil and
groundwater conditions. Until the loan is repaid in full, neither Borrower, any
successor in interest to Borrower, nor any tenant of Borrower or such successor
in interest shall use, generate, manufacture, refine, produce, process, store or
dispose of on, under or about the Property or transport to or from the Property
any Hazardous Materials, (as defined in 1.A., above,) in contravention of any
applicable law, rule, regulation or order (collectively, "Hazardous Waste Law"),
of nor does Borrower intend to use the Property in the future for the purpose of
generating, manufacturing, of
<PAGE> 33
refining, producing, storing, handling, transferring, processing, or
transporting of Hazardous Materials, in contravention of any Hazardous Waste
Law.
3. Removal of Hazardous Materials: If at any time during the term of this Loan,
Hazardous Materials are discovered, used, or placed on the Property in violation
of any Hazardous Waste Law, Borrower, at Borrower's sole cost and expense, shall
remove such Hazardous Materials from the Property or the groundwater underlying
the Property in accordance with requirements of the appropriate governmental
entity. In addition to all other rights and remedies of Bank hereunder, if such
Hazardous Materials are not removed from the Property or the groundwater
underlying the Property by Borrower within ninety (90) days after Borrower
discovers such Hazardous Materials, Bank, at its sole discretion, may pay to
have same removed and Borrower shall reimburse Bank within five (5) days of
Bank's demand for payment. Borrower shall indemnify and hold Bank harmless from
and against all loss, damage, liability (including all foreseeable and
unforeseeable consequential damages) and expense (including without limitation,
the cost of any required cleanup of the Hazardous Materials and all attorneys'
fees and expenses incurred by Bank in connection therewith) which Bank may
sustain as a result of the presence or cleanup of Hazardous Materials on the
Property in violation of any Hazardous Waste Law.
4. Survival: All representations, warranties and indemnities with respect to
Hazardous Materials shall survive the repayment of the Loan.
5. Access to the Property: At all reasonable times prior to the payment in full
of the unpaid principal balance of the Loan and all accrued but unpaid interest
thereon, Union shall have the right to access to the Property for itself and its
representatives and to inspect the Property and the physical condition thereof,
to take sample from the soil and the components of the improvements included
within the Property, to review Borrower's books and records wherever situated
with respect to the Property, to interview Borrower's employees, officers and
tenants, and to conduct other similar activities on the Property. During said
period, Borrower shall furnish to Union such statements and other financial data
as Union shall from time to time request. Union acknowledges that its access to
the Property is subject to all applicable governmental security regulations
concerning access to the Property.
Date: February 3, 1993
BORROWER: UNION BANK, a
JAYCOR, a California corporation California corporation
/s/ Randy Johnson By: /s/
- -------------------------------- --------------------------------
/s/ Dorothy Bidwell By: /s/
- -------------------------------- --------------------------------
<PAGE> 34
DOC # 1993-0080856
RECORDING REQUESTED BY CONTINENTAL LAWYERS TITLE 08-FEB-1993 11:53 AM
RECORDING REQUESTED BY AND 1518 OFFICIAL RECORDS
WHEN RECORDED MAIL TO: SAN DIEGO COUNTY RECORDER'S OFFICE
ANNETTE EVANS, COUNTY RECORDER
JAYCOR, a RF: 4.00 FEES: 8.00
California corporation AF: 3.00
9775 Towne Centre Drive MF: 1.00
San Diego, California 92121
Attention: Mr. Randy Johnson
170191-02
- ------------------SPACE ABOVE THIS LINE FOR RECORDER'S USE----------------------
RELEASE OF ASSIGNMENT OF REAL PROPERTY LEASE
For value received, Union Bank, a California corporation, does hereby
release that certain Assignment of Real Property Lease executed by Westerra
Pacific Associates, a California General Partnership, in favor of Union Bank,
dated December 7, 1988, recorded in the office of Recorder of San Diego County
on September 11, 1989 as Instrument No. 89-488386, said assignment having been
terminated.
Dated: February 3, 1993 .
------------------------
UNION BANK, a
California corporation
By: /s/ DALE STEVENS
---------------------------------
Dale Stevens
Its: Vice President
-----------------------------
By: /s/ KEVIN SIMMONS
---------------------------------
Kevin Simmons
Its: AVP
-----------------------------
<PAGE> 35
<TABLE>
<S> <C>
State of California ) CAPACITY CLAIMED BY SIGNER
-----------------
County of San Diego ) [ ] INDIVIDUAL(S)
---------------- [X] CORPORATE
On 2/4/93 before me, Kathy M. Galvin, Notary Public , Vice President
-------- -------------------------------------------------------- -----------------------
Date NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC" OFFICER(S) Asst. Vice President
-----------------------
personally appeared Dale Stevens and Kevin Simmons , TITLE(S)
-----------------------------------------------------------
NAME(S) OF SIGNER(S) [ ] PARTNER(S)
[ ] ATTORNEY-IN-FACT
[X] personally known to me - OR - [ ] proved to me on the basis of [ ] TRUSTEE(S)
satisfactory evidence to be the person(s) [ ] SUBSCRIBING WITNESS
whose name(s) is/are subscribed to the [ ] GUARDIAN/CONSERVATOR
within instrument and acknowledged to me [ ] OTHER:
that they executed the same in ---------------------
their authorized capacity(ies), and ---------------------------
[SEAL] that by their signature(s) on the ---------------------------
instrument the person(s), or the entity upon
behalf of which the person(s) acted, SIGNER IS REPRESENTING:
executed the instrument. NAME OF PERSON(S) OR ENTITY(IES)
Witness my hand and official seal.
Union Bank
/s/ KATHY M. GALVIN --------------------------------
-------------------------------------------- --------------------------------
SIGNATURE OF NOTARY --------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ATTENTION NOTARY: Although the information requested below is OPTIONAL, it could prevent fraudulent attachment on this certificate
to unauthorized document.
THIS CERTIFICATE Title or Type of Document Release of Assignment of Real Property Lease
MUST BE ATTACHED ---------------------------------------------------------------------------------
TO THE DOCUMENT Number of Pages Date of Document February 3, 1993
DESCRIBED AT RIGHT: ------------------------------ ------------------------------------------
Signer(s) Other Than Named Above
--------------------------------------------------------------------------
</TABLE>
2
<PAGE> 36
BUILDING LOAN AGREEMENT - DISBURSEMENT SCHEDULE
THIS BUILDING LOAN AGREEMENT is made as of this 1st day of September, 1989, by
and between Westerra Pacific Associates, a California General Partnership
("Borrower") and UNION BANK, a California bank corporation, ("Bank").
DEFINITION OF TERMS USED IN THIS AGREEMENT:
1.1. BORROWER'S ARCHITECT: The person or firm employed by Borrower to
design the improvements and/or supervise the Construction thereof, i.e. Brian
Paul and Associates.
1.2 BORROWER'S FUNDS: The sum of $N/A to be made available to Borrower in a
form satisfactory to Bank prior to recordation for disbursement in the manner
and for the purposes herein described. If Bank so requests, said funds shall be
deposited to Borrower's Funds, Building Loan Account.
1.3 COMPLETION DATE: The date of required completion of construction of
the improvements and issuance of all licenses and permits necessary for the
occupancy, use or sale thereof, which is April 1991.
1.4 GENERAL CONTRACTOR: _____________________________________
1.5 GUARANTOR: The Guarantor of obligations evidenced by the Note, i.e.
Edward B. Romanow, Jr. and E. Stevens Hamilton.
1.6 LOAN: The amount evidenced by the Note, i.e.: $17,500,000.00.
1.7 LOAN FEE: The fee to be paid to Bank in consideration for Bank's
agreeing to make the Loan and entering into this Agreement, which fee shall
not be subject to reduction or be refundable under any and all circumstances,
and which fee is the sum of $180,000.00, payable upon Recordation.
1.8 PERMANENT LENDER: N/A
1.9 PERMANENT COMMITMENT EXPIRATION DATE: N/A
1.10 IMPROVEMENTS: 103,800 S.F. R&D Office Building
1.11 CUMULATIVE CHANGE ORDER AMOUNT: $250,000.00 cumulative, $25,000.00 per
event.
1.12 TITLE INSURER: The issuer of the title insurance policy required by
paragraph 8.3., i.e. Founders Title Company.
1.13 BORROWER'S FUNDS, BUILDING LOAN ACCOUNT: A special non-interest
bearing account into which Borrower's Funds, when requested by Bank, shall be
deposited pending disbursement in the manner and for the purpose herein
described. Borrower's Funds deposited in this account shall be first disbursed.
1.14 BORROWER'S INTEREST: The rate of interest to be paid to Bank in
respect to the Loan set forth in the Note.
1.15 CERTIFIED INVOICE: A Certified Invoice for Progress Payments as
customarily used by Bank, a copy of which has been delivered by Bank to
Borrower concurrently with the execution hereof, receipt of a copy of which
Borrower hereby acknowledges, or its equivalent acceptable to Bank.
1.16 CHANGE ORDERS: Any amendments or modifications to the General contract
or any subcontract.
1.17 COMPLETION AGREEMENT: An agreement on Bank's form guaranteeing
completion of the improvements.
1.18 COST BREAKDOWN: An itemized schedule on a component, unit and made
breakdown basis covering all costs of constructing and completing the
improvement, to be submitted to and approved by Bank, with such changes herein
subsequent as Borrower deems necessary or desirable so long as Bank shall have
received evidence satisfactory to it that (i) the change in such Cost breakdown
is reasonably necessary, and (ii) in the opinion of Bank, there remains
sufficient funds in the undisbursed portion of the Loan and of Borrower's Funds
designated herein and allocated on the Disbursement Schedule for the costs of
construction of the improvements to pay for all remaining costs of completion
of construction of the improvements.
1.19 DEFAULT INTEREST: The rate of interest specified in the Note which
shall be in effect in the event of default hereunder.
1.20 DISBURSEMENT SCHEDULE: The schedule of disbursement of the proceeds of
the Loan and of any Borrower's Funds as set forth on Exhibit "A" attached
hereto and made a part hereof.
1.21 FINANCIAL STATEMENTS: Financial statements of the Borrower and
Guarantor and such other entity required by Bank including Operating
Statements, Balance Sheet and such other financial reports that Bank may
require.
1.22 GENERAL CONTRACT: The contract between Borrower and General Contractor
for construction of the improvements.
1.23 GOVERNMENTAL AUTHORITY: The authority of the United States, the State
in which the Premises are located, any political subdivision thereof, any city
and any agency, department, commission, board, bureau or instrumentality of any
of them.
1.24 GOVERNMENTAL REQUIREMENT OR LOCAL REQUIREMENT: Any law, ordinance,
order, rule or regulation of a Governmental Authority or Local Authority,
respectively.
1.25 GUARANTY: The guaranty, if any, executed by the person or persons
named herein as Guarantor, which guarantees the performance of Borrower's
obligations specified herein.
1.26 INITIAL CLOSING: The time of the execution and delivery hereof by
Borrower and Bank.
1.27 INITIAL DISBURSEMENT: The payment upon Recordation of costs, charges,
expenses and items associated with the Loan as set forth in paragraph ??.
1.28 LOCAL AUTHORITY: Any Governmental Authority which exercises
jurisdiction over the Property or construction thereon.
1.29 MAJOR LEASES: Those Leases, if any, described on Exhibit "B" attached
hereto and made a part hereof.
1.30 NOTE: The Note of even date herewith executed by Borrower as maker and
payable to Bank on order, in the principal amount of the Loan.
1.31 PERMANENT CLOSING: Either (i) the sale of the Note and Trust Deed to,
and the purchase hereof by, the Permanent Lender, including the execution by
Borrower of a modification and extension agreement satisfactory to Permanent
Lender, or (ii) he satisfaction of the Note and Trust Deed, in whole or in part,
in connection with the consummation of a loan or loans to the Borrower or others
contemplated by the Permanent Loan Commitment, including the execution and
delivery of a new note or notes and a trust deed or trust deeds satisfactory to
the Permanent Lender, with Bank to receive, in either case, in immediately
available funds, all or that portion of the principal amount of the Note to be
received pursuant to the agreed upon release price together with accrued
interest to the date of such receipt. 1.40 and 1.41. See Hazardous Materials
Rider attached hereto and incorporated herein by this reference.
1.32 PERMANENT COMMITMENT: The commitment of the Permanent Lender, if any,
to provide financing to the Borrower or others upon completion of construction
of the improvements which constitutes a material source to Bank for repayment
of the Loan.
1.33 PERSONAL PROPERTY: That property described in the Security Agreements
and which is collateral for the Loan.
1.34 PLANS: The final plans and specifications (including the General
Conditions set forth by he FHA, VA or American Institute of Architects
whichever is appropriate or whichever is incorporated in the specifications or
other General Conditions acceptable to Bank and any addenda thereto) for the
construction of the improvements prepared by Borrower's Architect, and approved
as required herein and all amendments and modifications thereof made by
approved Change Orders.
1.35 PROPERTY: That certain Real Property legally described in the Trust
Deed and on which the improvements are to be constructed.
1.36 RECORDATION: The act of recording the Trust Deed in the official
records of the County in which the Property is situated.
1.37 SECURITY AGREEMENTS: Any agreements, other than the Trust Deed,
securing the Loan, the performance hereunder and interest, costs and charges
associated therewith.
1.38 TENANT IMPROVEMENTS: That portion of the improvements which will be
constructed to conform to the requirement of individual tenants leasing
premises situated in the improvements, or to conform to the requirements of
individual purchasers of portions of the improvements.
1.39 TRUST DEED: The Mortgage or Deed of Trust in favor of Bank of every
date herewith encumbering the Property and given to secure the Note.
2. LOAN:
2.1 Borrower has applied to Bank for the Loan to finance
construction of the improvements and for other costs related thereto.
2.2 Bank and Borrower agree that Bank shall make the Loan to
Borrower and Borrower shall accept the Loan upon the terms, conditions,
covenants, representations and warranties contained herein. All Loan funds
disbursed hereunder shall be evidenced by the Note, bear interest at the rate
of Borrower's Interest or Default Interest, as the case may be, and be secured
by the Trust Deed and the Security Agreements.
3. LOAN PROCEEDS: All loan proceeds of the Loan available for disbursement
pursuant to this agreement with Borrower's Interest or Default Interest, as the
case may be, to accrue thereon with respect to each disbursement on and after
the date such disbursement is made. Until disbursed, such proceeds shall
neither bear nor earn interest.
4. CONDITIONS PRECEDENT TO RECORDATION: Prior to Recordation the following
conditions shall have been satisfied:
4.1 BANK SHALL HAVE RECEIVED:
4.1.01 the executed Note;
4.1.02 the executed Trust Deed;
4.1.03 executed Security Agreements;
4.1.04 original insurance policies or certificates thereof for the
insurance required by paragraph 8.12 hereof;
4.1.05 Preliminary Time Report issued by Title Insurer showing the
condition of Title to the Property with the Property's legal description
and a copy of all documents listed as Exceptions to said Report; and
4.1.06 all Borrower's Funds required.
4.2 IF REQUIRED BY BANK AS INDICATED BY AN "X" IN THE BOX OPPOSITE THE
REQUIRED ITEM, BANK SHALL HAVE RECEIVED:
/X/ 4.2.01 Executed Guaranty;
4.2.02 a current survey of the Property including dimensions,
delineations and locations of all easements thereon, satisfactory to
the Title Insurer if required by it;
1.42 ADMINISTRATIVE COSTS: All costs related to the improvements other than
costs of the General Contract or any subcontract.
<PAGE> 37
[COPY ILLEGIBLE @ 1/2 OF FIRST COLUMN]
5. CONDITIONS PRECEDENT TO DISBURSEMENT
5.1 PRIOR TO INITIAL DISBURSEMENT THE FOLLOWING CONDITIONS SHALL
HAVE BEEN SATISFIED:
5.1.01 Recordation shall have occurred.
5.1.02 Title Insurer shall have issued or agreed to issue the
title policy described in paragraph 8.3 hereof, naming Bank as
insured-to the extent of the Loan amount.
5.1.03 Where appropriate, UCC-1 Financing Statements shall have
been filed with the Secretary of State for the state where the Property
is situated describing the Personal Property.
5.1.04 Bank shall have been furnished with a Certificate issued
by the filing officer of the Secretary of State for the state in which
the Property is situated showing Bank's Financing Statement as prior to
all other Financing Statements in Borrower's name relative to the
Personal Property.
5.1.05 If a bond has been required under paragraph 4.2.03, the
original General Contract shall have been filed and the bond so required
shall have been recorded in the Office of the County Recorder of the
county in which the Property is situated prior to the commencement of
work on the improvements.
5.2 PRIOR TO MAKING DISBURSEMENTS AFTER THE INITIAL DISBURSEMENT,
EXCEPT FOR THE LAST DISBURSEMENT, THE FOLLOWING CONDITIONS SHALL HAVE BEEN
SATISFIED:
5.2.01 Initial Disbursement shall have occurred.
5.2.02 No default shall exist under this Agreement, the Note,
Trust Deed or Security Agreements.
5.2.03 All the requirements for disbursement set forth in the
paragraph indicated under Part II of the Disbursement Schedule shall
have been satisfied.
5.2.04 If Bank requests, it shall have received a list of the
names and addresses of all material dealers, laborers and subcontractors
with whom agreements have been made by the General Contractor and/or
Borrower to deliver materials to and/or perform work on the
improvements.
5.2.05 The representations and warranties of Borrower made in
paragraph 7 hereof shall be true and correct on and as of the date of
the disbursement with the same effect as if made on such date.
5.2.06 The Improvements shall not have been materially injured
or damaged by fire or other casualty unless Bank shall have received
insurance proceeds sufficient in its judgment to effect the satisfactory
restoration of the Improvements and to permit the completion thereof
prior to the Completion Date.
5.2.07 Borrower shall have deposited with Bank cash in the
amount, estimated by Bank necessary to pay for the costs of completion
of construction of the Improvements to the extent that the aggregate
amount of the undisbursed Loan Proceeds and Borrower's Funds, designated
for the payment of the remaining costs to be incurred in the completion
of construction of the Improvements is, in the opinion of the Bank,
insufficient therefor.
5.2.08 Advice from Bank's inspection Department to the effect
that, to date, that the present state of construction of the
Improvements will, barring then unforeseen and unknown delays, permit
completion of construction of the Improvements on or before the
Completion Date.
5.2.09 Bank shall have received: (a) the Building Permit and
any other authorization, if any, which may be required from the Local
Authority or Governmental Authority; (b) The first page of a copy of the
Plans signed and all other, pages initiated by the Borrower, Bank,
General Contractor, Permanent Lender and any tenant under a Major Lease
if required by Bank; (c) A copy of the General Contract, or, if none,
copies of major contracts; (d) Assignments to Bank on Bank's form of the
plans and written consent thereto by the person or firm that prepared
them and a copy of the architect's agreement, if any, together with
assignment thereof to Bank on Bank's form, with written consent thereto
by said architect (e) Assignment to Bank of the General Contract and
consent thereto by the General Contractor; (f) The cost breakdown; and
(g) Original executed Major Leases and an assignment thereof to Bank on
Bank's form.
5.2.10 If Bank so requests, (a) The Title Insurer shall have
agreed to issue its continuation endorsement to Bank indicating that
since the last preceding disbursement to Borrower or General Contractor,
there has been no change in the state of title, that there are no
intervening liens which may now or hereafter take priority over the
disbursement to be made and that there are no survey exceptions not
theretofore approved by Bank; (b) Upon completion of the foundation(s)
Title Insurer has issued its foundation endorsement insuring Bank that
the foundation(s) is constructed wholly within the boundaries of the
Property and does not encroach on any easements nor violate any
covenants, conditions or restrictions of record.
5.2.11 *
5.3 PRIOR THE LAST DISBURSEMENT, THE CONDITIONS SET FORTH IN
SUBPARAGRAPH 5.2 OF THIS PARAGRAPH SHALL BE SATISFIED AND IN ADDITION THE
FOLLOWING CONDITIONS SHALL HAVE BEEN SATISFIED BY BANK'S RECEIPT OF:
5.3.01 Advice from Bank's Inspection Department to the effect
that the Improvements have been completed in accordance with the Plans.
5.3.02 Evidence that Borrower has filed the Notice of
Completion of the Improvements necessary to establish commencement of
the shortest statutory period for the filing of mechanics' and
materialmen's liens.
5.3.03 CLTA Endorsement 101.6 issued by Title Insurer
subsequent to expiration of the period during which any lien for labor,
services or materials may be validly recorded against the Property or
the Improvements or such other endorsements to Bank's Title Insurance
Policy as Bank may require which shall insure that the Improvements have
been completed free of all mechanics' and materialmen's liens or claims
thereof.
5.3.04 Evidence of approval of completion of the Improvements
by Borrower if Borrower is not an owner builder.
5.3.05 Evidence of approval of completion of the Improvements
by FHA, VA, HUD or other Guarantor or purchaser, Permanent Lender and
Tenants under Major Leases as such approvals are deemed appropriate by
Bank.
5.3.06 If Tenant Improvements are to be installed by Borrower,
Bank shall have segregated sufficient funds, in Bank's judgment, from
the Undisbursed Loan Proceeds and the Borrower's Funds, to pay for such
Tenant Improvements.
6. LOAN DISBURSEMENT: The proceeds of the Loan and Borrower's Funds shall
be used only for the payment of costs of construction of the Improvements in
accordance with the Plans and other costs related thereto, as set forth on the
Disbursement Schedule, and shall be disbursed as follows:
6.1 INITIAL DISBURSEMENT: Immediately following Recordation, and
upon satisfaction of the conditions of paragraph 5.1 hereof, Bank shall disburse
in accordance with the Disbursement Schedule the amounts necessary to pay all
costs, charges and expenses incurred or to be incurred (as estimated by Bank) in
connection with the Loan or payable pursuant to this Agreement, the Trust Deed
or Security Agreements, excluding direct costs of labor and materials related to
the Improvement, and including but not limited to loan fees (which are deemed
earned at Recordation and are not refundable in whole or part), service charges,
title charges, tax and lien service charges, recording fees, escrow fees,
appraisal fees, legal fees, real property taxes and assesments, insurance
premiums, less payable in connection with any commitment to provide permanent
financing of the Improvements, and any amount required to pay existing
encumbrances affecting the Property and amounts required to complete the
purchase of the Property.
6.2 SUBSEQUENT DISBURSEMENTS: Upon satisfaction of the conditions of
paragraph 5.2 hereof, Bank shall disburse directly to Borrower or, at Bank's
option, directly to General Contractor or to such persons as have actually
supplied labor, material or services in connection with or incidental to the
constructions of the Improvements for for the payment of the cost of any of
Borrower's undertakings hereunder, in the Note, the Trust Deed or the Security
Agreements), such sums as are required for the payment of interest on the Loan,
costs and expenses of construction of the Improvements and disbursements shall
be made in accordance with the applicable provisions of the Disbursement
Schedule. All funds disbursed hereunder to Borrower shall be received by
Borrower in trust and Borrower agrees that the same shall be used only for the
payment of those items contemplated by the particular disbursement.
6.3 FINAL DISBURSEMENT: The Final Disbursement shall be the payment
of any monies retained from Progress Payments or draws as set forth in the
Disbursement Schedule. Subject to the provisions of this Agreement, the final
disbursement shall be made only after Borrower has satisfied the conditions of
paragraph 5.3 hereof and delivered or caused to be delivered to Bank in addition
to those required under paragraph 8.3 hereof, such additional endorsements or
such additional policies of title insurance with endorsements thereto as Bank
may require, with a liability limit of not less than the principal amount of the
Note issued by Title Insurer, with coverage and in form satisfactory to Bank
insuring Bank's interest under the Trust Deed as a first lien on the property,
excepting only such items as shall have been approved in writing by Bank.
However, Bank may withhold the final disbursement until Borrower has furnished
Bank with the written approval of such final disbursement by Title Insurer and
the surety on any bond required by Bank.
6.4 DISBURSEMENT LIMITS:
6.4.01 Bank shall not be required to disburse an aggregate amount of
the Loan proceeds for labor furnished to and materials incorporated into
the Improvements during any stage of construction which exceeds the
lesser of the value of such labor or materials or the amount allocated
to that stage of construction as set forth in the Disbursement Schedule,
and in any event, Bank shall not be required to disburse any amount
which, in Bank's opinion, will reduce that portion of the Undisbursed
Loan Proceeds designated for the cost of completion of construction of
the Improvements below that needed to pay for the labor and material
necessary to complete the Improvements. If Borrower consists of more
than one person or is a partnership or joint venture, Bank is authorized
to make disbursements to any one of such persons or to any partner or
joint venturer.
6.4.02 If Tenant Improvements are to be installed by Borrower, Final
Disbursement may be made notwithstanding the fact that the Tenant
Improvements have not been completed, but in such event the Final
Disbursement shall not include the funds segregated for payment of the
Tenant Improvements pursuant to paragraph 5.3.06 hereof. Disbursement of
funds to pay for Tenant Improvements shall be made in the same manner as
funds were disbursed for payment of the Improvements unless otherwise
indicated on
<PAGE> 38
7. REPRESENTATIONS AND WARRANTIES OF BORROWER: Borrower represents and
warrants, which representations and warranties shall survive any
investigations, inspections or inquiries made by Bank or any of its
representatives or any disbursements made by Bank hereunder, then:
7.1 IF CORPORATION: If a corporation, it is duly organized and
validly existing, in good standing under the laws of the state of its
incorporation, has stock outstanding which has been duly and validly issued, is
qualified to do business, and is in good standing in the state in which the
property is situated with full power and authority to consummate the
transactions contemplated hereby.
7.2 IF PARTNERSHIP: If a Partnership, it is duly organized and
validly existing.
7.3 IF TRUST: If a Trust, it is duly organized, validly existing
and the trustees thereof are qualified to act as Trustee.
7.4 PLANS, DEFECTS: The Plans are satisfactory to borrower, have
been approved by guarantor and Permanent Lender, and to the extent required by
applicable law or any effective restrictive covenant, by all Local Authority
and the beneficiary of any such covenant respectivity; the Plans so approved
have been initialed by Borrower and General Contractor, if any, all
construction, if any, heretofore performed on the improvements has been
performed within the perimeter of the Property in accordance with the Plans and
any restrictive covenants applicable thereto; there are no structural defects
in the improvements, and no violation of any Local Requirement exists with
respect thereto.
7.5 FINANCIAL STATEMENTS: The Financial Statements heretofore
delivered to Bank are true and correct in all respects, have been prepared in
accordance with generally accepted accounting practice, fairly present the
respective financial conditions of the subjects thereof as of their respective
dates, no materially adverse change has occurred in the financial conditions
reflected therein since their respective dates and no additional borrowings
have been made by Borrower since the date thereof other than the borrowing
contemplated hereby or approved by Bank.
7.6 LITIGATION: There are no actions, suits or proceedings
pending, or to the knowledge of Borrower threatened against or affecting it,
the Property or Guarantor or involving the validity or enforceability of the
Trust Deed or the priority of the lien thereof, at law or in equity, or before
or by any Governmental Authority or Local Authority. To the Borrower's
knowledge it is not in default with respect to any order, writ, injunction,
decree or demand or any court or any Governmental Authority or Local Authority.
7.7 NO BREACH: The consummation of the transaction hereby
contemplated and performance of this Agreement. Trust Deed and Security
Agreements will not result in any breach of, or constitute a default under any
mortgage, deed of trust, lease, bank loan or security agreement, corporate
charter, by-laws or other instrument to which the Borrower is a party or by
which it may be bound or affected.
7.8 UTILITIES: All utility services necessary for the construction
of the improvements and the operation thereof for their intended purpose are
either available at the boundaries of the Property or all necessary steps have
been taken by Borrower and Local Authority to assure the complete construction
and installation thereof, including water supply storm and sanitary sewer
facilities, gas, electric, and telephone facilities.
7.9 CERTIFIED INVOICE: Each Certified invoice shall be true and
accurate and the submission of same or the receipt of the funds so requested
shall constitute a reaffirmation of the representations, warrants and
covenants contained herein.
7.10 OTHER LIENS: It has made no contract or arrangement of any
kind, the performance of which by the other party thereto would give rise to a
lien on the Property, except for its arrangements with Borrower's Architect, the
General Contractor or the Major Subcontractors if there is no General
Contractor.
7.11 ROADS: All roads necessary for the full utilization of the
improvements for their intended purposes have either been completed or the
necessary rights-of-way therefore have either been acquired by Local Authority
or have been dedicated to public use and accepted by Local Authority and all
necessary steps have been taken by Borrower and Local Authority to assure the
complete construction and installation thereof.
7.12 PERMANENT COMMITMENT: The Permanent Commitment is unmodified,
is in full force and effect, and all conditions to the effectiveness or
continuing effectiveness thereof required to be satisfied by the date hereof
have been satisfied.
7.13 MAJOR LEASES: The Major Leases, if any, are in full force and
effect, there are no defaults under any of the provisions thereof, and all
conditions to the effectiveness or continuing effectiveness thereof, required
to be satisfied as of the date thereof have been satisfied.
7.14 NO DEFAULT: There is no default on the part of Borrower under
this Agreement, Note or Trust Deed, and no event has occurred and is continuing
which with notice or the passage of time or either would constitute a default
under any thereof.
7.15 CC&R'S, ZONING: It has examined, is familiar with, and the
improvements will in all respects conform to and comply with all covenants,
conditions, restrictions, reservations and zoning ordinances affecting the
Property.
7.16 TITLE TO PERSONAL PROPERTY: Any personal property required by
Bank as additional security for the Note is vested in Borrower free and clear
of all liens, encumbrances and adverse claims and that the security interest of
Bank in the personal property shall be a first lien thereon.
7.17 OTHER FINANCING: It has not received other financing for
either the acquisition of the Property or the construction and installation of
the improvements except as has been specifically disclosed to and approved by
Bank prior to Recordation.
7.18 BORROWER'S POWERS: Borrower has full power and authority to
execute this Agreement, the Note, the Trust Deed and the Security Agreements
and to undertake and consummate the transaction contemplated hereby and
thereby, and to pay, perform and observe its conditions, covenants, agreements
and obligations herein and therein contained.
7.19 FINDER'S FEES: Borrower hereby warrants and represents that it
has not dealt with any person, firm or corporation who is or may be entitled to
any finder's fee, brokerage commission, loan commission or other sum in
connection with the execution of this Agreement, consummation of the
transactions contemplated hereby and the making of the Loan by Bank to
Borrower, and Borrower does hereby indemnify and agree to hold Bank harmless
from and against any and all loss, cost liability or expense, including
reasonable attorney's fees, Bank may suffer or sustain should such warranty or
representation prove inaccurate in whole or in part.
8. BORROWER'S COVENANTS: Borrower covenants and agrees until the full and
final payment of the Loan, unless Bank waives compliance in writing, that it
will:
8.1 BORROWER'S FUNDS: At the time and in amounts required by Bank,
deposit Borrower's Funds in the borrower's funds, Building Loan Account.
Borrower's funds shall be disbursed from such account in the manner provided in
paragraph 6 herein. Should it appear at any time that the total funds then held
by Bank are insufficient, in Bank's reasonable judgment, to provide the
financing for the completion of the Improvements. Borrower, within ten (10)
days following receipt of written demand by Bank for additional funds, shall
pay to Bank an amount equal to such deficiency as expressed in said demand for
deposit in the Borrower's Funds, Building Loan Account.
8.2 IMPROVEMENTS INSPECTION: Permits Bank,* or its representatives
(and Bank shall have the right) to enter upon the Property, inspect the
Improvements and all materials to be used in the construction thereof and to
examine the Plans and all detailed plans and shop drawings which are or may be
kept at the construction site and will cooperate, and cause the General
Contractor or, if none, the Major Subcontractors, to cooperate with Bank
Inspection by Bank of construction shall be for the purpose of protecting the
security of Bank and such inspection is in no way to be construed as a
representation that there is a compliance with the Plans or that the
construction is free from faulty material or workmanship.
8.3 TITLE INSURANCE: Deliver or cause to be delivered to Bank at
Recordation or within a reasonable time thereafter an ALTA LP-10 Policy of
Title Insurance or its equivalent, with a liability limit of not less than the
face amount of the Note, issued by Title Insurer, insuring Bank's interest
under the Trust Deed as a valid first lien on the Property, together with such
reinsurance or coinsurance agreements or endorsements to said policy as Bank
may require. Said policy shall contain only such exceptions from its coverage
as shall have been approved in writing by Bank. After Recordation, Borrower
shall at its own cost and expense, maintain the Trust Deed as a first lien on
the Property and deliver or cause to be delivered to Bank from time to time
such endorsements and policies.
8.4 CONSTRUCTION START: Not to commence construction of the
Improvements, including grading and site clearance, or undertake any act on the
Property prior to Recordation, the result of which would cause any mechanics' or
materialmen's lien thereafter filed to take priority over the lien of the Trust
Deed; and to cause construction of the Improvements to be commenced not more
than thirty (30) days after Recordation and thereafter to diligently prosecute
such construction so that the same will be completed, in any event, on or before
the Completion Date.
8.5 LEASES: Deliver to Bank an executed counterpart of all leases
of the Property whether executed before or after the date hereof.
8.6 CHANGE ORDERS: Not permit the performance of any work pursuant
to any Change Order, which when added to the cumulative amount of all Change
Orders previously agreed to by Borrower, will result in a change in the General
Contract price in excess of the Cumulative Change Order Amount unless it shall
have received the specific approval of Bank to such Change Order and provided
that the additional funds necessary to pay for such Change Orders are provided
as Borrower's Funds. Bank is hereby authorized to and shall disburse said funds
in accordance with the Disbursement Schedule for the payment of such Change
Orders upon completion of such changes to Bank's satisfaction.
8.7 GENERAL CONTRACTOR COVENANT: Require covenants from the
General Contractor to the same effect as the covenant made by Borrower in the
preceding paragraph hereof, and that General Contractor will, upon request,
deliver to Bank the names of all persons with whom General Contractor has
contracted or intends to contract for the construction of the Improvements or
for the furnishing of labor or materials therefor.
8.8 GENERAL CONTRACT ONLY: Not execute any contract or become
party to any arrangement for the performance of work on the Property except
with the General Contractor, if there is one. If there is no General
Contractor, Borrower shall only contract with Major Subcontractors approved by
Bank for the performance of work on the Property.
8.9 PERMANENT COMMITMENT: Comply with all conditions of the
Permanent Commitment and execute all documents necessary for the Permanent
Closing. Borrower agrees that the covenants contained in this paragraph are for
the benefit of and shall be directly enforceable by the Permanent Lender.
8.10 FOUNDATION COMPLETION: Notify Bank immediately on completion
of the foundation of the Improvements.
8.11 PERSONAL PROPERTY INSTALLATION: Not install materials,
personal property, equipment, or fixtures subject to any security agreement or
other agreement or contract wherein the right is reserved to any person, firm
or corporation to remove or repossess any such material, equipment or fixtures,
or whereby title to any of the same is not completely vested in Borrower at
time of installation, without Bank's written consent.
8.12 INSURANCE: Prior to any disbursement hereunder, procure and
deliver to Bank and thereafter maintain Policy or Policies of Insurance in form
and content and by an insurer or insurers satisfactory to Bank, including a
clause giving Bank a minimum of ten (10) days' notice if such insurance is
cancelled, as follows: (i) Fire Insurance in an amount not less than the face
amount of the Note or the insurable value of the Improvements, whichever amount
is lesser, with the normal conditions including fire, extended coverage,
vandalism, malicious mischief, course of construction endorsement and a loss
payable endorsement naming Bank as payee, (ii) Liability Insurance indicating
coverage satisfactory to Bank, (iii) Workers' Compensation Insurance, issued to
Borrower or to General Contractor, and (iv) Flood and/or Earthquake Hazard
Insurance, if required by Bank.
8.13 MAINTAIN RECORDS: Keep and maintain full and accurate accounts
and records of its operations according to generally accepted accounting
principles and practices for its type of business.
8.14 TAXES: Pay and discharge all lawful claims, including taxes,
assessments, and governmental charges or levies imposed upon it or its income
or profits or upon any properties belonging to it prior to the date upon which
penalties attach thereto; provided that Borrower shall not be required to pay
any such tax, assessment, charge, or levy, the payment of which is being
contested in good faith and by proper proceedings.
8.15 NOTIFICATION OF DEFAULT: Promptly notify Bank in writing of
the occurrence of any event of default under this agreement, the Note, the Trust
Deed or the Security Agreements or of any facts then in existence which would
become an event of default hereunder or thereunder upon the giving of notice or
the lapse of time or both.
8.16 PAYMENT OF COSTS: PAY ALL COSTS AND EXPENSES REQUIRED TO
SATISFY THE CONDITIONS OF AGREEMENT. WITHOUT LIMITATION OF THE GENERALITY OF
THE FOREGOING. BORROWER WILL PAY:
8.16.01 all taxes and recording expenses, including stamp taxes, if any.
8.16.02 the fees and commissions lawfully due to brokers in connection
with this transaction and hold Bank harmless from all such claims, and
8.16.03 the travel and living expenses of representatives of Bank and
Bank's counsel, in connection with their attendance at the Initial
Closing, the Permanent Closing or conferences with Borrower or its
representatives, agents or contractors if held other than at an office
of Bank. To the extent services are required of counsel in addition to
those normally and reasonably incident to the closing and assignment of
a loan of the character contemplated hereby, Borrower shall pay the
reasonable fees therefor.
8.17 NO CONVEYANCE OR ENCUMBRANCE: Not to sell, convey, transfer,
dispose of or further encumber the Property or the Improvements or any part
thereof or any interest therein or enter into a lease covering all or any
portion thereof or any undivided interest therein, either voluntarily,
involuntarily or otherwise, or enter into an agreement so to do without the
prior written consent of Bank being first had and obtained. All easements,
declarations of covenants, conditions and restrictions, and private or public
dedications affecting the Property shall be submitted to Bank for its approval
and such approval shall be obtained prior to the execution or granting of any
thereof by Borrower, accompanied by a drawing or survey showing the precise
location of each thereof.
8.18 COMPLIANCE WITH GOVERNMENT: Comply promptly with any
Governmental Requirement or Local Requirement.
* With the Exception of $175,000 to Westerra Capital
<PAGE> 39
8.19 DILIGENT CONSTRUCTION: Cause the construction of the
improvements to be prosecuted with diligence and continuity and completed in
accordance with the Plans and meet all conditions of the Permanent Lender on or
before the Completion Date, free and clear of liens or claims for liens.
8.20 SATISFY CONDITIONS: Cause all conditions hereof to be
satisfied at the time and in the manner herein provided.
8.21 APPLICATION OF DISBURSEMENTS: Receive the disbursements to be
made hereunder as a trust fund for the purpose of paying the costs of
construction of the improvements and it will apply the same first to such
payment before using any part thereof for any other purpose.
8.22 APPROVAL: Borrower shall obtain and deliver to Bank evidence
of the approval by Local Authority, local Board of Fire Underwriters or its
equivalent and by all Governmental Authority of the improvements in their
entirety for permanent occupancy to the extent any such approval is a condition
of the lawful use and occupancy of the improvements.
8.23 PAID VOUCHERS: Deliver to bank, on demand, any contracts, bills
of sale, statements, receipted vouchers or agreements, under which Borrower
claims title to any materials, fixtures or articles incorporated in the
improvements.
8.24 DEFECT CORRECTIONS: Upon demand of Bank, correct any defect in
the improvements or any departure from the Plans not approved by Bank; the
advance of any Loan proceeds shall not constitute a waiver of Bank's right to
require compliance with this covenant with respect to any such defects or
departures from the Plans not theretofore discovered by, or called to the
attention of Bank.
8.25 CONTRACT CHANGES: Not without the prior written consent of
Bank permit any change in the Plans which, when added to the cumulative amount
of all increases in the General Contract price resulting from Change Orders
heretofore agreed to by Borrower, would result in a change in the general
contract price or in the cost of construction of the improvements in excess of
the Change Order Amount or to reduce the square foot area of the improvements,
the number of units therein, or, if an apartment or condominium project, of the
design and layout of any such units.
8.26 DEFAULT: At the option of Bank, the following shall constitute
events of default hereunder including, if Borrower consists of more than one
person, the occurrence of any of such events with respect to any one or more
said persons)
9.1 Any default in the performance of any covenant, condition, or
agreement set forth herein, in the Trust Deed. Note: Security Agreements or in
any ground lease if the Property is a leasehold estate.
9.2 Borrower or General Contractor does not proceed continuously
with the construction of the improvements or the construction of the
improvements is otherwise discontinued for a period of five (5) consecutive
business days or more for any reason. See Special Conditions Exhibit D
attached hereto and incorporated herein by this reference.
9.3 Borrower voluntarily suspends the transaction of business or
there is an attachment, execution or other judicial seizure of any portion of
Borrower's assets and such seizure is not discharged within Thirty (30) days.
9.4 Borrower becomes insolvent or unable to pay its debts as they
mature or makes an assignment for the benefit of creditors.
9.5 Borrower files or there is filed against Borrower a petition to
have Borrower adjudicated a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy unless, in the case of a
petition filed against Borrower, the same is dismissed within Thirty (30) days.
9.6 Borrower applies for or consents to the appointment of a
receiver, trustee or conservator for any portion of Borrower's property or such
appointment is made without Borrower's consent and is not vacated within Thirty
(30) days.
9.7 Any representation by Borrower to Bank concerning Borrower's
financial condition or credit standing or any representation or warranty
contained herein proves to be false or misleading.
9.8 Any persons obtains an order or decree in any court of
competent jurisdiction enjoining the construction of the improvements or
enjoining or prohibiting Borrower or Bank or either of them from performing
this agreement, and such proceedings are not discontinued and such decree is
not vacated within Thirty (30) days after the granting thereof.
9.9 Borrower neglects, fails or refuses to keep in full force and
effect any permit or approval with respect to the construction of the
improvements.
9.10 If any Bonded Notice to Withhold in connection with the Loan is
served on Bank in accordance with the provisions of California Code or similar
provisions of any other state if the Property is not situated in California and
within five (5) days of the receipt of such notice the claim set forth therein
is not discharged or, if the amount claimed is disputed in good faith by
Borrower or General Contractor, an appropriate counter bond or equivalent
acceptance to Bank is filed with Bank.
9.11 The imposition, voluntary or involuntary, of any lien or
encumbrance upon the Property without Bank's written consent or unless an
adequate counter bond is provided and such lien is accordingly released within
ten (10) days of the imposition of such lien.
9.12 The occurrence of any event enumerated in Section 9.3, 9.4,
9.5, 9.6 and 9.7 hereof with respect to any Guarantor or any party signatory to
a Completion Agreement.
9.13 Borrower modifies, amends or terminates or otherwise fails to
consummate the closing of the Permanent Commitment or takes any action that
might or does result in a modification, amendment, termination or expiry of the
permanent Commitment without Bank's written consent.
10. REMEDIES: If any of the events of default set forth in paragraph 9
occur, then Bank, in addition to its other rights hereunder, may at its option,
without prior demand or notice
10.1 Terminate the obligation of Bank to make disbursements
hereunder.
10.2 Declare the Note immediately due and payable.
10.3 Notwithstanding the exercise of either one or both of the
remedies described in paragraphs 10.1 and 10.2 hereof, bank may make any
disbursements after the happening of any one or more of said events of default
without thereby waiving its right to demand payment of the Note and without
liability to make any other or further disbursements.
10.4 Proceed as authorized by law to satisfy the indebtedness of
Borrower to Bank and, in that regard, Bank shall be entitled to all of the
rights, privileges and benefits contained in the Trust Deed and Security
Agreements or other Loan documents.
10.5 Take possession of the Property and perform any and all work
and labor necessary to complete the improvements substantially in accordance
with the Plans in which event expenditures therefor shall be deemed an
additional loan to Borrower, payable on demand, bearing interest at the Default
interest rate and secured by the Trust Deed and Security Agreements.
10.6 Take possession of all funds and deposits of Borrower on hand
or deposit in any account at bank or any branch at Bank and apply said funds in
such order at priority as Bank may elect in connection with the obligations of
Borrower, hereunder, under the Note, the Trust Deed or the Security Agreements.
11. POWER OF ATTORNEY: In the event of default as defined in paragraph 9
hereof, borrower hereby constitutes and appoints Bank its true and lawful
attorney in fact with the power and authority, including full power of
substitution, as follows:
11.1 To take possession of the Property and complete the
improvements.
11.2 To use any of Borrower's Funds and any funds which may remain
undisbursed under the Loan for the purpose of completing the improvements and
for other costs related thereto.
11.3 To make such additions and changes and corrections in the Plans
as may be necessary or desirable as Bank in its sole discretion deems proper to
complete the improvements.
11.4 To employ such contractors, subcontractors and agents,
architects and inspectors are required to complete the improvements.
11.5 To employ watchmen to protect the Property and improvements
from injury.
11.6 To pay, settle or compromise all existing bills and claims
against Borrower's Funds or any funds which may remain undisbursed under the
Loan or as may be necessary or desirable, as Bank in its sole discretion deems
proper, for the completion of the improvements or for protection or clearance of
title to the Property and Personal Property or for the protection of Bank's
interest with respect thereto.
11.7 To prosecute and defend all actions and proceedings in
connection with the construction of the improvements.
11.8 As Bank in its sole discretion deems proper, to execute,
acknowledge, and deliver all instruments and documents in the name of Borrower
which may be necessary or desirable to do and to do any and every act with
respect to the construction of the improvements which Borrower might do on his
own behalf. This Power of Attorney is a power coupled with an interest and
cannot be revoked and any costs or expenses incurred by Bank in connection with
any acts by Bank under or pursuant to this Paragraph 11 shall be at the cost
and expense of Borrower, repayable on demand by Borrower to Bank with interest
thereon at the Default interest rate, with any such advances made or costs or
expenses incurred by Bank to be secured by the Trust Deed and the Security
Agreements.
12. SECURITY INTEREST: Borrower does hereby give and grant to Bank a
security interest in all funds and deposits of Borrower on deposit at Bank or
any branch of Bank, as additional security for the obligations of Borrower
contained in the Note, Trust Deed or the Security Agreements.
13. DISCLAIMER: WHETHER OR NOT BANK ELECTS TO EMPLOY ANY OR ALL OF THE
REMEDIES AVAILABLE TO IT IN THE EVENT OF DEFAULT, BANK SHALL NOT BE LIABLE FOR
THE CONSTRUCTION OF OR FAILURE TO CONSTRUCT OR COMPLETE OR PROTECT THE
IMPROVEMENTS OR FOR PAYMENT OF ANY EXPENSE INCURRED IN CONNECTION WITH THE
EXERCISE OF ANY REMEDY AVAILABLE TO BANK OR FOR THE CONSTRUCTION OR COMPLETION
OF THE IMPROVEMENTS OR FOR THE PERFORMANCE OR NON-PERFORMANCE OF ANY OTHER
OBLIGATION OF BORROWER.
14. SIGNS: Borrower hereby grants Bank the right to erect or cause to be
erected Bank's sign or signs in size and location desired by Bank on the
Property so long as such sign or signs do not interfere with the reasonable
construction of the improvements. Borrower will and will cause General
Contractor and Subcontractors to exercise due care to protect said sign or
signs from damage.
15. GENERAL CONDITIONS:
15.1 NO WAIVER: No delay or omission of Bank in exercising any
right or power arising from any default by Borrower shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Bank may, at
its option, waive any of the conditions herein and any such waiver shall not be
deemed a waiver of Bank's rights hereunder but shall be deemed to have been
made in pursuance of this agreement and not in modification thereof. No waiver
of any event of default shall be construed to be a waiver of or acquiescence in
or consent to any preceding or subsequent event of a default.
15.2 NO THIRD PARTY BENEFITS: This agreement is made for the sole
benefit of Borrower and bank, their successors and assigns and no other person
or persons shall have any rights or remedies under or by reason of this
agreement nor shall Bank owe any duty whatsoever to any claimant for labor
performed or material furnished in connection with the construction of the
improvements, to apply any undisbursed portion of the Loan to the payment of any
such claim or to exercise any right or power of Bank hereunder or arising from
any default by Borrower.
15.3 NOTICE: All written notices or demands of any kind which Bank
may be required or desires to serve upon Borrower under the terms of this
agreement may be served upon Borrower (as an alternative to personal service
upon Borrower) by leaving a copy of such notice or demand addressed to Borrower
at the Property, whereupon service shall be deemed complete, or by mailing a
copy thereof by certified or registered mail, addressed to Borrower at the
Property. In case of service by mail it shall be deemed complete at the
expiration of the second day after the date of mailing. If Borrower consists
of more than one person, service of any notice or demand of any kind by Bank
upon any one of said persons in the manner hereinabove provided shall be
complete service upon all *Business.
15.4 DEATH OF PARTNER: If Borrower is organized as a partnership or
joint venture, upon the death of any of the general partners or joint venturers
comprising Borrower prior to the completion of the improvements or prior to the
disbursement of the balance of Loan Proceeds, Bank may cease disbursements
hereunder unless the Partnership or Joint Venture Agreement provides for and the
partnership or joint venture in fact does continue after such death.
15.5 ENTIRE AGREEMENT: This agreement constitutes the entire
understanding between the parties and may not be modified, amended or
terminated except by a written agreement signed by each of the parties hereto.
15.6 DOCUMENTATION: In addition to the instruments and documents
mentioned or referred to herein, Borrower will, at its own cost and expense,
supply Bank with such other instruments, documents, information and data as
may, in Bank's opinion, be reasonably necessary for the purposes hereof, all of
which shall be in form and consent acceptable to Bank.
15.7 NOT ASSIGNABLE: Neither this agreement nor any right of
Borrower to receive any sums, proceeds or disbursements hereunder, or under the
Note may be assigned, pledged, hypothecated, anticipated or otherwise
encumbered by Borrower without the prior written consent of Bank. Subject to
the foregoing restrictions, this agreement shall inure to the benefit of Bank,
its successors and assigns and bind Borrower, its heirs, executors,
administrators, successors and assigns.
15.8 TIME IS OF THE ESSENCE: Time is hereby declared to be of the
essence of this agreement and of every part hereof.
15.9 SUPPLEMENT TO SECURITY AGREEMENTS: The provisions of this
agreement are not intended to supersede the provisions of the Trust Deed or the
Security Agreements but shall be construed as supplemental thereto.
15.10 JOINT AND SEVERAL OBLIGATIONS: If Borrower consists of more
than one person, the obligations of Borrower shall be the joint and several
obligations of
- 4 -
<PAGE> 40
all such persons, and any married person who execute this agreement agrees that
recourse may be bad against his or her separate property for satisfaction of
his or her obligations hereunder. When the context and construction so require,
all words used in the singular herein shall be deemed to have been used in the
plural and the masculine shall include the feminine and neuter and vice versa.
15.11 CALIFORNIA LAW: This agreement shall be construed in accordance
with the laws of the State of California.
15.12 AGENCY: Borrower hereby appoints and authorizes Bank, as its
agent, to record any notices of completion, cessation of labor and other notices
that Bank deems necessary to record to protect any interest of Bank under the
provisions of this agreement, the Note, the Trust Deed or any of the Security
Agreements. This agency is a power coupled with an interest and is not
revocable.
15.13 GOVERNMENTAL REGULATIONS: If payment of the indebtedness secured
by the Trust Deed is to be insured or guaranteed by any governmental agency,
Borrower shall comply with all rules, regulations, requirements and statutes
relating thereto or provided in any commitment issued by any such agency to
insure or guarantee payment of such indebtedness.
15.14 [copy illegible] demand, with interest thereon from date of
expenditure at the Default Interest rate, reasonable attorneys' fees and all
costs and other expenses paid or incurred by Bank in enforcing or exercising
its rights or remedies created by, connected with or provided in this
agreement, and payment thereof shall be secured by the Trust Deed and each of
the Security Agreements.
15.15 SURVIVAL: The Representations, Warrants and covenants herein
shall survive the disbursement of the Loan and shall remain in force and effect
until the Loan is paid in full.
15.15.1*
16. SEVERABILITY: Invalidation of any one or more of the provisions of this
agreement, the Trust Deed or Security Agreements by judgment or court order
shall in no way affect any of the other provisions thereof which shall remain
in force and effect.
17. PARTICULAR CONDITIONS: The particular conditions, if any, are set forth
in Exhibit "C" attached hereto and made a part hereof.
*5.2.11, 7.20, 8.26 and 15.15.1: See Hazardous Materials Rider attached hereto
and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties have executed this agreement the day
and year first above written.
UNION BANK, a California corporation
By: /s/ Jack F. Webster
-----------------------------------
Jack F. Webster, Sr. Vice President
By: /s/ J. Curtis Fornal
-----------------------------------
J. Curtis Fornal, Vice President
BORROWER
Westerra Pacific Associates, a California
General Partnership
By: /s/ Edward B. Romanow
-----------------------------------
Edward B. Romanow, Jr.,
General Partner
By: /s/ E. Stevens Hamilton
-----------------------------------
E. Stevens Hamilton,
General Partner
By: Westerra Executives, Ltd., a California
Limited Partnership, General Partner
By: /s/ Edward B. Romanow
-----------------------------------
Edward B. Romanow, Jr.,
General Partner
GENERAL CONTRACTOR
The undersigned General Contractor hereby represents and warrants it
has initiated the Plans, makes the covenants set forth in paragraphs 8.6 and
8.7 hereof and agrees that the Disbursement Schedule shall control
notwithstanding the provisions of the General Contract.
GENERAL CONTRACTOR
By
-----------------------------------
By
-----------------------------------
-5-
<PAGE> 41
THIS EXHIBIT A IS ATTACHED TO AND A PART OF THAT CERTAIN BUILDING LOAN
AGREEMENT DATED September 1, 1989 BY AND BETWEEN THE UNDERSIGNED.
THE LOAN PROCEEDS IN THE AMOUNT OF $17,500,000.00 PLUS BORROWER'S FUNDS
IN THE AMOUNT OF $ -0- AGGREGATING $17,500,000.00 SHALL BE DISBURSED AS
FOLLOWS:
I. INITIAL DISBURSEMENT: Bank is hereby authorized and directed to make
Initial Disbursements for the purposes, in the amounts, and to the
persons indicated:
1. As a non-refundable Loan Fee to Union Bank, the sum of $180,000.00.
2. To n/a
for payment of Title Policy Premiums and recording fees, the
approximate sum of $ n/a.
3. For payment of taxes, the sum of $ n/a.
4. Upon demand of Founders Title Company, pay the principal sum of
$4,278,743.00 to Founders Title Company for the credit of Borrower
for use in their escrow number 603124.
5. To Union Bank for appraisal fees and other costs of processing the
Loan the approximate sum of $______________.
6. Other:
Pay Secretary of State UCC-3 Search $12.00
Pay Secretary of State UCC-1 Filing $5.00
Pay Union Bank - Legal Fees $918.70
II. SUBSEQUENT DISBURSEMENTS: The remainder of the Loan Proceeds and
Borrower's Funds in the sum aggregate of $13,040,321.30 plus funds not
disbursed as provided for in Section I hereof or less any additional
funds disbursed as provided for in Section I hereof, shall be disbursed
in conformity with the following paragraphs which are indicated by X:
/X/ A. On or about the first day of each calendar month following
commencement of construction of the Improvements, Contractor shall
submit to Borrower or Borrower's Architect, a Certified Invoice showing
the estimated cost of labor performed on and materials incorporated into
the improvements, a pro-rata portion of the General Contractor's profit
and that pro-rata portion of overhead of General Contractor attributable
to the construction of the Improvements. The original of such Certified
Invoice, certified true and correct by the General Contractor and
approved by Borrower or Borrower's Architect, shall be submitted to Bank
for payment. Upon verification of the accuracy of the Certified Invoice
by Bank inspection of the Property and Improvements, Bank shall disburse
to General Contractor, Borrower or Subcontractors, laborers and
materialmen (at Bank's option as to whom and the amounts payments are
made) 100% of the amount of the respective Approved Certified Invoice
but in no event shall the aggregate of such payments exceed the sum of
$5,190,480.00 except as provided for by Borrower and accompanied by
funds for the payment thereof. The Final Disbursement in the sum of
$576,720.00 shall be made upon compliance with the provisions of
paragraph 6.3 of the Building Loan Agreement.
/ / B. Upon receipt by Bank of Bank's Voucher signed by Borrower or
Borrower's Architect, properly endorsed by the Payee, accompanied by
unconditional lien waivers for the work or materials represented by the
respective voucher duly signed by the mechanic or materialman supplying
said work or material, and upon Bank's verification of the accuracy of
the amount and labor or materials represented by the voucher so
submitted by Bank's Inspection Department and upon confirmation by
Bank's Loan Officer responsible for the Loan that after such
disbursements there shall remain adequate funds in the Undisbursed Real
Estate Loan Account and the Borrower's Funds. Building Loan Account to
complete construction of the Improvements. Bank shall pay the voucher
amount to the party submitting the voucher but in no event shall the
aggregate of such payments exceed the sum of $__________ except as
provided for by Borrower and accompanied by funds for the payment
thereof.
If conditional lien waivers are submitted to Bank, at Bank's option,
Bank shall either return such conditional lien waiver to the person so
submitting the waiver, in which case no payment shall be made by Bank on
the voucher accompanying such conditional lien waiver, or Bank shall
make payment by joint check payable to the person submitting the voucher
and the person signing the conditional lien waiver which check shall
contain an unconditional lien waiver on the reverse thereof. The Final
Disbursement in the sum of $__________ shall be made upon compliance
with the provisions of paragraph 6.3 of the Building Loan Agreement.
/ / C. The sum of $__________ shall be paid to General Contractor,
Borrower or subcontractors, laborers and materialmen (at Bank's option
as to whom and the amounts payments are to be made) in progress
payments. Each progress payment shall be paid upon the occurrence of the
conditions and in amounts equal to the percentage of such sum set forth
on the Bank approved rider attached hereto and a part hereof.
/X/ D. The sum of $1,806,260.00 plus funds not disbursed as provided for
in Section I hereof or less any additional funds disbursed as provided
for in Section I, hereof, shall be disbursed from time to time on the
interest payment date specified in the Note by the withdrawing by Bank
of sufficient amounts to pay interest due on the Note. Each such
interest payment shall then be deemed paid in full. When said sum has
been completely disbursed. Borrower shall make interest payments
directly to Bank in accordance with the terms of the Note.
<PAGE> 42
/X/ E. The sum of $3,079,581.30 shall be disbursed in amounts and for
the purposes specified below.
On or about the first day of each calendar month, following commencement of the
work, Borrower, Contractor or his authorized agent shall submit request and
itemized invoice on Bank form or form acceptable to Bank, covering expenses
incurred. Bank, after inspection or verification satisfactory to it that said
funds have been expended, shall disburse 100% of approved invoice for the
following items:
Option Fee - Parcel 6-B $225,000.00
Architectural and Engineering 330,000.00
Fees, Permits, Assessments 430,900.00
Property Taxes 110,000.00
Insurance 26,000.00
Supervision, O.H. Administration, Etc. 437,500.00
Legal, Accounting, (Admin. Costs) 149,081.30
Profit 437,500.00
Permanent Financing Cost 110,000.00
Mortgage Placement Fee 175,000.00
Miscellaneous 134,500.00
Commercial Loans Interest 50,500.00
Land Draw 463,600.00
F. The sum of $2,387,280.00 shall be disbursed to Borrower for Tenant
Improvements upon written request of Borrower at the rate of $23.00 per square
foot of leased area. Upon Bank's receipt of executed leases in form and
content acceptable to Bank and verification of the improvements of Bank
inspection.
THIS DISBURSEMENT SCHEDULE IS EXECUTED BY BORROWER AND BANK THIS 1ST
DAY OF SEPTEMBER, 1989.
BORROWER UNION BANK
Westerra Pacific Associates, a California By: /s/ JACK P. WEBSTER
General Partnership -------------------------------
Jack P. Webster, Sr.
By: /s/ EDWARD B. ROMANOW, JR. Vice President
------------------------------------
Edward B. Romanow, Jr.,
General Partner By: /s/ J. CURTIS FORNAL
-------------------------------
By: /s/ E. STEVENS HAMILTON J. Curtis Fornal,
------------------------------------ Vice President
E. Stevens Hamilton,
General Partner
By: Western Executives, Ltd.,
------------------------------------
a California Limited Partnership,
General Partner
By:
------------------------------------
Edward B. Romanow, Jr.,
General Partner
FOR ACCOUNTING PURPOSES ONLY:
/X/ MAKE DISBURSEMENTS UNDER II HEREOF TO WESTERN PACIFIC ASSOCIATES
BY: /X/ CREDITING COMMERCIAL ACCOUNT #400011046 AT OFFICE NO. 400
/ / CASHIER'S CHECK
<PAGE> 43
(If there are no major leases, please write NONE.)
Lease: dated December 7, 1988
executed by: JAYCOR, a California Corporation & Westerra
Pacific Associates, a California General
Partnership
covering: Lot 6 of Eastgate Technology Park San Diego,
CA and a 100,000 square foot office building
term: 10 years with two options to extend for periods
of 5 years each
SPECIAL CONDITIONS
(EXHIBIT C)
(If there are no major leases, please write NONE.)
Recent California legislation now requires any title company handling funds in
an escrow capacity to have deposited into its escrow depository account before
recording a transaction immediately available funds representing disbursements
to be made by it.
Borrower's title company shall specify the date it needs such proceeds
(including loan proceeds) for use in said escrow.
Accordingly, on all funds disbursed pursuant to Section I.4 above, you may
deliver such disbursement to Founders Title Company's Escrow No. 603124 on the
date specified by said title company which date may be prior to the recording of
Borrower's Deed of Trust. Interest on amounts outstanding under the Note shall
accrue from the date of disbursement which may be different than the date of
recording of the above described Deed of Trust.
Funds are to be wired to:
Wells Fargo Bank
660 Newport Center Drive
Newport Beach, CA 92660
ABA #121500248
Account of Founders Title Company Account No. 4652048729
Ref: Escrow No. 603124/Westerra Pacific Assoc.
Regarding the Disbursing Schedule II.A the sum of $5,767,200.00 shall be
disbursed only at such time as Bank is in receipt of the following items:
1. Signed Contract with cost breakdown attached.
2. Assignment of Construction Contract.
3. Copy of Building Permits.
4. Course of Construction Insurance furnished by Borrower.
5. General Liability and Workmen's Compensation Insurance furnished on behalf
of General Contractor.
6. Completion Agreement executed by Contractor.
7. Resolution Authorizing Completion Agreement (if applicable).
-8-
<PAGE> 44
SPECIAL CONDITIONS
Exhibit D
Force Majeure. The term "Force Majeure" shall mean a period, not in
excess of ninety (90) days in the aggregate, except as otherwise may be agreed
to by Bank, equal to the period of time that Borrower is unable to proceed with
construction of the Improvements as a result of Unavoidable Delays.
"Unavoidable Delays" shall mean delays due to weather, strikes, availability of
materials, governmental delays, acts of God or other matters which cannot be
anticipated and which are outside Borrower's control. Such other matters shall
not include delays caused by a failure to comply with the terms of this
Agreement or by any lack or shortage of funds on Borrower's part. To effect an
extension under this paragraph 9.2 Borrower shall deliver written notice to
Bank setting forth in the date of commencement of any event for which an
extension is requested (which notice must be delivered within five (5) business
days after such commencement date and which notice shall also specify the
probable duration of such event) and Borrower shall also deliver to Bank
written notice setting forth the date such event ended (which notice must be
delivered within five (5) business days after such ending date.)
<PAGE> 45
HAZARDOUS MATERIALS
RIDER TO BUILDING LOAN AGREEMENT
1.40 Hazardous Materials: substances defined as "hazardous substances,"
"hazardous materials," or "toxic substances" in the Comprehensive Environmental
Responses, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec.
9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901, et seq.; and those substances defined as "hazardous wastes" in Section
25117 of the California Health & Safety Code or as "hazardous substances" in
Section 25316 of the California Health & Safety Code; and in the regulations
adopted, published and/or promulgated pursuant to said laws.
1.41 Preliminary Site Assessment: a report (and all amendments, modifications
updates and reviews thereof) on the presence of Hazardous Materials on, in,
under or about the property issued by or reviewed and approved by an entity
knowledgeable in environmental matters acceptable to Bank, in form and content
acceptable to Bank and delivered or caused to be delivered to Bank by Borrower
at Borrower's cost and expense.
5.2.11 Bank shall have no knowledge of the presence of any Hazardous Materials
creating an adverse economic impact upon the Property.
7.20 Hazardous Materials: Except as may be set forth in the Preliminary Site
Assessment, Borrower hereby warrants and represents that the Property is not now
and shall not at any time in the future be in violation of any federal, state or
local law, ordinance or regulation relating to environmental conditions on,
under or about the Property including, but not limited to, soil and groundwater
conditions. Until the loan is repaid in full, neither Borrower, any Successor in
interest to Borrower, nor any Tenant of Borrower or such Successor in interest
shall use, generate, manufacture, refine, produce, process, store or dispose of
on, under or about the Property or transport to or from the Property any
Hazardous Materials, as defined below, in contravention of any applicable law,
rule, regulation or order (collectively, "Hazardous Waste Laws"), nor does
Borrower intend to use the Property in the future for the purpose of
transferring, processing or transporting of Hazardous Materials, as defined
below, in contravention of any Hazardous Waste Law.
8.26 Removal of Hazardous materials: If at any time during the term of this
Loan, Hazardous Materials are discovered, used, or placed on the Property in
violation of any Hazardous Waste Law, Borrower, at Borrower's sole cost and
expense, shall remove such Hazardous Materials from the Property or the
groundwater underlying the Property in accordance with requirements of the
appropriate governmental entity. In addition to all other rights and remedies of
bank hereunder, if such Hazardous Materials are not removed from the Property or
the groundwater underlying the Property by borrower within ninety (90) days
after Borrower discovers such Hazardous Materials, bank, at its sole discretion,
may pay to have same removed and Borrower shall reimburse Bank within five (5)
days of bank's demand for payment. Borrower shall indemnify and hold Bank
harmless from and against all loss, damage, liability (including without
limitation, the cost of any required cleanup of the Hazardous Materials and all
attorneys' fees and expenses incurred by bank in connection therewith ) which
Bank may sustain as a result of the presence or cleanup of Hazardous Materials
on the Property in violation of any Hazardous Waste Law.
15.15.1 All representations, warranties and indemnities with respect to
Hazardous Materials shall survive the repayment of the Loan.
Date: September 1, 1989
BORROWER UNION BANK
a California corporation
See reverse for signatures By: /s/ JACK P. WEBSTER
- -------------------------- -----------------------------------
Jack P. Webster, Sr. Vice President
By: /s/ J. CURTIS FORNAL
- -------------------------- --------------------------------
J. Curtis Fornal, Vice President
(6/3/88)
Form C
<PAGE> 46
Westerra Pacific Associates, a California
General Partnership
By: /s/ Edward B. Romanow
---------------------------------------
Edward B. Romanow, Jr., General Partner
By: /s/ E. Stevens Hamilton
---------------------------------------
E. Stevens Hamilton, General Partner
By: Westerra Executives, Ltd., a California
Limited Partnership, General Partner
By: /s/ Edward B. Romanow
---------------------------------------
Edward B. Romanow, Jr., General Partner
Jaycor, a California corporation hereby assumes the obligations
of borrower hereunder and agrees to be bound by the terms and
conditions of this agreement.
Jaycor, a California corporation
BY:_____________________________
<PAGE> 47
DO NOT DESTROY THIS NOTE: When paid, this note, with Deed of Trust securing
same, must be surrendered to Trustee for cancellation and retention before
reconveyance will be made.
Loan Number 4960035-647-000647
[LOGO]
Union Bank
NOTE SECURED BY DEED OF TRUST
(FLOATING RATE NOTE)
$17,500,000.00 San Diego , California September 1, 1989
- -------------- ----------------------- --------------------
(City) (Date)
On March 11, 1991 for value received, the undersigned, jointly and
severally, promise(s) to pay to the order of UNION BANK at its office at 525
"B" Street in this city, or at such other place as the holder of this note may
from time to time designate in writing, the principal sum of Seventeen Million
Five Hundred Thousand and no/100ths Dollars together with interest from date
hereof computed on principal balances hereof from time to time outstanding,
adjusted daily to the rate which is Three-Quarters percent (.75%) per year in
excess of the Union Bank Reference Rate which is that rate announced by the
Bank at its Corporate Headquarters as the Union Bank Reference Rate, and which
shall vary concurrently with any change in such rate.
Interest shall be payable on the first day of each calendar month
following the date hereof and shall be computed daily by multiplying the then
outstanding principal balance by 1/360th of the above annual interest rate.
Should interest not be so paid, it shall become a part of the principal and
thereafter bear interest as herein provided.
Should default be made in the payment of principal or interest when due or in
the performance or observance when due of any term, covenant or condition of
any Deed of trust, security agreement or other agreement (including amendments
and extensions thereof) securing or pertaining to this note at the option of
the holder hereof and without notice or demand, the entire balance of principal
and accrued interest then remaining unpaid shall become immediately due and
payable and thereafter bear interest, until paid in full, at the increased rate
of 5% per annum over and above the rate contracted for herein as it may vary
from time to time. No delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any such Deed of Trust, security
agreement or other agreement shall operate as a waiver of such right or of any
other right under this note or under any such Deed of Trust, security agreement
or other agreement.
If this note is not paid when due, whether at its specified or
accelerated date, the undersigned promise(s) to pay all costs of collection,
including, but not limited to, reasonable attorneys' fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Principal and interest shall be payable in lawful money of the United
States. The receipt of any check or other item of payment by Bank, at its
option, shall not be considered a payment on account until such check or other
item of payment is honored when presented for payment at the drawee bank. Bank
may delay the credit of such payment based upon its schedule of funds
availability and interest shall accrue until the funds are deemed collected.
The undersigned waive(s) the defense of the statute of limitations in any action
on this note.
This note is secured by a Deed of Trust to UNION BANK, a California
corporation, as Trustee, and shall be governed and construed in accordance with
California law.
The Deed of Trust securing the obligation evidenced hereby contains the
following provision: "that should trust or sell, convey, transfer, dispose of or
further encumber said property or any part thereof or any interest therein or
enter into a lease covering all or any portion thereof or an undivided interest
therein, either voluntarily, involuntarily or otherwise, or enter into an
agreement so to do, without the prior written consent of Beneficiary being
first had and obtained, then Beneficiary may, at its option, declare all sums
secured hereby immediately due and payable. Consent to one such transaction
shall not be deemed to be a waiver of the right to require such consent to
future or successive transactions."
WESTERRA PACIFIC ASSOCIATES, a California General Partnership
By: /s/ EDWARD B. ROMANOW, JR.
-----------------------------------------
Edward B. Romanow, Jr., General Partner
By: /s/ E. STEVENS HAMILTON
-----------------------------------------
E. Stevens Hamilton, General Partner
By: Westerra Executives, Ltd., a California
Limited Partnership, General Partner
By: /s/ EDWARD B. ROMANOW, JR.
-----------------------------------------
Edward B. Romanow, Jr., General Partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
BY:_____________________________________
<PAGE> 48
RECORDING REQUESTED BY:
FOUNDERS TITLE CO.
------------------------
RECORDED IN
OFFICIAL RECORDS
OF SAN DIEGO COUNTY, CA
89 SEP 11 PM 12:20
VERA L. LYLE
COUNTY RECORDER
-----------------------
- --------------------
UNION BANK
525 "B" Street
San Diego, CA 92101
Attn: Kathy Gruhn
- --------------------
CONSTRUCTION DEED OF TRUST AND ASSIGNMENT OF RENTS
This deed of Trust and Assignment of Rents, made as of this 1st day of
September, 1989, between WESTERRA PACIFIC ASSOCIATES, a California General
Partnership herein called TRUSTOR whose address is 5405 Morehouse Drive, Suite
330, San Diego, CA 92121 and UNION BANK, a California Corporation, whose address
is 525 "B" Street, San Diego, CA 92101, as Trustee and also as Beneficiary.
WITNESSETH: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS to Trustee,
its successors and assigns, in Trust, with POWER OF SALE TOGETHER WITH RIGHT OF
ENTRY AND POSSESSION, all that property, including all of the easements,
rights, rights of way, privileges, franchises and appurtenances thereunto
belonging or in any way appertaining or as a means of access thereto, now or
hereafter acquired, in the City of San Diego, County of San Diego, State of
California, described as:
Lot 6 of EASTGATE TECHNOLOGY PARK UNIT NO. 1, in the City of San Diego, County
of San Diego, State of California, according to Map thereof No. 10830, filed in
the Office of the County Recorder of San Diego County, January 30, 1984.
EXCEPTING THEREFROM all oil, gas, hydrocarbon substance and minerals of every
kind and character lying more than 500 feet below the surface, together with
the right to drill into, through, and to use and occupy all parts of the site
lying more than 500 feet below the surface thereof for any and all purposes
incidental to the exploration for any production of oil, gas, hydrocarbon,
substances or mineral from the site, but without, however, any right to use or
disturb either the surface of the site or any portion thereof within 500 feet
of the surface for any purpose or purposes whatsoever.
Together with the rents, issues, profits, royalties, revenue, income and other
benefits thereof or arising from the use or enjoyment of all or any portion of
the property including all rights, title and interest of the Trustor in and to
all leases covering portions of the property then or thereafter entered into
and all right, title and interest of the Trustor thereunder including, without
limitation, cash or security deposited thereunder to secure the performance by
the lessees of their obligations thereunder; subject however, to the right,
power and authority hereinafter given to and conferred upon Trustor to collect
and apply such rents, issues and profits prior to any default hereunder; and
including all buildings and improvements now or hereafter thereon, and all
appurtenances, easements, water and water rights, pumps and pumping plants and
all shares of stock evidencing the same; all machinery, equipment, appliances
and fixtures for generating or distributing air, water, heat, electricity,
light, fuel or refrigeration, or for ventilating or sanitary purposes, or for
the exclusion of vermin or insects, or for the removal of dust, refuse or
garbage; all all-beds, wall-safes, built in furniture and installations,
shelving, lockers, partitions, door-stops, vaults, elevators, dumb-waiters,
awnings, window shades, venetian blinds, light fixtures, fire hoses and
brackets and boxes for same, fire sprinklers, alarm systems, drapery rods and
brackets, screens, linoleum, carpets, plumbing, laundry tubs and trays, ice
boxes, refrigerators, heat units, stoves, water heaters, incinerators,
communication systems, all installations for which any such building is
specifically designed and ___________________________________________
_____________________________________________________________________
_____________________________________________________________________
All of said items, whether now or hereinafter installed, being hereby declared
to be, for all purposes of this Deed of Trust, a part of the realty; and all
the estate, interest, or other claim or demand including insurance, as well in
law as in equity, which Trustor now has or may hereafter acquire, in and to the
aforesaid property; the specific enumerations herein not excluding the general.
<PAGE> 49
FOR THE PURPOSE OF SECURING, in such order of priority as beneficiary may
elect, (1) payment of an indebtedness in the sum of $17,500,000.00 evidenced
by that certain promissory note of even date herewith executed by Trustor to
the order of Beneficiary and any and all modifications, extensions or renewals
thereof, whether hereafter evidenced by said note or otherwise; (2) payment of
interest on said indebtedness according to the terms of said promissory note;
(3) payment of all other sums, with interest as herein provided, becoming due
or payable under the provisions hereof to trustee or Beneficiary; (4) due,
prompt and complete observance, performance and relative to any indebtedness
evidenced by said note; and (5) payment of such additional sums with interest
thereon as may be hereafter borrowed from Beneficiary, its successors or
assigns by Trustor or the then record owner or owners of said property when
evidenced by another promissory note or notes, which are by the terms thereof
secured by this Deed of Trust.
TO PROTECT AND MAINTAIN THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AGREES:
(1) To pay, perform, observe and discharge each and every condition,
obligation, covenant and agreement for which this deed of trust has been given
as security as provided above.
(2) To keep such property in good condition and repair; not to remove
or demolish any improvement thereon; to complete or restore promptly and in
good and workmanlike manner any improvement which may be constructed, damaged
or destroyed thereon and to pay when due all claims for labor performed and
materials furnished therefor; to comply with all laws affecting said property
or requiring any alterations or improvements to be made thereon; not to commit
or permit waste thereof; to perform, in the event all or any portion of the
above described property constitutes a leasehold estate belonging to Trustor,
each and every obligation of Trustor under the terms of the lase agreement
relating to the demise of such property; not to commit, suffer or permit any
act upon said property in violation of law; to cultivate, irrigate, fertilize,
fumigate, prune and do all other acts which from the character or use of said
property may be reasonably necessary, the specific enumerations herein not
excluding the general.
(3) To provide, maintain and deliver to Beneficiary fire with extended
coverage endorsement, public liability, property damage and other insurance
policies in companies and form, content and term satisfactory to and with loss
payable to Beneficiary, such delivery to constitute an assignment to
beneficiary of all return premiums. The amount collected under any fire or
other insurance policy may be applied by Beneficiary upon any indebtedness
secured hereby and in such order as Beneficiary may determine, or at option of
Beneficiary the entire amount so collected or any part thereof may be released
to Trustor. Such application or release shall not cure or waive any default or
notice of default hereunder or invalidate any act pursuant to such notice.
(4) To appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee;
and to pay all costs and expenses, including cost of evidence of title and
attorney's fees in a reasonable sum, in any such action or proceeding in which
Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to
foreclose this Deed of Trust.
(5) To pay and discharge, at least ten days prior to delinquency, all
taxes of every kind and nature, including real and personal property taxes and
income, franchise, withholding, profits and gross receipts taxes, all general
and special assessments, including assessments on appurtenant water stock,
levies, permits, inspection and license fees, all water and sewer rents and
charges, and all other public charges whether of a like or different nature,
imposed upon or assessed against trustor or said property or any part thereof
or upon the revenues, rents, issues, income or profits thereof; when due, all
incumbrances, charges and liens, with interest, on said property or any part
thereof, which appear to be prior or superior hereto or subject or subordinate
hereto; all costs, fees and expenses of this Trust; or, if and as required by
Beneficiary, to pay to beneficiary in equal installments on the day on which
monthly payments of principal and interest are due under said note, sufficient
funds (as estimated by Beneficiary from time to time) to pay when due the
next maturing taxes, assessments and hazard insurance premiums. When so
provided with sufficient funds, Beneficiary shall pay such taxes, assessments
and hazard insurance premiums before delinquency, and excess over the amount
required for such purposes shall be held for future use, applied to any
indebtedness hereby secured or refunded to Trustor at beneficiary's option.
To promptly and completely observe, perform, and discharge each and
every condition, obligation, covenant and agreement affecting said property,
whether the same is prior and superior or subject and subordinate hereto
including, if the security hereunder is or will be a condominium, community
apartment or part of a planned development, each and every provision to be
performed by Trustor under any Declaration of Covenants, Conditions and
Restrictions pertaining to the condominium, community apartment or planned
development project and, upon written request of Beneficiary, to pay
maintenance charges, if the same have not been paid or legal steps have not
been initiated to enforce such payment within ninety (90) days after such
written request is made.
Should Trustor fail to make any payment or to do any act as herein
provided, then Beneficiary or Trustee, but without obligation so to do and
without notice to or demand upon Trustor and without releasing Trustor from any
obligation hereof, may: make or do the same in such manner and to such extent
as either may deem necessary to protect the security hereof, Beneficiary or
trustee being authorized to enter upon said property for such purposes; appear
in and defend any action or proceeding purporting to affect the security hereof
or the rights or powers of beneficiary or trustee; pay, purchase, contest or
compromise any incumbrance, charge or lien which in the judgment of either
appears to be prior or superior hereto; and, in exercising any such powers,
pay necessary expenses, employ counsel and pay his reasonable fees.
(6) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure to 5.75 per cent
per annum, in excess of Union Bank's reference rate of interest adjusted on a
daily basis.
(7) That any award of damages in connection with any condemnation for
public use of or injury to said property or any part thereof is hereby assigned
and shall be paid to Beneficiary who may apply or release such moneys received
by him in the same manner and with the same effect as above provided for
disposition of proceeds of fire or other insurance, notwithstanding the fact
that the security given hereby may not be impaired by a partial condemnation,
Beneficiary, in its sole and absolute discretion, shall have the right to apply
all compensation, award or other payments or relief therefor made on account
thereof to either the payment of accrued but unpaid interest and second to the
prepayment of principal under said promissory note or reimbursement of Trustor
for expenses incurred by it in the restoration of said property, and in respect
thereto, Trustor hereby waives the benefit of any statute or rule of law which
may be contrary thereto.
(8) That by accepting the payment, performance or observance of any
condition, obligation, covenant or agreement contained herein after the date to
be paid, performed or observed as provided hereunder, Beneficiary does not
waive its right either to require prompt payment, performance or observance
when due of all other conditions, obligations, covenants or agreements
contained herein or to declare a default for failure so to do.
(9) That at any time or from time to time, without liability therefor
and without notice, upon written request of Beneficiary and presentation of this
Deed of Trust and said note for endorsement, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby, Trustee
may: reconvey any part of said property; consent to the making of any map or
plat thereof; join in granting any easement thereon; join in the execution of
or subordination of the lien or charge hereof to any covenants, conditions or
restrictions affecting said property; or join in any extension agreement or any
agreement subordinating the lien or charge hereof.
(10) That upon written request of Beneficiary stating that all sums
secured hereby have been paid, and upon surrender of this Deed of Trust and
said note to Trustee for cancellation and retention and upon payment by Trustor
of its fees, Trustee shall reconvey, without warranty, the property then held
hereunder. The recitals in such reconveyance of any matters or facts shall be
conclusive proof of the truthfulness thereof. The grantee in such reconveyance
may be described as "the person or persons legally entitled thereto."
(11) That Trustor absolutely and unconditionally hereby assigns,
transfers, conveys and sets over to Beneficiary all the rents, royalties;
issues, profits, revenue, income and other benefits of said property arising
from the use or enjoyment of all or any portion thereof or from any lease or
agreement pertaining thereto (collectively the "Rents"); provided, however,
prior to any default by Trustor in the payment, observance, performance and
discharge of any condition, obligation, covenant or agreement of Trustor
contained herein, Trustor shall have the right as the agent and fiduciary
representative of Beneficiary for collection and distribution purposes only, to
collect and receive the Rents as they become due and payable to be applied by
Trustor to the payment of the principal and interest and all other sums due or
payable on said promissory note and to the payment of all other sums payable
under this Deed of Trust and, thereafter, so long as no default as aforesaid
has occurred, the balance shall be distributed to the account of Trustor. Upon
any such default, Beneficiary may at any time without notice, either in person,
by agent or by a receiver to be appointed by a court, and without regard to the
adequacy of any security for the indebtedness hereby secured, enter upon and
take possession of said real property or any part thereof, in its own name or
in the name of Trustor, sue for or otherwise collect the Rents, including those
past due and unpaid and apply the same, less costs and expenses of operation
and collection, including reasonable attorneys' fees and expenses, to the
payment of the principal and interest and all other sums due or payable on
said promissory note and to the payment to all other sums payable under this
Deed of Trust and in such order as Beneficiary may determine. The entering
upon and taking possession of said property, the collection of the Rents and
the application thereof as aforesaid, shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.
<PAGE> 50
[UNABLE TO READ FIRST FOUR PARAGRAPHS ON PAGE]
After deducting all costs, fees and expenses of Trustee and of this
Trust, including cost of evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of: all sums expended under the
terms hereof, not then repaid, with accrued interest at the rate specified in
paragraph (6) hereof, all other sums then secured hereby; and the remainder, if
any, to the person or persons legally entitled thereto.
If this Deed of Trust or any note secured hereby provides for any
charge for prepayment of any indebtedness secured hereby, Trustor agrees to pay
said charge if any of said indebtedness shall be paid prior to the date thereof
stated in said note or this Deed of Trust, even if and notwithstanding Trustor
shall have defaulted in payment thereof, or in performance of any agreement
hereunder, and Beneficiary, by reason thereof, shall have declared all sums
secured hereby immediately due and payable.
(13) That if the Trustor, or any subsequent owner of the property
covered hereby, shall occupy said property, or any part thereof, after any
default in payment of any amount secured by this Deed of Trust, the Trustor, or
such owner, shall pay to the Beneficiary in advance on the first day of each
month a reasonable rental for the premises so occupied, and upon failure to pay
such reasonable rental, the Trustor, or such owner, may be removed from said
premises by summary dispossess proceedings or by any other appropriate action
or proceeding.
(14) Beneficiary, acting alone, may from time to time, by instrument
in writing, substitute a successor or successors to any Trustee named herein or
acting hereunder, which instrument, executed and acknowledged by each and
recorded in the office of the recorder of the county or counties where said
property is situated, shall be conclusive proof of proper substitution of such
successor Trustee or Trustees, who shall, without conveyance from the Trustee
predecessor, succeed to all its title, estate, rights, powers and duties. Said
instrument must contain the name of the original Trustor, Trustee and
Beneficiary hereunder, the book and page or document number where this Deed of
Trust is recorded, and the name and address of the new Trustee. If notice of
default shall have been recorded, this power of substitution cannot be exercised
until after the costs, fees and expenses of the then acting Trustee
shall have been paid to such Trustee, who shall endorse receipt thereof upon
such instrument of substitution.
(15) That any Trustor who is a married person hereby expressly agrees
that recourse may be had against his or her separate property, but without
hereby creating any lien or charge thereon, for any deficiency after sale of
the property hereunder.
(16) That Trustor shall, upon request made by Beneficiary, furnish
Beneficiary with annual statements covering the operations of said property.
(17) The Beneficiary may collect a "late charge" not to exceed an
amount equal to four per centum (4%) of any installment which is not paid within
fifteen (15) days from the date thereof to cover the extra expense involved in
handling delinquent payments.
(18) That the pleading of any statute of limitations as a defense to
any and all obligations secured by this Deed of Trust is hereby waived to the
full extent permissible by law.
(19) That this Deed of Trust applies to, inures to the benefit of, and
binds all parties hereto, their heirs, legatees, devisees, administrators,
executors, successors and assigns. The term Beneficiary shall mean the owner
and holder, including pledgees, of the note secured hereby, whether or not
named as Beneficiary herein. In this Deed of Trust, whenever the context so
requires, the masculine gender includes the feminine and neuter, and the
singular number includes the plural.
(20) That Trustee accepts this Trust when this Deed of Trust, duly
executed and acknowledged, is made a public record as provided by law. Trustee
is not obligated to notify any party hereto of pending sale under any other
Deed of Trust or of any action or proceeding in which Trustor, Beneficiary or
Trustee shall be a party unless brought by Trustee.
(21) To pay Beneficiary for each and every beneficiary statement
furnished at Trustor's request the maximum fee allowed by law and if there be
no maximum, then in accordance with Beneficiary's schedule therefor. Such fee
shall be computed as of the time said statement is furnished.
(22) That should Trustor sell, convey, transfer, dispose of or further
encumber said property or any part thereof or any interest therein or enter into
a lease covering all or any portion thereof or an undivided interest therein,
either voluntarily, involuntarily or otherwise, or enter into an agreement so to
do, without the prior written consent of Beneficiary being first had and
obtained such consent not to be unreasonably withheld, then Beneficiary may, at
its option, declare all sums secured hereby immediately due and payable.
Consent to one such transaction shall not be deemed to be a waiver of the right
or require such consent to future or successive transactions.
(23) If Trustor is a corporation, trust, limited or general
partnership or joint venture, should there occur a sale, conveyance, transfer,
disposition or encumbrance either voluntary or involuntary or should an
agreement be entered into to accomplish any thereof with respect to more than
Ten percent (10%) of the issued and outstanding capital stock of Trustor if a
corporation or of the beneficial interest of Trustor if a trust or of any
general partnership or joint venturer interest if Trustor is a limited or
general partnership or a joint venture or if there shall occur a change in any
general partner or joint venturer if Trustor is a limited or general partnership
or a joint venture, then Beneficiary may, at its option, declare all sums
secured hereby immediately due and payable unless Beneficiary shall have given
its prior written consent thereto. Consent to one such transaction shall not
be deemed to be a waiver of the right to require such consent to future or
successive transactions. Except as to the partnership interest of E. Stevens
Hamilton, which up to 37.5% of this project may be transferred to another
partnership which E. Stevens Hamilton is a general partner.
(24) That in the event of the passage after the date hereof of any law
deducting from the value of real property, for taxation purposes, any lien
thereon or changing in any way the laws now in force for the taxation of Deeds
of Trust or debts whether or not secured thereby for Federal, State or Local
purposes or the manner of the collection of any such taxes so as to affect this
Deed of Trust or the obligations hereby secured, Trustor agrees to pay any
thereof and if Trustor fails to so do or if it would be illegal for Trustor so
to do then, the whole of the principal sum secured by this Deed of Trust,
together with accrued interest thereon shall, at the option of the Beneficiary,
without demand or notice, immediately become due and payable.
(25) To the fullest extent permitted by law, Trustor hereby waives the
provisions of Section 431.70 of the California Code of Civil Procedure and all
amendments thereto.
(26) That no remedy herein conferred upon, reserved to Trustor or
Beneficiary is intended to be exclusive or any other remedy herein or by law
provided, but each 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. No delay or omission of Trustee or Beneficiary in the exercising of
any right or power accruing upon any event of default hereunder shall impair
such right or power or any other right or power nor shall the same be construed
to be a waiver of any default or any acquiescence therein; and every power and
remedy given by this Deed of Trust to Trustee or Beneficiary may be exercised
from time to time as often as may be deemed expedient by Trustee or Beneficiary.
If there exists additional security for the obligations secured hereby,
Beneficiary, at its sole option, and without limiting or affecting any of the
rights or remedies hereunder, may exercise any of the rights or remedies to
which it may be entitled hereunder either concurrently with whatever rights it
may have in connection with such other security or in such order and in such
manner as Beneficiary may deem fit without waiving any rights with respect to
any other security. The granting of consent by Beneficiary to any transaction
as required by the terms hereunder shall not be deemed a waiver of the right to
secure the consent of Beneficiary to future or successive transactions.
<PAGE> 51
(27) That in the event any one or more of the provisions contained in
this Deed of Trust or in the Promissory Note hereby secured shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Deed of Trust or said Promissory Note, but this Deed of Trust and said
Promissory Note shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein or therein.
(28) This Deed of Trust has been executed and delivered in the State
of California and is to be construed and enforced according to and governed by
the laws thereof except that with respect to any portion of the property
covered hereby located outside of the State of California, only to the extent
required for Trustee or Beneficiary to enforce or realize upon the rights and
remedies hereunder with respect thereto, the laws of the state in which such
property is located shall be applicable hereto.
(29) PARTIAL RECONVEYANCE. Upon the recordation of a final parcel
map with the Office of the County Recorder by the City of San Diego dividing the
property into two separate legal parcels substantially in the manner shown on
Exhibit "A" attached hereto and made a part hereof by this reference,
Beneficiary agrees to cause Trustee to reconvey that portion of the property
identified as parcel 2 on the attached Exhibit "A", which partial reconveyance
of the property shall be conditioned upon: (A) a reduction in the principle
amount of the Promissory Note secured by this Deed of Trust of not less than
$1,710,000.00; and (B) Trustor not being in default under the terms of this
Deed of Trust, the Promissory Note secured hereby, the Building Loan Agreement,
the Security Loan Agreement, the Security Agreement or any of the other loan
documents executed with Beneficiary in conjunction with this Deed of Trust.
The undersigned Trustor requests that a copy of any notice of default
and of any notice of sale hereunder be mailed to him at his address
hereinbefore set forth.
Signature of Trustor Signature of Trustor
WESTERRA PACIFIC ASSOCIATES,
a California General Partnership
By: /s/ EDWARD R. ROMANOW, JR.,
--------------------------------
General Partner
By: /s/ E. STEVENS HAMILTON,
--------------------------------
General Partner
By: WesTerra Executives, Ltd.,
a California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.,
---------------------------------
General Partner
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
<PAGE> 52
[SORRENTO LANDS AND TOWNSITE MAPS 382 & 483]
PRELIMINARY PARCEL MAP
LEGAL DESCRIPTION
Lot 6 of Eastgate Technology Park Unit No. 1, Map No. 10830.
APPLICANT
Westerra Pacific Associates, a California General Partnership
5405 Morehouse Dr., Suite 330
San Diego, CA 92121
/s/ EDWARD B. ROMANOW, JR.
- ----------------------------
Edward B. Romanow, Jr.
General Partner
NOTES:
Assessor's Parcel No.: 343-121-10
Present Zone: SR
Proposed Zone: SR
Present Land Use: Vacant
Proposed Land Use: Scientific Research & Office Space
Fire Protection: City of San Diego
Water: City of San Diego
Sewer: City of San Diego
No. of Parcels: 2
Gross Area: 19.4 acres
Lambert Coordinates: 260-1703
<PAGE> 53
CAT. NO. NN00637 [TICOR TITLE INSURANCE LOGO]
TO 1955 CA (1-83)
(Partnership as a Partner of a Partnership)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989 before me, the undersigned, a Notary Public in and for
said State, personally appeared Edward B. Romanow, Jr. personally known to me
or proved to me on the basis of satisfactory evidence to be the person__ who
executed the within instruments as one of the partners of Westerra Pacific
Associates, the partnership that executed the within instrument, and
acknowledged to me that they executed the same on behalf of Westerra Executives
Ltd., a partnership, and that said last named partnership executed the same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LEMAX
------------------------------------
Karin Marie Lemax
[SEAL]
CAT. NO. NN00630 [TICOR TITLE INSURANCE LOGO]
TO 1946 CA (9-84)
(Partnership)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989 before me, the undersigned, a Notary Public in and for
said State, personally appeared Edward B. Romanow, Jr. personally known to me
or proved to me on the basis of satisfactory evidence to be the person__ who
executed the within instruments as one of the partners of Westerra Pacific
Associates, the partnership that executed the within instrument, and
acknowledged to me that they executed the same on behalf of Westerra Executives
Ltd., a partnership, and that said last named partnership executed the same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LEMAX
------------------------------------
Karin Marie Lemax
[SEAL]
CAT. NO. NN00630 [TICOR TITLE INSURANCE LOGO]
TO 1946 CA (9-84)
(Partnership)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989 before me, the undersigned, a Notary Public in and for
said State, personally appeared E. Stevens Hamilton personally known to me
or proved to me on the basis of satisfactory evidence to be the person__ who
executed the within instruments as one of the partners of Westerra Pacific
Associates, the partnership that executed the within instrument, and
acknowledged to me that they executed the same on behalf of Westerra Executives
Ltd., a partnership, and that said last named partnership executed the same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LEMAX
------------------------------------
Karin Marie Lemax
[SEAL]
<PAGE> 54
AND WHEN RECORDED, MAIL TO:
UNION BANK
525 "B" Street
San Diego, CA 92101
Attn: Kathy Gruhn
[RECORDERS STAMP]
For value received, Undersigned does hereby sell, assign, transfer and set over
to UNION BANK, hereinafter called "Bank", that certain Lease Agreement for the
lease of real property commonly known as Towns Centre Drive, San Diego,
California, and legally described as:
Lot 6 of EASTGATE TECHNOLOGY PARK UNIT NO. 1., in the City of San Diego, County
of San Diego, State of California, according to Map thereof No. 10830, filed in
the office of the County Recorder of San Diego County, January 30, 1984.
EXCEPTING THEREFROM all oil, gas, hydrocarbon substances and minerals of every
kind and character lying more than 500 feet below the surface, together with
the right to drill into, through, and to use and occupy all parts of the site
lying more than 500 feet below the surface thereof for any and all purposes
incidental to the exploration for any production of oil, gas, hydrocarbon,
substances or mineral from the site, but without, however, any right to use or
disturb either the surface of the site or any portion thereof within 500 feet
of the surface for any purpose or purposes whatsoever.
dated December 7, 1988, entered into by and between Westerra Pacific
Associates, a California General Partnership herein sometimes called the
"Lessor" and JAYCOR, a California corporation herein called the "Lessee",
together with all rentals and sums due and to become due thereunder.
<PAGE> 55
Undersigned does hereby consent that, without further notice and without
releasing the liability of Undersigned, Bank may, at its discretion, give grace
or indulgence in the collection of all rentals and of all other sums due or to
become due on or under the aforesaid Lease Agreement and grant extensions of
time for the payment of the same before, at or after maturity. Undersigned
warrants that all rental payments and other sums due under said Lease Agreement
as well as the right to collect same are hereby vested in Bank; that said
Lease Agreement is genuine; that the said Lessee has capacity to contract; that
Undersigned has the right to make this assignment and that the rental payments
and other sums due thereunder are free from liens, encumbrances, claims and set
offs of every kind whatsoever, and that as of the date hereof, the unpaid
balance of rental payments specified in said Lease Agreement is as is set forth
in said Lease Agreement.
Undersigned agrees that Bank may proceed against Undersigned directly or
independently of the Lessee, and that the cessation of the liability of the
Lessee under said Lease Agreement for any reason other than full payment, shall
not in any way affect the liability of Undersigned hereunder, nor any
extension, forbearance of acceptance, release or substitution of security or
any impairment of suspension of Bank's remedies or rights against the Lessee
shall not in any way affect the liability of Undersigned hereunder.
Bank does not assume any of the obligations arising under said Lease Agreement,
and Lessor does hereby covenant and agree (a) to keep and perform all of the
obligations of the Lessor under said Lease Agreement and to save Bank harmless
from the consequences of any failure so to do; (b) to preserve the subject
property free and clear of liens and encumbrances, except to or with the
consent of Bank; (c) to neither consent to or enter into any alteration,
amendment, cancellation, renewal or extension of said Lease Agreement without
first having obtained the written consent of Bank.
The Lessor hereby irrevocably constitutes and appoints Bank its true and
unlawful attorney to demand, receive and enforce payment and to give receipts,
releases and satisfactions, and to sue for all sums payable either in the name
of the Lessor, or in the name of the Bank, with the same force and effect as
Lessor could do if this assignment had not been made.
Lessor hereby represents and warrants to Bank that it is the lawful owner of
the above-described Lease and all rights and interests therein, and that will
not assign any other interest in the Lease.
Notice of this assignment may be given to the Lessee at any time at Bank's
option. In the event any payment or payments upon said Lease are made to
Lessor, Lessor agrees promptly to transmit such payment or payments to Bank in
the same form as it is received by Lessor except that Lessor will endorse
checks so received which are payable to Lessor.
The Undersigned is obligated to Bank for the payment of an indebtedness, which
is evidenced by a certain Promissory Note dated September 1, 1989 in the amount
of $17,500,000.00 as well as any other obligation of the Undersigned to Bank
arising out of the loan transaction, and although this Assignment is absolute
and unconditional, by acceptance of this Assignment. Bank agrees that it will
not exercise any of its rights hereunder unless or until there shall be a
default under the terms of said Promissory Note, the Building Loan Agreement,
if any, or any instrument securing said Note.
In the event the Undersigned fails to perform any of the covenants or
agreements herein contained or any of the warranties or representations herein
contained proved to be untrue, then Bank, at its option, may accelerate any
indebtedness secured hereby and demand that payment in full immediately be
made.
This assignment is irrevocable and shall remain in full force and effect until
and unless either of the following shall occur: (1) payment in full of the
indebtedness secured hereby; or (2) execution by Bank of a written release of
this assignment.
Whenever the context so requires, the singular number includes the plural.
Dated at San Diego CA this 1st day of September , 19 89
------------------------- ---------- ---------------- ----
City State
Westerra Pacific Associates, a California
General Partnership
- ----------------------------------------- ------------------------------------
By: /s/ EDWARD B. ROMANOW, JR.
- ----------------------------------------- ------------------------------------
Edward B. Romanow, Jr., General Partner
- ----------------------------------------- ------------------------------------
By: /s/ E. STEVENS HAMILTON
- ----------------------------------------- ------------------------------------
E. Stevens Hamilton, General Partner
- ----------------------------------------- ------------------------------------
By: Westerra Executives, Ltd., a California
Limited Partnership, General Partner
- ----------------------------------------- ------------------------------------
By: /s/ EDWARD B. ROMANOW, JR.
- ----------------------------------------- ------------------------------------
Edward B. Romanow, Jr., General Partner
(ATTACH NOTARIAL ACKNOWLEDGEMENT)
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
BY:
--------------------------------------
<PAGE> 56
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989, before me, the undersigned, a Notary Public in and for
said State, personally appeared Edward B. Romanow, Jr. personally known to me
or proved to me on the basis of satisfactory evidence to be the person who
executed the within instrument as one of the partners of Western Pacific
Associates the partnership that executed the within instrument, and a
partnership, and that said last named partnership executed the same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LOMAX [SEAL]
----------------------------------------
(Partnership)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989, before me, the undersigned, a Notary Public in and for
said State, personally appeared Edward B. Romanow, Jr. personally known to me
(or proved to me on the basis of satisfactory evidence) that executed the
within instrument, and acknowledged to me that such partnership executed the
same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LOMAX [SEAL]
----------------------------------------
Karin Marie Lomax
- -------------------------------------------------
Name (Typed or Printed)
(Partnership)
STATE OF CALIFORNIA )
) SS.
COUNTY OF SAN DIEGO )
On September 8, 1989, before me, the undersigned, a Notary Public in and for
said State, personally appeared E. Sevens Hamilton personally known to me
(or proved to me on the basis of satisfactory evidence) to be one of the
partners of the partnership that executed the within instrument, and
acknowledged to me that such partnership executed the same.
WITNESS my hand and official seal.
Signature /s/ KARIN MARIE LOMAX [SEAL]
----------------------------------------
Karin Marie Lomax
- -------------------------------------------------
Name (Typed or Printed)
<PAGE> 57
Union ------------------ ----------------
Bank SECURITY AGREEMENT CHATTEL MORTGAGE
------------------ ----------------
This Agreement executed at San Diego, California, on September 1, 1989, by
Westerra Pacific Associates, A California General Partnership
-------------------------------------------------------------
INSERT OWNER(S) OF COLLATERAL
(herein called "Debtor"), as security for the payment and performance of all
of Debtor's obligations to UNION BANK (herein called "Bank"), irrespective of
the manner in which or the time at which such obligations arose or shall arise,
and whether direct or indirect, alone or with others, absolute or contingent,
Debtor does hereby grant a continuing security interest to Bank in all personal
property (herein called "Collateral"), whether now or hereafter owned or in
existence described as
A. MOTOR VEHICLES:
- --------------------------------------------------------------------------------
YEAR TRADE NAME BODY TYPE SERIAL NUMBER NEW OR USED NUMBER OF CYLINDERS
- --------------------------------------------------------------------------------
B. OTHER:
- --------------------------------------------------------------------------------
"All articles of personal property and any additions to, substitutions for,
changes in or replacements of the whole or any part thereof, now or at any
time hereafter, affixed to, attached to, placed upon or used in any way in
connection with the use, enjoyment, occupancy or operation of the real
property located "Legal description attached hereto and made a part hereof
marked exhibit A", or any portion thereof and owned by the undersigned or
in which the undersigned has now or hereafter acquires an interest and all
building materials and equipment now or hereafter delivered to said
premises and intended to be installed or placed in or about said premises,
together with the proceeds, including insurance proceeds, thereof".
- --------------------------------------------------------------------------------
The Collateral described above will be maintained at ___________________________
________________________________________________________________________________
C. ALL PERSONAL PROPERTY OF ANY KIND WHICH IS DELIVERED TO OR IN THE
POSSESSION OR CONTROL OF BANK OR ITS AGENTS;
D. PROCEEDS OF ANY OF THE ABOVE-DESCRIBED PROPERTY. The grant of a
security interest in proceeds does not imply the right of Debtor to sell
or dispose of any Collateral described herein without the express
consent in writing by Bank.
The maximum amount of indebtedness to be secured at any one time is unlimited
unless an amount is inserted here _____________________________ ($ ).
MAXIMUM AMOUNT
(To be completed only if an accommodation) _____________________________________
________________________________________________________________________________
INSERT OWNER(S) OF COLLATERAL
By executing this Agreement as an Accommodation Debtor only and his liability
is limited to the security interest created in Collateral described herein.
The Debtor being accommodated is _______________________________________________
All terms and conditions on the reverse side hereof are incorporated herein as
though set forth in full.
See Exhibit "B" attached hereto and made
a part hereof by this reference
________________________________________
AFFIX ________________________________________
CORPORATE ________________________________________
SEAL ________________________________________
________________________________________
<PAGE> 58
AGREEMENT
1. The term credit is used throughout this Agreement in its broadest and most
comprehensive sense. Credit may be granted at the request of any one Debtor
without further authorization or notice to any other Debtor, including an
Accommodation Debtor. Collateral shall be security for all obligations of
Debtor to Bank in accordance with the terms and conditions herein.
2. Debtor will: (a) execute such Financing Statement and other documents and do
such other acts and things, all as Bank may from time to time require, to
establish and maintain a valid security interest in Collateral, including
payment of all costs and fees in connection with any of the foregoing when
deemed necessary by Bank; (b) pay promptly when due all indebtedness to Bank;
(c) furnish Bank such information concerning Debtor and Collateral as Bank may
from time to time request, including but not limited to current financial
statements; (d) keep Collateral separate and identifiable and at the location
described herein and permit Bank and its representatives to inspect Collateral
and/or records pertaining thereto from time to time during normal business
hours; (e) not sell, assign or create or permit to exist any lien on or
security interest in Collateral in favor of anyone other than the Bank unless
Bank consents thereto in writing and at Debtor's expense upon Bank's request
remove any unauthorized lien or security interest and defend any claim
affecting the Collateral; (f) pay all charges against Collateral prior to
delinquency including but not limited to taxes, assessments, encumbrances,
insurance and diverse claims, and upon Debtor's failure to do so Bank may pay
any such charge as it deems necessary and add the amount paid to the
indebtedness of Debtor hereunder; (g) reimburse Bank for any expenses including
but not limited to reasonable attorneys' fees and legal expenses incurred by
Bank in seeking to protect, collect or enforce any rights in Collateral; (h)
when required, provide insurance in form and amounts and with companies
acceptable to Bank and when required assign the policies or the rights
thereunder to Bank; (i) maintain Collateral in good condition and not use
Collateral for any unlawful purpose; (j) at its own expense, upon request of
Bank, notify any parties obligated to Debtor on any Collateral to make payment
to Bank and Debtor hereby irrevocably grants Bank power of attorney to make said
notifications and collections; (k) and does hereby authorize Bank to perform
any and all acts which Bank in good faith deems necessary for the protection
and preservation of Collateral or its value or Bank's security interest therein,
including transferring any Collateral into its own name and receiving the
income thereon as additional security hereunder. Bank may not exercise any
right under any corporate security which might constitute the exercise of
control by Bank so as to make any such corporation an affiliate of Bank within
the meaning of the banking laws until after default.
3. The term default shall mean the occurrence of any of the following events:
(a) non-payment of any indebtedness when due or non-performance of any
obligation when due, whether required hereunder or otherwise; (b) deterioration
or impairment of the value of Collateral; (c) non-performance by Debtor under
this Agreement, default by Debtor of any other agreements with Bank dealing with
the extension of credit or with debt owing Bank or any misrepresentation of
Debtor or its representative to Bank whether or not contained herein; (d) a
change in the composition of any Debtor which is a business entity; or (e)
belief by Bank in good faith that there exists, or the actual existence of, any
deterioration or impairment in the ability of Debtor to meet its obligations to
Bank.
4. Whenever a default exists, Bank, at its option may: (a) without notice
accelerate the maturity of any part or all of the secured obligations and
terminate any agreement for the granting of further credit to Debtor; (b) sell,
lease or otherwise dispose of Collateral at public or private sale; unless
Collateral is perishable and threatens to decline speedily in value or is a
type customarily sold on a recognized market, Bank will give Debtor at least
five (5) days' prior written notice of the time and place of any public sale or
of the time after which any private sale or any other intended disposition may
be made; (c) transfer any Collateral into its own name or that of its nominee;
(d) retain Collateral in satisfaction of obligations secured hereby, with
notice of such retention sent to Debtor as required by law; (e) notify any
parties obligated on any Collateral consisting of accounts, instruments,
chattel paper, chooses in action or the like to make payment to Bank and enforce
collection of any Collateral herein; (f) require Debtor to assemble and deliver
any Collateral to Bank at a reasonable convenient place designated by Bank; (g)
apply all sums received or collected from or on account of Collateral including
the proceeds of any sales thereof to the payment of the costs and expenses
incurred in preserving and enforcing rights of Bank including but not limited
to reasonable attorneys' fees, and indebtedness secured hereby in such order
and manner as Bank in its sole discretion determines; Bank shall account to
Debtor for any surplus remaining thereafter, and shall pay such surplus to the
party entitled thereto, including any second secured party who has made a
proper demand upon Bank and has furnished proof to Bank as requested in the
manner provided by law; in like manner, Debtor, unless an Accommodation Debtor
only, agrees to pay to Bank without demand any deficiency after any Collateral
has been disposed of and proceeds applied as aforesaid; and (h) exercise its
Banker's lien or right of setoff in the same manner as though the credit were
unsecured. Bank shall have all the rights and remedies of a secured party under
the Uniform Commercial Code of California in any jurisdiction where enforcement
is sought, whether in California or elsewhere. All rights, powers and remedies
of Bank hereunder shall be cumulative and not alternative. No delay on the
part of Bank in the exercise of any right or remedy shall constitute a waiver
thereof and no exercise by Bank of any right or remedy shall preclude the
exercise of any other right or remedy or further exercise of the same remedy.
5. Debtor waives: (a) all right to require Bank to proceed against any other
person including any other Debtor hereunder or to apply any Collateral Bank may
hold at any time or to pursue any other remedy; Collateral, endorsers or
guarantors may be released, substituted or added without affecting the
liability of Debtor hereunder; (b) the defense of the Statute of Limitations in
any action upon any obligations of Debtor secured hereby; (c) if he is an
Accommodation Debtor, all rights under Uniform Commercial Code Section 9112;
and (d) any right of subrogation and any right to participate in Collateral
until all obligations hereby secured have been paid in full.
6. Debtor warrants: (a) that it is or will be the lawful owner of all
Collateral free of all claims, liens or encumbrances whatsoever, other than the
security interest granted pursuant hereto; (b) all information, including but
not limited to financial statements furnished by Debtor to Bank heretofore or
hereafter, whether oral or written, is and will be correct and true as of the
date given; and (c) if Debtor is a business entity, the execution, delivery and
performance hereof are within its powers and have been duly authorized.
7. The right of Bank to have recourse against Collateral shall not be affected
in any way by the fact that the credit is secured by a mortgage, deed of Trust
or other lien upon real property.
8. Debtor may terminate this Agreement at any time upon written notice to Bank
of such termination; provided, however, that such termination shall not affect
his obligations then outstanding, any extensions or renewals thereof, nor the
security interest granted herein which shall continue until such outstanding
obligations are satisfied in full. Such termination shall not affect the
obligations of other Debtors if more than one executes this Agreement.
9. If more than one Debtor executes this Agreement, the obligations hereunder
are joint and several. All words used herein in the singular shall be deemed to
have been used in the plural when the context and construction so require. Any
married persons who sign this Agreement expressly agree that recourse may be
had against his/her separate property for all of his/her obligations to Bank.
10. This Agreement shall inure to the benefit of and bind Bank, its successors
and assigns and each of the undersigned, their respective heirs, executors,
administrators and successors in interest. Upon transfer by Bank of any part of
the obligations secured hereby, Bank shall be fully discharged from all
liability with respect to Collateral transferred therewith.
11. Whenever possible each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but, if any
provision of this Agreement shall be prohibited or invalid under applicable law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such or the remaining
provisions of this Agreement.
<PAGE> 59
EXHIBIT "A"
Lot 6 of EASTGATE TECHNOLOGY PARK UNIT NO. 1, in the City of San Diego, County
of San Diego, State of California, according to Map thereof No. 10830, filed in
the Office of the County Recorder of San Diego County, January 30, 1984.
[initial here] [initial here]
<PAGE> 60
EXHIBIT "B"
WESTERRA PACIFIC ASSOCIATES, a California
General Partnership
By: /s/ EDWARD B. ROMANOW
--------------------------------------
Edward B. Romanow, Jr. General Partner
By: /s/ E. STEVEN HAMILTON
--------------------------------------
E. Steven Hamilton, General Partner
By: Westerra Executives, Ltd., a California
Limited Partnership, General Partner
By: /s/ EDWARD B. ROMANOW
--------------------------------------
Edward B. Romanow, Jr. General Partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
By:
------------------------------
<PAGE> 61
[UNION BANK LETTERHEAD]
September 1, 1989
WESTERRA PACIFIC ASSOCIATES
5405 Morehouse Drive, Suite 330
San Diego, CA. 92121
Gentlemen:
This refers to your Promissory Note dated September 1, 1989 in the principal
amount of $17,500,000.00. The term of said note is eighteen months. It is our
understanding that, subject to there then being no default in said loan as
evidenced by the loan documents, including but not limited to said Promissory
Note and the Deed of Trust securing same, no substantial deterioration, in our
sole judgement, of your financial condition we agree to extend said Note for
three six-month periods. The first extension shall be six months from the
original maturity. The second extension shall be six months from the maturity
of the first extension. The third shall be six months from the maturity of the
second extension. Each such extension shall be at a rate which is
three-quarters (.75%) per annum in excess of the then Union Bank reference rate
of interest, adjusted daily, on the principal balance of said note at the time
of said extension.
In consideration for extending the maturity date of said loan, an extension fee
of 1/4 of 1% of the commitment outstanding will be charged for each six month
extension.
Borrower agrees to the necessary expenses incurred for recording charges and
for those appropriate title endorsements required by Bank.
<PAGE> 62
If this is in accordance with your understanding of our agreement, please
execute the enclosed copy of this letter and return it to us.
sincerely,
UNION BANK,
a California Corporation
By: /s/ JACK P. WEBSTER
-------------------------------------------
Jack P. Webster, Sr. Vice President
By: /s/ J. CURTIS FORNAL
-------------------------------------------
J. Curtis Fornal, Vice President
ACCEPTED AND APPROVED:
WESTERRA PACIFIC ASSOCIATES,
a California General Partnership
By: /s/ EDWARD B. ROMANOW, JR.
-------------------------------------------
Edward B. Romanow, Jr., General Partner
By: /s/ E. STEVENS HAMILTON
-------------------------------------------
E. Stevens Hamilton, General Partner
By: Westerra Executives Ltd., a California
Limited Partnership, General Partner
By: /s/ EDWARD B. ROMANOW, JR.
---------------------------------------
Edward B. Romanow Jr., General Partner
<PAGE> 63
UNION LOAN NUMBER
BANK AMENDMENT AGREEMENT 4160115-647-000647
DATE
May 23, 1991
The undersigned Borrower(s) and Union Bank agree that that certain note for
$17,500,000.00, dated September 1, 1989, executed by WESTERRA PACIFIC
ASSOCIATES, a California General Partnership upon which there remains unpaid a
disbursed principal balance of $15,182,645.39 and upon which interest has been
paid to May 1, 1991, and $315,275.10 which is undisbursed, said note being
secured by a Deed of Trust recorded on September 11, 1989 as Instrument No.
89-488385. Official Records, in the office of the County Record of San Diego
County, California, be and the same is hereby amended as follows:
The date of maturity is amended from March 11, 1991
to September 11, 1991.
Effective March 11, 1991, the interest rate is
amended from three-quarters of a percent (.75%) to
One and Three Eights percent (1.375%) per annum in
excess of the Union Bank Reference Rate.
Undisbursed funds in the amount of $315,275.10 will
hereby be cancelled and not disbursed under this
loan commitment.
In consideration of the foregoing amendment, each of the undersigned
Borrower(s) assumes and agrees (whether or not an original maker of the note)
to pay the indebtedness evidenced by said note as hereby amended and to perform
each and all of the conditions and covenants required to be performed by the
Trustor pursuant to said Deed of Trust.
In all other respects, the Promissory Note and Deed of Trust described above
shall remain in full force and effect in accordance with their original terms
and conditions. The foregoing amendment shall be subject to all of the
conditions and covenants expressed in said Promissory Note or in said Deed of
Trust including among others those providing for the acceleration of maturity
and for the enforcement of the provisions of said Promissory Note and said Deed
of Trust in the event of default in the performance of any obligation, which
provisions relating to default and/or acceleration shall be applicable to
obligations hereby amended as well as to obligations not so amended.
In order to induce Union Bank to execute this agreement, the undersigned
Borrower(s) represents and warrants that title to the real property described
in said Deed of Trust is now vested in WESTERRA PACIFIC ASSOCIATES, a
California General Partnership subject only to those matters existing at the
time of recordation of said Deed of Trust, current taxes, and the following:
None
and that no one other than the undersigned Borrower(s) has any interest in said
real property except as hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day and
year first hereinabove written.
- -------------------------------------- --------------------------------------
UNION BANK BORROWER(S)
- -------------------------------------- --------------------------------------
By /s/ J. CURTIS FORNAL See Reverse For Signatures
- -------------------------------------- --------------------------------------
J. Curtis Fornal, Vice President
By /s/ KEVIN SIMMONS
- -------------------------------------- --------------------------------------
Kevin Simmons, Account Officer
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
- -------------------------------------------------------------------------------
EACH OF THE UNDERSIGNED AGREES AND CONSENTS TO THE FOREGOING AMENDMENT.
- -------------------------------------------------------------------------------
/s/ EDWARD M. ROMANOW, JR.
- -------------------------------------- --------------------------------------
Edward B. Romanow, Jr.
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
<PAGE> 64
WESTERRA PACIFIC ASSOCIATES,
a California General Partnership
By: /s/ EDWARD B. ROMANOW, JR.
---------------------------------
Edward B. Romanow, Jr.,
General Partner
By: WESTERRA EXECUTIVES, LTD.,
a California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
------------------------------
Edward B. Romanow, Jr.,
General Partner
By: Romanow Family Partners, L.P.,
a California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
-------------------------------
Edward B. Romanow, Jr.,
General Partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
By:
------------------------------
<PAGE> 65
UNION BANK
AND WHEN RECORDED, MAIL TO
UNION BANK
4660 La Jolla Village Drive #930
San Diego, CA 92122
ATTN: E. Stagnaro
[STAMP]
AMENDMENT AGREEMENT
PROMISSORY NOTE AND DEED OF TRUST
(SHORT FORM)
Dated: May 23, 1991
The undersigned agree that the following documents: (i) that certain note
dated September 1, 1989, in the original principal amount of $17,500,000.00 and
(ii) Deed of Trust securing same executed by WESTERRA PACIFIC ASSOCIATES,* as
Trustor on September 11, 1989 as Instrument No. 89-488385 in the Official
Records in the Office of the County Recorder of San Diego County, California,
be and the same are amended upon the terms and conditions set forth in that
certain Amendment Agreement between the undersigned dated May 23, 1991. Said
Amendment Agreement is by this reference incorporated herein and made a part
hereof.
UNION BANK TRUSTOR(S)
WESTERRA PACIFIC ASSOCIATES,
By: /s/ J. CURTIS FORNAL a California General Partnership
----------------------------------- ------------------------------------
J. Curtis Fornal, Vice President
By: /s/ EDWARD B. ROMANOW, JR.
---------------------------------
Edward B. Romanow, Jr.,
General Partner
By: /s/ KEVIN SIMMONS
----------------------------------- ------------------------------------
Kevin Simmons, Account Officer By: WESTERRA EXECUTIVES, LTD.,
a California limited partnership,
General Partner
* a California General Partner By: /s/ EDWARD B. ROMANOW, JR.
---------------------------
General Partner
By: Romanow Family Partners, L.P.
---------------------------------
a California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
-----------------------------
Edward B. Romanow, Jr.,
General Partner
State of California )
)
County of San Diego )
On June 28, 1991, before me, Cheryl L. Bria, Notary Public, personally appeared
J. Curtis Fornal, Vice President, and Kevin Simmons, Account Officer,
respectfully, of Union Bank, personally known to me to be the person(s) whose
name(s) are subscribed to he within instrument and acknowledged to me that they
executed the same in their authorized capacity(ies), and that by their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: /s/ CHERYL L. BRIA
-------------------
[OFFICIAL NOTARY PUBLIC SEAL]
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
BY:
----------------------------
<PAGE> 66
SUPERSEDES AND AMENDS LETTER DATED
SEPTEMBER 1, 1989
May 23, 1991
WESTERRA PACIFIC ASSOCIATES
605 Countess Drive
Yardley, P.A. 19067
Gentlemen:
This refers to your Promissory Note dated September 1, 1989 in the principal
amount of $17,500,000.00. The maturity of said loan is March 11, 1991. It is
our understanding that, subject to there then being no default in said loan as
evidenced by the loan documents, including but not limited to said Promissory
Note and the Deed of Trust securing same, no substantial deterioration, in our
sole judgement, of your financial condition, and we are in receipt of an
amendment to the existing $1,000,000.00 Letter of Credit extending the maturity
date of said Letter of Credit, we agree to extend said Note for three six month
periods. The first extension shall be from March 11, 1991 to September 11,
1991. The second extension shall be from September 11, 1991 to March 11, 1992.
The third extension shall be from March 11, 1992 to September 11, 1992. Each
such extension shall be at a rate which is One and Three-Eights percent (1.375%)
per annum in excess of the then Union Bank reference rate of interest, adjusted
daily, on the principal balance of said note at the time of said extension.
In extending the maturity date of said loan, there will not be an extension fee
charged for each six month extension.
Borrower agrees to the necessary expenses incurred for recording charges and
for those appropriate title endorsements required by Bank.
SEE REVERSE FOR SIGNATURES
<PAGE> 67
WESTERRA PACIFIC ASSOCIATES,
a California General Partnership
By: /s/ EDWARD B. ROMANOW, JR.
-----------------------------------------
Edward B. Romanow, Jr., General Partner
By: WESTERRA EXECUTIVES, LTD., a
California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
-------------------------------------
Edward B. Romanow, Jr.,
General Partner
By: Romanow Family Partners, L.P., a
California limited partnership
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
-------------------------------------
Edward B. Romanow, Jr.,
General Partner
<PAGE> 68
-----------------------------
LOAN NUMBER
4160115-647-000647
UNION AMENDMENT AGREEMENT -----------------------------
BANK DATE
September 4, 1991
-----------------------------
The undersigned Borrower(s) and Union Bank agree that that certain note for
$17,500,000.00, dated September 1, 1989*, executed by WESTERRA PACIFIC
ASSOCIATES, a California General Partnership upon which there remains unpaid a
disbursed principal balance of $15,182,645.39 and upon which interest has been
paid to July 1, 1991, and $-0- which is undisbursed, said note being secured by
a Deed of Trust recorded on September 11, 1989 as Instrument No. 89-488385,
Official Records, in the office of the County Recorder of San Diego County,
California, be and the same is hereby amended as follows:
The date of maturity is amended from September 11, 1991 to March 11, 1992.
In consideration of the foregoing amendment, each of the undersigned
Borrower(s) assumes and agrees (whether or not an original maker of the note)
to pay the indebtedness evidenced by said note as hereby amended and to perform
each and all of the conditions and covenants required to be performed by the
Trustor pursuant to said Deed of Trust.
In all other respects, the Promissory Note and Deed of Trust described above
shall remain in full force and effect in accordance with their original terms
and conditions. The foregoing amendment shall be subject to all of the
conditions and covenants expressed in said Promissory Note or in said Deed of
Trust including among others those providing for the acceleration of maturity
and for the enforcement of the provisions of said Promissory Note and said Deed
of Trust in the event of default in the performance of any obligation, which
provisions relating to default and/or acceleration shall be applicable to
obligations hereby amended as well as to obligations not so amended.
In order to induce Union Bank to execute this agreement, the undersigned
Borrower(s) represents and warrants that title to the real property described
in said Deed of Trust is now vested in WESTERRA PACIFIC ASSOCIATES, a
California General Partnership subject only to those matters existing at the
time of recordation of said Deed of Trust, current taxes, and the following:
None
and that no one other than the undersigned Borrower(s) has any interest in said
real property except as hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day and
year first hereinabove written.
UNION BANK BORROWER(S)
By /s/ JACK F. WEBSTER See Reverse for Signatures
------------------------------------- ------------------------------------
Jack F. Webster, Sr. Vice President INITIAL
HERE
By /s/ KEVIN SIMMONS [SIG]
------------------------------------- ------------------------------------
Kevin Simmons, Account Officer
------------------------------------
* And amended by that certain Amendment
Agreement dated May 23, 1991. ------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
EACH OF THE UNDERSIGNED AGREES AND CONSENTS TO THE FOREGOING AMENDMENT.
/s/ EDWARD B. ROMANOW, JR.
- --------------------------------------- ------------------------------------
Edward B. Romanow, Jr.
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
<PAGE> 69
WESTERRA PACIFIC ASSOCIATES,
California General Partnership
By: /s/ EDWARD B. ROMANOW, JR.
----------------------------------------
Edward B. Romanow, Jr., General Partner
By: WESTERRA EXECUTIVES, LTD., a
California limited partnership,
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
------------------------------------
Edward B. Romanow, Jr.,
General Partner
By: Romanow Family Partners, L.P., a
California limited partnership
General Partner
By: /s/ EDWARD B. ROMANOW, JR.
------------------------------------
Edward B. Romanow, Jr.,
General Partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
BY:
----------------------------------
<PAGE> 70
<TABLE>
<S> <C> <C>
RECORDING REQUESTED BY DOC # 1991-0629258
FOUNDERS TITLE CO. 06-DEC-1991 08:00 AM
UNION BANK
AND WHEN RECORDED, MAIL TO OFFICIAL RECORDS
SAN DIEGO COUNTY RECORDER'S OFFICE
Name UNION BANK ANNETTE EVANS, COUNTRY RECORDER
RF: 5.00 FEES: 11.00
Street 4660 La Jolla Village Drive #930 AF: 5.00
Address MF: 1.00
City San Diego, CA 92122
State
Zip ATTN: E. STAGNARO SPACE ABOVE THIS LINE FOR RECORDER'S USE
- ---------------------------------------------------------------------------------------------
</TABLE>
AMENDMENT AGREEMENT
PROMISSORY NOTE AND DEED OF TRUST
(SHORT FORM)
Dated: September 4, 1991
The undersigned agree that the following documents: (i) that certain note dated
September 1, 1989, in the original principal amount of $17,500,000.00* and (ii)
Deed of Trust securing same executed by WESTERRA PACIFIC ASSOCIATES, ** as
Trustor recorded on September 11, 1989 as Instrument No. 89-488385 in the
Official Records in the Office of the County Recorder of San Diego County,
California, be and the same are amended upon the terms and conditions set forth
in that certain Amendment Agreement between the undersigned dated September 4,
1991. Said Amendment Agreement is by this reference incorproated herein and
made a part hereof.
UNION BANK TRUSTOR(S)
By /s/ JACK P. WEBSTER See Reverse For Signatures
------------------------------------ --------------------------
Jack P. Webster, Sr. Vice President
[INITIAL]
By /s/ KEVIN SIMMONS
------------------------------------ --------------------------
Kevin Simmons, Account Officer
--------------------------
* And amended by that certain Amendment --------------------------
Agreement dated May 23, 1991.
--------------------------
** a California General Partnership
--------------------------
State of California )
)
County of San Diego )
On october 22, 1991 before me, Estelle Stagnaro, a Notary Public,
pesonally appeared Jack P. Webster, Sr. Vice President and Kevin Simmons,
Account Officer, respectively of Union Bank personally known to me to be the
person(s) whose name(s) are subscribed to the within instrument and
acknowledged to me that they executed the same in their authorized
capacity(ies), and that by their signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ ESTELLE STAGNARO [SEAL]
-----------------------------
<PAGE> 71
WESTERRA PACIFIC ASSOCIATES,
a California General Partnership
By: EDWARD B. ROMANOW
--------------------------------------
Edward B. Romanow, Jr. General Partner
By: WESTERRA EXECUTIVES, LTD., a
California Limited partnership,
General Partner
By: EDWARD B. ROMANOW
--------------------------------------
Edward B. Romanow, Jr.
General Partner
By: Romanow Family Partners, L.P. a
California Limited partnership,
General Partner
By: EDWARD B. ROMANOW
--------------------------------------
Edward B. Romanow, Jr.
General Partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
By:
------------------------------
<PAGE> 72
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
LOEB AND LOEB
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Attention: Richard M. Johnson, Jr., Esq.
- --------------------SPACE ABOVE THIS LINE FOR RECORDER'S USE--------------------
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT ("Agreement"), is made and entered into as
of March 11, 1992, by and between UNION BANK, a California corporation
("Lender"), and WESTERRA PACIFIC ASSOCIATES, a California general partnership
("Borrower"), with respect to the following facts:
A. Lender has heretofore made to Borrower a $17,500,000 loan (the
"Loan") evidenced by that certain Note Secured by Deed of Trust (Floating Rate
Note), dated September 1, 1989 in the original principal amount of $17,500,000,
executed by Borrower and payable to the order of Lender. Said Note was
amended, in certain respects, pursuant to the terms of the following documents
executed by Borrower and Lender: (i) Letter Amendment dated September 1, 1989,
(ii) Amendment Agreement dated May 23, 1991, and Amendment Promissory Note and
Deed of Trust (Short Form) dated May 23, 1991, and recorded on July 3, 1991, as
Instrument No. 1991-0328337, in the Official Records of San Diego County,
California (the "Official Records"), (iii) Letter Amendment dated May 23, 1991,
and (iv) Amendment Agreement dated September 4, 1991, and Amendment Agreement
Promissory Note and Deed of Trust (Short Form) dated September 4, 1991, and
recorded on December 6, 1991, as Instrument No. 1991-0629258, in the Official
Records. Said Note, as amended, shall be referred to herein as the "Note".
B. The Note is secured by, among other things, that certain
Construction Deed of Trust and Assignment of Rents dated September 1, 1989,
executed by Borrower, as Trustor, to Lender as Trustee, in favor of Lender as
Beneficiary, and recorded on September 11, 1989, as Instrument No. 89-488385,
in the Official Records. Said Deed of Trust was amended, in certain respects,
pursuant to the terms of the Letter Amendments and the Amendment Agreements
referred to in Recital A above, and as so amended shall be referred to herein
as the "Deed of Trust".
C. The Deed of Trust currently encumbers certain real property,
and the improvements thereto, located in San Diego County, California, which
property is more particularly described therein (the "Property").
<PAGE> 73
D. The Note, the Deed of Trust and nay other documents executed by
Borrower and/or Lender in connection with the Loan are hereinafter collectively
referred to as the "Loan Documents".
E. In connection with Borrower's execution of the Note, Edward B.
Romanow, Jr. executed that certain Continuing Guaranty, dated September 1,
1989, in favor of Lender.
F. Lender and Borrower desire to modify the terms of the Loan
Documents upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Lender and Borrower hereby
agree as follows:
1. Maturity Date. As of the date hereof, the maturity date of the
Note (i.e., the date upon which the total unpaid principal balance of the Note
and all accrued but unpaid interest thereon shall be due and payable) shall be
January 31, 1993 (the "New Maturity Date").
2. Interest Rate. As of the date hereof, interest on the unpaid
principal balance of the Note shall accrue at the per annum rate of one and
five-eighths percent (1.625%) in excess of the Reference Rate (as such term is
defined in the Note). Borrower shall continue to be obligated to make the
monthly interest payments on the Note in accordance with the provisions thereof
(i.e., in arrears on the first day of each and every month).
3. Further Modification of the Deed of Trust. The Deed of Trust is
hereby further modified to provide that the "promissory note" referred to
therein shall refer to the Note as modified hereby.
4. Outstanding Principal Balance. Borrower acknowledges that the
outstanding principal balance of the Note, as of the date hereof, is
$15,182,645.39.
5. Conditions Precedent. Borrower shall satisfy all the conditions
set forth below on or before the Closing Date (as defined herein):
(a) Borrower shall execute and deliver to Lender four (4)
counterpart originals of this Agreement.
(b) Borrower shall deliver to Lender the written consent to the
transactions contemplated by this Agreement of such persons or entities as
Lender shall reasonably require.
(c) Borrower shall execute and deliver to Lender and shall cause
its general partners to execute and deliver to Lender, a Release in favor of
Lender, in form and substance satisfactory to Lender.
<PAGE> 74
(d) Borrower shall cause Founders Title Insurance Company to
issue such endorsements as Lender shall reasonably require to its ALTA Loan
Policy of Title Insurance No. AC883198, including, without limitation, CLTA
Endorsement No. 110.5 (with only those exceptions acceptable to Lender) and CLTA
Endorsement No. 111.8, insuring the priority of the Lien of the Deed of Trust as
of the Closing Date.
(e) Borrower shall pay to Lender, in immediately available
funds, an amount which shall bring current all accrued but unpaid interest due
and owing on the Note as of the Closing Date.
(f) Borrower shall pay to Lender, in immediately available
funds, $5,000 of the $10,000 in costs and expenses referred to in Paragraph 8
hereof.
(g) Borrower shall deliver to Lender the written consent of
JAYCOR, a California corporation ("JAYCOR"), and such other persons as Lender
shall require, to the transactions contemplated by this Agreement.
(h) Borrower shall deliver to Lender a true, correct and
complete copy of each and every agreement executed by and between JAYCOR and
Borrower relating to the Property.
(i) Borrower shall deliver to Lender a copy of all monthly
operating statements, expense reports, balance sheets and other financial
reports, relating to the Property prepared by Borrower or on the behalf of
Borrower for the period covering the calendar year 1991.
(j) Borrower shall deliver to Lender either (i) a true,
correct and complete current, updated financial statement of Borrower prepared
by an independent Certified Public Accountant (the "Financial Statement"), or
(ii) a detailed written statement, certified by Borrower to be true, correct and
complete as of the Closing Date, setting forth Borrower's financial condition as
of the Closing Date, which statement shall include the same, or substantially
similar, type of information that would be set forth in the Financial Statement
("Financial Statement Verification").
(k) Borrower shall cause each of its general partners to
deliver to Lender either (i) a true, correct and complete current, updated
financial statement of that general partner prepared by an independent Certified
Public Accountant (individually, a "Partner's Financial Statement") or (ii) a
detailed written statement, certified by the relevant general partner to be
true, correct and complete as of the Closing Date, setting forth that general
partner's financial condition as of the Closing Date, which statement shall
include the same, or substantially similar, type of information that would be
set forth in that Partner's Financial Statement (individually a "Partner's
Financial Verification").
(l) Borrower shall cause to be delivered to Lender such
additional documents, financing statements, resolutions, certificates, articles
of incorporation,
3
<PAGE> 75
bylaws, certificates of good standing, consents, opinions and other items as
Lender may require in order to consummate the transactions contemplated by this
Agreement.
6. Further Financial Conditions. Notwithstanding anything to the
contrary contained in any of the Loan Documents, commencing on May 20, 1992, and
by the twenty-fifth (25th) day of each month thereafter, Borrower shall deliver,
and shall cause its general partners to deliver, to Lender a monthly update of
the Financial Statement or Financial Statement Verification (as applicable) and
a monthly update of each Partner's Financial Statement or Partner's Financial
Verification. Such monthly financial updates shall cover the immediately
preceding month and shall include, without limitation, the cash balances of the
Borrower and its general partners, a reconciliation of any change in said cash
balances, receipts and expenditures of the Borrower, and any other information
which Lender may reasonably require from time to time.
7. Closing Date. The term "Closing Date" as used herein shall
mean April 27, 1992, or such earlier or later date as may be agreed to in
writing by all the parties hereto.
8. Costs. Borrower shall pay to the Lender the sum of $10,000 to
cover a portion of the costs and expenses incurred by Lender in connection
herewith, as follows: (a) $5,000 on or before the Closing Date, and (b) $5,000
on or before the New Maturity Date or the date upon which the Loan is paid in
full, whichever is earlier.
9. Notice. Notwithstanding anything to the contrary contained in
the Loan Documents, all communications, notices and demands of any kind which
any party hereto may be required or may desire to serve upon any other party
shall be in writing and shall be personally served upon such party, mailed by
United States registered or certified mail, postage prepaid, return receipt
requested, or sent by a locally recognized courier service for same day or next
day delivery, to be confirmed in writing by such courier, addressed as follows:
If to Lender: Union Bank
San Diego Construction
Loan Center
4660 La Jolla Village Drive
Suite 930
San Diego, California 92122
Attention: Mr. Kevin Simmons,
Assistant Vice President
With a copy to: Loeb and Loeb
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017
Attention: Richard M. Johnson, Jr., Esq.
<PAGE> 76
If to Borrower: Westerra Pacific Associates
c/o Total Care
375 Morris Road
Box 200
Westpoint, Pennsylvania 19486
Attention: Mr. E.B. Romanow
With a copy to: Robbins & Keehn
530 B Street
Suite 1700
San Diego, California 92101
Attention: Arlington Ray
Robbins, Esq.
Any party may change its address by giving the other parties written
notice of its new address as herein provided. Notices given in the manner
aforesaid shall be deemed delivered when actually received or refused by
the party to whom sent, unless such notice is mailed as aforesaid, in which
event such notice shall be deemed complete on the day of actual delivery as
shown by the return receipt or at the expiration of the third (3rd) business
day after the date of mailing, whichever first occurs.
10. Reaffirmation of Obligations. Borrower hereby ratifies and
reaffirms all its obligations, representations and warranties under the Loan
Documents, as amended by this Agreement and agrees to pay the indebtedness
evidenced by the Loan Documents according to the terms and provisions thereof,
as hereby modified. Except as hereby modified, all of the terms, covenants and
provisions of the Note, the Deed of Trust and the related Loan Documents shall
remain in full force and effect. Without limiting the generality of the
foregoing, Borrower hereby expressly acknowledges and agrees that, as of the
date of the Closing Date, Borrower does not have any offsets, claims or
defenses whatsoever against any of its obligations under the Note, the Deed of
Trust or any of the other Loan Documents.
11. Entire Agreement. This Agreement contains the entire understanding
between Lender and Borrower with respect to the subject matter hereof and shall
not be amended except by a writing signed by all the parties hereto.
12. Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, Borrower and Lender and their respective
successors and assigns.
13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California. Each of the parties
hereto hereby irrevocably submits to the exclusive jurisdiction of any State of
California or Federal Court sitting in the city of San Diego over any suit,
action or proceeding arising out of or related to this Agreement or any of the
Loan Documents.
<PAGE> 77
14. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument.
15. Representation by Counsel. Borrower has retained counsel to
represent it in the transaction contemplated herein; Borrower has read and
understands this Agreement; and Borrower has been advised by its counsel with
respect to its rights and obligations under this Agreement; and the principle
of construction against draftsmen shall have no application in the
interpretation of this Agreement.
6
<PAGE> 78
16. Waiver of Trial by Jury. BORROWER HEREBY EXPRESSLY, KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH, THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF ANY OF THE PARTIES TO THIS AGREEMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER EXECUTING THIS AGREEMENT.
[SIG]
--------------------------
Borrower
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
"Lender"
UNION BANK, a
California corporation
By: /s/ JACK P. WEBSTER
----------------------------------
Jack P. Webster,
Its: Sr. Vice President
------------------------------
By: /s/ KEVIN SIMMONS
----------------------------------
Kevin Simmons,
Its: Assistant Vice President
------------------------------
"Borrower"
WESTERRA PACIFIC ASSOCIATES, a
California general partnership
By: /s/ EDWARD B. ROMANOW, JR.
----------------------------------
Edward B. Romanow, Jr.,
general partner
By: Romanow Family Partners, L.P.,
a California limited
partnership, general partner
By: /s/ EDWARD B. ROMANOW, JR.
------------------------------
Edward B. Romanow, Jr.,
general partner
Jaycor, a California corporation hereby assumes the obligations of Borrower
hereunder and agrees to be bound by the terms and conditions of this agreement.
Jaycor, a California corporation
BY:
------------------------------------------
7
<PAGE> 79
CONSENT OF JAYCOR
JAYCOR, a California corporation ("JAYCOR") hereby consents to that
certain Modification Agreement (the "Agreement") dated as of March 11, 1992, by
and between Union Bank, a California corporation, as Lender, and Westerra
Pacific Associates, a California general partnership ("Westerra Pacific"), as
Borrower, and hereby acknowledges and agrees that the lien of the Deed of Trust
(as defined in the Agreement), as modified by the Agreement, shall remain prior
and superior to that certain amended and restated lease dated June 16, 1990,
and the leasehold interest created thereby, by and between Westerra Pacific, as
landlord, and JAYCOR, as tenant.
Dated as of March 11, 1992. JAYCOR, a
California corporation
By:
------------------------------------
Its:
--------------------------------
CONSENT AND REAFFIRMATION OF GUARANTOR
Edward B. Romanow, Jr., hereby ratifies and reaffirms all his
obligations, representations and warranties, as guarantor, under that certain
Continuing Guaranty dated September 1, 1989, in favor of Union Bank, a
California corporation, and, as guarantor, under said guaranty, hereby consents
to that certain Modification Agreement dated as of March 11, 1992, by and
between Union Bank, a California corporation, as Lender, and Westerra Pacific
Associates, a California general partnership, as Borrower, and hereby expressly
acknowledges and agrees that, as of the Closing Date (as defined in said
Modification Agreement), he has no offsets, claims or defenses whatsoever
against any of his obligations under said guaranty.
Dated as of March 11, 1992.
/s/ EDWARD B. ROMANOW, JR.
--------------------------------
EDWARD B. ROMANOW, JR.
8
<PAGE> 1
EXHIBIT 10.14
LEASE
AGREEMENT
between
LOUP MANAGEMENT COMPANY
LANDLORD
and
JAYCOR
TENANT
DATE December 31, 1994
<PAGE> 2
LEASE AGREEMENT
THIS LEASE AGREEMENT dated this 31st day of December, 1994, by and between Loup
Management Company, hereinafter referred to as Landlord, and Jaycor, a
California Corporation hereinafter referred to as Tenant.
WITNESSETH:
In consideration of the payment of the rent hereunder provided and the
keeping and performance of each and every one of the covenants, agreements and
conditions of Tenant hereinafter set forth, Landlord does hereby Lease unto the
said Tenant the Demised Premises, defined as follows: that certain space known
as Suite 300, situated on the third floor, of the building known as 25 North
Cascade Office building in the City of Colorado Springs, County of El Paso,
Colorado, and more particularly designated on the floor plan attached hereto as
Schedule A and made a part of this Lease, and hereinafter referred to as the
"Demised Premises", subject to the following terms, provisions, covenants and
agreements.
1. Interior Construction,
INITIALS DATE
-------- -----
<PAGE> 3
2.
3. Use of Premises. Tenant shall use the Demised Premises as a general
office for a defense contractor and for no other purpose or use. Tenant will not
use the Demised Premises in such a way as to cause unreasonable depreciation.
Tenant shall neither permit nor suffer any disorderly conduct, noise or nuisance
in or about the Demised Premises; Tenant shall not use or permit the Demised
Premises to be used for any business or purpose deemed by Landlord to be extra
hazardous, or in any manner as to constitute a violation of any present or
future laws, rules, regulations, requirements or orders of any lawful
governmental or public authority relating to the Demised Premises; and Tenant
covenants and agrees at its cost to promptly comply with all such laws,
regulations, ordinances and every order or regulation now or hereafter enacted
of the United States, of the City of Colorado Springs, County of El Paso, or
State of Colorado.
4. Base Rent. Tenant agrees to pay without offset or demand Landlord as
base rent ("Base Rent") for the Demised Premises for the full term the sum of
Four Hundred Ninety-Three Thousand Seven Hundred Ninety and no/100 ($493,790.00)
dollars payable in monthly installments of See Lease Addendum ($__________)
dollars in advance on the first day of each calendar month during the term
hereof. Such payments shall be made to Landlord at the address set forth
hereinafter or at such other address as Landlord may designate in writing from
time to time. In the event that Tenant occupies the Demised Premises on a date
other than the first day of the month, then the Base Rent for the first and last
months of the term hereof shall be prorated.
5. Term Commencement. The term of this Lease shall be for five (5)
years, and such term shall commence on the earlier of the happening of the
following events:
(a) the date on which Tenant first utilizes the Demised Premises to
conduct business in all or a portion of the Demised Premises, or
(b) ____ (____) days after the execution of this Lease by Landlord
and Tenant, and shall terminate five (5) years following the commencement of the
term as hereinabove set forth.
If the date of commencement (as provided in (a) or (b) hereof)
is on a day other than the first day of the month, rent shall be immediately
paid for such fractional month prorated on the basis of a thirty (30) day month
and the term of the Lease shall commence on the first day of the month next
succeeding, which date shall be the commencement date of this Lease.
Landlord and Tenant shall execute a written addendum to this
Lease when the commencement date is determined as above set forth, which shall
set forth the commencement date of the Lease and the date of termination of the
Lease.
6. Operating Costs.
6.1. Tenant shall pay to Landlord as additional rental, commencing
on the date the first monthly installment of Base Rent is due, any amount equal
to Tenant's Proportionate Share of the total "Operating Costs" as said term is
hereinafter defined, payable by Landlord in operating and maintaining the
Building.
6.2. The term "Operating Costs" means the total amounts paid or
payable by Landlord, or others on behalf of Landlord, in connection with the
ownership, replacement, maintenance, repair, and operations of the Building
(except for those items of repair and maintenance set forth in paragraph 10
hereof which shall be the sole obligation of Tenant), including without limiting
the generality of the foregoing, the amount paid for all steam or fuel used in
heating and air conditioning of the Building, the amount paid for all
electricity furnished to the Building, other than electricity furnished to and
paid for by Tenants by reason of their extraordinary consumption of electricity;
the amount paid for all hot and cold water other than that chargeable to
INITIALS DATE
-------- -----
2
<PAGE> 4
Tenants by reason of their extraordinary consumption of water; the amount paid
for all labor and/or wages and other payments including cost to Landlord of
workmen's compensation and disability insurance, payroll taxes, real estate
taxes and assessments, personal property taxes, welfare and fringe benefits made
to janitors employees, contractors and subcontractors of the Landlord involved
in the operation, replacement and maintenance of the Building; managerial,
administrative, and telephone expenses related to the Building; the total
charges of any independent contractors employed in the care, and operation,
replacement, and maintenance and cleaning of the Building and landscaping; the
amount paid for all supplies, tools, equipment and necessities which are
occasioned by everyday wear and tear, the cost of window and exterior wall
cleaning; the cost of accounting services necessary to compute the rents and
charges payable by Tenants, legal, inspection and consulting services; the cost
of operating, repairing and maintaining the building elevators, the cost of
guards and other protection services; payments for general maintenance,
replacement and repairs to the plant and equipment supplying climate control;
and the amount paid for premiums for all insurance required from time to time by
Landlord or Landlord's mortgagees. The reference to "Building" in this
subparagraph 6.2 shall include all related facilities, including corridors,
lobbies, sidewalks, parking areas, elevators, loading areas and driveways and
other public areas in or around the Building.
6.3. Tenant's proportional share of such Operating Costs shall be
an amount determined by multiplying the annual total of the Operating Costs by a
fraction, the numerator of which shall be Twenty and 37/100 percent, (20.37%) ,
the square footage of the Demised Premises leased to Tenant hereunder and the
denominator of which shall be the total gross leaseable square feet in the
Building, which is 54,000 expressed as a percentage equal.
6.4. Payment of Additional Rent: Any additional rent payable by
Tenant under section 6.1, 6.2 and 6.3 hereof shall be paid as follows, unless
otherwise provided:
(a) During the term hereof, Tenant shall pay to Landlord in
advance, on the date monthly installments of Base Rent are due hereunder,
one-twelfth (1/12th) of the amount of such additional rentals as reasonably
estimated by Landlord to be due from Tenant. Such estimate may be adjusted by
Landlord, and Tenant shall pay installments of additional rentals according to
such estimate.
(b) If the amount of such estimated additional rental payment
made by the Tenant in any year should be less than the additional rentals due
for such year, then the Tenant shall pay to the Landlord an additional rental
upon demand the amount of such deficiency.
(c) If the amount of such additional rental payments made by
the Tenant in any year are greater than the additional rentals due for such
year, providing Tenant is not in default hereunder, such excess will be applied
by the Landlord to the next succeeding installments of additional rentals due
hereunder; and if there is any excess for the last year of the term hereof, the
amount thereof will be refunded by the Landlord to the Tenant within thirty (30)
days after the expiration of the term.
7. Taxes.
7.1. The term "Taxes as used in this Lease in paragraph 6 hereof
shall mean the amount of real estate taxes and special assessments imposed upon
land, buildings and improvements in, of and upon the building, and levies and
assessments made upon or as a result of personal property owned by Landlord and
used in connection with the Building. If because of any changes in the taxation
of real estate any other tax or assessment (including, without limitation, any
occupancy, gross receipts, or rental tax) is imposed upon Landlord or the owner
of the land and/or building or the occupancy, rents or income therefrom, in lieu
of, or in substitution for, or in addition to, any of the foregoing taxes, such
other tax or assessment shall be deemed part of the Taxes.
7.2. Commencing with the tax bill for the Lease Year in which the
Tenant's tenancy begins, Tenant agrees to pay Landlord each year Tenant's share
of such real estate taxes and special assessments as may be levied on the
building and determined and pursuant to paragraph 6 hereof. In the event that
the term hereby demised does not commence on the 1st day of January, then the
Tenant's share of the taxes for the year the term commences and terminates shall
be apportioned on a per diem basis in such proportion as Tenant's tenancy of the
Demised Premises bears to 365 days.
7.3. In order to facilitate the collection of taxes called for
hereunder, Tenant shall deposit with Landlord on the day monthly installments of
rent are due on amount equal to one-twelfth (1/12th) of the taxes and levies due
from Tenant to Landlord hereunder during each month of the term hereby demised
or any extension thereof. Tenant's share of taxes, levies and assessments shall
be based upon estimates made by Landlord of projected taxes due for the subject
Lease Year, all as set forth in paragraph 6 hereof.
INITIALS DATE
-------- -----
3
<PAGE> 5
8. Insurance.
8.1. In addition to Tenant's obligation to pay its proportionate
share of cost insurance pursuant to paragraph 6 hereof, Tenant shall pay all
premiums due in connection with the insurance Tenant is required to carry under
the terms of this Lease and shall furnish Landlord with copies of paid receipts
evidencing the payment thereof. All such policies shall be written with
companies satisfactory to Landlord and authorized to do business in the State of
Colorado. Landlord shall not unreasonably withhold consent to the placement of
insurance with companies proposed by Tenant.
8.2. Tenant during the entire term of this Lease shall keep the
Demised Premises insured for the protection of Landlord and Landlord's designees
who shall be so named as co-insureds in any such policies, by maintaining
general public liability and property insurance against claims for bodily
injuries or death and property damage occurring upon or under the Demised
Premises or resulting from the business done by Tenant on the Demised Premises,
and shall include a cross liability clause with respect to the Demised Premises
and Tenant's use of any part of the Building. Such insurance shall be written on
a comprehensive basis with limits of not less than two million ($2,000,000.00)
dollars for any one occurrence and such higher limits as the Landlord or the
mortgagees of Landlord may reasonably require from time to time.
8.3. Tenant shall maintain standard fire and extended coverage
insurance insuring all alterations and additions made to the Demised Premises
and all of the fixtures, furniture and equipment for the full replacement
thereof. Such insurance shall be maintained by and shall be paid for by Tenant.
8.4. Tenant shall maintain, at its sole cost and expense, any other
form or forms of insurance as Landlord or the mortgagees of Landlord may
reasonably require from time to time in form, in amounts and for insurance risks
against which a prudent Tenant would protect itself, and shall deliver to
Landlord certificates of all insurance required by Landlord hereunder upon
demand of Landlord.
8.5. All policies of insurance required pursuant to this paragraph
8 shall designate Landlord hereunder and Tenant as named insureds and shall
provide that the proceeds of such insurance shall be payable to Landlord and
Tenant, as their interests may appear. If required by Landlord, such policies
shall contain a loss payable endorsement in favor of the holder of any mortgage
or deed of trust on the building or any portion thereof.
8.6. All policies of insurance required hereunder shall
additionally provide that the same may not be cancelled without at least thirty
(30) days prior written notice to Landlord, and shall provide further that any
losses shall be payable notwithstanding any act of negligence of Tenant which
might otherwise result in forfeiture of said insurance.
8.7. If Tenant shall at any time fail, neglect or refuse to provide
and maintain such insurance, then Landlord shall have the option (but shall not
be required to) pay for such insurance and any amounts paid therefore by
Landlord shall be deemed additional rent due Landlord and shall be paid by
Tenant to Landlord at the next rental payment date after any such payment, with
interest thereon at the rate of eighteen (18%) percent per annum from the date
of payment thereof.
9. Use of Electricity.
9.1. Tenant's use of electricity in the Demised Premises shall be
for the operation of building standard lighting, electrical fixtures, typewriter
and other small office machines and lamps and shall not at any time exceed the
capacity of any of the electrical conductors and equipment in or otherwise
serving the Demised Premises.
9.2. In order to ensure that such capacity is not exceeded and to
avert possible adverse effect upon the Building's electrical service, Tenant
shall not, without Landlord's prior written consent in each instance, which
consent shall not unreasonably be withheld, connect any additional fixtures,
appliances or equipment (other than normal office electrical fixtures and
copying machinery, lamps, typewriters and similar small office machines) to the
Building's electric distribution system or make any alteration or addition to
the electrical system of the Demised Premises existing at the commencement of
the term hereof. If Landlord grants such consent, the cost of all additional
risers and other equipment required therefore shall be paid as additional rent
by Tenant to Landlord upon demand. Furthermore, Tenant shall pay on demand as
additional rent to Landlord the cost of any electric current or other energy for
any other purpose, including, without limitation, the operation of heavy duty
accounting equipment and copy equipment, and computer equipment.
9.3. Tenant shall pay as additional rental, on demand, the cost of
any metering which may be required by Landlord to measure any excess usage of
electricity, water or other utility energy.
10. Tenant Repair
10.1. If any of the elevators, and other apparatus, or elements of
the Building used for the purpose of climate control or operating the elevators,
or if the water pipes, drainage pipes,
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electric lighting or the roof or outside walls of the Building or parking
facilities of Landlord becomes damaged or are destroyed through the negligence,
carelessness or misuse of the Tenant, its agents, employees or anyone permitted
by Tenant to be in the building, then the cost of the necessary repairs,
replacements or alterations shall be borne by Tenant who shall pay the same on
demand to Landlord as additional rental.
10.2. Tenant shall keep the Demised Premises in as good order,
condition and repair as when they were entered upon, loss by fire (unless cause
by the negligence of Tenant, its agents, employees or invitees), inevitable
accident or ordinary wear and tear excepted. If Tenant fails to keep the Demised
Premises in such good order, condition and repair as required hereunder to the
reasonable satisfaction of Landlord, as soon as reasonably possible after
written demand, Landlord may restore the Demised Premises to such good order and
condition and make such repairs without liability to Landlord and upon
completion thereof, Tenant shall pay to Landlord, as additional rental, upon
demand, the cost of restoring the Demised Premises to such good order and
condition and of the making of such repairs.
10.3. Tenant shall pay on demand the cost of replacement of any
glass broken on the Demised Premises including outside windows and doors of the
perimeter of the Demised Premises during the continuance of this Lease, unless
the glass shall be broken by Landlord, its employees or agents.
10.4. Tenant shall deliver, at the expiration of the Term hereof or
sooner upon termination of the Term, the Demised Premises in good repair and in
a state of broom cleanliness.
10.5. Any and all other maintenance, repair, alteration or
replacement (including, but not limited to, the exclusive right to make any
replacement of electric light bulbs, tubes and ballasts in the Demised Premises)
of any of the improvements or facilities of the Demised Premises shall be done
by Landlord, at Lessee's sole cost and expense, which shall be paid to Landlord
by Tenant as additional rent upon Landlord's written demand.
11. Alterations.
*11.1. Subsequent to the execution of this Lease and prior to the
commencement hereof, Tenant shall have the right to come upon, enter and have
access to the Demised Premises to place and attach, at its expense, to the
Demised Premises any fixtures, furnishings, equipment or facilities reasonably
required by it for its business, including, but not limited to, shelving,
partitions, fixtures, floor and wall coverings, lighting fixtures, and other
equipment and facilities desirable for its business, provided such work does not
cause irreparable injury or damage to the Demised Premises.
11.2. Other than as provided in paragraph 11.1, Tenant shall make
no alterations, changes, additions or improvements to the Demised Premises
without the Landlord's prior written consent. No such alteration, change,
addition or improvement shall be done so as to lessen or materially and
disadvantageously affect the value of the Demised Premises.
11.3. Landlord shall not under any circumstances whatsoever be
liable for the payment of any expense incurred or the value of any work done or
material furnished to the Demised Premises by virtue of any construction,
alteration, change, additions or improvement undertaken by Tenant. All such work
shall be Tenant's sole cost and expense and Tenant shall be wholly responsible
to all contractors, subcontractors, laborer and materialmen therefor. Tenant
shall pay for all or any of the foregoing so that no lien shall be asserted
against the Demised Premises or the Building.
11.4. Tenant shall indemnify and save Landlord harmless for any
liabilities, damages or penalties, and any costs, expense or claims of any kind
or nature arising out of said construction, alteration, or additions, or
otherwise, and such indemnifications shall apply to any damages or injury to
person or property resulting therefrom.
11.5. Except as provided in paragraph 13 hereof, all alterations
made, done and constructed in, upon or around the Demised Premises by Tenant
shall become the property of Landlord at the termination of this Lease, and
shall remain the Demised Premises and be surrendered with the Demised Premises.
12. Lien Protection. Tenant agrees that at no time during the term of
this Lease will Tenant permit a lien or encumbrance of any kind or nature to
come into existence against the Demised Premises or the Building. If at any time
a lien or encumbrance of any kind or nature to come into existence against the
Demised Premises or the Building. If at any time a lien or encumbrance is filed
against the Demised Premises or the Building as a result of Tenant's failure to
satisfy same, Tenant shall promptly discharge said lien or encumbrance has not
been removed within thirty (30) days from
* See Lease Amendment
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the date it is filed or recorded against the Demised Premises, Tenant agrees it
will deposit with Landlord in cash an amount equal to one hundred and fifty
(150%) percent of the amount of the lien of the person or concern filing the
lien and shall leave the same on deposit with Landlord until said lien is
discharged, Landlord shall have the option, but not the responsibility, to
satisfy any such lien or encumbrance, and if Landlord pays any such lien or
encumbrance, Tenant shall pay to Landlord as additional rent, the amount of such
payment on the next following day when monthly installments of rent are due
hereunder. If Landlord satisfies any such lien or encumbrance, it may make such
payment without inquiry to the accuracy of the amount of such lien or
encumbrance of the validity of the lien or encumbrance.
13. Trade and Other Fixtures.
13.1. Any and all alterations, changes, additions or improvements
to the Demised Premises which are not movable including, but not limiting the
generality of the foregoing, any and all fixtures, trade fixtures, equipment,
machinery, lighting fixtures, cooling equipment, built-ins, partitions, wall
coverings, tile linoleum and power wiring shall be the property of the Landlord
upon any termination of the Lease.
13.2. Any movable trade fixtures, equipment, machinery or other
personal property of Tenant used in or on the Demised Premises shall be the
property of the Tenant upon any termination of this Lease, and Tenant shall have
ten (10) days from and after the date to remove the same from the Demised
Premises, provided Tenant is current in all of its obligations hereunder. If not
so removed, any such fixtures and equipment shall be deemed abandoned and shall
be the property of Landlord. Any damage caused to the Demised Premises by the
removal of such items shall be repaired by Tenant at Tenant's expense.
14. Signs. Tenant shall not install any signs, window lettering or other
advertisement in, upon or around the Demised Premises without the prior written
approval of Landlord, Landlord shall have absolute discretion in approving or
disapproving any proposed sign.
15. Tenant's Covenants. Tenant, in consideration of the leasing of the
Demised Premises, as aforesaid, and in addition to any and all covenants
hereinabove and hereinafter included in this Lease, covenants and agrees as
follows, to wit:
15.1. To pay the rent for said Demised Premises, all additional
rent and any and all other charges provided hereunder promptly when due and
payable. It is understood and agreed that Landlord may assess a late charge
which shall be in the amount of three (3%) percent of any monthly rent
installment or other payment called for hereunder, which is delinquent ten (10)
days or more.
15.2. To pay any increase in premiums of insurance carried by
Landlord pursuant to paragraph 6 hereof, if, in the reasonable determination of
Landlord, such increase is directly related or caused by Tenant's use of the
Demised Premises.
15.3. Neither to permit nor suffer any noise or disturbances
whatever, other than those incident to Tenant's regular business.
15.4. Neither to hold nor attempt to hold Landlord liable for any
damage or injury, either proximate or remote, occurring through or caused by any
repairs, alterations, injury, or accident to adjacent premises, or the Demised
Premises or the adjacent premises or other parts of the building not herein
leased, or by reason of the negligence or default of the owners or occupants
thereof or any other persons, nor liable for any injury or damage occasioned by
defective electric wiring or the breaking or stoppage of plumbing or sewage upon
the Demised Premises or upon adjacent premises, whether said breaking or
stoppage results from freezing or otherwise; provided, however, such occurrences
are not cause by Landlord's negligence.
15.5. Neither to permit nor suffer the Demised Premises or the
walls or floors thereof, to be endangered by overloading.
15.6. Not to use the Demised Premises for any purpose which would
render the insurance thereon void or the insurance risk more hazardous, nor to
make any alterations or changes in, upon, or about the Demised Premises without
first obtaining written consent from the Landlord therefor.
15.7. To permit Landlord, or its agents to enter upon the Demised
Premises at any time for the purpose of inspection and making repairs,
alterations or improvements to the Demised Premises or to the Building, or for
the purpose of having access to the under floor ducts, or to have access to
mechanical shafts (which Tenant agrees not to obstruct), and Tenant shall not be
entitled to compensation for any inconvenience, nuisance or discomfort
occasioned thereby. Landlord shall have the right to enter the Demised Premises
in order to check, calibrate, adjust and balance controls and other parts of
heating, ventilating and climate. To permit Landlord or its agents to enter upon
the Demised Premises to exhibit and show the Demised Premises to prospective
tenants of the Building or to prospective purchasers of the building during
normal business hours.
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15.8. To surrender and deliver up possession of the Demised
Premises and any appurtenance thereto promptly upon the expiration of the Lease.
15.9. To comply with all of the rules and regulations promulgated
and adopted by Landlord regarding the building.
16. Casualty Damage.
16.1. In the event of fire or other casualty, for which Landlord
has received insurance proceeds, and which is not caused by the negligence of
Tenant, Base Rent shall abate in the proportion that the unusable portion of the
Demised Premises as reasonably determined by Landlord is of the total area of
the Demised Premises until the Demised Premises are rebuilt: and Landlord agrees
that it will with reasonable diligence repair the Demised Premises, unless
Tenant is obligated to repair under the terms hereof, or unless this Lease is
terminated as hereinafter provided; subject to the provisions of paragraphs 16.2
and 16.3.
16.2. If the Demised Premises are damaged or destroyed by any cause
whatsoever, and if, in the reasonable opinion of Landlord, the Demised Premises
cannot be rebuilt or made fit for the purposes of Tenant within one hundred
twenty (120) days of the damage or destruction, Landlord instead of rebuilding
or making the Demised Premises fit for Tenant, may at its option terminate this
Lease by giving to Tenant within sixty (60) days after such damage or
destruction, notice of termination, and thereupon rent and any other payments
for which Tenant is liable under this Lease shall be apportioned and paid to the
date of such damage and Tenant shall immediately deliver up possession of the
Demised Premises to Landlord. Provided, however, that those provisions of this
Lease which are designated to cover matters of termination and thereafter shall
survive the termination hereof.
16.3. Irrespective of whatever the Demised Premises are damaged or
destroyed, in the event that fifty (50%) percent or more of the area in the
Building is damaged or destroyed by any cause whatsoever, and if, in the
reasonable opinion of Landlord, the said area cannot be rebuilt or made fit for
the purpose of the tenants of such space within one hundred and eighty (180)
days after the damage or destruction, the Landlord may at its option terminate
this Lease by giving to Tenant within sixty (60) days after such damage notice
of termination requiring it to vacate the Demised Premises sixty (60) days after
delivery of the notice of termination and thereupon rent and any other payment
shall be apportioned and paid to the date of which possession is relinquished
and Tenant shall deliver up possession of the Demised Premises to Landlord in
accordance with such notice of termination.
16.4. Landlord shall in no event be obligated to repair or replace
any damage or destruction in the building for which Landlord has not receive
insurance proceeds. In the event of any damage or destruction for which Landlord
does not receive insurance proceeds, Landlord may, at its option, elect not to
rebuild, repair or replace said damage or destruction and will thereafter have
the option to terminate this Lease by giving Tenant written notice.
17. Indemnification. Tenant shall indemnify, protect, defend, and hold
Landlord harmless from and against any and all claims, losses, costs (including
without limitation, attorneys' fees) or damages and from liability to any person
on account of any damage to person or property to the extent caused by the
negligence or willful misconduct of Tenant, its employees, directors, officers
or agents, or the failure of Tenant to perform its obligations under this Lease.
Landlord shall indemnify, protect, defend and hold Tenant harmless from and
against any and all claims, losses, costs (including without limitation
attorneys' fees) or damages and from liability to any person on account of any
damage to person or property to the extent caused by the negligence or willful
misconduct of Landlord, its employees, directors, officers or agents or the
failure of Landlord to perform its obligations under this Lease.
18. Eminent Domain.
18.1. If the Demised Premises or a substantial part thereof, shall
be taken in eminent domain, or conveyed under threat or condemnation
proceedings, then this Lease shall forthwith terminate and end upon the taking
thereof as if the original term provided in said Lease expired at the time of
such taking. If only such part or portion of the Demised Premises is taken which
would not substantially and materially interfere with or adversely affect the
business of the Tenant conducted at the Demised Premises, then Landlord, at
Landlord's option to be exercised in writing within thirty (30) days after the
taking thereof, may repair, rebuild or restore the Demised Premises, and this
Lease shall continue in effect. If, however, because of such taking, the Demised
Premises should be rendered untenantable or partially untenantable, then the
rent, or a portion thereof, shall abate until the Demised Premises shall have
been restored.
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18.2. In the event that an award is made for the taking of such
property and parcels of the Demised Premises or the Building in condemnation
proceedings, Landlord shall be entitled to receive and retain the amounts
awarded or paid for such taking or conveyance; provided, however, that Tenant
shall be entitled to receive and retain such amounts as are specifically awarded
to it in such proceeding because of the taking of its furniture, or fixtures,
and its leasehold improvements which have not become a part of the realty. It is
understood and agreed that any amounts specially awarded in any such taking for
the damage to the business of Tenant done on the Demised Premises and awarded to
it as a result of interference with the access to the Demised Premises or for
any other damage to said business and trade done at the Demised Premises shall
be the property of Tenant.
18.3. It is understood and agreed that in the event of the
termination of this Lease as provided under this paragraph, Tenant shall have no
claim against Landlord for the value of any unexpired term of this Lease and no
right or claim to any part of the award made on account thereof.
19. Default and Remedies of Landlord.
19.1. If any one or more of the following events (each of which is
herein sometimes called "event of default") shall happen:
19.1.1. If the default shall be made in the due and punctual
payment of any rent, taxes or any other sums required to be paid by Tenant under
this Lease when and as the same shall become due and payable, and such default
has not been cured within ten (10) days of the date of same becomes due and
payable.
19.1.2. If Tenant shall vacate or abandon the Demised Premises or
if default shall be made by Tenant in the performance of or compliance with any
of the covenants, agreements, terms or conditions contained in this Lease other
than those referred to in the foregoing paragraph 19.1.1, and Tenant shall fail
to remedy the same with in thirty (30) days after Landlord shall have given
Tenant written notice specifying such default.
19.1.3. If Tenant shall file a voluntary petition in bankruptcy or
shall be adjudicated as bankrupt or insolvent, or shall take the benefit of any
relevant legislation that may be in force for bankrupt or insolvent debtors or
shall file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief for itself
under any present or future federal, state or other statute, law or regulation,
or if any proceedings shall be taken by Tenant under any relevant bankruptcy act
in force in any jurisdiction available to Tenant, or if Tenant shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of all or any substantial part of its properties or of
the Demised Premises, or shall make any general assignment for the benefit of
creditors.
19.1.4. If a petition shall be filed against Tenant seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal, state or other statute,
law or regulation and shall remain undismissed for an aggregate of one hundred
twenty (120) days or if trustee, receiver or liquidator of Tenant or of all or
any substantial part of its properties or of the Demised Premises shall be
appointed without the consent or acquiescence of Tenant and such appointment
shall remain unvacated for an aggregate of one hundred twenty (120) days.
19.2. Then and in any event covered by paragraphs 19.1.1., 19.1.2.,
19.1.3., 19.1.4, Landlord shall have the right at its election, provided
Landlord has given prior written notice, as hereinabove set forth, to Tenant,
then or any time thereafter, either to:
19.2.1. Institute suit against Tenant to collect each installment
of rent or other sum as it becomes due or to enforce any obligations under this
Lease; or
19.2.2. Re-enter and take possession of the Demised Premises and
all personal property therein and to remove Tenant and Tenant's agents and
employees therefrom, and either:
19.2.2.1. Terminate this Lease and sue Tenant for damages for
breach of the obligations of Tenant to Landlord under this Lease, and such
damages shall be deemed to be the equipment of the amount of the net rent and
other rent and charges which would be payable under this Lease by Tenant if this
Lease were still in effect, less the net proceeds of any reletting effect
pursuant to paragraph 19.2.2.2., or
19.2.2.2. Without terminating this Lease, relet, assign or sublet
the Demised Premises and personal property, as the agent and for the account of
Tenant in the name of Landlord or otherwise, upon the best terms and conditions
Landlord may make with the new Tenant for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on such conditions as Landlord may deem
best; may determine and may collect and receive the rent therefor, provided
Landlord shall in no way be responsible or liable for any failure to relet the
Demised Premises or any part thereof, or for any failure to collect any rent due
upon any such reletting. In this event, the rents received on any such
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reletting shall be applied first to the expenses of reletting and collecting,
including, without limitation, all repossession costs, reasonable attorney's
fees, legal fees and any real estate commission paid, alteration costs and
expenses of preparing the Demised Premises for reletting, and thereafter toward
payment of the rental and of any other amounts payable by Tenant to Landlord. If
the sum realized shall not be sufficient to pay such rent and other charges
within five (5) days after demand, Tenant will pay to Landlord any such
deficiency as it accrues. Landlord may sue therefore as each deficiency shall
arise if Tenant shall fail to pay such deficiency within the time limited.
In the event Landlord elects to re-enter or take possession of the
Demised Premises, Tenant shall quit and peaceably surrender the Demised Premises
to Landlord, and Landlord may enter upon and re-enter the Demised Premises and
possess and repossess themselves thereof, by force, summary proceedings,
ejectment or otherwise, and any dispossess and remove Tenant and may have, hold
and enjoy the Demised Premises and the right to receive all rental income of and
from the same.
19.3. No such re-entry or taking possession by Landlord shall be
construed as an election on Landlord's part to terminate or surrender this Lease
unless a written notice of such intention is served on Tenant, notwithstanding
the service of a Demand For the Payment Of Rent Or Possession, and Landlord and
Tenant expressly agree that the service or posting of such Demand will not
constitute an election on the part of Landlord to terminate this Lease.
19.4. The enumeration of the foregoing remedies does not exclude any
other remedy, but all remedies are cumulatives and shall be in addition to every
other remedy now or hereafter existing at law or in equity.
19.5. In the event of any breach by Tenant of any of the agreements,
terms, conditions or covenants contained in this Lease, Landlord, in addition to
any and all other rights herein provided and at Landlord's option, shall be
entitled to enjoin such breach and shall have the right to invoke any right and
remedy allowed at law or in equity or by statute or otherwise for such breach as
through re-entry, summary proceedings, and other remedies not provided for in
this Lease.
19.6. All rent in arrears and all amounts collectable hereunder shall
bear interest at the rate of eighteen (18%) percent per annum from the
respective due dates until paid, provided that this shall in no way limit,
lessen or affect any claim for damages by Landlord for any breach or default by
Tenant.
20. Holding Over.
20.1. If Tenant remains in possession of the Demised Premises
after expiration of the term hereby demised, such holding over shall be deemed
to be holding over upon a tenancy from month to month at a monthly rental equal
to one hundred fifty (150%) percent of the monthly installment of Base Rent due
under the terms of this Lease for the month next preceding the commencement of
the hold over period, and Tenant shall remain liable for all other payments
provided for hereunder, and such holding over shall be subject to all of the
other terms and conditions of this Lease.
20.2. In the event Landlord relets the Demised Premises to a new
Tenant and the term of such new Lease commences during the period of which
Tenant holds over, then such holding over shall be deemed a breach of Tenant's
covenant to deliver up the Demised Premises upon the termination or expiration
of the term of this Lease, and Landlord shall be entitled to recover from Tenant
any and all costs, expenses, reasonable attorney's fees, damages, loss of
profits or any other costs resulting from Tenant's failure to deliver possession
of the Demised Premises to the new tenant.
21. Subordination, Estoppel Letter and Attornment. This Lease is
subject to subordinate to all mortgages and deeds of trust which now or
hereafter may affect the Demised Premises or the Building, and Tenant shall
execute and deliver upon demand of Landlord any and all instruments
subordinating this Lease, in the manner requested by Landlord, to any new or
existing mortgage or deed of trust. Further, Tenant shall at any time and from
time to time, upon not less than ten (10) days prior written notice from
Landlord, execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the dates to which rent and
other charges are paid in advance, if any, and acknowledge that there are not,
to Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults, if any are claimed, and such other
matters as Landlord's mortgagee may require.
In the event that Landlord or its principal sells, conveys, transfers
or grants the Building or the Demised Premises to any person, firm, corporation,
company or entity, during the term hereby demised, Tenant agrees to attorn to
such new owner, and Landlord and its principal shall be released
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from performance hereunder.
22. Landlord's Title. It is understood that Landlord is the agent of the
owners of the Demised Premises, and as such has full and complete authority to
enter this Lease.
23. Quiet Enjoyment. Tenant, upon paying the rent, and performing the
covenants and agreements of this Lease, shall quietly have, hold and enjoy
possession of the Demised Premises and all rights granted Tenant in this Lease
during their term hereof.
24. Assignment and Subletting.
24.1. Tenant may not sublet the Demised Premises or any part
thereof and may not assign any of its right or interest in this Lease without
the express written consent of the Landlord, which consent shall not be
unreasonably withheld. Upon any assignment or subletting hereof even though
consented to by the Landlord, the Tenant shall remain liable for the payment of
the rent provide for herein and for the performance of the agreements, terms,
conditions and covenants of this Lease undertaken to be kept and performed by
the Tenant and the assignee of this Lease, where permitted, shall assume and
undertake to keep, observe and perform all the agreements, terms, conditions and
covenants of this Lease. For the purposes of this provision, transfer of
controlling interest in Tenant by the present holders thereof shall be deemed to
be an assignment hereunder. In no event shall Landlord's refusal to approve an
assignment or subletting deemed unreasonable, if the use of the Demised Premises
by the assignee or subtenant violates any law or statute of the United States,
the State of Colorado, the City of Colorado Springs, and the County of El Paso,
or if such use is extra hazardous, increases the insurance carried by Landlord
on the Building or is deemed by Landlord to be incompatible with the use of
other tenants of the building.
24.2. Any such assignment of subletting by Tenant without the
written consent of Landlord being first obtained, shall be voidable at the
option of Landlord, who may, upon such breach, immediately re-enter and take
possession of the entire Demised Premises, or any part thereof, without giving
any notice. Any such unauthorized assignment or subletting by Tenant shall cause
this Lease, at landlord's option, to terminate. In case of any assignment,
attempted assignment, subletting or attempted subletting by Tenant without
Landlord's written consent thereto, Landlord may without notice, prevent the
ingress of persons claiming under such unauthorized assignment or sublease.
24.3. Notwithstanding anything to the contrary herein contained,
Tenant agrees that Landlord may attach as a condition to Landlord's written
approval of any assignment or sublease by Tenant that Landlord shall be entitled
to the receipt of any profit derived by Tenant as a result of such assignment
and/or sublease. Such profit shall include any amounts received by Tenant from
its assignee or subtenant in excess of the rent required to be paid by Tenant
hereunder. Tenant shall deliver all documents relating to any such assignment
and subletting to Landlord upon Landlord's demand.
24.4. Notwithstanding anything contained in the paragraph 24 or
elsewhere contained in this Lease, Tenant shall have no claim, and hereby waives
the right to any claim, against Landlord for money damages by reason of any
refusal, withholding or delaying by Landlord of any consent or approval, and in
such event, Tenant's only remedies therefore shall be an action for specific
performance or injunction to enforce any such requirement. If any such action
shall be adverse to Landlord, Landlord shall be liable to Tenant for Tenant's
court costs and reasonable attorney's fees thereby incurred.
25. Waiver. No waiver of any breach of any one of the agreements,
terms, conditions or covenants of the within Lease by Landlord or Tenant shall
be deemed to imply or constitute a waiver of any other agreement, term,
condition or covenant of this Lease. The failure of either party to insist on
strict performance of any agreement, term, condition or covenant, herein set
forth, shall not constitute or be construed as a waiver of the rights of either
or of the other thereafter to enforce any other default of such agreement, term,
condition or covenant; neither shall such failure to insist upon strict
performance be deemed sufficient grounds to enable either party hereto to forego
or subvert or otherwise disregard any other agreement, term, condition or
covenant of this Lease.
26. Notices. Any notices required or permitted hereunder or which
any party elects to give shall be in writing and deliver either personally to
the other party or the other party's authorized agent set forth below (or as
changed by written notice), or by depositing such notice in the United States
Certified Mail, Return Receipt Requested, postage fully prepaid, to the person
at the address set forth below, or to such other address as either party may
later designate in writing:
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Landlord: LOUP MANAGEMENT COMPANY
44 Inverness Drive East Building #E
Englewood, CO 80112
Tenant: JAYCOR
c/o 9775 Town Center Drive
San Diego, CA 92121
Any notice given by mail as herein provided shall be deemed given when deposited
in the United States mail.
27. Successors. All of the agreements, terms, conditions and covenants
set forth in this Lease shall inure to the benefit of and be binding upon the
heirs, legal representatives, successors, executors and assigns of the parties,
except that no assignment or subletting by Tenant in violation of the provisions
of this Lease shall vest any rights in the assignee or in the subtenant.
28. Entire agreement. The within Lease constitutes the entire agreement
of the parties hereto. No representations, promises, terms, conditions,
obligations or warranties whatsoever referring to the subject matters hereof,
other than those expressly set forth herein, shall be of any binding legal force
or effect whatsoever. No modification, change or alteration of this Lease shall
be of any legal force or effect whatsoever unless in writing, signed by all
parties hereto.
29. Landlord's Right to Cure Tenant's Default. If Tenant shall default in
the performance of any covenant or provision of this Lease to be performed on
Tenant's part, Landlord may, after fifteen (15) days notice to Tenant, or
without notice if in Landlord's opinion an emergency exists, perform the same
for the account and at the expense of Tenant. If Landlord shall incur any
expense, including reasonable attorneys' fees, in instituting, prosecuting, or
defending any action of Tenant, Tenant shall reimburse Landlord for the amount
of such expense with interest at the rate of eighteen (18%) percent per annum
from the date of Landlord's advance or advances therefor. Should Tenant,
pursuant to this Lease, become obligated to reimburse or otherwise pay Landlord
one or more sums of money pursuant to this paragraph 29, the amount thereof
shall be paid by Tenant to Landlord within two (2) days of Landlord's written
demand therefor, and if Tenant fails to make such payment, such failure shall be
deemed an event of default as set forth in paragraph 19 hereof. The provisions
hereof shall survive the termination of this Lease. The provision hereof shall
neither impose a duty on Landlord nor excuse any failure on Tenant's part to
perform or observe and covenant or condition in this Lease contained on Tenant's
part to be performed or observed.
30. Enforcement of Lease - Attorneys' Fees. In the event that either
Landlord or Tenant commences an action for the enforcement of or arising out of
breach of the terms of this Lease, then the party who is awarded judgement in
such action, shall be awarded, in addition to any other award made therein, an
amount to be fixed by the court for court costs and reasonable attorneys' fees.
31. Counterparts. This Lease may be executed in several counterparts and
each such counterpart shall be deemed an original.
32. Miscellaneous.
32.1. Unless Tenant furnishes Landlord with a notice in writing
specifying any default in the Demised Premises within thirty (30) days after
taking possession thereof, such taking of possession shall be conclusive
evidence as against Tenant that at the time of such taking the Demised Premises
were in good order and satisfactory condition.
32.2. Tenant shall be entitled to have its name shown upon the
Directory board of the Building, and Landlord shall design the style of such
identification, and the Directory Board shall be located in an area designated
by Landlord in the main lobby of the Building.
32.3. This Lease shall be deemed to have been made and shall be
construed in accordance with the laws of the State of Colorado.
32.4. The Landlord shall provide the following services, the cost
and expense of which shall be paid by Tenant as provided in paragraph 6 hereof:
(a) Climate control to the Demised Premises during normal
business hours, except during the making of repairs, inspections, alterations
or improvements.
(b) Except when repairs, inspections, alterations and
improvements are being made, elevator service during normal business hours in
common with others.
(c) Landlord shall make available water in reasonable quantity
and cause electric current to be supplied for lighting the Demised Premises and
public halls and for the operation of ordinary office equipment exclusive of
heavy duty equipment including, but without limitation, heavy duty accounting
equipment, computers, heavy duty copying equipment, and the like.
(d) Janitorial and cleaning services to the Demised Premises
in a manner consistent
INITIALS DATE
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11
<PAGE> 13
with the operation of a non-institutional first class office building.
32.5. "Normal Business Hours" as that term is used in the Lease shall be
deemed to mean the hours from 8:00 a.m. to 6:00 p.m. on Monday through Friday
and the hours from 8:00 a.m. to 1:00 p.m. on Saturdays unless any of such days
is a nationally recognized holiday.
DATED at Colorado Springs, Colorado this 31st day of December 1994.
Landlord: LOUP MANAGEMENT COMPANY
By: /s/
--------------------------------
Tenant: JAYCOR
By: /s/ Eric P. Wenaas
--------------------------------
INITIALS DATE
-------- -----
12
<PAGE> 14
LEASE AMENDMENT
This Lease Amendment dated December 31, 1994 shall be attached to and considered
a part of the certain lease agreement dated December 31, 1994 by and between
Loup Management Company, a Colorado Corporation as Landlord and Jaycor, a
California Corporation as Tenant.
Landlord and Tenant wish to amend the above mentioned lease agreement to provide
for the following:
1. The Tenant will have the right to audit the operating expenses on the
Building. Review and audit of the operating expenses shall be held at
Landlord's office during regular business hours provided the Tenant
provides reasonable notice.
2. Landlord shall be allowed to enter the Tenant's Demised Premises with
twenty-four (24) hour prior notice to Tenant, except in case of
emergency, when no notice will be required.
3. Tenant has the right to remeasure the Demised Premises.
4. Provided Tenant is current in rent and not in default of any of the
provisions of this Lease, Landlord shall allow, a one time option to
terminate this lease at the end of the thirty eighth (38th) month.
Landlord shall require sixty (60) days written notice from Tenant of
cancellation. Should Tenant fail to exercise this provision the right of
termination shall expire and be of no further force and effect. If Tenant
exercises this provision Tenant shall pay Landlord $44,254.39, which
represents the unamortized portion of Landlord's out-of-pocket expenses.
5. Under Section 6.1, Landlord shall pass through to Tenant all reasonable
expenses necessary to operate the Building in a first class manner. See
Exhibit A
6. Under Paragraph 12, Tenant shall have the right to protest any liens that
encumbered the office building due to the actions of the Tenant.
7. Under the Addendum, Tenant will move in Februay 1, 1995. Landlord shall
spend up to $49,000 for the design and construction of the demised
premises. All costs and expenses in excess of $49,000.00 shall be the
responsibility of the Tenant.
8. Refer to Paragraph 4 of Lease:
Base Rent
01-12 Months $8.17 per square foot NNN
13-24 Months $8.52 per square foot NNN
25-36 Months $8.89 per square foot NNN
37-48 Months $9.28 per square foot NNN
49-60 Months $9.68 per square foot NNN
9. Refer to Paragraph 14 of Lease:
Signs:
In lieu of sign allowance Tenant shall receive a $1,500.00 rent
abatement.
INITIALS DATE
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<PAGE> 15
10. Refer to Paragraph 32.6 of Lease:
Parking:
Tenant shall be guaranteed twenty-two (22) unreserved parking spaces for
the term of the lease. The cost of the parking is included in the base
rental rate.
11. Provided Tenant is current on rent and not in default under this lease,
Landlord shall grant Tenant two (2) one (1) year options to renew at the
following rates:
Year Six $11.00 per square foot NNN
Year Seven $12.00 per square foot NNN
Tenant shall notify Landlord ninety (90) days prior to the end of the
initial term of their desire to extend the lease.
AGREED AND ACCEPTED:
LANDLORD: TENANT:
LOUP MANAGEMENT COMPANY JAYCOR
By: /s/ By: /s/ ERIC P. WENAAS
------------------------------ ----------------------------
Its: Vice President Its: President and CEO
----------------------------- ---------------------------
INITIALS DATE
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<PAGE> 16
EXHIBIT A
EXCEPTIONS TO OPERATING EXPENSES
The following shall not be included in Operating Expenses:
a) leasing commission, accountants' or attorneys' fees, costs and disbursement
and other expenses incurred in connection with proposals, negotiations, or
disputes with tenants or other occupants or prospective tenants or other
occupants, or associated with the enforcement of any leases, disputes with
contractors, or the defense of Landlord is title to or interest in the building
any part thereof,
b) costs (including permit, license, and inspection fees) incurred in
constructing tenant improvements or decorating, painting or redecorating space
for other tenants or other occupants or vacant rentable space, with the
exception of common areas;
c) depreciation and amortization;
d) costs incurred due to the violation by Landlord or any tenant of the terms
and conditions of any lease or due to the negligence or wrongful misconduct of
Landlord, its agents, employees or contractors,
e) interest on debt or amortization payments on any mortgages or deed of trust
or any other borrowings;
f) Landlord's general corporate overhead;
g) any compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord excluding parking lot attendant,
h) advertising and promotional expenditures;
i) Landlord shall not recover any item of Operating expenses more than once.
INITIALS DATE
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<PAGE> 17
FLOOR PLAN
11000 SQUARE FEET
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.15
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 17th day of April,
1996, by and between APA PROPERTIES NO. 6, L.P., a Delaware limited
partnership, having an address c/o Peter Lawrence Commercial Real Estate, Inc.,
4710 Eisenhower Boulevard, Suite C-1, Tampa, Florida 33634-6334, hereinafter
referred to as "Lessor", and JAYCOR, a California corporation, having an
address at 9775 Towne Centre Drive, San Diego, California 92121, hereinafter
referred to as "Lessee".
W I T N E S S E T H:
1. PREMISES: Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, space on the grade level floor, known as Suite 103, as such
space is shown on Exhibit A, attached hereto and made a part hereof, in a
building (the "Building") having a mailing address of 11410 Isaac Newton Square
North, Reston, Virginia 22090, and which space contains an "agreed upon" twelve
thousand three hundred ninety-six (12,396) square feet of gross rentable space
and is hereinafter referred to as the "demised premises". The size of the
demised premises and the size of the Building (each expressed in gross rentable
square feet) shall be calculated and determined on the basis of the WDCAR
Standard Method Measurement (January 1, 1989 Edition), such calculation to be
made by Lessor's architect and to be submitted to Lessee's architect for
verification. If Lessee's architect disagrees with the calculation of Lessor's
architect, the two (2) architects shall promptly meet and resolve the matter,
but until the matter is resolved, the calculation by Lessor's architect shall
be used to determine the size of the demised premises and the Building. The
Building is located in an office park (the "Office Park") commonly known as
Isaac Newton Square. Lessee's interest in this Lease is subject to all
covenants and restrictions of record and all applicable zoning, municipal,
county, state and federal laws, statutes, codes, ordinances, rules and
regulations affecting the Office Park. The term "Land", as used in this Lease,
shall mean the tax lot on which the Building is located and all appurtenances
thereto.
2. TERM: The lease term of six (6) years shall commence on the
date Lessor tenders vacant possession of the demised premises to Lessee with
all of the work set forth as Lessor's Work in paragraph 29 hereof substantially
completed. Lessee hereby agrees to accept delivery of the demised premises at
such time as Lessor tenders the same to Lessee with Lessor's Work substantially
completed therein. If this Lease commences on other than the first day of a
calendar month or expires on other than the last day of a calendar month, the
installment of base rent for the applicable month will be prorated and paid on
a per diem basis based on the actual number of days in the applicable calendar
month. The lease term shall expire on the sixth (6th) anniversary of the lease
commencement date plus, if the commencement date is other than the first day of
a calendar month, the number of days between the commencement date and the last
day of the month in which the commencement date occurred. Lessor shall use
good faith efforts to endeavor to give Lessee thirty (30) days prior notice of
the anticipated commencement date, but nothing contained herein shall delay or
defer the commencement date should Lessor fail to do so.
3. RENT:
a. As base rent for the demised premises, Lessee shall
pay to Lessor the sum of One Hundred Seventy Thousand
Four Hundred Forty-five and no/100 ($170,445.00)
Dollars per annum for the first lease year, and on
the first day of each lease
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<PAGE> 2
year subsequent to the expiration of the first lease
year throughout the term of this Lease, the base rent
shall, as of the first day of each such lease year,
be increased by the amount equal to the product
obtained by multiplying (i) the base rent payable for
the preceding lease year times (ii) three (3%)
percent.
b. Base rent stipulated for each of the applicable lease
years shall be paid in equal one-twelfth (1/12th)
installments in advance on the first day of each
calendar month for the applicable lease year. Base
rent and all other items of rent or payments due
Lessor under this Lease shall be paid to Lessor at
the address of Lessor set forth above or at such
other address and/or to such other party as Lessor
may, from time to time, designate by written notice
to Lessee in the manner hereafter set forth.
c. Lessor hereby acknowledges receipt of Lessee's check,
subject to collection, in the amount of Fourteen
Thousand Two Hundred Three and 75/100 ($14,203.75)
Dollars, representing payment of the initial security
deposit required by paragraph 31 of this Lease.
d. Lessor hereby acknowledges receipt of Lessee's check,
subject to collection, in the amount of Fourteen
Thousand Two Hundred Three and 75/100 ($14,203.75)
Dollars, representing payment of one (1) month of
base rent in advance.
e. Lessee covenants and agrees to pay all licenses,
taxes, sales taxes and assessments of every kind and
character imposed by any governmental body, on,
against or in connection with the operation of the
business conducted on the demised premises by Lessee
or anyone claiming by, under or through Lessee, or
against Lessee's property in or on the demised
premises or on any installment of base rent or item
of additional rent or other charge payable by Lessee
under this Lease. Notwithstanding anything
hereinbefore contained to the contrary, all building
permit fees and certificates of completion or
occupancy required in connection with Lessor's Work
shall be paid for by Lessor.
4. REPAIR AND MAINTENANCE: Lessor shall (other than for any
repairs or replacements required as a result of the acts or omissions or
negligence or willful misconduct of Lessee, its agents, officers and its and
their employees or invitees) maintain in good condition the roof and structural
portions of the Building, all landscaping, curbing, sidewalks, roads, parking
areas, driveways and all interior and exterior common areas of the Building and
systems used in common by the tenants of the Building, the Building standard
HVAC and lighting system and generally keep the same clean. Lessee will
maintain in good order, condition and repair (including replacements) the
entire demised premises, including all doors and door frames, fixtures,
machinery and equipment therein (exclusive of the equipment and machinery that
Lessor is expressly required to maintain, repair or replace by the terms of the
preceding sentence). Garbage and refuse shall be stored at such locations and
in such containers as shall be approved by Lessor, and if required by Lessor or
any municipal or governmental directive, Lessee shall sort and separate its
trash and refuse as it shall be directed by Lessor or the applicable municipal
or governmental authority, as the case may be. Lessee agrees that
extraordinary waste, such as crates, cartons, boxes, etc. (the discarding of
used furniture or
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<PAGE> 3
equipment being deemed extraordinary waste) shall be removed from the Building
and disposed of by Lessor, at Lessee's cost and expense, and that Lessee, upon
Lessor's demand, will promptly reimburse Lessor for such removal and disposal.
Lessee shall be responsible for repairs and restoration to the demised premises
resulting from, occasioned by, or arising from, any break-ins, burglaries or
attempted break-ins or burglaries in, on or to the demised premises unless the
same are caused by, or result from, the willful acts, omissions or negligence
of Lessor, its agents and contractors and its and their officers or employees,
in which event Lessor shall restore such damage.
5. COMPLIANCE WITH REQUIREMENTS OF LAW: Lessee, at its sole cost
and expense, shall promptly comply with all laws, statutes, ordinances, rules,
orders, regulations and requirements of the Federal, State, County and local
government and of any and all their departments and bureaus with jurisdiction
over the demised premises, and with any directives of any public officer or
officers which shall impose any violation, order or duty upon Lessor or Lessee
with respect to the demised premises and/or relate to the correction,
prevention and/or abatement of nuisances or other grievances attributable to
Lessee's acts or omissions in, upon or connected with the demised premises
during the term hereof. Lessee shall, at Lessee's own cost and expense, also
promptly comply with and obey all rules, orders and regulations of all Lessor's
insurance carriers and any fire underwriting or rating authority. Any
governmental or municipal permits, approvals or consents (other than the
building permit and certificate of completion or occupancy required in
connection with Lessor's Work) required in order for Lessee to be able to use
the demised premises for the purposes for which Lessee intends (other than the
building permit and other certificates Lessor is required to obtain in
connection with Lessor's Work), and is permitted hereunder, to use the demised
premises, if necessary, shall be obtained by Lessee, at Lessee's sole cost and
expense, and any failure of Lessee to obtain such permits, approvals or
consents shall not relieve Lessee of its obligations hereunder.
6. BUILDING SERVICES: A. Provided Lessee is not in default
under this Lease past any required notice and opportunity to cure, if any,
Lessor shall provide the following services:
a. Lessor shall, through the heating,
ventilating and air-conditioning systems of
the Building, furnish to the demised premises
during Regular Business Hours, as such term
is hereinafter defined, air-conditioning,
ventilation and heat, as Lessor shall deem
appropriate for the season (not to exceed
temperatures prescribed by any energy
conservation or similar regulations or orders
of any governmental authority having
jurisdiction thereof).
b. Lessor will, through the existing water pipes
presently serving the Building, supply the
Building with an adequate quantity of water
for lavatory and drinking purposes.
c. Lessor shall, during Regular Business Hours,
furnish Lessee with electricity for Lessee's
ordinary office lighting and office machinery
purposes based on Lessee's consumption of
electricity on the basis of no more than five
(5) watts per square foot (connected load).
Lessor shall, at its option and expense, have
the right, from time to time, to survey
Lessee's electric energy usage to determine
whether Lessee's electric usage exceeds the
standards set forth in the preceding sentence
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<PAGE> 4
and if Lessee's usage exceeds that standard,
Lessor shall, at Lessee's cost and expense,
install a submeter or check meter to
determine Lessee's use of electricity, and
Lessor shall monthly bill Lessee for the cost
of such excess based on one hundred ten
(110%) percent of Lessor's actual cost, such
costs to be determined by a reputable
electrical surveyor selected by Lessor, which
increases shall be retroactive to the
increase in Lessee's electric use (as
determined by the surveyor). The findings of
the surveyor shall be conclusive and binding
upon Lessor and Lessee. Lessee shall not
install or use any machinery, equipment or
lighting in the demised premises that would
require more than five (5) watts of
electricity per square foot (connected load)
in the aggregate or that would otherwise
adversely affect the Building's electrical or
HVAC systems.
d. Lessor will furnish the demised premises with
the cleaning services listed on Exhibit C.
Lessor shall not be liable to provide extra
cleaning services occasioned by Lessee's use
of the demised premises outside of Regular
Business Hours nor shall Lessor be required
to provide cleaning services on weekends or
legal holidays.
B. The performance by Lessor of its obligations under
this paragraph 6 is subject to Lessee's compliance with the conditions of
occupancy including, without limitation, number of people and arrangement of
partitions and interior walls, and connected electrical load established by
Lessor. Lessor reserves the right to stop services to the demised premises
when necessary, in the reasonable judgment of Lessor, for reasons of accident
or emergency or for repairs, alterations or improvements.
C. Lessor will not be responsible for the failure of the
heating, ventilating and air-conditioning systems to meet the requirements
hereinbefore specified, if such failure results from the occupancy of the
demised premises by more than one (1) person for each one hundred fifty (150)
square feet of space, or if Lessee installs and operates machines and
appliances the total connected electrical load of which exceeds five (5) watts
per square foot of space, or if Lessee arranges or re-arranges partitioning so
as to interfere with the normal operation of the heating, ventilating and
air-conditioning systems; it being understood and agreed that any changes
required to rectify the situation resulting from the violation of the foregoing
occupancy, connected load and partitioning restrictions or limitations, if the
situation is rectifiable, shall be done by Lessor, at Lessee's cost and
expense, and all increases in costs necessary to operate said systems, if any,
occasioned by, or resulting from, Lessee's acts or omissions shall be
chargeable to, and paid by, Lessee. Lessee agrees to keep, and cause to be
kept closed, all the windows and the exterior doors (except when ingress or
egress is required) into the demised premises at all times, and Lessee agrees
to cooperate fully with Lessor, and to abide by all the regulations and
requirements which Lessor may reasonably prescribe for the proper functioning
and protection of said heating, ventilating and air-conditioning systems.
D. For the purposes of this Lease, the term (i) "Regular
Business Hours" shall mean the hours between 8:00 A.M. and 6:00 P.M. on
business days and (ii) "business days" shall exclude Saturdays, Sundays and all
days observed by the State or Federal Government as holidays and such other
days designated as
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<PAGE> 5
legal holidays by the applicable building service union employees' service
contract and/or by the applicable operating engineers' contract. In the event
Lessee requires HVAC outside of Regular Business Hours and Lessee requests such
service in sufficient advance time for Lessor to provide the same, Lessor shall
provide the same and monthly bill Lessee (and Lessee shall promptly pay) for
the costs of providing such service based on 115% of Lessor's actual costs.
7. ALTERATIONS: Lessee shall make no additions, installations,
alterations or changes in or to the demised premises without obtaining the
prior written permission of Lessor. In any event, all installations,
alterations or work done by Lessee shall at all times comply with:
a. Laws, rules, orders and regulations of all
governmental or municipal bodies, authorities,
departments or agencies having jurisdiction thereof
and such rules and regulations as Lessor shall
promulgate.
b. Plans and specifications prepared by and at the
expense of Lessee theretofore submitted to Lessor for
its prior written approval, which approval shall not
be unreasonably withheld as long as such proposed
work would not adversely affect the Building's
structural integrity or systems and would not
increase the cost of Lessor's obligations under this
Lease; no installations, alterations or any other
work shall be undertaken, started or begun by Lessee,
its agents, servants or employees, until Lessor has
approved such plans and specifications, which
approval shall not be unreasonably withheld as long
as such proposed work would not adversely affect the
Building's structural integrity or systems and would
not increase the cost of Lessor's obligations under
this Lease; and no amendments or additions to such
plans and specifications shall be made without the
prior written approval of Lessor, which approval
shall not be unreasonably withheld as long as such
proposed work would not adversely affect the
Building's structural integrity or systems and would
not increase the cost of Lessor's obligations under
this Lease.
c. Lessee agrees to pay Lessor's reasonable costs and
expenses of reviewing any plans and specifications
submitted for Lessor's review.
8. ACCESS: Lessee shall permit Lessor and others authorized by
Lessor to enter upon the demised premises at all reasonable times upon at least
two (2) business days prior written notice (except where, in Lessor's
reasonable judgment, an emergency situation exists or damage to property or
injury to persons could occur or continue unless immediate access is obtained,
in which event no notice shall be required) to examine the condition thereof
and conditions of Lessee's occupancy, to make such repairs, additions or
alterations therein as Lessor may deem necessary or to exhibit the same to
prospective tenants, purchasers and/or mortgagees. Lessee shall permit Lessor
to erect, use and maintain unexposed pipes, wires, ducts and conduits in and
through the demised premises. Lessor or Lessor's agents shall have the right
to enter the demised premises upon prior reasonable notice (except where, in
Lessor's reasonable judgment, an emergency situation exists or where immediate
entry is required to prevent or limit damage to property or injury to persons,
in which event no notice shall be required) to facilitate the making of repairs
and improvements to other portions of the Building, including other tenant's
space, and to make such repairs or alterations as Lessor deems desirable for
5
<PAGE> 6
the proper operation of the Building. Lessor shall have the right to enter the
demised premises at any time, to examine them, or when necessary for the
protection of the demised premises and/or the Building. In connection with the
foregoing, Lessor shall be allowed to take all materials into and upon the
demised premises that may be required for such repairs, improvements or
alterations, without the same constituting an eviction of Lessee, in whole or
in part, and without any abatement or diminution of the Basic Rent or
additional rent. In making of such repairs or alterations, Lessor, to the
extent practicable and consistent with efficiency and economy, will exercise
reasonable diligence so as to minimize the disturbance of or interference with
the business of Lessee. Nothing herein contained, however, shall be deemed or
construed to impose on Lessor any obligation, responsibility or liability
whatsoever for the care, supervision or repair of the Building or any part
thereof, other than as herein provided. Lessor shall also have the right, at
any time, without the same constituting an actual or constructive eviction, and
without incurring any liability to Lessee therefor, to change the arrangement
and/or location of entrances or passageways, doors and doorways and corridors,
elevators, stairs, toilets or other public parts of the Building, provided
Lessor, at its expense, shall make such alterations, additions or changes which
may be required to adapt the demised premises to such new conditions and which
adaptation shall not materially interfere with Lessee's occupancy of the
demised premises.
9. SIGNAGE: Except as provided otherwise in the next sentence,
Lessee may not erect any sign in or on any portion of the (i) demised premises
that would be visible from any point outside of the interior of the Building or
(ii) Building without Lessor's prior written approval. Lessor agrees to
install a tenant identification sign in the lobby of the Building similar to
the directory signage of the other tenants of the Building.
10. USE: Lessee shall use the demised premises solely for general
office use purposes in connection with the operation of its business and for no
other use or purpose. Lessee shall not use, or permit the use of, the demised
premises contrary to any applicable statute, ordinance, law, rule or regulation
or in violation of the certificate of occupancy.
11. LIABILITY: Lessee shall save and hold Lessor harmless from
all liabilities, charges, expenses (including reasonable legal fees) and costs
on account of all claims for damages and otherwise and/or suits for or by
reason of any injury or injuries to any person or property of any kind
whatsoever, whether the person or property of Lessee, its agents or employees
or third persons, from any cause or causes whatsoever while on or upon or in
proximity to said premises or due to any breach of a covenant herein by Lessee
or to Lessee's use and occupancy of the demised premises, but nothing herein
contained shall require Lessee to indemnify Lessor or hold Lessor harmless from
any damage resulting from the negligence or willful misconduct of Lessor or
Lessor's agents and employees.
12. SURRENDER AND TERMINATION: All fixtures, equipment,
improvements and appurtenances attached to or built into the demised premises
prior to or during the term, whether by Lessor, at its expense or at the
expense of Lessee, or by Lessee, shall be and remain part of the demised
premises and shall not be removed by Lessee at the end of the term, unless
Lessor, at the time Lessee requests permission to install the same, notifies
Lessee that Lessee must remove the same at the expiration or earlier
termination of this Lease. All of Lessee's removable trade fixtures and
removable business equipment may be removed by Lessee upon condition that the
cost of repairing any damage to the demised premises or the Building arising
from such installation and removal shall be paid by Lessee. Any property of
Lessee or of any subtenant or occupant that Lessee has the right to remove or
may hereunder be required to remove which
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<PAGE> 7
shall remain in the Building after the expiration or termination of the term of
this Lease shall be deemed to have been abandoned by Lessee, and either may be
retained by Lessor as its property or may be disposed of in such manner as
Lessor may see fit; provided, however, that, notwithstanding the foregoing, in
the event of any failure of Lessee to promptly remove the items required to be
removed and/or restore any damage to the Building or demised premises
occasioned by such removal, Lessor, at Lessee's cost and expense, may remove
the items Lessee failed to remove and/or effect all repairs to the Building and
demised premises occasioned by, or resulting from, the installation and removal
of the same. If such property or any part thereof shall be sold, Lessor may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears
of base rent, additional rent or other charge payable hereunder and any damages
to which Lessor may be entitled hereunder or pursuant to law. Upon the
expiration or other termination of the term of this Lease, Lessee shall quit
and surrender to Lessor the demised premises, broom clean, in good order and
condition, ordinary wear excepted, and Lessee shall (i) remove all of its
property and other items that it is permitted or required hereunder to remove
and (ii) repair all damage to the Building and/or the demised premises
occasioned by such removal. Lessee's obligation to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease. Notwithstanding anything herein contained to the contrary, Lessee shall
not be required to remove all or any portion of Lessor's Work.
13. INDEMNITY: Lessor, its agents and its and their employees
shall not be liable for any damage to property of Lessee or of any other party
claiming by, through or under Lessee, nor for the loss or damage to any
property of Lessee by theft or otherwise, but Lessor shall be liable for such
loss or damage if such loss or damage arose from Lessor's own negligence or
willful misconduct or the negligence or willful misconduct of Lessor's agents
or employees, it being understood that such liability expressly excludes, and
Lessor shall not be liable for, punitive, consequential or compensatory damages
or lost profits. Lessee shall, at its own cost and expense, be responsible for
the repairs or restoration due to, or resulting from, any theft or otherwise.
Lessor or its agent shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or by dampness or by any
other cause of whatsoever nature except for such damage caused by Lessor's
negligence or willful misconduct or the negligence or willful misconduct of
Lessor's agents or employees, it being understood that such liability expressly
excludes, and Lessor shall not be liable for, punitive, consequential or
compensatory damages or lost profits; nor shall Lessor or its agents be liable
for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasi-public
work; nor shall Lessor be liable for any defect (latent or otherwise) in the
demised premises or in the Building, but Lessor shall be obligated to correct
any defect (latent or otherwise) in the Building or from the pipes, appliances
or plumbing works or from the roof, street or sub-surface or from any other
place or by dampness or by any other cause of whatsoever nature except for such
damage caused by Lessor's negligence or willful misconduct or the negligence or
willful misconduct of Lessor's agents or employees, it being understood that
such liability expressly excludes, and Lessor shall not be liable for,
punitive, consequential or compensatory damages or lost profits; nor shall
Lessor or its agents be liable for any such damage caused by other tenants or
persons in the Building or caused by operations in construction of any private,
public or quasi-public work; nor shall Lessor be liable for any defect (latent
or otherwise) in the demised premises or in the Building, but Lessor shall be
obligated to correct any defect (latent or otherwise) in the Building which
Lessor would, under paragraph 4 hereof, be obligated to repair. Lessee shall
reimburse and compensate Lessor as additional rent for all expenditures made
by, or damages or fines sustained or incurred by, Lessor due to nonperformance
or non-compliance with or breach or failure to observe any term, covenants or
condition of this Lease upon Lessee's part to be kept, observed, performed or
complied with.
14. NO WAIVER: The failure of Lessor to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not prevent a subsequent act, which would have
originally constituted a
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violation from having all the force and effect of an original violation. The
receipt by Lessor 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 Lessor unless such waiver be in writing
signed by Lessor. No surrender of this Lease shall be effective without
Lessor's written agreement to accept such surrender. No payment by Lessee, or
receipt by Lessor, of a lesser amount than the full rent, additional rent or
payment obligation hereunder shall be deemed to be other than on account for
the sum or sums stipulated hereunder, nor shall any endorsement or statement on
any check or any letter accompanying a payment by Lessee be deemed an accord
and satisfaction and Lessor may accept such check or payment without prejudice
to Lessor's right to recover the balance of such rent, additional rent or other
payment or pursue any other remedy available to Lessor. No waiver, on the part
of Lessor, its successors or assigns, of any default or breach by Lessee of any
covenant, agreement or condition of this Lease shall be construed to be a
waiver of the rights of Lessor as to any prior or future default or breach by
Lessee.
15. SUBORDINATION: a. Provided that Lessee is granted a
non-disturbance agreement on the applicable lender's then standard form, this
Lease is, or will be, subject and subordinate to the lien of any and all
mortgages, deeds of trust or other security devices which may now or hereafter
affect or encumber all or any portion of the Building or the land underlying
the same and the land and other property appurtenant to the use and enjoyment
of the Building (collectively, the "Land"). Notwithstanding such
subordination, Lessee's right to quiet possession of the demised premises shall
not be disturbed if Lessee is not in default and so long as Lessee shall pay
the rent and observe and perform all of the provisions of this Lease, unless
this Lease is otherwise terminated pursuant to its terms. This clause shall be
self-operative and no further instrument of subordination shall be required by
any mortgagee, or holder of another security device or holder of a ground
leasehold interest. In confirmation of such subordination, however, Lessee
agrees to execute and acknowledge any documents reasonably required to
effectuate an attornment, a subordination, or to make this Lease or any option
granted herein prior to the lien of any mortgage, deed of trust or other
security devices, as the case may be.
b. Notwithstanding the foregoing, in the event any such
mortgagee or the holder of any deed to secure debt, other security device or
ground leasehold interest shall elect to make the lien of this Lease prior to
the lien of its mortgage, deed to secure debt, other security device or ground
leasehold interest, then, upon such party giving Lessee written notice to such
effect, this Lease shall be deemed to be prior in lien to the lien of such
mortgage deed to secure debt, other security device or ground leasehold
interest, whether dated prior or subsequent thereto.
16. INSURANCE: Lessee shall, during the term hereof, keep in full
force and effect (i) public liability and property damage insurance with
respect to the demised premises and the use and/or business operated by Lessee
in the demised premises, in which the limits of public liability shall not be
less than Three Million and no/100 ($3,000,000.00) Dollars on account of
personal injury to or the death of any one or more persons, as a result of any
accident or disaster, and One Million and no/100 ($1,000,000.00) Dollars on
account of damage to property; (ii) fire and extended coverage insurance with
VMM and sprinkler leakage coverage in an amount sufficient to cover the cost of
replacing its property and fixtures, (iii) worker's compensation and employer's
liability insurance in accordance with the laws of the Commonwealth of Virginia
and (iv) when reasonably required by Lessor, such other insurance against other
insurable hazards and in such amounts as may, from time to time, be commonly
and customarily insured against and are generally available.
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a. The limits of said insurance shall not, however, in
any way limit the liability of Lessee under this
Lease.
b. All insurance policies which Lessee is required to
secure and maintain shall be in such form as
generally available and by companies with a A:XII
rating under Best's Directory of Fire Insurance
Companies.
c. Lessee shall include in its fire and glass insurance
policies for the demised premises appropriate clauses
pursuant to which the insurance carriers (i) waive
all rights of subrogation against Lessor, Lessor's
mortgagees and holders of any ground lease, with
respect to losses payable under such policies and/or
(ii) agree that such policies shall not be invalidated
should the insured waive, in writing, prior to a loss
any or all right of recovery against any party for
losses covered by such policies. If Lessee, at any
time, is unable to obtain such inclusion of either of
the clauses described in the preceding sentence,
Lessee shall have Lessor, Lessor's mortgagees and
holders of any ground lease named in such policies
as insureds. Lessee hereby waives any and all right
of recovery which it might otherwise have against
Lessor, its contractors, agents and its and their
employees, for loss or damage to Lessee's furniture,
furnishings, fixtures and other property and all
other losses covered by the insurance required to be
carried by Lessee. Lessee shall, prior to the
commencement date (and thereafter, prior to the
expiration of any policy), furnish Lessor with a
certificate of insurance identifying the insurance
carried by Lessee at the demised premises in
sufficient detail for Lessor to ascertain Lessee's
compliance with the terms and provisions of this
paragraph 16 and with evidence that the premiums
therefor have been paid current.
d. All public liability policies required by this Lease
to be obtained by Lessee shall name Lessor and such
other parties as Lessor shall designate as an insured
thereunder.
e. In connection with the insurance each party is
required to maintain hereunder, each party shall
obtain a waiver of defenses or subrogation
endorsement in favor of the other, and if such
endorsement is not available, the party unable to
obtain such endorsement shall have the other party
included as an additional insured, as its interests
may appear, but such party named as an additional
insured shall have no right (and hereby waives any
right) to be named as a payee on any check issued by
the insurer.
17. DEFAULT: Time is of the essence with regard to the
performance of Lessee's obligations under this Lease. Any of the following
constitutes a default of this Lease by Lessee:
a. Failure to pay any installment of base rent or any
item of additional rent or other charge payable under
this Lease on the applicable payment date for five
(5) days after written notice.
Lessee shall pay Lessor interest at the per annum
rate of two (2%) percent in excess of the prime
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rate, as such term is hereinafter defined, charged by
Citibank, N.A. (or if such rate be illegal, at the
maximum rate permitted by law, and any payment in
excess of that which is permitted by law shall, and
be deemed to be, an advance payment of base rent and
shall be applied against the installments of base
rent next becoming due) on all payments due under
this Lease that are not made within five (5) days of
their due date calculated from the date when due
until paid in full.
b. Failure to cure any non-monetary default of Lessee's
obligations under this Lease for a period of thirty
(30) days after written notice specifying the nature
of the default, except that in the event such default
is not of a type specified in subparagraphs 17c or
17d and cannot be cured within said thirty (30) day
period, but is susceptible to cure within a
reasonable period of time, such cure period shall be
extended for such reasonable period of time, provided
Lessee promptly commences to cure the default within
said thirty (30) day period and thereafter diligently
cures such default.
c. Vacation or abandonment of the demised premises.
Provided, however, that if Lessee gives Lessor at
least thirty (30) days prior written notice that it
intends to vacate the demised premises, (b) Lessee
pays the full amount of all rent due under this Lease
while the demised premises are vacant, (c) the fact
that the demised premises are vacant does not
adversely affect the Building or other tenants
therein and does not result in any liability to, or
expenditure of funds by, Lessor and (d) Lessee leaves
the demised premises in a condition satisfactory to
Lessor and continues to maintain the demised premises
in a condition satisfactory to Lessor throughout the
remainder of the term of this Lease, then, and in
such event only, Lessee shall not be deemed to be in
default due to such vacation or abandonment.
d. Lessee files a voluntary petition in bankruptcy or is
adjudicated insolvent or a bankrupt, or makes an
assignment for the benefit of creditors, or files a
petition for relief under any applicable bankruptcy
law, or consents to the appointment of a trustee or
receiver of all or any substantial part of its
property; or
e. An involuntary petition under any applicable
bankruptcy law is filed against Lessee and is not
vacated within sixty (60) days.
18. LESSOR'S REMEDIES: Upon Lessee's default and the expiration
of any applicable grace period, Lessor may (at Lessor's option and in addition
to all other rights provided in this Lease, at law or in equity) take any one
or more of the following actions without further notice or demand.
a. Terminate this Lease and Lessee's right of possession
of the demised premises, and recover all damages to
which Lessor is entitled under law, specifically
including, but without limitation, all of Lessor's
expenses of reletting (including, without limitation,
reasonable rental concessions to new tenants,
repairs, alterations, legal fees and reasonable
brokerage commissions). If Lessor elects to
terminate this Lease, every obligation of the parties
shall cease as of the date of such
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termination, except that Lessee shall remain liable
for payment of rent and performance of all other
terms and conditions of this Lease to the date of
termination.
b. Terminate Lessee's right of possession of the demised
premises without terminating this Lease, in which
event Lessor may, but shall not be obligated to,
relet the demised premises, or any part thereof, for
the account of Lessee, for such rent and term and
upon such other conditions as are acceptable to
Lessor. For purposes of such reletting, Lessor is
authorized to redecorate, repair, alter and improve
the demised premises to the extent necessary in
Lessor's sole discretion. Until Lessor relets the
demised premises, Lessee shall remain obligated to
pay rent to Lessor as provided in this Lease. If and
when the demised premises are relet and if a
sufficient sum is not realized from such reletting
after payment of all Lessor's expenses of reletting
(including, without limitation, reasonable rental
concessions to new tenants, repairs, alterations,
reasonable legal fees and reasonable brokerage
commissions) to satisfy the payment of rent due under
this Lease for any month, Lessee shall pay Lessor any
such deficiency upon demand. Lessee agrees that
Lessor may file suit to recover any sums due Lessor
under this paragraph 18b from time to time and that
such suit or recovery of any amount due Lessor shall
not be any defense to any subsequent action brought
for any amount not previously reduced to judgment in
favor of Lessor.
c. Terminate this Lease and Lessee's right of possession
of the demised premises, and recover from Lessee the
net present value of the rent due from the date of
termination until the stated expiration date,
discounted at the lesser of the prime rate of
Citibank, N.A. as of the date of termination or five
(5%) percent per annum.
d. Re-enter and repossess the demised premises and
remove all persons and effects therefrom, by summary
proceeding, ejectment or other legal action. Lessor
shall have no liability by reason of any such
re-entry, repossession or removal.
e. Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the
state wherein the demised premises are located.
Unpaid installments of rent and other unpaid monetary
obligations of Lessee under the terms of this Lease
shall bear interest from the date due at the lesser
of thirteen (13%) percent per annum or the maximum
rate then allowable by law.
f. If Lessor takes possession pursuant to this paragraph
18, with or without terminating this Lease, Lessor
may, at its option, enter unto the demised premises,
remove Lessee's improvements, signs, personal
property, equipment and other evidences of tenancy,
and store or dispose of them, at Lessee's risk and
expense or as Lessor may see fit, and take and hold
possession of the demised premises, provided,
however, that if Lessor elects to take possession
only without terminating this Lease, such entry and
possession shall not terminate this Lease or release
Lessee, in whole or in part, from the obligation to
pay
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the base rent and additional rent and other charges
payable under this Lease for the full term or from
any other obligation under this Lease.
This Lease shall not be deemed to be terminated by Lessor's
entry on the demised premises or by any other act unless Lessor specifically
expresses its intent to terminate this Lease.
Lessor's remedies in this paragraph 18 are cumulative and in
addition to any other remedies available at law or in equity.
19. DESTRUCTION - FIRE OR OTHER CAUSE: If the demised premises
shall be partially damaged by fire or other cause, Lessor shall, upon Lessor's
receipt of the insurance proceeds, repair the portions of the demised premises
covered by Lessor's insurance, and the rent until such repairs shall have been
made shall be apportioned according to the part of the demised premises which
is usable by Lessee. If the demised premises are totally damaged or are
rendered wholly untenantable by fire or other cause and Lessor shall decide not
to restore or not to rebuild the same, or if the Building shall be so damaged
that Lessor shall decide to demolish it or not to rebuild it, or if the damage
occurs in the last year of the then term of this Lease, or if the Building
(whether or not the demised premises have been damaged) should be damaged to
the extent of fifty (50%) percent or more of the then monetary value thereof,
then or in any of such events, Lessor may, within ninety (90) days after such
fire or other cause, give Lessee a notice of Lessor's election to cancel this
Lease, and thereupon the term of this Lease shall expire by lapse of time upon
the third day after such notice is given, and Lessee shall vacate the demised
premises and surrender the same to Lessor. For purposes of this Lease, the
term "Lessor's receipt of insurance proceeds" shall mean the portion of the
insurance proceeds paid over to Lessor free and clear of any collection by
mortgagees for the value of the damage, attorney fees and other costs of
compromise, adjustment, settlement and collection of the insurance proceeds.
20. LEGAL FEES: In the event it shall become necessary for either
party at any time to institute any legal action or proceedings of any nature
for the enforcement of this Lease, or any of the provisions hereof, or to
employ an attorney-at-law therefor and said party prevails in such action or
proceedings, then the non-prevailing party shall pay to the prevailing party
such prevailing party's costs (including a reasonable attorney's fee) incurred
in such action or proceedings.
21. CONDEMNATION: If all of the Building is taken by or under the
power of eminent domain (or conveyance in lieu thereof), this Lease shall
terminate on the date the condemning authority takes possession. In all other
cases of any taking of the Building or the Land by the power of eminent domain
(or conveyance in lieu thereof), Lessor shall have the option of electing to
terminate this Lease. If Lessor does not elect to terminate, Lessor shall do
the work necessary so as to constitute the portion of the Building not so taken
a complete architectural unit and Lessee shall do all other work necessary for
it to use and occupy the demised premises for its permitted purpose. During
the period of Lessor's repairs, rent shall abate in an amount bearing the same
ratio as the portion of the demised premises usable by Lessee bears to the
entire demised premises. Rent shall be equitably adjusted, as of the date the
condemning authority permanently acquires possession of any portion of the
demised premises, to reflect any permanent reduction in the tenantable portion
of the demised premises. Lessee shall not be entitled to, hereby expressly
waives, and hereby assigns to Lessor all Lessee's right, title and interest in
and to, any condemnation award for any taking (or consideration paid for a
conveyance in lieu thereof), whether whole, partial, temporary or permanent,
and whether for diminution of the value of Lessee's
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interest in this Lease or term thereof or to the lease improvements or for any
other claim or damage, including, without limitation, severance damages and
loss of, or damage to, Lessee's trade fixtures, except Lessee shall not be
precluded from seeking a separate claim for business damages or moving expenses
against the condemning authority provided any awards or proceeds sought by, or
paid to, Lessee does not reduce or diminish in any way or amount the awards or
proceeds otherwise payable to Lessor.
22. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease
or sublease all or any portion of the demised premises during the term of this
Lease without first obtaining the written consent of Lessor. If Lessee shall
desire to sublet the entire demised premises or assign this Lease, Lessee shall
first offer Lessor the right to recapture the same (namely, Lessee shall offer
to surrender the premises to Lessor) without any payment by Lessor for such
recapture, which recapture shall be effective as of the date mutually agreed
upon by Lessor and Lessee but in no event less than forty-five (45) days
subsequent to Lessor's receipt of Lessee's offer to surrender. Such offer to
surrender the premises to Lessor shall be accompanied by a copy of the proposed
sublease or assignment or a memorandum (the "Memorandum") of the economic and
other material terms of the proposed transaction, as the case may be, together
with such reasonably satisfactory information (i) as to the identity of, and
nature and character of the business, of the proposed sublessee or assignee, as
the case may be, and (ii) relating to the proposed sublessee or assignee, as
the case may be, reasonably satisfactory to enable Lessor to determine the
business, net worth, character and reputation of the sublessee or assignee, as
the case may be. Lessor shall, within thirty (30) days of the submission of
the foregoing, either agree to accept the surrender of the demised premises by
Lessee or consent to the subletting or assignment on the basis of the proposed
document or Memorandum, as the case may be, provided that the proposed
sublessee or assignee, as the case may be, (a) has a net worth at least equal
to the net worth of Lessee, (b) has a good business, character and reputation
and (c) the purposes for which the proposed sublessee or assignee, as the case
may be, intends to use the premises is for general office purposes. If Lessor
consents to the assignment or sublease, as the case may be, Lessee shall pay to
Lessor (y) in the case of a sublease (on the rent payment dates and as
additional rent hereunder), fifty (50%) percent of the monthly excess of the
rentals in each instance less the reasonable brokerage commission, tenant
improvement and legal fees paid by Lessee (and not reimbursed by the sublessee)
in connection with such sublease, which commission shall be amortized in level
installments over the term of the sublease, or (z) in the case of an
assignment, fifty (50%) percent of the consideration payable to Lessee in
connection with the assignment, including in both cases the amounts paid by the
sublessee or assignee for purchase or rental of Lessee's leasehold improvements
and/or furniture, equipment and fixtures in excess of the then net unamortized
or undepreciated cost thereof determined on the basis of Lessee's federal
income tax return. Nothing contained in this paragraph 22 shall, or be deemed
or construed to,relieve or release Lessee from liability hereunder after a
subletting or assignment except if the subletting or assignment is to Lessor or
its designees. Except as set forth in this paragraph 22, Lessee shall have no
right to sublease all or any portion of the demised premises or assign this
Lease, it being understood and agreed that Lessee has no right to sublet
portions of the demised premises. Notwithstanding anything contained in this
paragraph 22 to the contrary, Lessee may, without requiring Lessor's consent,
sublet all or portions of the demised premises or assign its interest in this
Lease to any (1) entity which controls, is controlled by, or is under common
control with, Lessee, (2) successor to Lessee by merger or consolidation or (3)
purchaser of all or substantially all of the assets of Lessee or the then
holder of Lessee's interest in this Lease, as the case may be, (individually, a
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"Permitted Entity"), provided Lessee, within ten (10) business days of the
subletting or assignment, as the case may be, furnishes Lessor with (1) a
duplicate executed original of the sublease together with an agreement executed
by said sublessee and enforceable by Lessor whereby said sublessee agrees to be
bound by the terms of this Lease in the case of a sublet to a Permitted Entity
and Lessor shall not be entitled to recapture the sublet space or collect any
of the subrent in excess of the rent (base and additional) payable under this
Lease or (2) an assignment and assumption agreement duly executed by the
assignor and assignee in the case of an assignment to a Permitted Entity and
Lessor shall not be entitled to recapture the demised premises or collect any
portion of the consideration paid for or in connection with that assignment.
Notwithstanding anything to the contrary hereinbefore contained, Lessee may
permit no more than ten (10%) percent of the demised premises, in the
aggregate, to be used, as a convenience to Lessee, by one (1) or more entities
who have contracted with Lessee to provide Lessee with services in connection
with the operation of Lessee's business, and such occupancy shall not be deemed
an assignment or subletting.
23. PARKING: Parking areas shall be provided at no additional
cost to Lessee. Lessor reserves the right at all times during the term hereof
to designate and redesignate such parking areas and to proscribe the use
thereof by reasonable rules and regulations. Lessee, its officers, employees,
guests, invitees and visitors shall not at any time park trucks or vehicles in
any of the areas designated for automobile parking. Lessor shall have no
responsibility to police or otherwise insure Lessee's or other lessees' use
thereof. Lessee shall not be entitled to any designated parking spaces.
Parking areas shall be provided by Lessor for use by Lessee, its officers,
employees, guests, invitees and visitors in common with the other tenants of
the Office Park, their officers, employees, guests, invitees, visitors and such
other parties as Lessor shall, from time to time, permit, on a "first
come-first served" basis. All parking spaces and parking areas shall be
non-attended and shall be utilized at the vehicle owner's own risk. Lessor
shall not be liable for any injury to persons or property or loss by theft or
otherwise to any vehicle or its contents other than nothing herein contained
shall release or relieve Lessor from Lessor's negligence or willful misconduct
or the negligence or willful misconduct of Lessor's agents and employees.
Vehicles parked on lawn areas are subject to being towed away at vehicle
owner's expense.
24. KEYS: Lessor shall, at the commencement of the term of this Lease,
furnish Lessee, at no cost to Lessee, with thirty-eight (38) keys for the
entrance to the demised premises. Lessee acknowledges that such locks may be
masterkeyed. If Lessee needs additional keys, such keys must be obtained from
Lessor and Lessee will pay to Lessor the then standard Building charge for
additional keys. At the expiration or earlier termination of this Lease,
Lessee shall surrender all such keys to Lessor. Lessee shall not add
additional locks or change locks without Lessor's prior written consent and
then only if Lessee furnishes Lessor with two (2) copies of each key required
to gain access to all portions of the demised premises.
25. MECHANICS' LIENS: Neither Lessor nor the property
shall be liable for any labor, services or materials furnished or to be
furnished to Lessee upon credit, and no mechanic's or other lien for any such
labor, services or materials shall attach to, encumber or in any way affect the
reversionary interest or other estate or interest of Lessor in and to the
Building or the Land. Nothing in this Lease shall be construed as a consent by
Lessor to subject Lessor's reversionary interest in the demised premises to
liability under any lien or other law. If, as a result of any work or
installation made by, or on behalf of Lessee (other than Lessor's Work or work
which Lessor is obligated under the terms
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of this Lease to do without reimbursement or payment by Lessee), or Lessee's
maintenance and repair of the demised premises, a claim of lien or lien is
filed against the demised premises or all or any portion of the Building or the
Land, within ten (10) days after it is filed, Lessee shall either satisfy the
claim of lien or lien. If Lessee fails to do so within the ten (10) day
period, Lessor may satisfy the lien, and Lessee shall reimburse Lessor for all
Lessor's costs and expenses (including reasonable attorneys' fees) incurred in
connection therewith.
26. NOTICES: All notices by Lessee to Lessor or by Lessor
to Lessee with regard to this Lease must be in writing and shall be deemed
conclusively delivered when same are either hand delivered, or deposited in the
U.S. mail, postage prepaid, certified, return receipt requested, or picked up
for delivery by a nationally recognized courier for overnight delivery with
such delivery charge being prepaid, if to Lessor, addressed to Lessor at the
address set forth for Lessor on page 1 of this Lease or if to Lessee, at the
address set forth for Lessee on page 1 of this Lease prior to Lessee's initial
occupancy of the demised premises and thereafter with a duplicate to Lessee at
the demised premises, attention: Manager of Facilities. Either party hereto
may, by notice given as aforesaid, designate a different address or addresses
for notices.
27. LESSEE'S PROPORTIONATE SHARE: a. Lessee agrees to pay its
proportionate share of (i) any increase in real property taxes and assessments,
as hereinafter defined (including any changes or additions to any existing
method of taxation) over and above those imposed, levied or assessed against,
the Land and Building for the base year (namely, calendar year 1996), (ii) any
increase in premiums for fire, casualty and extended coverage (including,
without limitation, rent insurance and VMM) and public liability insurance
premiums over and above those charged for the base year (namely, calendar year
1996) for the Land and Building and (iii) any increase in Operating Expenses,
as such term is hereinafter defined, for the Land and Building over and above
those incurred or expended by Lessor for the base year (namely, calendar year
1996). Lessee's proportionate share for the purposes of this paragraph 27
shall be 19.8%. The percentage was computed on the basis that the demised
premises consist of twelve thousand three hundred ninety-six (12,396) gross
rentable square feet and the Building consists of sixty-two thousand six
hundred ten (62,610) gross rentable square feet. Lessee's proportionate share
shall be recomputed if, and each time, the aggregate size of the Building is
physically reduced or increased. In measuring gross rentable square feet, all
retail space, if any, has been, and will be, excluded from the calculation.
b. As used herein, the term "Operating Year" shall
mean each calendar year subsequent to the base year and the term "Operating
Expenses" shall mean the total of the amount of expenses, costs or charges
expended, paid or incurred by Lessor in any calendar year with respect to the
repair, replacement, operation and maintenance of the Building and Land, such
as, by way of illustration only and not intended to be all inclusive,
electricity, water, fuel, water rates, sewer charges or rent, air conditioning,
labor costs, security costs, elevator charges, service contracts, management
charges, window and other cleaning, refuse removal, landscaping, interior and
exterior repairs and replacements, and drainage and parking field operation,
maintenance, repairs and replacements (including, without limitation, lighting,
striping and resurfacing), the cost of painting and decorating the common areas
of the Building and all other expenses, costs and charges relative to the
repair, replacement, operation and maintenance of the Building and Land
including all legal and auditing fees necessarily incurred in connection with
the foregoing and including all improvements and equipment required by any
federal, state or local law or government regulation. Notwithstanding anything
to the contrary
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in the definition of Operating Expense set forth in paragraph 27 of this Lease,
Operating Expenses shall be defined so as to exclude the following:
(a) Legal expense incurred in the enforcement of leases;
(b) Costs and expenses which are attributable to repairs or
replacements to the extent such expenses are reimbursed to
Lessor by virtue of (i) warranties from contractors or
suppliers, (ii) insurance proceeds (except with respect to any
deductibles which shall be included in Operating Expenses) or
(iii) direct reimbursement from third parties (and not through
an operating passthrough or other similar provision);
(c) Costs of repairs or replacements directly resulting from the
gross negligence or willful misconduct of Lessor or its agents;
(d) Costs in connection with correcting defects in the initial
design or construction of the Building;
(e) Advertising, legal and space planning expenses incurred in
procuring lessees for the Building including, but not limited
to, lessee allowances, promotional expenses, legal fees for
preparation of leases, rent abatements and lease takeover
expenses;
(f) Charges for which Lessor is directly reimbursed by other
lessees or occupants of the Building (other than through an
operating pass-through or other similar provision);
(g) Costs incurred to correct violations by Lessor of any law,
rule, order or regulation which was in effect as of the
Commencement Date and which is not an obligation of Lessee to
correct.
(h) Fines or penalties resulting from violations of laws or
governmental rules, regulations or agreements if Lessor
intentionally violated the law, rule or regulation;
(i) Late charges for property taxes or other items incurred as a
result of Lessor's failure to pay bills in a timely manner;
(j) Depreciation of the Building;
(k) Leasing commissions;
(l) Painting, redecorating or other work which Lessor performs for
specific lessees within the lessees' premises;
(m) Interest and amortization of funds borrowed by Lessor, whether
secured or unsecured;
(n) Costs associated with the operation of the business of the
partnership which constitutes Lessor, as the same are distinguished
from the costs of operation of the Building, including partnership
accounting and legal matters, costs of defending any lawsuits with any
mortgagee (except as the actions of Lessee may be the issue), costs of
selling, syndicating, financing, mortgaging or hypothecating any of
Lessor's interest in the Building;
(o) Costs incurred to contain, abate, remove or otherwise
remediate Hazardous Materials, as such term is hereinafter defined, in
the Building or Land required as a result of the presence of any
Hazardous Materials on or
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about the Building or Land caused by Lessor or any lessee other than
Lessee.
(p) Wages and benefits of any employee who does not devote
substantially all of his or her time to the Building or Land unless
such wages and benefits are prorated to reflect time spent on
operating and managing the Building and Land vis-a-vis time spent on
matters unrelated to operating and managing the Building or Land;
(q) Costs paid to Lessor or to affiliates of Lessor for services
in the Building including management fees to the extent the same
exceed or would exceed the costs for such services if rendered by
unaffiliated third parties on a competitive basis;
(r) Costs for improvements or replacements of capital items as
distinguished from costs for repairs, it being understood and agreed
that the repaving of all or substantially all of the parking lot shall
be excluded, but costs associated with filling pot holes and repaving
those areas, as well as striping the parking lot, are included and
that costs for replacing all or substantially all of the roof are
excluded, but costs for patching or replacing portions of the roof at
separate times are included, it also being further understood and
agreed that painting of the exterior of the Building is included;
(s) Costs incurred for capital improvements unless permitted by
the terms of the preceding clause (r) or made with the reasonable
expectation to reduce Operating Expenses or as required by law;
(t) Reserves for replacements or repairs; and
(u) Salaries, wages or other compensation paid to officers or
executives of Lessor in their capacities as officers and executives.
c. As used herein, the term "real property taxes and assessments"
shall include any form of real estate tax or assessment, general, special,
ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Land and/or Building by any authority having
the direct or indirect power to tax, including any local, city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Land and/or Building, as against Lessor's
right to rent or other income therefrom or as against Lessor's business of
leasing the Land and/or Building. The term "real property taxes and
assessments" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, or in addition to, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property taxes and assessments", or (ii) the nature of which was hereinbefore
included within the definition of "real property taxes and assessments" or
(iii) which is imposed by reason of this transaction or any modification or
changes hereto.
d. Lessee shall pay, prior to delinquency, all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the demised premises. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor.
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e. If any of Lessee's personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee's property within ten (10) days after receipt of a written statement
from Lessor with a photocopy of the applicable tax bill setting forth the taxes
applicable to Lessee's property.
f. In determining Operating Expenses for an Operating Year and
calendar year 1996, if less than all of the Building's rentable area shall have
been occupied by tenants at any time during any such Operating Year, Operating
Expenses shall be determined for such Operating Year to be an amount equal to
the like expenses which would normally be expected to be incurred had all such
areas been occupied throughout such Operating Year. In no event shall the
provisions of this paragraph be used to enable Lessor to collect from Lessee
more than one hundred (100%) percent of the costs and expenses incurred during
any Operating Year.
g. Real property taxes and assessments, premiums for insurance
carried by Lessor and Operating Expenses shall hereafter collectively be
referred to as the "Expenses".
h. Lessee shall, on the first day of the month following the date
Lessor furnishes Lessee with Lessor's estimate of Lessee's proportionate share
of the increase in Expenses over the base year, commence paying to Lessor the
amount so estimated by Lessor, which estimated amount shall be payable in equal
monthly installments in the amount necessary to pay the estimated increase in
Expenses prior to the expiration of the first calendar year subsequent to the
base year, which installments shall continue to be paid by Lessee on the first
day of each month in advance until Lessor furnishes Lessee with a statement
setting forth the actual increase in Expenses for the applicable calendar year
and showing Lessee's proportionate share thereof, together with notice to
Lessee stating whether the installments of Lessee's proportionate share of the
increase in Expenses previously made for the period of time to which such
statement relates is greater or less than the amount actually paid, or payable,
by Lessor for such period and (i) if there shall be a deficiency, Lessee shall
pay the amount thereof within ten (10) days after demand therefor or (ii) if
there shall be an overpayment, Lessor shall, within ten (10) days, refund to
Lessee the amount thereof, and on the first day of the month following the
month in which the applicable statement is furnished to Lessee and monthly
thereafter until a new statement shall be furnished to Lessee by Lessor, Lessee
shall pay to Lessor an amount equal to one-twelfth (1/12th) of Lessee's
proportionate share of the actual increase in Expenses shown on the statement
last submitted to Lessee. Lessor may, no more than twice in any calendar year,
furnish to Lessee a revised statement of Lessor's estimate of Lessee's
proportionate share of the increase in Expenses for such calendar year, and in
each such case, the monthly installments of Lessee's proportionate share of the
increase in Expenses shall be adjusted and paid substantially in the same
manner as provided in the preceding sentence. Lessee's obligation to pay base
rent and additional rent for any period of time attributable or allocable prior
to the expiration of this Lease shall survive the expiration or earlier
termination of this Lease and any failure of Lessor to provide Lessee with a
statement shall not relieve or release Lessee for its obligation to pay its
proportionate share of any increase in Expenses at such time as the applicable
statement is furnished to Lessee.
i. Lessor agrees to keep true and accurate records of all
Operating Expenses and, within ninety (90) days after the expiration of the
base year and each year thereafter, to submit to Lessee a detailed statement
(an "Operating Statement") setting forth the Operating Expenses for the
applicable base year or year and the amount, if any, due Lessor from Lessee
under the provisions hereof. The rendition of such statement by Lessor to
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Lessee shall be deemed prima facie proof of the accuracy thereof. Provided
Lessee makes the payment attributable to the increases in Operating Expenses
herein provided within thirty (30) days of the rendition of the applicable
statement, Lessee shall have a period of twenty (20) days from the payment of
the applicable statement to notify Lessor, in writing, that Lessee wishes to
examine, at the office where such records are being maintained, Lessor's
relevant records with respect to the Operating Expenses for the year to which
the statement relates. Such examination shall take place at such time as
Lessor and Lessee shall mutually agree upon and may be conducted on Lessee's
behalf only by an officer, principal or employee of Lessee.
28. SECURITY SERVICES: Lessee acknowledges that Lessor is not providing,
and is not obligated to provide, any security protection services to the
demised premises, Building or Land.
29. "AS IS": Lessor, at its sole cost and expense, shall do the work
identified as "Lessor's Work" on the annexed Exhibit B. All other work
necessary for Lessee's use, occupancy and operation of the demised premises for
their intended purposes (other than for the repairs and other work Lessor is,
by the terms of paragraph 4 of this Lease, expressly obligated to do) shall be
done by Lessee, at Lessee's sole cost and expense, pursuant to the terms and
conditions of this Lease.
30. WAIVER OF JURY AND COUNTERCLAIM: It is mutually agreed by and between
Lessor and Lessee that the respective parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out
of or in any way connected with this Lease, the relationship of Lessor and
Lessee, Lessee's use or occupancy of said demised premises and/or any claim of
injury or damage and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Lessor commences any summary
proceeding or action for non-payment of rent, additional rent or other charge
payable hereunder, Lessee will not interpose any counterclaim of whatsoever
nature or description in such proceeding or action or seek to consolidate any
action or proceedings with Lessor's action or proceedings unless the failure of
Lessee to interpose such counterclaim or to demand a consolidation would
permanently bar Lessee's right to bring such claim in a separate action.
Lessor and Lessee agree that in the event of any litigation regarding this
Lease, its terms and the enforcement of the rights and obligations of the
parties hereto, the sole proper venue for any such litigation shall be in
Fairfax County, Virginia.
31. SECURITY: Lessee has deposited with Lessor the sum of Fourteen
Thousand Two Hundred Three and 75/100 ($14,203.75) Dollars as security for the
faithful performance and observance by Lessee of the terms, provisions and
conditions of this Lease; it is agreed that in the event Lessee defaults in
respect of any of the terms, provisions and conditions of this Lease, Lessor
may, without prejudice to any other remedy which Lessor may have on account
therefor, appropriate, use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any sum as to
which Lessee is in default and Lessee shall forthwith, upon demand of Lessor,
restore said security to the original sum deposited. Lessor may commingle the
security deposit with its other funds and no interest shall be payable to
Lessee. In the event that Lessee shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Lessee after the date fixed at the end of this Lease and
after delivery of entire possession of the demised premises to Lessor. In the
event of a sale of the Land and Building or leasing of the Building, Lessor
shall have the right to transfer the security to the vendee or lessee and
Lessor shall thereupon be released by Lessee from all liability for the return
of such security.
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32. VIRGINIA LAW: This Lease shall be governed by and construed in
accordance with the laws of, or applicable to, the Commonwealth of Virginia.
33. BROKER: Lessor and Lessee each represent that the sole brokers
instrumental in consummating this Lease were The Mark Winkler Company and
Barnes, Morris, Pardoe & Foster (collectively, the "Brokers") and that no
dealings or prior negotiations were had with any other broker concerning the
renting of the demised premises. Each indemnitor agrees to hold the other
harmless against any claims for brokerage commissions, other than those made by
the Brokers arising out of any conversations had by the indemnitor with any
broker other than the Brokers.
34. RECORDING: Lessee shall not record this Lease or a memorandum thereof
without the written consent of Lessor.
35. RULES AND REGULATIONS: Lessee shall observe faithfully and comply
strictly with the rules and regulations set forth in Exhibit D attached hereto
and made a part hereof and any amendments or supplements thereto and such
further reasonable rules and regulations as Lessor may, from time to time,
adopt or promulgate. Lessor shall enforce the rules and regulations in a
non-arbitrary fashion.
36. FAILURE TO DELIVER POSSESSION: If Lessor is unable to deliver
possession of all or any portion of the demised premises, because of the
holding-over or retention of possession of any tenant, under tenant or
occupant, or for any other reason, Lessor shall not be subject to any liability
for failure to give possession and the validity of this Lease shall not be
impaired under such circumstances, nor shall the same be construed in any way
to extend the term of this Lease. If permission is given to Lessee to enter
into the possession of all or any portion of the demised premises prior to the
date specified as the commencement of the term of this Lease, Lessee covenants
and agrees that such occupancy shall be deemed to be under all the terms,
covenants, conditions and provisions of this Lease, except as to the covenant
to pay rent.
37. WAIVER OF LIABILITY: The term "Lessor" as used in this Lease shall
mean only the owner or mortgagee in possession, for the time being, of the
Building, or the lessee or leasehold mortgagee in possession, for the time
being, of a lease of the Building (which may include a lease of the Land), so
that in the event of any transfer of title to the Building or any assignment of
said lease, or in the event of a lease of the Building or of the Land and
Building, the entity so transferring, assigning or leasing shall be and hereby
is entirely freed and relieved of all covenants and obligations of Lessor
hereunder, and it shall be deemed and construed as a covenant running with the
Land without further agreement between the parties and their successors in
interest, or between the parties and any such transferee, assignee or lessee,
that the said transferee, assignee or lessee has assumed and agreed to carry
out any and all covenants and obligations of Lessor hereunder. Lessee agrees
to look solely to the estate and interest of Lessor in the Land and Building,
and subject to prior right of any mortgage of the Land and/or Building, for the
collection of any judgment (or other judicial process) recovered against Lessor
based upon the breach by Lessor of any of the terms, conditions or covenants of
this Lease on the part of Lessor to be performed, and no other property or
assets of Lessor shall be subject to levy, execution or other enforcement
procedures for the satisfaction of Lessee's remedies under or with respect to
either this Lease, the relationship of Lessor or Lessee hereunder, or Lessee's
use and occupancy of the demised premises.
38. RIGHT OF LESSOR TO DISCHARGE OBLIGATIONS OF LESSEE: If Lessee
shall fail to perform or observe any of the terms, obligations or conditions
contained herein on its part to be
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performed or observed hereunder, within the time limits set forth herein,
Lessor may, at its option, but shall be under no obligation to do so, perform
or observe the same and all costs and expenses incurred or expended by Lessor
in such performance or observance shall, upon demand by Lessor, be immediately
repaid to Lessor by Lessee together with interest thereon at two (2%) percent
per annum in excess of the prime rate charged by Citibank, N.A. (or if such
rate be illegal, at the maximum rate permitted by law) to the date of
repayment. For the purposes of this Lease, the term "prime rate" shall mean
the rate then being charged by Citibank, N.A. to its largest corporate
customers for unsecured loans of ninety (90) days or less.
39. INABILITY TO PERFORM: If, by reason of (1) strike, (2) labor troubles,
(3) governmental pre-emption in connection with a national emergency, (4) any
rules, order or regulation of any governmental agency, (5) conditions of supply
or demand which are affected by war or other national, state or municipal
emergency or (6) any cause beyond Lessor's control, Lessor shall be unable to
fulfill its obligations under this Lease or shall be unable to supply any
service which Lessor is obligated to supply under this Lease, this Lease and
Lessee's obligation to pay rent hereunder shall in no wise be affected,
impaired or excused, provided, however, that as soon as Lessor shall learn of
the happening of any of the foregoing conditions, Lessor shall notify Lessee of
such event and, if ascertainable, its estimated duration and will proceed with
the fulfillment of its obligations as soon as reasonably possible. In no event
will Lessor or Lessee ever be liable for, and each party hereby expressly
waives against the other, any consequential damages, compensation or claims for
inconvenience, annoyance or for loss of business, rents or profits as a result
of either party's failure to perform under this Lease or failure to provide any
service which it has, under the terms of this Lease, agreed to provide.
40. BINDING ON SUCCESSORS, ETC.: Except as otherwise provided in this
Lease, the covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Lessor and Lessee and their respective legal
representatives, successors and assigns.
41. LATE CHARGE: Lessee shall pay to Lessor a late charge
of five (5) cents per dollar for any installment of base annual rent, any item
of additional rent or other charge payable hereunder which Lessee has failed to
pay to Lessor within ten (10) days of Lessor's demand, not as a penalty, but to
help defray administrative and other expenses involved in handling delinquent
payments. In the event any check given to Lessor by, or on behalf of, Lessee
is returned to Lessor by its bank for insufficient funds or for any other
reason or is otherwise uncollectible, Lessee shall pay to Lessor a service
charge in the sum equal to One Hundred and no/100 ($100.00) Dollars, which
service charge, if applicable and if not prohibited by law, shall be in
addition to, and not in substitution of, any "late charge".
42. ATTORNMENT: If Lessor's interest in the ground lease
or demised premises or the Building is encumbered by a mortgage and such
mortgage is foreclosed, or Lessor's interest in the ground lease, the demised
premises or the Building is acquired by deed in lieu of foreclosure or if
Lessor's interest in the ground lease, the demised premises or Building are
sold pursuant to such foreclosure or by reason of a default under said
mortgage, then notwithstanding such foreclosure, such acquisition by deed in
lieu of foreclosure, such sale, or such default (i) Lessee shall not disaffirm
this Lease or any of its obligations hereunder by reason of such foreclosure or
acquisition by deed in lieu of foreclosure and (ii) at the request of the
applicable mortgagee, transferee by deed in lieu of foreclosure or purchaser at
such foreclosure or sale, Lessee shall attorn to such mortgagee, transferee or
purchaser and execute a new lease for the demised premises for the rentals
reserved herein and otherwise setting
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forth all of the provisions of this Lease except that the term of such new
lease shall be for the balance of the term of this Lease.
43. EXECUTION OF LEASE: The submission of this Lease for examination does
not constitute a reservation or option of any kind or nature whatsoever on or
for the demised premises or any other space within the Building and shall vest
no right in either party. This Lease shall become effective as a lease only
upon execution and legal delivery thereof by the parties hereto. This Lease
may be executed in more than one counterpart, and each such counterpart shall
be deemed to be an original document.
44. MORTGAGEE PROTECTION CLAUSE: Lessee agrees to give any mortgage and/or
trust deed holders of whom it has been given written notice of its existence
and its address for the forwarding of notices, by certified mail, a copy of any
notice of default served upon Lessor. Lessee further agrees that if Lessor
shall have failed to cure such default within the time provided for in this
Lease, then the mortgagees and/or trust deed holders shall have such additional
time as may be reasonably necessary to cure such default (including, but not
limited to, commencement of foreclosure proceedings, if necessary to effect
such cure), in which event this Lease shall not be terminated while such
remedies are being so pursued.
45. MISCELLANEOUS: A. Lessor reserves the right to: (a) change the street
address and name of the Building or the Office Park; (b) change the arrangement
and location of entrances, passageways, doors, doorways, corridors, elevators,
stairs, toilets or other public parts of the Building and the Office Park and,
in connection with such work, to temporarily close door entry ways, common or
public spaces and corridors of the Building or the Office Park so long as the
demised premises remain reasonably accessible; (c) erect, use and maintain
pipes and conduits in and through the demised premises; (d) grant to anyone the
exclusive right to conduct any particular business in the Building or the
Office Park not inconsistent with the permitted use of the demised premises;
(e) use or lease exclusively the roof areas, the sidewalks and other exterior
areas; (f) resubdivide the Land or to combine the Land with other lands; (g)
construct improvements (including kiosks) on the Land and in the public and
common areas of the Building; (h) relocate or change roads, driveways and
parking areas and to alter the means of access to all or any portion of the
Building; (i) install and display signs, advertisements and notices on any part
of the exterior or interior of the Building; (j) install such access control
systems and devices as Lessor deems appropriate; (k) create easements over the
Land and Building and in the entrances, aisles and stairways therein or in any
parking areas for utilities, telephone lines, sanitary sewer, storm sewer,
water lines, pipes, conduits, drainage ditches, sidewalks, pathways, emergency
vehicles, and ingress and egress for the use and benefit of others, without
Lessee joining in the execution thereof and this lease shall automatically be
subject and subordinate thereto; and (1) alter the site plan, landscaping,
walkways and common areas outside the Building within the context of general
site improvements, repairs and maintenance. Exercise of any such right shall
not be considered a constructive eviction or a disturbance of Lessee's business
or occupancy.
B. Unless specifically provided otherwise in this Lease, where
Lessor's consent or approval is required (whether under the terms of this Lease
or pursuant to any rule or regulation now existing or hereafter promulgated by
Lessor as hereinafter provided), Lessor may withhold or delay such approval or
consent in its sole discretion and without justification.
46. PARTIAL INVALIDITY: If any provision of this Lease or application
thereof to any person or circumstance shall to any extent be invalid, the
remainder of this Lease or the application
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of such provision to persons or circumstances other than those as to which it
is held invalid shall not be affected thereby and each provision of this Lease
shall be valid and enforced to the fullest extent permitted by law.
47. HOLDING OVER: Any holding over after the expiration of the term or any
validly exercised renewal term shall be construed to be a tenancy from month to
month at the rent equal to one hundred fifty (150%) percent of the base and
additional rentals and other charges specified herein (prorated on a monthly
basis) and shall otherwise be on the terms herein specified so far as
applicable.
48. ESTOPPEL CERTIFICATE: Lessee agrees, at any time, and from time to
time, upon not less than ten (10) days, prior written notice by Lessor, to
execute, acknowledge and deliver to Lessor, a statement in writing addressed to
Lessor or such other party as Lessor shall designate 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 modification), stating the dates to which base rent, additional
rent and other charges have been paid, the amount of security deposited, if
any, and stating whether or not there exists any default in the performance of
any covenant, agreement, term, provisions or condition contained in this Lease,
and, if so, specifying each such default and containing such other information,
items and certifications as Lessor shall request, it being intended that any
such statement delivered pursuant hereto may be relied upon by Lessor and by
any purchaser, mortgagee or prospective mortgagee of any mortgage affecting all
or any portion of the Office Park and by any lessor under a ground or
underlying lease affecting all or any portion of the Office Park.
49. FINANCIAL STATEMENTS: Lessee hereby agrees, from time
to time and at the request of Lessor, to furnish Lessor, within thirty (30)
days of each such request, with such audited or other financial statements of
Lessee as Lessee shall have available in order to reasonably determine the
financial condition of Lessee. Lessor agrees not to make such request more
frequently than once a calendar year unless Lessor needs such statement to
furnish to its lender or any prospective lender or purchaser of all or any
portion of the Office Park. Such statements shall be prepared by an
independent certified public accountant and shall include, without limitation,
Lessee's net worth statements and statements of financial position and retained
earnings statement of Lessee and its subsidiaries, if any. Lessee agrees that
Lessor may furnish any of its lenders or potential lenders or purchasers copies
of such financial statements and records. Lessor agrees to hold, and to cause
its lender and potential lenders and purchasers to hold, such financial
statements in confidence and not to disclose such records to any party other
than such party as shall have a financial interest in the Office Park or who
has a loan on all or any portion of the Office Park or who is interested in
making a loan on all or any portion of the Office Park or who is interested in
purchasing all or a portion of the Office Park.
50. HAZARDOUS MATERIALS: Lessee covenants and agrees, at
its sole cost and expense, to indemnify, protect and save Lessor harmless
against and from any and all damages, losses, liabilities, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses (including, without limitation,
reasonable attorneys' and reasonable experts' reasonable fees and
disbursements) of any kind or of any nature whatsoever (collectively, the
"Indemnified Matters") which may at any time be imposed upon, incurred by or
asserted or awarded against Lessor and arising from or out of any Hazardous
Materials (as hereinafter defined) on, in, under or affecting all or any
portion of the demised premises caused by, or resulting from, the acts or
omissions of Lessee or anyone
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claiming by, under or through, Lessee. As used herein, "Hazardous Materials"
means petroleum products and any other hazardous or toxic materials, wastes and
substances which are defined, determined or identified as such in any Laws (as
hereinafter defined) or materials which are required by any Laws to be
encapsulated or removed from the demised premises or any surrounding area. As
used herein, "Laws" means any Federal, State or local laws, rules or
regulations (whether now existing or hereafter enacted or promulgated) and any
judicial or administrative interpretation thereof, including any judicial or
administrative orders or judgments.
Indemnified Matters shall include, without limitation, all of the
following: (i) the costs of removal of any and all Hazardous Materials from all
or any portion of the demised premises or any surrounding areas, (ii)
additional costs required to take necessary precautions to protect against the
release of Hazardous Materials on, in, under or affecting the demised premises
into the air, any body of water, any other public domain or any surrounding
areas and (iii) costs incurred to bring the demised premises and any
surrounding areas into compliance with all applicable Laws with respect to
Hazardous Materials. All removal work referred to in clause (i) above, all
work and other actions to take precautions against release referred to in
clause (ii) above and all work and other actions performed in order to comply
with Laws referred to in clause (iii) above are herein collectively referred to
as "Corrective Work."
Lessor's rights under this paragraph 50 shall be in addition to all other
rights of Lessor under this Lease.
51. OPTION TO EARLIER CANCEL: Provided Lessee is not in default at the
time of the giving of the following notice and the date of cancellation, Lessee
shall, upon six (6) months prior written notice to Lessor and payment of the
Cancellation Fee, as such term is hereinafter defined, have the option of
cancelling this Lease at any time subsequent to the expiration of the fifth
(5th) lease year, which notice to be effective must (i) set forth the date of
termination, (ii) be accompanied by Lessee's good certified check payable to
the order of Lessor in the amount of the Cancellation Fee, as such term is
hereinafter defined, and (iii) contain a certificate by the chief financial
officer of Lessee that that certain contract dated October 10, 1995 by and
between Lessee and Defense Nuclear Agency ("DNA") (i) has been cancelled by DNA
and will expire on or prior to the expiration of the fifth (5th) lease year or
(ii) will not be renewed by DNA so that the same shall expire on or prior to
the expiration of the fifth (5th) lease year or (iii) that DNA demands that the
operation being conducted at the demised premises for DNA be moved to another
location outside of the State of Virginia. Nothing contained in this paragraph
51 shall relieve or release Lessee from any of its obligations under this Lease
accruing or occurring prior to the effective date of cancellation. The
Cancellation Fee shall be the unamortized Lessor's Costs, as such term is
hereinafter defined, as of the expiration date set forth in Lessee's notice of
cancellation. Lessor's Costs shall be the amount equal to the aggregate of (a)
the cost of Lessor's Work in the amount of Two Hundred Four Thousand Five
Hundred Thirty-four and no/100 ($204,534.00) Dollars, (b) the Brokers
commission of Sixty-six Thousand One Hundred Forty-two and 56/100 ($66,142.56)
24
<PAGE> 25
Dollars and (c) an interest factor of 9-3/4% per annum. To determine the
unamortized costs of Lessor's Costs, Lessor's Costs shall be amortized in equal
level monthly installments over a seventy-two (72) month period commencing on
the commencement date.
IN WITNESS WHEREOF, we have hereunto set our hands and seals the day
and year first above written.
LESSOR:
Witnesses: APA PROPERTIES NO. 6, L.P.
by INS '95 CORP.,
General Partner A
By: /s/ L.D. HOROWITZ
- --------------------------------- ------------------------
Name: Name: L.D. Horowitz
--------------------------- -------------------
Title: President
------------------
- ---------------------------------
Name:
---------------------------
LESSEE:
Witnesses: JAYCOR
/s/ PATRICIA A. HERNANDEZ By: /s/ RANDY JOHNSON
- -------------------------------- -------------------------
Name: Patricia A. Hernandez Name: Randy Johnson
--------------------------- -------------------
Title: V.P. Finance/CFO
-------------------
/s/ JACK WHITE
- -------------------------------
Name: Jack White
-------------------------
25
<PAGE> 26
AS REVISED 4/15 A.L.
EXHIBIT B
LESSOR'S WORK
1. Lessor and Lessee each hereby agree and approve the
space plan attached hereto as Exhibit B-1 and the specifications attached
hereto as Exhibit B-2 and further agree as follows: (a) Lessor shall prepare,
or have prepared, construction drawings incorporating that which is on the
space plan and the specifications and submit the same to Lessee for Lessee's
review and approval and (b) Lessee shall, within three (3) business days of its
receipt of the foregoing construction drawings, notify Lessor of any reasonable
objections that Lessee may have to the construction drawings. If Lessee fails,
or refuses, to make any objections within said three (3) business day period,
the construction drawings shall be, and be deemed to be, approved by Lessee.
If Lessee notifies Lessor of its reasonable objections to the items shown on
the construction drawings within said three (3) day period, Lessor shall cause
the construction plans to be redrawn to eliminate Lessee's reasonable
objections and shall resubmit the same to Lessee for its approval. Lessee
shall have a period of two (2) business days of its receipt of the revised
construction drawings to notify Lessor of its approval or any of its reasonable
objections to the revised construction drawings. If Lessor and Lessee cannot
agree on the construction drawings, Lessor's construction consultant shall be
the final determinator of the matter. Once the construction drawings have been
approved by Lessee or finally determined by Lessor's construction consultant,
the same shall be known as the "Plans".
2. Lessor shall perform the work ("Lessor's Work") shown
on the Plans to be performed by the Lessor. Lessor's Work expressly excludes
any telephone and computer lines, cabling and equipment, cabinetry except as
shown on Exhibit B-1, furniture, office machinery and equipment.
3. Whenever Lessee has a choice of color or selection of
materials that were not selected in connection with, or as part of, the
approval of the Plans, Lessee shall make all such selections within five (5)
days of Lessor's request, failing which Lessor may, at its option, make such
selection.
4. A. In the event that: (1) Lessor or its
contractors shall be delayed in substantially completing Lessor's Work as a
result of:
(a) any change or requested change by
Lessee in the Plans or in any specification, detail or finish schedule;
(b) Lessee's delays in submitting or
resubmitting any plans, specifications, finishes, details, estimates, shop
drawings or in supplying information requested by Lessor or its contractors
beyond the five (5) day period as provided in Section 3 above;
<PAGE> 27
AS REVISED 4/15 A.L.
(c) disputes as to the quality of
performance or completion of work by any person, firm or corporation employed
by Lessee and any delays caused by any person, firm or corporation employed by
Lessee;
(d) Lessee's request for materials,
finishes or installations other than those building standards noted on the
Plans unless or those immediately available to Lessor other than those noted on
the plans; or in Exhibit B-2
(e) any direction by Lessee that Lessor
hold up proceeding with a segment of Lessor's Work or any dispute as to whether
any item of work shall constitute Lessor's Work;
(f) Lessee's refusal, failure or delay
in giving authorizations or approvals or supplying information beyond the five
(5) day period as provided in Section 3 above; or
(g) any other act, omission or
negligence of Lessee, its agents, employees or contractors, including any
default by Lessee in the performance of its obligations under this Work Letter
or the Lease, then the date provided for the commencement date of the Lease and
the obligations of Lessee to pay the base rent, additional rent and the other
charges payable under the Lease shall commence as of the date that Lessor
could, absence the delays caused by acts attributable to Lessee, have completed
Lessor's Work, whether or not Lessor has completed such work, but Lessor's
obligation to perform such work shall nevertheless continue in full force and
effect, except that if by reason of such delay Lessor shall incur additional
costs and expenses, Lessee shall be obligated to pay such additional costs and
expenses.
5. If, (1) Lessee requests materials or any installation
other than as listed on the Plans or (2) if Lessee hereafter subsequently
requests changes in the work shown on the Plans, then, in any or all of such
events, if such change of materials, installations or changes in work shown on
such Plans delay the work to be performed by Lessor, then the happening of
these delays shall in no case postpone the Commencement Date or the payment of
rent reserved under the Lease and the Commencement Date of the Lease and
Lessee's obligation to pay base rent, additional rent and the other charges
payable under the Lease shall commence as of the date that Lessor could,
absence the delays attributable to changes requested by Lessee, have completed
Lessor's Work.
6. A. If Lessee wishes to do work which is of
special nature and which is not part of Lessor's Work through its own agents or
contractors (e.g., cabinet work or special decorative effects, such as
draperies, or telephone and communication systems) or inspect the progress of
Lessor's Work, Lessee shall so specify in detail on the Plans and shall
simultaneously furnish to Lessor the names of the agents and contractors Lessee
proposes to use for such work.
B. Lessor shall permit Lessee, its agents and
contractors to enter the demised premises prior to the commencement date to
inspect the progress of Lessor's Work and
<PAGE> 28
AS REVISED 4/15 A.L.
in order that said agents or contractors may perform the work described in
Paragraph 6A at the same time Lessor or its contractors are performing Lessor's
Work, provided (i) such agents or contractors have been previously approved in
writing by Lessor, (ii) the construction of the Building and the demised
premises, including Lessor's Work shall have reached a point at which, in
Lessor's sole judgment, the performance of such work will not delay or hamper
Lessor in the completion of same and (iii) Lessee's agents, employees, and
contractors shall work in harmony and not interfere with Lessor, Lessor's
contractors, and any other tenants or such other tenant's contractors. Lessor
may at any time deny access to the Building and the demised premises to Lessee
and/or its agents, employees and contractors if Lessor, in its sole but
reasonable discretion, shall determine that Lessee, its agents, employees
and/or contractors are, or the performance of such work is, interfering with,
delaying or hampering in any way Lessor from completing the Building or
Lessor's Work. Within twenty-four (24) hours after direction by Lessor (which
need not be in writing and may be given by Lessor or its contractors to Lessee
or its agents or employees or contractors), Lessee shall withdraw its agents,
employees and contractors and itself from the Building until further notice
from Lessor.
C. In the event that Lessee or its agents,
employees or contractors shall be permitted to enter the demised premises prior
to the Commencement Date to perform the work or inspect the progress referred
to in subparagraph 6A hereof, such entry shall be deemed to be upon all of the
terms, provisions and conditions of this Work Letter and the Lease, except the
obligation to pay rent shall not commence until the Commencement date. No
material or equipment shall be incorporated in the demised premises in
connection with the making of such installations by Lessee, its agents,
contractors and its and their employees which is subject to any lien, charge,
mortgage, or other encumbrance of any kind whatsoever, or subject to any
conditional sale or other similar or dissimilar title retention agreement. If
Lessee fails to comply with any of the provisions of this Paragraph 6, then, in
addition to all other rights and remedies hereunder, Lessor may, by notice
(which need not be in writing), require Lessee to cease the performance of such
work until Lessor shall direct Lessee otherwise. Lessor shall not be liable in
any way for any injury, loss or damage which may occur to any of Lessee's or
its agent's employee's, or contractor's decorations, fixtures, installations,
supplies, materials or equipment, such entry to the Building and the demised
premises being solely at the their risk.
<PAGE> 1
EXHIBIT 10.16
================================================================================
DEED OF LEASE BY AND BETWEEN
JAYCOR
AND
ADVENT REALTY LIMITED PARTNERSHIP II
of
Tysons Dulles Plaza III
1410 Spring Hill Road
McLean, Virginia 22102
DATED
December 6, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Basic Lease Provisions. ............................................1
2. Premises. ..........................................................2
2.1. Lease of Premises. ......................................2
2.2. Calculation of Size of Building and Premises. ...........2
2.3. Common Areas-Defined. ...................................2
3. Term. ..............................................................2
3.1. Term and Commencement Date. .............................2
3.2. Delay in Possession. ....................................2
3.3. Delays Caused by Tenant. ................................2
3.4. Tender of Possession. ...................................2
3.5. Early Possession. .......................................2
4. Rent. ..............................................................3
4.1. Base Rent. ..............................................3
4.2. Operating Expense Increases. ............................3
4.3. Base Rent Increase. .....................................4
5. Security Deposit. ..................................................4
6. Use. ...............................................................4
6.1. Use. ....................................................4
6.2. Compliance with Law. ....................................4
6.3. Condition of Premises. ..................................5
7. Maintenance, Repairs and Alterations.................................5
7.1. Landlord's Obligations. .................................5
7.2. Tenant's Obligations. ...................................5
7.3. Alterations and Additions. ..............................5
7.4. Failure of Tenant to Remove Property. ...................6
8. Insurance. .........................................................6
8.1. Insurance-Tenant. .......................................6
8.2. Insurance-Landlord. .....................................6
8.3. Insurance Policies. .....................................6
8.4. Waiver of Subrogation. ..................................6
8.5. Coverage. ...............................................7
9. Damage or Destruction. .............................................7
9.1. Effect of Damage or Destruction. ........................7
9.2. Definition of Material Damage. ..........................7
9.3. Abatement of Rent. ......................................7
9.4. Tenant's Negligence. ....................................7
9.5. Tenant's Property. ......................................7
9.6. Waiver. .................................................7
10. Real Property Taxes. ..............................................7
10.1. Payment of Taxes. ......................................7
10.2. Definition of "Real Property Tax." .....................7
10.3. Personal Property Taxes. ...............................8
11. Utilities. ........................................................8
11.1. Services Provided by Landlord. .........................8
11.2. Services Exclusive to Tenant. ..........................8
11.3. Hours of Service. ......................................8
11.4. Excess Usage by Tenant. ................................8
11.5. Interruptions. .........................................8
12. Assignment and Subletting. ........................................8
12.1. Landlord's Consent Required. ...........................8
12.2. Standard For Approval. .................................9
12.3. Additional Terms and Conditions. .......................9
12.4. Additional Terms and Conditions Applicable
to Subletting. .........................................9
12.5. Transfer Premium from Assignment or Subletting. ........9
12.6. Landlord's Option to Recapture Space. ..................10
12.7. Landlord's Expenses. ...................................10
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
13. Default; Remedies. ................................................10
13.1. Default by Tenant. .....................................10
13.2. Remedies. ..............................................10
13.3. Default by Landlord. ...................................11
13.4. Late Charges. ..........................................11
13.5. Interest on Past-due Obligations. ......................11
13.6. Payment of Rent after Default. .........................11
14. Landlord's Right to Cure Default; Payments by Tenant. .............11
15. Condemnation. .....................................................12
16. Vehicle Parking. ..................................................12
16.1. Use of Parking Facilities. .............................12
16.2. Parking Charges. .......................................12
17. Broker's Fee. .....................................................12
18. Estoppel Certificate. .............................................12
18.1. Delivery of Certificate. ...............................12
18.2. Failure to Deliver Certificate. ........................12
18.3. Financial Information. .................................12
19. Landlord's Liability. .............................................13
20. Indemnity. ........................................................13
21. Exemption of Landlord from Liability. .............................13
22. Hazardous Material. ...............................................13
23. Medical Waste Disposal. ...........................................13
24. Tenant Improvements. ..............................................13
25. Subordination. ....................................................14
25.1. Effect of Subordination. ...............................14
25.2. Execution of Documents. ................................14
26. Options. ..........................................................14
26.1. Definition. ............................................14
26.2. Options Personal. ......................................14
26.3. Multiple Options. ......................................14
26.4. Effect of Default on Options. ..........................14
26.5. Limitations on Options. ................................14
27. Landlord Reservations. ............................................14
28. Changes to Project. ...............................................14
29. Substitution of Other Premises. ...................................15
30. Holding Over. .....................................................15
31. Landlord's Access. ................................................15
31.1. Access. ................................................15
31.2. Keys. ..................................................15
32. Security Measures. ................................................15
33. Easements. ........................................................15
34. Transportation Management. ........................................15
35. Severability. .....................................................15
ii
<PAGE> 4
TABLE OF CONTENTS
(Continued)
36. Time of Essence. ..................................................15
37. Definition of Additional Rent. ....................................15
38. Incorporation of Prior Agreements. ................................15
39. Amendments. .......................................................16
40. Notices. ..........................................................16
41. Waivers. ..........................................................16
42. Covenants. ........................................................16
43. Binding Effect; Choice of Law. ....................................16
44. Attorneys' Fees. ..................................................16
45. Auctions. .........................................................16
46. Signs. ............................................................16
47. Merger. ...........................................................16
48. Quiet Possession. .................................................16
49. Authority. ........................................................16
50. Conflict. .........................................................16
51. Multiple Parties. .................................................16
52. Interpretation. ...................................................16
53. Prohibition Against Recording. ....................................17
54. Relationship of Parties. ..........................................17
55. Rules and Regulations. ............................................17
56. Right to Lease. ...................................................17
57. Security Interest. ................................................17
58. Security for Performance of Tenant's Obligations. .................17
59. Financial Statements. .............................................17
60. Attachments. ......................................................17
61. WAIVER OF JURY TRIAL. .............................................17
ADDENDUM.................................................................Add-1
EXHIBIT A................................................................A-1
EXHIBIT B................................................................B-1
EXHIBIT C................................................................C-1
EXHIBIT E................................................................E-1
EXHIBIT F................................................................F-1
SCHEDULE 1...............................................................Sch 1-1
iii
<PAGE> 5
TYSONS DULLES PLAZA III
1410 SPRING HILL ROAD
MCLEAN, VIRGINIA 22102
STANDARD OFFICE DEED OF LEASE
BASIC LEASE PROVISIONS.
1.1. PARTIES: This Deed of Lease, dated for reference purposes only
December 6, 1995, is made by and between ADVENT REALTY LIMITED
PARTNERSHIP II, a Delaware limited partnership ("Landlord")
and JAYCOR, a California corporation, doing business under the
name of ____________________________________________
("Tenant").
1.2. PREMISES: Suite Number 300, as shown on Exhibit "A"
attached hereto (the "Premises").
1.3. RENTABLE AREA OF PREMISES: 27,219 square feet.
1.4. BUILDING ADDRESS: 1410 Spring Hill Road, McLean,
Virginia 22102.
1.5. USE: General office use, subject to the requirements and
limitations contained in Section 6.
1.6. TERM: Seven (7) years.
1.7. COMMENCEMENT DATE: March 1, 1996, subject to adjustment in
accordance with Section 3 below.
1.8. BASE RENT: $43,096.75 per month.
1.9. BASE RENT PAID UPON EXECUTION: $43,096.75 for the first full
month's rent due under the Lease.
1.10. SECURITY DEPOSIT: $43,096.75.
1.11. TENANT'S SHARE: 17.40% (total square footage of Building is
156,407 square feet).
1.12. BASE YEAR: The calendar year 1996.
1.13. NUMBER OF PARKING SPACES: Total of Ninety-Eight (98): Up to
Twenty (20) spaces may be Reserved Parking, with the balance
being Unreserved Parking.
1.14. INITIAL MONTHLY PARKING RATES PER SPACE: Reserved: $30.00;
Unreserved: $-0-.
1.15. REAL ESTATE BROKER:
LANDLORD: Barnes, Morris, Pardoe & Foster, Inc.
TENANT: Barnes, Morris, Pardoe & Foster, Inc.
1.16. ATTACHMENTS TO LEASE: Addendum; Exhibit A - "Premises",
Exhibit B - "Verification Letter", Exhibit C - "Rules and
Regulations", Exhibit E - "Cleaning Specifications"; Exhibit F
- "License Agreement for Satellite Dish", and Schedule 1 "Work
Letter Agreement".
1.17. ADDRESS FOR NOTICES:
LANDLORD: Advent Realty Limited Partnership II
c/o Barnes, Morris, Pardoe & Foster
Management Services
1150 Eighteenth Street, N.W.
Suite 1000
Washington, D.C. 20036
WITH COPY TO: TA Associates Realty
45 Milk Street
Boston, Massachusetts 02109
Attention: Henry G. Brauer
TENANT: JAYCOR
1410 Spring Hill Road, Suite 300
McLean, Virginia 22102
WITH COPY TO: JAYCOR
9775 Towne Centre Drive
San Diego, California 92121
1.18. AGENT FOR SERVICE OF PROCESS: If Tenant is a corporation, the
name and address of Tenant's registered agent for service of
process is:
CT Corporation System
5511 Staples Mill Road
Richmond, Virginia 23228
Attention: Edward R. Parker
<PAGE> 6
2. PREMISES.
2.1. LEASE OF PREMISES. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, upon all of the conditions set forth herein
the Premises, together with certain rights to the Common Areas as hereinafter
specified. The Premises shall not include an easement for light, air or view.
Notwithstanding anything in this Lease to the contrary, the "Project" shall mean
the Building, the land under the Building, the Common Areas (as hereinafter
defined) and all parking facilities, and for purposes of calculating Operating
Expenses herein, the Project may, subject to the provisions of Section 4.2 of
this Lease, only include the Building's share of the following areas or items
within the Tysons Dulles Plaza complex: perimeter landscaping, line striping,
entrance features to Tysons Dulles Plaza complex, exterior parking and driveway
maintenance. The Building's share of the Operating Expenses referred to in the
immediately preceding sentence shall be calculated as a fraction, the numerator
of which is the rentable floor area of the Building and the denominator of which
is the total rentable floor area of all buildings in the Tysons Dulles Plaza
complex.
2.2 CALCULATION OF SIZE OF BUILDING AND PREMISES. All provisions
included in this Lease relating to the number of rentable square feet in the
Premises, including, but not limited to, Base Rent and Tenant's Share, shall be
adjusted to reflect the actual number of rentable square feet in the Premises.
The calculation of the number of rentable square feet in the Premises shall be
made by Landlord in accordance with the methods of measuring rentable square
feet, as that method is described by the Washington D.C. Association of
Realtors, Inc.
2.3 COMMON AREAS-DEFINED. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Project that are designated by Landlord from time to time for the
general non-exclusive use of Landlord, Tenant and the other tenants of the
Project and their respective employees, suppliers, customers and invitees,
including, but not limited to, common entrances, lobbies, corridors, stairwells,
public restrooms, elevators, parking areas, loading and unloading areas,
roadways and sidewalks. Landlord may also designate other land and improvements
outside the boundaries of the Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Project.
3. TERM.
3.1 TERM AND COMMENCEMENT DATE. The Term and Commencement Date
of this Lease are as specified in Sections 1.6 and 1.7. The Commencement Date
set forth in Section 1.7 is an estimated Commencement Date. Subject to the
limitations contained in Section 3.3 below, the actual Commencement Date shall
be the date possession of the Premises is tendered to Tenant in accordance with
Section 3.4 below; provided, however, that the Term of this Lease shall be
computed from the first day of the calendar month following the Commencement
Date. When the actual Commencement Date is established by Landlord, Tenant
shall, within five (5) days after Landlord's request, complete and execute the
letter attached hereto as Exhibit "B" and deliver it to Landlord. Tenant's
failure to execute the letter attached hereto as Exhibit "B" within said five
(5) day period shall be a material default hereunder and shall constitute
Tenant's acknowledgement of the truth of the facts contained in the letter
delivered by Landlord to Tenant.
SEE ADDENDUM PARAGRAPH 1
3.2 DELAY IN POSSESSION. Notwithstanding the estimated
Commencement Date specified in Section 1.7, if for any reason Landlord cannot
deliver possession of the Premises to Tenant on said date, Landlord shall not be
subject to any liability therefor, nor shall such failure affect the validity of
this Lease or the obligations of Tenant hereunder or extend the Term hereof;
provided, however, in such a case, Tenant shall not be obligated to pay rent or
perform any other obligation of Tenant under this Lease, except as may be
otherwise provided in this Lease, until possession of the Premises is tendered
to Tenant, as defined in Section 3.4. If Landlord shall not have tendered
possession of the Premises to Tenant within one hundred twenty (120) days
following the estimated Commencement Date specified in Section 1.7, as the same
may be extended in accordance with Section 3.3 or under the terms of any work
letter agreement entered into by Landlord and Tenant, Tenant may, at Tenant's
option, by notice in writing to Landlord within ten (10) days after the
expiration of the one hundred twenty (120) day period, terminate this Lease. If
Tenant terminates this Lease as provided in the preceding sentence, the parties
shall be discharged from all obligations hereunder, except that Landlord shall
return any money previously deposited with Landlord by Tenant; and provided
further, that if such written notice by Tenant is not received by Landlord
within said ten (10) day period, Tenant shall not have the right to terminate
this Lease as provided above unless Landlord fails to tender possession of the
Premises to Tenant within two hundred forty (240) days following the estimated
Commencement Date specified in Section 1.7, as the same may be extended in
accordance with Section 3.3 or under any work letter agreement entered into by
Landlord and Tenant. If Landlord is unable to deliver possession of the Premises
to Tenant on the Commencement Date due to a "Force Majeure Event," the
Commencement Date shall be extended by the period of the delay caused by the
Force Majeure Event. A Force Majeure Event shall mean fire, earthquake, weather
delays or other acts of God, strikes, boycotts, war, riot, insurrection,
embargoes, shortages of equipment, labor or materials, delays in issuance of
governmental permits or approvals, or any other cause beyond the reasonable
control of Landlord.
3.3 DELAYS CAUSED BY TENANT. There shall be no abatement of
rent, and the one hundred twenty (120) day period and the two hundred forty
(240) day period specified in Section 3.2 shall be deemed extended, to the
extent of any delays caused by acts or omissions of Tenant, Tenant's agents,
employees and contractors, or for Tenant delays as defined in the work letter
agreement attached to this Lease, if any (hereinafter "Tenant Delays"). The
Commencement Date shall not be extended due to Tenant Delays.
3.4 TENDER OF POSSESSION. Possession of the Premises shall be
deemed tendered to Tenant when Landlord's architect or agent has determined that
(a) the improvements to be provided by Landlord pursuant to a work letter
agreement, if any, are substantially completed, (b) the Project utilities are
ready for use in the Premises, (c) Tenant has reasonable access to the Premises,
and (d) three (3) days shall have expired following advance written notice to
Tenant of the occurrence of the matters described in (a), (b) and (c) above of
this Section 3.4. If improvements to the Premises are constructed by Landlord,
the improvements shall be deemed "substantially" completed when the improvements
have been completed except for minor items or defects which can be completed or
remedied after Tenant occupies the Premises without causing substantial
interference with Tenant's use of the Premises.
3.5 EARLY POSSESSION. If Tenant occupies the Premises prior to
the Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Tenant shall
pay Base Rent and all other charges provided for in this Lease during the period
of such occupancy. Provided that Tenant does not interfere with or delay the
completion by Landlord or its agents or contractors of the construction of any
tenant improvements, Tenant shall have the right to enter the Premises prior to
the anticipated Commencement Date for the purpose of installing furniture, trade
fixtures, equipment, telecommunications and computer cabling and wiring and
similar items. Provided that Tenant has not begun operating its business
<PAGE> 7
from the Premises, and subject to all of the terms and conditions of the Lease,
the foregoing activity shall not constitute the delivery of possession of the
Premises to or occupancy of the Premises by Tenant and the Lease Term shall not
commence as a result of said activities. Prior to entering the Premises Tenant
shall obtain all insurance it is required to obtain by the Lease and shall
provide certificates of said insurance to Landlord.
4. RENT.
4.1. BASE RENT. Subject to adjustment as hereinafter provided in
Section 4.3, Tenant shall pay to Landlord the Base Rent for the Premises set
forth in Section 1.8, without offset or deduction on the first day of each
calendar month. At the time Tenant executes this Lease it shall pay to Landlord
the advance Base Rent described in Section 1.9. Base Rent for any period during
the Term hereof which is for less than one month shall be prorated based upon
the actual number of days of the calendar month involved. Base Rent and all
other amounts payable to Landlord hereunder shall be payable to Landlord in
lawful money of the United States at the address stated herein or to such other
persons or at such other places as Landlord may designate in writing.
4.2. OPERATING EXPENSE INCREASES. Commencing on the first
anniversary of the Commencement Date, Tenant shall pay to Landlord during the
Term hereof, in addition to the Base Rent, Tenant's Share of the amount by which
all Operating Expenses for each Comparison Year exceeds the amount of all
Operating Expenses for the Base Year. If less than 95% of the rentable square
feet in the Project is occupied by tenants or Landlord is not supplying services
to 95% of the rentable square feet of the Project at any time during any
calendar year (including the Base Year), Operating Expenses for such calendar
year shall be an amount equal to the Operating Expenses which would normally be
expected to be incurred had 95% of the Project's rentable square feet been
occupied and had Landlord been supplying services to 95% of the Project's
rentable square feet throughout such calendar year. Tenant's Share of Operating
Expense increases shall be determined in accordance with the following
provisions:
(a) "TENANT'S SHARE" is defined as the percentage set forth in
Section 1.11, which percentage has been determined by dividing the number of
rentable square feet in the Premises by one hundred percent (100%) of the total
number of rentable square feet in the Project and multiplying the resulting
quotient by one hundred (100). In the event that the number of rentable square
feet in the Project or the Premises changes, Tenant's Share shall be adjusted in
the year the change occurs, and Tenant's Share for such year shall be determined
on the basis of the days during such year that each Tenant's Share was in
effect.
(b) "COMPARISON YEAR" is defined as each calendar year during
the Term of this Lease after the Base Year. Tenant's Share of the Operating
Expense increases for the last Comparison Year of the Lease Term shall be
prorated according to that portion of such Comparison Year as to which Tenant is
responsible for a share of such increase.
(c) "OPERATING EXPENSES" shall include all reasonable costs,
expenses and fees incurred by Landlord in connection with or attributable to the
Project, including but not limited to, the following items: (i) all costs,
expenses and fees associated with or attributable to the ownership, management,
operation, repair, maintenance, improvement, alteration and replacement of the
Project, or any part thereof, including but not limited to, the following: (A)
all surfaces, coverings, decorative items, carpets, drapes, window coverings,
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
stairways, landscaped areas, striping, bumpers, irrigation systems, lighting
facilities, building exteriors and roofs, fences and gates; (B) all heating,
ventilating and air conditioning equipment ("HVAC"), plumbing, mechanical,
electrical systems, life safety systems and equipment, telecommunication
equipment, elevators, escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair; (ii) the cost of trash
disposal, janitorial services and security services and systems; (iii) the cost
of all insurance purchased by Landlord and enumerated in Section 8 of this
Lease, including any deductibles; (iv) the amount of the real property taxes to
be paid by Landlord under Section 10.1 hereof; (v) the cost of water, sewer,
gas, electricity, and other utilities available at the Project and paid by
Landlord; (vi) the cost of labor, salaries and applicable fringe benefits
incurred by Landlord; (vii) the cost of materials, supplies and tools used in
managing, maintaining and/or cleaning the Project; (viii) the cost of accounting
fees, reasonable and customary management fees not to exceed four percent (4%)
of annual gross rents received, legal fees and consulting fees attributable to
the ownership, operation, management, maintenance and repair of the Project plus
the cost of any space occupied by the property manager and leasing agent (if
Landlord is the property manager, Landlord shall be entitled to receive a fair
market management fee) not to exceed four percent (4%) of annual gross rents
received; (ix) the cost of replacing and/or adding improvements mandated by any
law, statute, regulation or directive of any governmental agency and any repairs
or removals necessitated thereby; (x) the costs incurred in implementing and
operating any transportation management program, ride sharing program or similar
program including, but not limited to, the cost of any transportation program
fees, mass transportation fees or similar fees charged or assessed by any
governmental or quasi-governmental entity; (xi) payments made by Landlord under
any easement, license, operating agreement, declaration, restrictive covenant,
or instrument pertaining to the payment or sharing of costs among property
owners; (xii) personal property taxes imposed upon the fixtures, machinery,
equipment, furniture and personal property used in connection with the operation
of the Project; and (xiii) the cost of any other service provided by Landlord or
any cost that is elsewhere stated in this Lease to be an "Operating Expense."
SEE ADDENDUM PARAGRAPH 2
(d) Operating Expenses shall not include any expenses paid by
any tenant directly to third parties, or as to which Landlord is otherwise
reimbursed by any third party or by insurance proceeds.
(e) If the cost incurred in making an improvement or replacing
any equipment is not fully deductible as an expense in the year incurred in
accordance with generally accepted accounting principles, the cost shall be
amortized over the useful life of the improvement or equipment, as reasonably
determined by Landlord, together with an interest factor of twelve percent (12%)
per annum on the unamortized cost of such item.
(f) Landlord shall, from time to time, estimate what Tenant's
Share of Operating Expense increases will be, and the same shall be payable by
Tenant monthly during each Comparison Year of the Lease Term, on the same day as
the Base Rent is due hereunder. In the event that Tenant pays Landlord's
estimate of Tenant's Share of Operating Expense increases, Landlord shall use
its best efforts to deliver to Tenant within one hundred eighty (180) days after
the expiration of each Comparison Year a reasonably detailed statement showing
Tenant's Share of the actual Operating Expense increases incurred during such
year. Landlord's failure to deliver the statement to Tenant within said period
shall not constitute Landlord's waiver of its right to collect said amounts or
otherwise prejudice Landlord's rights hereunder. If Tenant's payments under this
Section 4.2(f) during said Comparison Year
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exceed Tenant's Share as indicated on said statement, Tenant shall be entitled
to credit the amount of such overpayment against Tenant's Share of Operating
Expense increases next falling due. If Tenant's payments under this Section
4.2(f) during said Comparison Year were less than Tenant's Share as indicated on
said statement, Tenant shall pay to Landlord the amount of the deficiency within
thirty (30) days after delivery by Landlord to Tenant of said statement.
Landlord and Tenant shall forthwith adjust between them by cash payment any
balance determined to exist with respect to that portion of the last Comparison
Year for which Tenant is responsible for Operating Expense increases,
notwithstanding that the Lease Term may have terminated before the end of such
Comparison Year; and this provision shall survive the expiration or earlier
termination of the Lease.
SEE ADDENDUM PARAGRAPH 3
(g) The computation of Tenant's Share of Operating Expense
increases is intended to provide a formula for the sharing of costs by Landlord
and Tenant and will not necessarily result in the reimbursement to Landlord of
the exact costs it has incurred.
SEE ADDENDUM PARAGRAPH 4
4.3 BASE RENT INCREASE.
(a) The Base Rent shall be increased each year on the
anniversary of the first day of the calendar month in which the Commencement
Date occurs by one hundred fifty percent (150%) of the increase, if any, in the
Consumer Price Index of the Bureau of Labor Statistics of the Department of
Labor for All Urban Consumers, (1982-1984 = 100), "all items", for the
metropolitan area nearest the location of the Project, herein referred to as
"CPI-U".
(b) The monthly Base Rent payable pursuant to Section 4.3(a)
shall be calculated as follows: the Base Rent payable for the first month of the
Term of this Lease shall be multiplied by one hundred fifty percent (150%) of a
fraction the numerator of which shall be the CPI-U of the calendar month which
is three months prior to the month during which the adjustment is to take
effect, and the denominator of which shall be the CPI-U for the calendar month
which is three months prior to the calendar month in which the Commencement Date
occurs. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date for the Base Rent
increase. Notwithstanding the foregoing, the Base Rent shall not be increased by
more than two and one-half percent (2.5%) in anylease year over the immediately
preceding lease year.
(c) If the 1982-1984 base period for the CPI-U is changed, the
conversion tables issued by the Bureau of Labor Statistics shall be used. In the
event the compilation and/or publication of the CPI-U shall be transferred to
any other governmental department or agency or shall be discontinued, then the
index most nearly the same as the CPI-U shall be used to make such calculations.
In the event that Landlord and Tenant cannot agree on such alternative index,
then the matter shall be submitted for decision to the American Arbitration
Association in the County in which the Premises are located, in accordance with
the then rules of said association and the decision of the arbitrators shall be
binding upon the parties, notwithstanding one party failing to appear after due
notice of the proceeding. The cost of said arbitrators shall be paid equally by
Landlord and Tenant.
(d) Tenant shall continue to pay the rent at the rate
previously in effect until the increase, if any is determined. Within ten (10)
days following the date on which the increase is determined, Tenant shall make
such payment to Landlord as will bring the increased Base Rent current,
commencing with the effective date of such increase through the date of such
determination. Thereafter the Base Rent shall be paid at the increased rate. No
delay by Landlord in making a CPI-U adjustment shall constitute the waiver by
Landlord of its right to make said adjustment.
5. SECURITY DEPOSIT. Tenant shall deliver to Landlord at the time it executes
this Lease the security deposit set forth in Section 1.10 as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails
to pay Base Rent or other charges due hereunder, or otherwise defaults with
respect to any provision of this Lease, which such default remains uncured after
all applicable notice and cure periods have expired, Landlord may use all or any
portion of said deposit for the payment of any Base Rent or other charge due
hereunder, to pay any other sum to which Landlord may become obligated by reason
of Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of said deposit, Tenant shall within ten (10) days after written demand therefor
deposit cash with Landlord in an amount sufficient to restore said deposit to
its full amount. Landlord shall not be required to keep said security deposit
separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Landlord, shall be returned, without payment of interest or
other amount for its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) at the expiration of the Term
hereof, and after Tenant has vacated the Premises. No trust relationship is
created herein between Landlord and Tenant with respect to said security
deposit. Tenant acknowledges that the security deposit is not an advance payment
of any kind or a measure of Landlord's damages in the event of Tenant's default.
SEE ADDENDUM PARAGRAPH 5
6. USE.
6.1. USE. The Premises shall be used and occupied only for the
purpose set forth in Section 1.5 and for no other purpose. If Section 1.5 gives
Tenant the right to use the Premises for general office use, by way of example
and not limitation, general office use shall not include medical office use or
any similar use, laboratory use, classroom use, any use not characterized by
applicable zoning and land use restrictions as general office use, or any use
which would require Landlord or Tenant to obtain a conditional use permit or
variance from any federal, state or local authority. No exclusive use has been
granted to Tenant hereunder.
6.2 COMPLIANCE WITH LAW. Notwithstanding any permitted use
inserted in Section 1.5, Tenant shall not use the Premises for any purpose which
would violate the Project's certificate of occupancy, any conditional use permit
or variance applicable to the Project or violate any covenants, conditions or
other restrictions applicable to the Project. Tenant shall, at Tenant's expense,
promptly comply with all applicable laws, ordinances, rules, regulations,
orders, certificates of occupancy, conditional use permits, variances, covenants
and restrictions of record, and requirements of any fire insurance underwriters,
rating bureaus or government agencies, now in effect or which may hereafter come
into effect, whether or not they reflect a change in policy from that now
existing, during the Term or any part of the Term hereof, relating in any manner
to the Premises and the occupation and use by Tenant of the Premises provided
however that, except to the extent Tenant is otherwise obligated to pay its
Tenant's Share as Operating Expenses pursuant to this Lease, Tenant shall have
no obligation to construct or pay, at Tenant's sole cost and expense, for the
construction of any improvements to the Premises except to the extent due to
Tenant's Particular manner of use of the Premises. Tenant shall conduct its
business and use the Premises in a lawful manner and shall not use or permit the
use of the Premises or the Common Areas in any manner that will tend to create
waste or a nuisance or shall tend to disturb other occupants of the Project.
Tenant shall obtain, at its sole expense, any permit or other
4
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governmental authorization required to operate its business from the Premises.
Landlord shall not be liable for the failure of any other tenant or person to
abide by the requirements of this Section or to otherwise comply with applicable
laws and regulations, and Tenant shall not be excused from the performance of
its obligations under this Lease due to such a failure.
SEE ADDENDUM PARAGRAPH 6
6.3 CONDITION OF PREMISES. Except as otherwise provided in this
Lease, Tenant hereby accepts the Premises and the Project in their condition
existing as of the date this Lease is executed by Landlord and Tenant, subject
to all applicable federal, state and local laws, ordinances, regulations and
permits governing the use of the Premises, the Project's certificate of
occupancy, any applicable conditional use permits or variances, and any
easements, covenants or restrictions of record affecting the use of the Premises
or the Project. Tenant shall comply with all federal, state and local laws and
regulations governing occupational safety and health at Tenant's sole cost and
expense. Tenant acknowledges that it has satisfied itself by its own independent
investigation that the Premises and the Project are suitable for its intended
use, and that neither Landlord nor Landlord's agents has made any representation
or warranty as to the present or future suitability of the Premises, or the
Project for the conduct of Tenant's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LANDLORD'S OBLIGATIONS. Landlord shall keep the Project
(excluding the interior of the Premises and space leased to other occupants of
the Project) in good condition and repair. Except as provided in Section 9.3,
there shall be no abatement of rent or liability to Tenant on account of any
injury or interference with Tenant's business with respect to any improvements,
alterations or repairs made by Landlord to the Project or any part thereof.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Project in good order, condition and repair.
7.2 TENANT'S OBLIGATIONS.
(a) Except as otherwise provided in this Lease, subject to
the requirements of Section 7.3, Tenant shall be responsible for payment of the
cost of keeping the Premises in good condition and repair, reasonable wear and
tear and casualty (except as otherwise provided in Section 9) excepted, and if
Landlord makes any repairs to the Premises, the cost thereof shall be paid by
Tenant to Landlord. Tenant shall be responsible for the cost of painting,
repairing or replacing wall coverings, and the cost of repairing or replacing
any improvements made to the Premises by Landlord or Tenant. Landlord may, but
shall not be obligated to, enter the Premises at all reasonable times to make
such repairs, alterations, improvements and additions to the Premises or to any
equipment located therein as Landlord deems necessary, in its sole discretion.
(b) On the last day of the Term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in the same
condition as received, ordinary wear and tear and casualty (except as otherwise
provided in Section 9) excepted, clean and free of debris and Tenant's personal
property. Tenant shall repair any damage to the Premises occasioned by the
installation or removal of Tenant's trade fixtures, furnishings and equipment.
Except as otherwise stated in this Lease, Tenant shall leave the power panels,
electrical distribution systems, lighting fixtures, HVAC, window coverings, wall
coverings, carpets, wall panelling, ceilings and plumbing at the Premises and in
good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior written
consent, which may be given or withheld in Landlord's sole discretion, make any
alterations, improvements, additions, utility installations or repairs
(hereinafter collectively referred to as "Alterations") in, on or about the
Premises or the Project. As used in this Lease, the term "utility installation"
shall mean carpeting or other floor covering, window and wall coverings, power
panels, electrical distribution systems, lighting fixtures, telephone or
computer system wiring, HVAC and plumbing. At the expiration of the Term,
Landlord may require the removal of any Alterations installed by Tenant (other
than the initial Improvements, as such term is defined in the Work Letter
Agreement)and the restoration of the Premises and the Project to their prior
condition, at Tenant's expense. If a work letter agreement is entered into by
Landlord and Tenant, Tenant shall not be obligated to remove the tenant
improvements constructed in accordance with the work letter agreement. Should
Landlord permit Tenant to make its own Alterations, Tenant shall use only such
contractor as has been expressly approved by Landlord, and Landlord may require
Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alterations, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Tenant make any
Alterations without the prior approval of Landlord, or use a contractor not
expressly approved by Landlord, Landlord may, at any time during the Term of
this Lease, require that Tenant remove all or part of the Alterations and return
the Premises to the condition it was in prior to the making of the Alterations.
In the event Tenant makes any Alterations, Tenant agrees to obtain or cause its
contractor to obtain, prior to the commencement of any work, "builders all risk"
insurance in an amount approved by Landlord and workers compensation insurance.
SEE ADDENDUM PARAGRAPH 7
(b) Any Alterations in or about the Premises that Tenant
shall desire to make shall be presented to Landlord in written form, with plans
and specifications which are sufficiently detailed to obtain a building permit.
If Landlord consents to an Alteration, the consent shall be deemed conditioned
upon Tenant acquiring a building permit from the applicable governmental
agencies, furnishing a copy thereof to Landlord prior to the commencement of the
work, and compliance by Tenant with all conditions of said permit in a prompt
and expeditious manner. Tenant shall provide Landlord with as-built plans and
specifications for any Alterations made to the Premises.
(c) Tenant shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Tenant at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or the Project, or any interest therein.
If Tenant shall, in good faith, contest the validity of any such lien, Tenant
shall furnish to Landlord a surety bond satisfactory to Landlord in an amount
equal to such contested lien claim or demand indemnifying Landlord against
liability arising out of such lien or claim. In addition, Landlord may require
Tenant to pay Landlord's reasonable attorneys' fees and costs in participating
in such action.
(d) Tenant shall give Landlord not less than ten (10) days'
advance written notice prior to the commencement of any work in the Premises by
Tenant, and Landlord shall have the right to post notices of non-responsibility
in or on the Premises or the Project as provided by law.
(e) All Alterations (whether or not such Alterations
constitute trade fixtures of Tenant) which may be made to the Premises by Tenant
shall be made and done in a good and workmanlike manner and with new materials
satisfactory to Landlord and shall be the property of Landlord and remain upon
and be surrendered with the Premises at the expiration of the
5
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Lease Term, unless Landlord requires their removal pursuant to Section 7.3(a).
Provided Tenant is not in default, notwithstanding the provisions of this
Section 7.3(a), Tenant's personal property and equipment, other than that which
is affixed to the Premises so that it cannot be removed without material damage
to the Premises or the Project, shall remain the property of Tenant and may be
removed by Tenant subject to the provisions of Section 7.2(b).
7.4 FAILURE OF TENANT TO REMOVE PROPERTY. If this Lease is
terminated due to the expiration of its Term or otherwise, and Tenant fails to
remove its property as required by Section 7.2(b), in addition to any other
remedies available to Landlord under this Lease, and subject to any other right
or remedy Landlord may have under applicable law, Landlord may, with three (3)
days prior notice to Tenant, remove any property of Tenant from the Premises and
store the same elsewhere at the expense and risk of Tenant and at any time
(before or after Landlord stores said property), Landlord may sell any or all
such property at public or private sale, in such a manner and at such times and
places as Landlord, in its sole discretion, may deem proper, without notice to
or demand upon Tenant. Landlord shall apply the proceeds of such sale: first, to
the cost and expenses of the sale, including reasonable attorneys' fees actually
incurred; second, to the payment of the cost of or charges for storing any such
property; third, to the payment of any other sums of money which may then or
thereafter be due to Landlord from Tenant under this Lease; and fourth, the
balance, if any, to Tenant.
SEE ADDENDUM PARAGRAPH 8
8. INSURANCE.
8.1. INSURANCE-TENANT.
(a) During the Term of the Lease and at such other times as
Tenant occupies the Premises, Tenant shall keep in force at its expense
"commercial general liability" insurance including an ISO broad form
endorsement or its equivalent with respect to the Premises with limits of not
less than One Million Dollars ($1,000,000) combined single limit or such higher
amount as Landlord may reasonably require in writing from time to time. The
insurance shall cover liability arising out of Tenant's operations and liability
arising out of work performed at the Premises by other persons on behalf of
Tenant, and shall specifically include the contractual liability assumed by
Tenant under this Lease. Such coverage, if written on a claims-made basis, must
provide for a retroactive date which is prior to the date Tenant occupies the
Premises, and the same retroactive date shall continue during the entire Term of
this Lease.
(b) Tenant will also maintain "all risk" extended coverage
property insurance written on a one hundred percent (100%) replacement cost
basis on Tenant's personal property, all tenant improvements installed at the
Premises by Landlord or Tenant, Tenant's trade fixtures and other property. Such
policies shall provide protection against any peril included within the
classification "fire and extended coverage," against vandalism and malicious
mischief, theft and sprinkler leakage. If this Lease is terminated as the result
of a casualty in accordance with Section 9, the proceeds of said insurance
attributable to the replacement of all tenant improvements at the Premises shall
be paid to Landlord.
(c) Tenant shall, at all times during the Term hereof,
maintain in effect workers' compensation insurance as required by applicable law
and business interruption insurance.
8.2 INSURANCE-LANDLORD.
(a) Landlord shall obtain and keep in force a policy of
comprehensive general liability insurance with coverage against such risks and
in such amounts as Landlord deems advisable insuring Landlord against liability
arising out of the ownership, operation and management of the Project.
(b) Landlord shall also obtain and keep in force during the
Term of this Lease a policy or policies of "all risk" insurance covering loss or
damage to the Project in the amount of not less than eighty percent (80%) of the
full replacement cost thereof, as determined by Landlord from time to time. The
terms and conditions of said policies and the perils and risks covered thereby
shall be determined by Landlord, from time to time, in Landlord's sole
discretion. In addition, at Landlord's option, Landlord shall obtain and keep in
force, during the Term of this Lease, a policy of rental interruption insurance,
with loss payable to Landlord, which insurance shall, at Landlord's option, also
cover all Operating Expenses. Tenant will not be named as an additional insured
in any insurance policies carried by Landlord and shall have no right to any
proceeds therefrom. At Landlord's option, Landlord may obtain insurance
coverages and/or bonds related to the operation of the parking areas. At
Landlord's option, Landlord may obtain coverage for flood and earthquake
damages. In addition, Landlord shall have the right to obtain such additional
insurance as is customarily carried by owners or operators of other comparable
office buildings in the geographical area of the Project. The policies purchased
by Landlord shall contain such deductibles as Landlord may determine. In
addition to amounts payable by Tenant in accordance with Section 4.2, Tenant
shall pay any increase in the property insurance premiums for the Project over
what was payable immediately prior to the Commencement Date to the extent the
increase is specified by Landlord's insurance carrier as being caused by the
nature of Tenant's occupancy or any act or omission of Tenant.
SEE ADDENDUM PARAGRAPH 9
8.3. INSURANCE POLICIES. Tenant shall deliver to Landlord copies of
the insurance policies or certificates of insurance required under Section 8.1
within fifteen (15) days prior to the Commencement Date of this Lease. Tenant's
insurance policies or certificates of insurance shall not be cancelable or
subject to reduction of coverage or other modification except after thirty (30)
days prior written notice to Landlord. Tenant shall, at least thirty (30) days
prior to the expiration of such policies, furnish Landlord with evidence of
payment of premiums for renewals thereof and promptly forward renewals to
Landlord once available. Tenant's insurance policies shall be issued by
insurance companies authorized to do business in the state in which the Project
is located, with a general policyholders rating of not less than "A" and a
financial rating of not less than "Class X," as rated in the most recent edition
of "Best Insurance Reports." Tenant's insurance policies shall be issued as
primary policies and not contributing with and not in excess of coverage which
Landlord may carry. Landlord, and at Landlord's option the holder of any
mortgage or deed of trust encumbering the Project, shall be named as an
additional insured on all insurance policies Tenant is obligated to obtain by
Section 8.1 above. Tenant's insurance policies shall not include deductibles in
excess of Five Thousand Dollars ($5,000).
8.4. WAIVER OF SUBROGATION. Tenant and Landlord each hereby
release and relieve the other, and waive their entire right of recovery against
the other, for direct or consequential loss or damage arising out of or incident
to the perils covered by insurance carried by such party (or required to be
carried by such party by this Lease) to the extent of the insurance proceeds
paid under any such policy, whether due to the negligence of Landlord or Tenant
or their agents, employees, contractors and/or invitees. Landlord and Tenant
shall each cause the insurance policies they obtain in accordance with this
Section 8 to provide that the insurance company waives all right of recovery by
subrogation against either party in connection with any damage covered by any
policy.
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8.5. COVERAGE. Landlord makes no representation to Tenant that the
limits or forms of coverage specified above or approved by Landlord are adequate
to insure Tenant's property or Tenant's obligations under this Lease, and the
limits of any insurance carried by Tenant shall not limit its obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 EFFECT OF DAMAGE OR DESTRUCTION. If all or part of the
Project is materially damaged (as defined in Section 9.2 below) by fire,
earthquake, flood, explosion, the elements, riot or any other casualty, Landlord
shall have the right in its sole and complete discretion to repair or to rebuild
the Project or to terminate this Lease provided that Landlord may terminate this
Lease only if it terminates all of the leases in the Building. Landlord shall
within ninety (90) days after the occurrence of such damage notify Tenant in
writing of Landlord's intention to repair or to rebuild or to terminate this
Lease. Tenant shall in no event be entitled to compensation or damages on
account of annoyance or inconvenience in making any repairs, or on account of
construction, or on account of Landlord's election to terminate this Lease.
Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the
Project, but in good faith determines that the Project cannot be rebuilt or
repaired within two hundred seventy (270) days after the date of the occurrence
of the damage, without payment of overtime or other premiums, and the damage to
the Project has rendered the Premises unusable in the ordinary course, Landlord
shall notify Tenant thereof in writing at the time of Landlord's election to
rebuild or repair, and Tenant shall thereafter have a period of fifteen (15)
days within which Tenant may elect to terminate this Lease, upon written notice
to Landlord. Tenant's termination right described in the preceding sentence
shall not apply if the damage was caused by Tenant's negligence or willful
misconduct. Failure of Tenant to exercise said election within said period shall
constitute Tenant's agreement to accept delivery of the Premises under this
Lease whenever tendered by Landlord, provided Landlord thereafter pursues
reconstruction or restoration diligently to completion, subject to delays beyond
Landlord's reasonable control.
SEE ADDENDUM PARAGRAPH 10
9.2 DEFINITION OF MATERIAL DAMAGE. The damage shall be deemed
material if, in Landlord's reasonable judgment, the uninsured cost of repairing
the damage will exceed One Hundred Thousand ($100,000). If insurance proceeds
are available to Landlord in an amount which is sufficient to pay the entire
cost of repairing all of the damage to the Project, the damage shall be deemed
material if the cost of repairing the damage exceeds Five Hundred Thousand
($500,000). Damage to the Project shall also be deemed material if (a) the
Project cannot be repaired to substantially the same condition it was in prior
to the damage due to laws or regulations in effect at the time the repairs will
be made, (b) the holder of any mortgage or deed of trust encumbering the Project
requires that insurance proceeds available to repair the damage in excess of One
Hundred Thousand ($100,000) be applied to the repayment of the indebtedness
secured by the mortgage or the deed of trust, or (c) the damage occurs during
the last twelve (12) months of the Lease Term, unless Tenant has exercised its
Option to Renew the Lease for the Extended Term, in which event this provision
shall apply to the last twelve (12) months of the Extended Term.
9.3. ABATEMENT OF RENT. If Landlord elects to repair damage to
the Project and all or part of the Premises will be unusable or inaccessible to
Tenant in the ordinary conduct of its business until the damage is repaired, and
the damage was not caused by the negligence or willful misconduct of Tenant or
its employees or agents(provided that Tenant shall in any event be entitled to
rent abatement to the extent of rent loss insurance received by Landlord),
Tenant's Base Rent and Tenant's Share of Operating Expense increases shall be
abated in proportion to the amount of the Premises which is unusable or
inaccessible to Tenant in the ordinary conduct of its business until the repairs
are completed.
9.4. TENANT'S NEGLIGENCE. If such damage or destruction occurs as
a result of the negligence or willful misconduct of Tenant or Tenant's employees
or agents, and the proceeds of insurance which are paid under any applicable
policy are not sufficient to repair all of the damage, Tenant shall pay, at
Tenant's sole cost and expense, to Landlord upon demand, the difference between
the cost of repairing the damage and the insurance proceeds received by
Landlord.
9.5. TENANT'S PROPERTY. Landlord shall not be required to repair
any injury or damage to, or to make any repairs or replacements of, any
fixtures, furniture, equipment or tenant improvements installed in the Premises,
and Tenant shall repair and restore all such property at Tenant's sole expense.
9.6. WAIVER. Landlord and Tenant hereby waive the provisions of
any statutes which relate to the termination of leases when leased property is
damaged or destroyed and agree that such event shall be governed by the terms of
this Lease.
10. REAL PROPERTY TAXES.
10.1. PAYMENT OF TAXES. Landlord shall pay the real property tax,
as defined in Section 10.2, applicable to the Project subject to reimbursement
by Tenant of Tenant's Share of such taxes in accordance with the provisions of
Section 4.2.
10.2. DEFINITION OF "REAL PROPERTY TAX." As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than succession,
capital, levy, corporate franchise, recordation, transfer, mortgage,inheritance,
personal income or estate taxes) imposed on the Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Landlord in the Project or in any portion
thereof, as against Landlord's right to rent or other income therefrom, or as
against Landlord's business of leasing the Project. The term "real property tax"
shall also include any tax, fee, levy, assessment or charge (a) in substitution
of, partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax", or (b) the nature of
which was hereinbefore included within the definition of "real property tax", or
(c) which is imposed as a result of a change in ownership, as defined by
applicable local statutes for property tax purposes, of the Project or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such change of ownership, or (d) which is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof, or (e) transportation taxes, fees or assessments, including,
but not limited to, mass transportation fees, regional transportation district
fees, metrorail fees, trip fees and similar fees and assessments, or (f) fees
assessed by any air quality management district or other governmental or
quasi-governmental entity regulating pollution, or (g) parking fees or parking
7
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taxes paid by Landlord, or (h) any reasonable expenses incurred by Landlord in
attempting to protest, reduce or minimize real property taxes.
SEE ADDENDUM PARAGRAPH 11
10.3. PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or related to Tenant's use of the Premises. If any of Tenant's
personal property shall be assessed with Landlord's real property, Tenant shall
pay to Landlord the taxes attributable to Tenant within ten (10) days after
receipt of a written statement from Landlord setting forth the taxes applicable
to Tenant's property.
11. UTILITIES.
11.1. SERVICES PROVIDED BY LANDLORD. Subject to all governmental
rules, regulations and guidelines applicable thereto, Landlord shall provide
HVAC to the Premises for normal office use during the times described in Section
11.3, reasonable amounts of electricity for normal office lighting and
fractional horsepower office machines, water in the Premises or in the Common
Area for reasonable and normal drinking and lavatory use, replacement light
bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures, and
building standard janitorial services.
11.2. SERVICES EXCLUSIVE TO TENANT. Tenant shall pay for all
water, gas, heat, electricity, telephone and other utilities and services
supplied and/or metered exclusively to the Premises or to Tenant, together with
any taxes thereon. If any such services are not separately metered to the
Premises, Tenant shall pay, at Landlord's option, either Tenant's Share or a
reasonable proportion to be determined by Landlord of all charges jointly
metered with other premises in the Project.
11.3. HOURS OF SERVICE. Building services and utilities shall be
provided Monday through Friday from 8:00 a.m. to 6:00 p.m. and Saturdays from
9:00 a.m. to 1:00 p.m. Janitorial services shall be provided Monday through
Friday. HVAC and other Building services shall not be provided at other times or
on nationally recognized holidays. Landlord shall use its best efforts to
provide HVAC to Tenant at times other than those set forth above subject to (a)
the payment by Tenant of Landlord's standard charge, as determined by Landlord
from time to time, in Landlord's sole discretion, for after hours HVAC and (b)
Tenant providing to Landlord at least one (1) business day's advance written
notice of Tenant's need for after hours HVAC. As of the date of this Lease, and
subject to future increases, the standard charge for after hours HVAC is Forty
Dollars ($40.00) per hour. Tenant shall pay all after hours HVAC charges to
Landlord within three (3) days after Landlord bills Tenant for said charges.
11.4. EXCESS USAGE BY TENANT. Notwithstanding the use set forth in
Section 1.5, Tenant shall not use Building utilities or services in excess of
those used by the average office building tenant using its premises for ordinary
office use. Tenant shall not install at the Premises office machines, lighting
fixtures or other equipment which will generate above average heat, noise or
vibration at the Premises or which will adversely effect the temperature
maintained by the HVAC system. If Tenant does use Building utilities or services
in excess of those used by the average office building tenant, Landlord shall
have the right, in addition to any other rights or remedies it may have under
this Lease, to (a) at Tenant's expense, install separate metering devices at the
Premises, and to charge Tenant for its usage, (b) require Tenant to pay to
Landlord all costs, expenses and damages incurred by Landlord as a result of
such usage, and (c) require Tenant to stop using excess utilities or services.
Tenant's electrical usage at the Premises shall be considered reasonable so long
as it does not exceed, on a monthly average, five (5) watts per usable square
foot of the Premises.
11.5. INTERRUPTIONS. Tenant agrees that Landlord shall not be
liable to Tenant for its failure to furnish utilities or other services when
such failure is occasioned, in whole or in part, by repairs, replacements, or
improvements, by any strike, lockout or other labor trouble, by inability to
secure electricity, gas, water, or other fuel at the Project after reasonable
effort to do so, by any accident or casualty whatsoever, by act or default of
Tenant or other parties, or by any other cause beyond Landlord's reasonable
control, and such failures shall never be deemed to constitute an eviction or
disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying rent or performing any of its obligations under this Lease.
Furthermore, Landlord shall not be liable under any circumstances for loss of
property or for injury to, or interference with, Tenant's business, including,
without limitation, loss of profits, however occurring, through or in connection
with or incidental to a failure to furnish any of the services or utilities as
set forth in this Section 11. Landlord may comply with voluntary controls or
guidelines promulgated by any governmental entity relating to the use or
conservation of energy, water, gas, light or electricity or the reduction of
automobile or other emissions without creating any liability of Landlord to
Tenant under this Lease.
SEE ADDENDUM PARAGRAPH 12
12. ASSIGNMENT AND SUBLETTING.
12.1. LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or
by operation of law assign, transfer, hypothecate, mortgage, sublet, or
otherwise transfer or encumber all or any part of Tenant's interest in this
Lease or in the Premises (hereinafter collectively a "Transfer"), without
Landlord's prior written consent, which shall not be unreasonably withheld.
Landlord shall respond to Tenant's written request for consent hereunder within
thirty (30) days after Landlord's receipt of the written request from Tenant.
Any attempted Transfer without such consent shall be void and shall constitute a
material default and breach of this Lease. Tenant's written request for
Landlord's consent shall include, and Landlord's thirty (30) day response period
referred to above shall not commence, unless and until Landlord has received
from Tenant, all of the following information: (a) financial statements for the
proposed assignee or subtenant for the past three (3) years prepared in
accordance with generally accepted accounting principles, (b) federal tax
returns for the proposed assignee or subtenant for the past three (3) years, (c)
a TRW credit report or similar report on the proposed assignee or subtenant, (d)
a detailed description of the business the assignee or subtenant intends to
operate at the Premises, (e) the proposed effective date of the assignment or
sublease, (f) a copy of the proposed sublease or assignment agreement which
includes all of the terms and conditions of the proposed assignment or sublease,
and (g) a detailed description of any ownership or commercial relationship
between Tenant and the proposed assignee or subtenant. Tenant shall have no
obligation to deliver the information described in subparagraph (a) or (b) above
in the case of a sublet. If the obligations of the proposed assignee or
subtenant will be guaranteed by any person or entity, Tenant's written request
shall not be considered complete until the information described in (a), (b) and
(c) of the previous sentence has been provided with respect to each proposed
guarantor. "Transfer" shall also include the transfer (a) if Tenant is a
corporation, and Tenant's stock is not publicly traded over a recognized
securities exchange, of more than twenty five percent (25%) of the voting stock
of such corporation during the Term of this Lease (whether or not in one or more
transfers) or the dissolution or merger of the corporation, or (b) if Tenant is
a partnership or other entity, of more than twenty five percent (25%) of the
profit and loss participation in such partnership or entity during the Term of
this Lease (whether or not in one or more transfers) or the dissolution or
liquidation of the partnership.
SEE ADDENDUM PARAGRAPH 13
8
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12.2. STANDARD FOR APPROVAL. Landlord shall not unreasonably
withhold its consent to a Transfer provided that Tenant has complied with each
and every requirement, term and condition of this Section 12. Tenant
acknowledges and agrees that each requirement, term and condition in this
Section 12 is a reasonable requirement, term or condition. It shall be deemed
reasonable for Landlord to withhold its consent to a Transfer if any
requirement, term or condition of this Section 12 is not complied with or: (a)
the Transfer would cause Landlord to be in violation of its obligations under
another lease or agreement to which Landlord is a party; (b) in Landlord's
reasonable judgment, a proposed assignee has a smaller net worth
than Tenant had on the date this Lease was entered into with Tenant or is less
able financially to pay the rents due under this Lease as and when they are due
and payable; (c) a proposed assignee's or subtenant's business will impose a
burden on the Project's parking facilities, elevators, Common Areas or utilities
that is greater than the burden imposed by Tenant, in Landlord's reasonable
judgment; (d) the terms of a proposed assignment or subletting will allow the
proposed assignee or subtenant to exercise a right of renewal, right of
expansion, right of first offer, right of first refusal or similar right held by
Tenant; (e) a proposed assignee or subtenant does not, in Landlord's reasonable
judgment, have a good credit rating; (g) a proposed assignee or subtenant
refuses to enter into a written assignment agreement or sublease, reasonably
satisfactory to Landlord, which provides that it will abide by and assume all of
the terms and conditions of this Lease for the term of any assignment or
sublease and containing such other terms and conditions as Landlord reasonably
deems necessary; (h) the use of the Premises by the proposed assignee or
subtenant will not be for the use permitted by this Lease; (i) Landlord has ever
evicted or been involved in litigation with the proposed assignee or subtenant;
(j) any guarantor of this Lease refuses to consent to the Transfer or to execute
a written agreement reaffirming the guaranty; (k) Tenant is in default as
defined in Section 13.1 at the time of the request; or (l) if requested by
Landlord, the assignee or sublessee refuses to sign a non-disturbance and
attornment agreement in favor of Landlord's lender.
12.3. ADDITIONAL TERMS AND CONDITIONS. The following terms and
conditions shall be applicable to any Transfer:
(a) Regardless of Landlord's consent, no Transfer shall
release Tenant from Tenant's obligations hereunder or alter the primary
liability of Tenant to pay the rent and other sums due Landlord hereunder and to
perform all other obligations to be performed by Tenant hereunder or release any
guarantor from its obligations under its guaranty.
(b) Landlord may accept rent from any person other than Tenant
pending approval or disapproval of an assignment or subletting.
(c) Neither a delay in the approval or disapproval of a
Transfer, nor the acceptance of rent, shall constitute a waiver or estoppel of
Landlord's right to exercise its rights and remedies for the breach of any of
the terms or conditions of this Section 12.
(d) The consent by Landlord to any Transfer shall not
constitute a consent to any subsequent Transfer by Tenant or to any subsequent
or successive Transfer by an assignee or subtenant. However, Landlord may
consent to subsequent Transfers or any amendments or modifications thereto
without notifying Tenant or anyone else liable on the Lease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease.
(e) In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or anyone else responsible for
the performance of this Lease, including any subtenant or assignee, without
first exhausting Landlord's remedies against any other person or entity
responsible therefor to Landlord, or any security held by Landlord.
(f) Landlord's written consent to any Transfer by Tenant shall
not constitute an acknowledgment that no default then exists under this Lease
nor shall such consent be deemed a waiver of any then existing default.
(g) The discovery of the fact that any financial statement
relied upon by Landlord in giving its consent to an assignment or subletting was
materially false shall, at Landlord's election, render Landlord's consent null
and void.
(h) Landlord shall not be liable under this Lease or under any
assignment or sublease to any assignee or subtenant.
(i) No sublease may be modified or amended (if such
modification will have a material adverse effect to Landlord) without Landlord's
prior written consent.
12.4. ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
The following terms and conditions shall apply to any subletting by Tenant of
all or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Tenant hereby absolutely and unconditionally assigns and
transfers to Landlord all of Tenant's interest in all rentals and income arising
from any sublease entered into by Tenant, and Landlord may collect such rent and
income and apply same toward Tenant's obligations under this Lease; provided,
however, that until a default shall occur in the performance of Tenant's
obligations under this Lease, Tenant may receive, collect and enjoy the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such rents to Landlord nor by reason of the collection of the
rents from a subtenant, be deemed to have assumed or recognized any sublease or
to be liable to the subtenant for any failure of Tenant to perform and comply
with any of Tenant's obligations to such subtenant under such sublease,
including, but not limited to, Tenant's obligation to return any security
deposit. Tenant hereby irrevocably authorizes and directs any such subtenant,
upon receipt of a written notice from Landlord stating that a default exists in
the performance of Tenant's obligations under this Lease, to pay to Landlord the
rents due as they become due under the sublease. Tenant agrees that such
subtenant shall have the right to rely upon any such statement and request from
Landlord, and that such subtenant shall pay such rents to Landlord without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the contrary.
(b) In the event Tenant shall default in the performance of
its obligations under this Lease, Landlord at its option and without any
obligation to do so, may require any subtenant to attorn to Landlord, in which
event Landlord shall undertake the obligations of Tenant under such sublease
from the time of the exercise of said option to the termination of such
sublease; provided, however, Landlord shall not be liable for any prepaid rents
or security deposit paid by such subtenant to Tenant or for any other prior
defaults of Tenant under such sublease.
12.5. TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. Landlord
shall be entitled to receive from Tenant (as and when received by Tenant) as an
item of additional rent fifty percent (50%) of all amounts received by Tenant
from such assignee or subtenant in excess of the amounts payable by Tenant to
Landlord hereunder (the "Transfer Premium"). "Transfer Premium" shall mean all
Base Rent, additional rent or other consideration of any type whatsoever payable
by the assignee or subtenant in excess of the Base Rent and additional rent
payable by Tenant under this Lease. If less than all of the Premises is
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transferred, the Base Rent and the additional rent shall be determined on a per
rentable square foot basis. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money paid by the assignee or subtenant to
Tenant in connection with such Transfer, and any payment in excess of fair
market value for services rendered by Tenant to the assignee or subtenant or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
the assignee or subtenant in connection with such Transfer.
SEE ADDENDUM PARAGRAPH 14
12.6. LANDLORD'S OPTION TO RECAPTURE SPACE. Notwithstanding
anything to the contrary contained in this Section 12, Landlord shall have the
option, by giving written notice to Tenant within twenty (20) days after receipt
of any request by Tenant to assign this Lease or to sublease space in the
Premises, to terminate this Lease with respect to said space as of the date
thirty (30) days after Landlord's election. In the event of a recapture by
Landlord, if this Lease shall be canceled with respect to less than the entire
Premises, the Base Rent, Tenant's Share of Operating Expense increases and the
number of parking spaces Tenant may use shall be adjusted on the basis of the
number of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the original Premises, and this Lease as so
amended shall continue thereafter in full force and effect, and upon request of
either party, the parties shall execute written confirmation of same. If
Landlord recaptures only a portion of the Premises, it shall construct and erect
at its sole cost such partitions as may be required to sever the space to be
retained by Tenant from the space recaptured by Landlord. Landlord may, at its
option, lease any recaptured portion of the Premises to the proposed subtenant
or assignee or to any other person or entity without liability to Tenant. Tenant
shall not be entitled to any portion of the profit, if any, Landlord may realize
on account of such termination and reletting. Tenant acknowledges that the
purpose of this Section 12.6 is to enable Landlord to receive profit in the form
of higher rent or other consideration to be received from an assignee or
sublessee, to give Landlord the ability to meet additional space requirements of
other tenants of the Project and to permit Landlord to control the leasing of
space in the Project. Tenant acknowledges and agrees that the requirements of
this Section 12.6 are commercially reasonable and are consistent with the
intentions of Landlord and Tenant.
SEE ADDENDUM PARAGRAPH 15
12.7. LANDLORD'S EXPENSES. In the event Tenant shall assign this
Lease or sublet the Premises or request the consent of Landlord to any Transfer,
then Tenant shall pay Landlord's reasonable costs and expenses incurred in
connection therewith, including, but not limited to, attorneys', architects',
accountants', engineers' or other consultants' fees, provided however, that said
costs and expenses shall not exceed Five Hundred Dollars ($500.00) in any one
transaction.
13. DEFAULT; REMEDIES.
13.1. DEFAULT BY TENANT. Landlord and Tenant hereby agree that the
occurrence of any one or more of the following events is a material default by
Tenant under this Lease and that said default shall give Landlord the rights
described in Section 13.2. Landlord or Landlord's authorized agent shall have
the right to serve any notice of default, notice to pay rent or quit or similar
notice.
(a) Tenant's failure to make any payment of Base Rent,
Tenant's Share of Operating Expense increases, parking charges, charges for
after hours HVAC, late charges, or any other payment required to be made by
Tenant hereunder, as and when due, where such failure shall continue for a
period of five (5) days after written notice thereof from Landlord to Tenant. In
the event that Landlord serves Tenant with a notice to pay rent or quit pursuant
to applicable unlawful detainer statutes, such notice shall also constitute the
notice required by this Section 13.1(a).
(b) The abandonment of the Premises by Tenant in which event
Landlord shall not be obligated to give any notice of default to Tenant.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant (other than those referenced in Sections 13.1(a) and (b), above), where
such failure shall continue for a period of twenty (20) days after written
notice thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's non-performance is such that more than twenty (20) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said twenty (20) day period and thereafter
diligently pursues such cure to completion. In the event that Landlord serves
Tenant with a notice to quit pursuant to applicable unlawful detainer statutes,
said notice shall also constitute the notice required by this Section 13.1(c).
(d) (i) The making by Tenant or any guarantor of any general
arrangement or general assignment for the benefit of creditors; (ii) Tenant or
any guarantor becoming a "debtor" as defined in 11 U.S.C. 101 or any successor
statute thereto (unless, in the case of a petition filed against Tenant or
guarantor, the same is dismissed within sixty (60) days); (iii) the institution
of proceedings seeking the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within sixty (60) days or the institution of a foreclosure proceeding against
Tenant's real or personal property; or (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within sixty (60) days. In the event that any provision of this Section 13.1(e)
is contrary to any applicable law, such provision shall be of no force or
effect.
(e) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor of
Tenant's obligations hereunder, is or was materially false.
(f) If Tenant is a corporation or a partnership, the
dissolution or liquidation of Tenant, except as may be otherwise permitted in
Section 12.
13.2. REMEDIES.
(a) In the event of any default or breach of this Lease by
Tenant, Landlord may, at any time thereafter, after the notice and cure periods
set forth in Section 13.1 have expired, and without limiting Landlord in the
exercise of any right or remedy which Landlord may have by reason of such
default:
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<PAGE> 15
(i) terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease and the Term hereof shall
terminate and Tenant shall immediately surrender possession of the Premises to
Landlord. If Landlord terminates this Lease, Landlord may recover from Tenant
(A) the worth at the time of award of the unpaid rent which had been earned at
the time of termination; (B) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; (C) the worth at the time of award of the amount
by which the unpaid rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; and (D) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of recovering
possession of the Premises, expenses of releasing, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, any real
estate commissions actually paid by Landlord and the unamortized value of any
free rent, reduced rent, tenant improvement allowance or other economic
concessions provided by Landlord. The "worth at time of award" of the amounts
referred to in Section 13.2(a)(i)(A) and (B) shall be computed by allowing
interest at the lesser of two percent (2%) per annum over the "prime rate" as
established by NationsBank of Virginia, N.A., or the maximum interest rate
permitted by applicable law. The worth at the time of award of the amount
referred to in Section 13.2(a)(i)(C) shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of Baltimore at the time
of award plus one percent (1%). For purposes of this Section 13.2(a)(i), "rent"
shall be deemed to be all monetary obligations required to be paid by Tenant
pursuant to the terms of this Lease.
(ii) maintain Tenant's right of possession in which
event Landlord shall have the remedy which permits Landlord to continue this
Lease in effect after Tenant's breach and abandonment and recover rent as it
becomes due.
(iii) collect sublease rents (or appoint a receiver
to collect such rent) and otherwise perform Tenant's obligations at the
Premises, it being agreed, however, that the appointment of a receiver for
Tenant shall not constitute an election by Landlord to terminate this Lease.
(iv) pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the state in which
the Premises are located.
(b) No remedy or election hereunder shall be deemed exclusive,
but shall, wherever possible, be cumulative with all other remedies at law or in
equity.
(c) If Tenant abandons or vacates the Premises, Landlord may
re-enter the Premises and such re-entry shall not be deemed to constitute
Landlord's election to accept a surrender of the Premises or to otherwise
relieve Tenant from liability for its breach of this Lease. No surrender of the
Premises shall be effective against Landlord unless Landlord has entered into a
written agreement with Tenant in which Landlord expressly agrees to (i) accept a
surrender of the Premises and (ii) relieve Tenant of liability under the Lease.
The delivery of keys to Landlord or any employee or agent of Landlord shall not
constitute the termination of the Lease or the surrender of the Premises.
13.3 DEFAULT BY LANDLORD. Landlord shall not be in default under
this Lease unless Landlord fails to perform obligations required of Landlord
within thirty (30) days after written notice by Tenant to Landlord and to the
holder of any mortgage or deed of trust encumbering the Project whose name and
address shall have theretofore been furnished to Tenant in writing, specifying
wherein Landlord has failed to perform such obligation; provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30) days
are required for its cure, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently pursues the same to completion. This Lease and the obligations of
Tenant and Landlord hereunder shall not be affected or impaired because Landlord
or Tenant are unable to fulfill any of their obligations hereunder or is delayed
in doing so (except with respect to Tenant's monetary obligations under this
Lease, including paying Base Rent and all additional rent, to which this
provision shall not apply), if such inability or delay is caused by reason of
strike or other labor problems, acts of God, riot, insurrection, governmental
actions or requirements, or any other cause beyond the reasonable control of
such party, and the time for such party's performance shall be extended for the
period of any such delay.
13.4. LATE CHARGES. Tenant hereby acknowledges that late payment
by Tenant to Landlord of Base Rent, Tenant's Share of Operating Expense
increases, parking charges, after hours HVAC charges, or other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by the terms of any mortgage or trust
deed encumbering the Project. Accordingly, if any installment of Base Rent,
Tenant's Share of Operating Expense increases, parking charges, after hours HVAC
charges or any other sum due from Tenant shall not be received by Landlord
within five (5) days of when such amount shall be due, then, without any
requirement for notice to Tenant, Tenant shall pay to Landlord a late charge
equal to six percent (6%) of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of late payment by Tenant. Acceptance of such late charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder including the assessment of interest
under Section 13.5.
SEE ADDENDUM PARAGRAPH 16
13.5. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord that is not paid when due shall bear
interest at the lesser of two percent (2%) per annum over the "prime rate" as
established by NationsBank of Virginia, N.A., or the maximum rate permitted by
applicable law. Payment of such interest shall not excuse or cure any default by
Tenant under this Lease; provided, however, that interest shall not be payable
on late charges incurred by Tenant nor on any amounts upon which late charges
are paid by Tenant.
13.6. PAYMENT OF RENT AFTER DEFAULT. If Tenant fails to pay Base
Rent, Tenant's Share of Operating Expense increases, parking charges or any
other monetary obligation due hereunder on the date it is due, after Tenant's
third failure to pay any monetary obligation on the date it is due, at
Landlord's option, all monetary obligations of Tenant hereunder shall thereafter
be paid by cashiers check. If Landlord has required Tenant to make said payments
by cashiers check, Tenant's failure to make a payment by cashiers check shall be
a material default hereunder.
14. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease, within
a reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after three (3) days' prior written
notice to Tenant, make any such payment or perform any such act on Tenant's
behalf without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord,
within ten (10) days after delivery by
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Landlord to Tenant of statements therefor, an amount equal to the expenditures
reasonably made by Landlord in connection with the remedying by Landlord of
Tenant's defaults pursuant to the provisions of this Section 14.
15. CONDEMNATION. If any portion of the Premises or the Project are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs; provided that if so much of the
Premises or Project are taken by such condemnation as would substantially and
adversely affect the operation and profitability of Tenant's business conducted
from the Premises, and said taking lasts for ninety (90) days or more, Tenant
shall have the option, to be exercised only in writing within thirty (30) days
after Landlord shall have given Tenant written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), to terminate this Lease as of the date the
condemning authority takes such possession. If a taking lasts for less than
ninety (90) days, Tenant's rent shall be abated during said period but Tenant
shall not have the right to terminate this Lease. If Tenant does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Tenant's Share of Operating Expenses shall be reduced in the proportion
that the usable floor area of the Premises taken bears to the total usable floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Tenant and no reduction of rent shall occur with respect thereto or by
reason thereof. Landlord shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Tenant of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Project provided that Landlord may terminate this Lease only if it
terminates all of the leases in the Building. Any award for the taking of all or
any part of the Premises or the Project under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Landlord, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, as severance damages, or as
damages for tenant improvements; provided, however, that Tenant shall be
entitled to any separate award for loss of or damage to Tenant's trade fixtures
and removable personal property and any award available for the relocation of
Tenant's business. In the event that this Lease is not terminated by reason of
such condemnation, and subject to the requirements of any lender that has made a
loan to Landlord encumbering the Project, Landlord shall to the extent of
severance damages received by Landlord in connection with such condemnation,
repair any damage to the Project caused by such condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
Tenant shall pay any amount in excess of such severance damages required to
complete such repair. Except as set forth in this Section 15, Landlord shall
have no liability to Tenant for interruption of Tenant's business upon the
Premises, diminution of Tenant's ability to use the Premises, or other injury or
damage sustained by Tenant as a result of such condemnation.
16. VEHICLE PARKING.
16.1. USE OF PARKING FACILITIES. During the Term and subject to
the rules and regulations attached hereto as Exhibit "C" as modified by Landlord
from time to time (the "Rules"), Tenant shall be entitled to use the number of
parking spaces set forth in Section 1.13 in the parking facility of the Project
at the monthly rate applicable from time to time for monthly parking as set by
Landlord and/or its licensee. Landlord may, in its sole discretion, assign
tandem parking spaces to Tenant and designate the location of any reserved
parking spaces. Landlord reserves the right at any time to relocate Tenant's
reserved and unreserved parking spaces. If Tenant commits or allows in the
parking facility any of the activities prohibited by the Lease or the Rules,
then Landlord shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove or tow away the vehicle involved
and charge the cost to Tenant, which cost shall be immediately payable by Tenant
upon demand by Landlord. Tenant's parking rights are the personal rights of
Tenant and Tenant shall not transfer, assign, or otherwise convey its parking
rights separate and apart from this Lease.
16.2 PARKING CHARGES. The initial monthly parking rate per
parking space is set forth in Section 1.14 and is subject to change by Landlord
upon five (5) days' prior written notice to Tenant. Monthly parking fees shall
be payable in advance prior to the first day of each calendar month. Visitor
parking rates shall be determined by Landlord from time to time in Landlord's
sole discretion. The parking rates charged to Tenant may not be the lowest
parking rates charged by Landlord for the use of the parking facility.
Notwithstanding anything to the contrary contained herein, any tax imposed on
the privilege of occupying space in the parking facility, upon the revenues
received by Landlord from the parking facility or upon the charges paid for the
privilege of using the parking facility by any governmental or
quasi-governmental entity may be added by Landlord to the monthly parking
charges paid by Tenant at any time, or Landlord may require Tenant and other
persons using the parking facility to pay said amounts directly to the taxing
authority.
SEE ADDENDUM PARAGRAPH 17
17. BROKER'S FEE. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
Section 1.15, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings, actions or agreements of the
indemnifying party.
18. ESTOPPEL CERTIFICATE.
18.1. DELIVERY OF CERTIFICATE. Tenant shall at any time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing certifying such information as
Landlord may reasonably request including, but not limited to, the following:
(a) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) (b) the date to which the Base Rent and
other charges are paid in advance and the amounts so payable, (c) that there are
not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on
the part of Landlord, or specifying such defaults or unfulfilled obligations, if
any are claimed, and (d) that all tenant improvements to be constructed by
Landlord, if any, have been completed in accordance with Landlord's obligations
and Tenant has taken possession of the Premises. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Project.
18.2. FAILURE TO DELIVER CERTIFICATE. At Landlord's option, the
failure of Tenant to deliver such statement within such time shall constitute a
material default of Tenant hereunder (after expiration of all notice and cure
periods set forth in section 13.1 have expired), or (after expiration of all
notice and cure periods set forth in section 13.1 have expired) it shall be
conclusive upon Tenant that (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord, (b) there are no uncured
defaults in Landlord's performance, (c) not more than one month's Base Rent has
been paid in advance, and (d) all tenant improvements to be constructed by
Landlord, if any, have been completed in accordance with Landlord's obligations
and Tenant has taken possession of the Premises.
18.3. FINANCIAL INFORMATION. If Landlord desires to finance,
refinance, or sell the Project, or any part thereof, Tenant hereby agrees to
deliver, and to cause any guarantor of Tenant's obligations to deliver, to any
lender or purchaser
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designated by Landlord such financial statements of Tenant or any guarantor and
other information as may be reasonably required by such lender or purchaser. All
such financial statements shall be received by Landlord and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
19. LANDLORD'S LIABILITY. Tenant acknowledges that Landlord shall have the
right to transfer all or any portion of its interest in the Project and to
assign this Lease to the transferee. Tenant agrees that in the event of such a
transfer Landlord shall automatically be released from all liability under this
Lease provided Landlord's successor in interest assumes Landlord's obligations
under this Lease; and Tenant hereby agrees to look solely to Landlord's
transferee for the performance of Landlord's obligations hereunder after the
date of the transfer. Upon such a transfer, Landlord shall, at its option,
return Tenant's security deposit to Tenant or transfer Tenant's security deposit
to Landlord's transferee and, in either event, Landlord shall have no further
liability to Tenant for the return of its security deposit. Subject to the
rights of any lender holding a mortgage or deed of trust encumbering all or part
of the Project, Tenant agrees to look solely to Landlord's equity interest in
the Project (which for purposes herein shall include any applicable insurance or
condemnation proceeds) for the collection of any judgment requiring the payment
of money by Landlord arising out of (a) Landlord's failure to perform its
obligations under this Lease or (b) the negligence or willful misconduct of
Landlord, its partners, employees and agents. No partner, employee or agent of
Landlord shall be personally liable for the performance of Landlord's
obligations hereunder or be named as a party in any lawsuit arising out of or
related to, directly or indirectly, this Lease and the obligations of Landlord
hereunder. The obligations under this Lease do not constitute personal
obligations of the individual partners of Landlord and Tenant shall not seek
recourse against the individual partners of Landlord or their assets.
20. INDEMNITY. Except to the extent released pursuant to Section 8.4 herein,
Tenant shall indemnify, defend and hold harmless Landlord, its agents, partners,
and employees from and against any and all claims for damage to the person or
property of any person or entity arising from Tenant's use of the Project, or
from the conduct of Tenant's business or from any activity, work or things done,
permitted or suffered by Tenant in or about the Project and shall further
indemnify, defend and hold harmless Landlord, its agents, partners and employees
from and against any and all claims, costs and expenses arising from any breach
or default in the performance of any obligation of Tenant to be performed under
the terms of this Lease, or arising from any act or omission of Tenant, or any
of Tenant's agents or employees, and from and against all costs, reasonable
attorneys' fees, expenses and liabilities incurred by Landlord, its agents,
partners and employees as the result of any such use, conduct, activity, default
or negligence. In case any action or proceeding is brought against Landlord, its
agents, partners and employees, Tenant shall defend Landlord, and its agents,
partners and employees at Tenant's expense by counsel reasonably satisfactory to
Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need
not have first paid any claim in order to be so indemnified. This indemnity
shall survive the expiration or sooner termination of this Lease.
21. EXEMPTION OF LANDLORD FROM LIABILITY. Except where caused by the grossly
negligent acts or willful misconduct of Landlord Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for loss of or damage to the goods, wares, merchandise or
other property of Tenant, Tenant's employees, invitees, customers, or any other
person in or about the Project, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors, whether such damage
or injury is caused by or results from any cause whatsoever including, but not
limited to, theft, criminal activity at the Project, negligent security
measures, bombings or bomb scares, hazardous waste, fire, steam, electricity,
gas, water or rain, breakage of pipes, sprinklers, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether said damage or injury
results from conditions arising upon the Premises or upon other portions of the
Project, or from other sources or places, or from new construction or the
repair, alteration or improvement of any part of the Project, or of the
equipment, fixtures or appurtenances applicable thereto, and regardless of
whether the cause of the damage or injury arises out of Landlord's or its
employees or agents negligent or intentional acts. Landlord shall not be liable
for any damages arising from any act or neglect of any other tenant, occupant or
user of the Project, nor from the failure of Landlord to enforce the provisions
of the lease of any other tenant of the Project. Tenant, as a material part of
the consideration to Landlord hereunder, hereby assumes all risk of damage to
property of Tenant or injury to persons, in, upon or about the Project arising
from any cause, excluding Landlord's gross negligence or the gross negligence of
its agents, partners or employees, and Tenant hereby waives all claims in
respect thereof against Landlord, its agents, partners and employees.
22. HAZARDOUS MATERIAL. For purposes of this Lease, the term "Hazardous
Material" means any hazardous substance, hazardous waste, infectious waste, or
toxic substance, material, or waste which becomes regulated or is defined as
such by any local, state or federal governmental authority. Except for small
quantities of ordinary office supplies such as copier toners, liquid paper,
glue, ink and common household cleaning materials, Tenant shall not cause or
permit any Hazardous Material to be brought, kept or used in or about the
Premises or the Project by Tenant, its agents or employees. Tenant hereby agrees
to indemnify Landlord from and against any breach by Tenant of the obligations
stated in the preceding sentence, and agrees to defend and hold Landlord
harmless from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses (including, without limitation, diminution
in value of the Project, damages for the loss or restriction or use of rentable
space or of any amenity of the Project, damages arising from any adverse impact
on marketing of space in the Project, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or after
the Term of this Lease as result of such breach. This indemnification of
Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions and any cleanup, remedial removal, or
restoration work required due to the presence of Hazardous Material. Tenant
shall promptly notify Landlord of any release of a Hazardous Material in the
Premises or at the Project of which Tenant becomes aware, whether caused by
Tenant or any other person or entity. The provisions of this Section 22 shall
survive the termination of the Lease.
SEE ADDENDUM PARAGRAPH 18
23. MEDICAL WASTE DISPOSAL. If Tenant produces medical waste, Landlord may, at
its option, provide medical waste disposal services to Tenant. If Landlord
elects to provide such services, Landlord may require Tenant to use said
services. Landlord, at its option, may bill Tenant directly for such services,
which amounts shall then constitute additional rent hereunder, or Landlord may
include the cost of providing such services in Operating Expenses. Tenant waives
its right to the fullest extent allowed by law to assert any claim against
Landlord in connection with the negligent provision of medical waste disposal
services by Landlord. In the event Landlord is unable or chooses not to provide
such disposal services to Tenant, Tenant shall arrange for the disposal of its
medical waste and such disposal shall be done in compliance with all applicable
laws. Tenant hereby agrees to indemnify, defend and hold harmless Landlord
against any cost, loss, liability, action, suit or expense (including attorneys'
fees) arising out of or relating to the existence of or the disposal of medical
waste produced by Tenant at the Premises.
24. TENANT IMPROVEMENTS. Tenant acknowledges and agrees that Landlord shall not
be obligated to construct any tenant improvements on behalf of Tenant except as
set forth in the work letter agreement (the "Work Letter") is attached to this
Lease as Schedule 1. If a space plan is attached to the Work Letter, the space
plan shall not be effective unless separately initialed by Landlord. Except as
set forth in a Work Letter, it is specifically understood and agreed that
Landlord has no obligation and has made no promises to alter, remodel, improve,
renovate, repair or decorate the Premises, the Project, or any part thereof, or
to provide any allowance for such purposes, and that no representations
respecting the condition of the Premises or the Project have been made by
Landlord to Tenant.
SEE ADDENDUM PARAGRAPH 19
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25. SUBORDINATION.
25.1. EFFECT OF SUBORDINATION. This Lease, and any Option (as
defined in Section 26 below) granted hereby shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. At the request of any mortgagee, trustee or
ground lessor, Tenant shall attorn to such person or entity. If any mortgagee,
trustee or ground lessor shall elect to have this Lease and any Options granted
hereby prior to the lien of its mortgage, deed of trust or ground lease, and
shall give written notice thereof to Tenant, this Lease and such Options shall
be deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
25.2. EXECUTION OF DOCUMENTS. Tenant agrees to execute and
acknowledge any documents reasonably required to effectuate an attornment, a
subordination, or to make this Lease or any Option granted herein prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Tenant's failure to execute such documents within ten (10) days after written
demand shall constitute a material default by Tenant hereunder or, at Landlord's
option, Landlord shall have the right to execute such documents on behalf of
Tenant as Tenant's attorney-in-fact. Tenant does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name,
place and stead, to execute such documents in accordance with this Section 25.2,
said appointment to be a power during the Term of this Lease coupled with an
interest and irrevocable.
SEE ADDENDUM PARAGRAPH 20
26. OPTIONS.
26.1. DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (1) the right or option to extend the Term of this Lease or
to renew this Lease, and (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Project or the right of first offer to
lease other space within the Project. Any Option granted to Tenant by Landlord
must be evidenced by a written option agreement attached to this Lease as a
rider or addendum or said option shall be of no force or effect.
26.2. OPTIONS PERSONAL. Each Option granted to Tenant in this
Lease, if any, is personal to the original Tenant (and each party to each
Permitted Transfer as defined in Paragraph 13 of the Addendum to this Lease) and
may be exercised only by the original Tenant while occupying the entire Premises
and may not be exercised or be assigned, voluntarily or involuntarily, by or to
any person or entity other than Tenant, including, without limitation, any
permitted transferee as defined in Section 12. The Options, if any, herein
granted to Tenant are not assignable separate and apart from this Lease, nor may
any Option be separated from this Lease in any manner, either by reservation or
otherwise. If at any time an Option is exercisable by Tenant, the Lease has been
assigned, or a sublease exists as to any portion of the Premises, the Option
shall be deemed null and void and neither Tenant nor any assignee or subtenant
shall have the right to exercise the Option.
26.3. MULTIPLE OPTIONS. In the event that Tenant has multiple
Options to extend or renew this Lease a later Option cannot be exercised unless
the prior Option to extend or renew this Lease has been so exercised.
26.4. EFFECT OF DEFAULT ON OPTIONS. Tenant shall have no right to
exercise an Option (i) during the time commencing from the date Landlord gives
to Tenant a notice of default pursuant to Section 13.1 and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) if Tenant is
in default of any of the terms, covenants or conditions of this Lease after
expiration of the notice and cure periods set forth in Section 13.1. The period
of time within which an Option may be exercised shall not be extended or
enlarged by reason of Tenant's inability to exercise an Option because of the
provisions of this Section 26.4.
26.5. LIMITATIONS ON OPTIONS. Notwithstanding anything to the
contrary contained in any rider or addendum to this Lease, any options, rights
of first refusal or rights of first offer granted hereunder shall be subject and
secondary to Landlord's right to first offer and lease any such space to any
tenant who is then occupying or leasing such space at the time the space becomes
available for leasing and shall be subject and subordinated to any other
options, rights of first refusal or rights of first offer previously given to
any other person or entity.
SEE ADDENDUM PARAGRAPHS 21, 22, 23 AND 24
27. LANDLORD RESERVATIONS. Landlord shall have the right: (a) to change the
name and address of the Project or Building upon not less than ninety (90) days
prior written notice; (b) to, at Tenant's expense, provide and install Building
standard graphics on or near the door of the Premises and such portions of the
Common Areas as Landlord shall determine, in Landlord's sole discretion; (c) to
permit any tenant the exclusive right to conduct any business as long as such
exclusive right does not conflict with any rights expressly given herein; and
(d) to place signs, notices or displays upon the roof, interior, exterior or
Common Areas of the Project. Tenant shall not use a representation (photographic
or otherwise) of the Building or the Project or their name(s) in connection with
Tenant's business or suffer or permit anyone, except in an emergency, to go upon
the roof of the Building. Landlord reserves the right to use the exterior walls
of the Premises, and the area beneath, adjacent to and above the Premises
together with the right to install, use, maintain and replace equipment,
machinery, pipes, conduits and wiring through the Premises, which serve other
parts of the Project provided that Landlord's use does not materially and
adversely interfere with Tenant's use of the Premises.
28. CHANGES TO PROJECT. Landlord shall have the right, in Landlord's sole
discretion, provided such changes do not materially and adversely interfere with
Tenant's use and enjoyment of the Premises from time to time, to make changes to
the size, shape, location, number and extent of the improvements comprising the
Project (hereinafter referred to as "Changes") including, but not limited to,
the Project interior and exterior, the Common Areas, elevators, escalators,
restrooms, HVAC, electrical systems, communication systems, fire protection and
detection systems, plumbing systems, security systems, parking control systems,
driveways, entrances, parking spaces, parking areas and landscaped areas. In
connection with the Changes, Landlord may, among other things, erect scaffolding
or other necessary structures at the Project, limit or eliminate access to
portions of the Project, including portions of the Common Areas, or perform work
in the Building, which work may create noise, dust or leave debris in the
Building. Tenant hereby agrees that such Changes and Landlord's actions in
connection with such Changes shall in no way constitute a constructive eviction
of Tenant or entitle Tenant to any abatement of rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Changes, nor
shall Tenant be entitled to any compensation or damages from Landlord for any
inconvenience or annoyance occasioned by such Changes or Landlord's actions in
connection with such Changes.
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30. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the term hereof with
Landlord's consent, such occupancy shall be a tenancy from month to month upon
all the terms and conditions of this Lease pertaining to the obligations of
Tenant, except that the Base Rent payable shall be one hundred fifty percent
(150%) of the Base Rent payable immediately preceding the termination date of
this Lease, and all Options, if any, shall be deemed terminated and be of no
further effect. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the Term hereof without Landlord's consent,
Tenant shall, at Landlord's option, be treated as a tenant at sufferance or a
trespasser. Nothing contained herein shall be construed to constitute Landlord's
consent to Tenant holding over at the expiration or earlier termination of the
Lease Term. Tenant hereby agrees to indemnify, hold harmless and defend Landlord
from any cost, loss, claim or liability (including attorneys' fees) Landlord may
incur as a result of Tenant's failure to surrender possession of the Premises to
Landlord upon the termination of this Lease.
31. LANDLORD'S ACCESS.
31.1. ACCESS. Landlord and Landlord's agents and employees shall
have the right to enter the Premises at reasonable times for the purpose of
inspecting the Premises, performing any services required of Landlord, showing
the Premises to prospective purchasers, lenders, or tenants, undertaking safety
measures and making alterations, repairs, improvements or additions to the
Premises or to the Project. In the event of an emergency, Landlord may gain
access to the Premises by any reasonable means, and Landlord shall not be liable
to Tenant for damage to the Premises or to Tenant's property resulting from such
access. Landlord may at any time place on or about the Building for sale or for
lease signs and Landlord may at any time during the last one hundred twenty
(120) days of the Term hereof place on or about the Premises for lease signs.
SEE ADDENDUM PARAGRAPH 25
31.2. KEYS. Landlord shall have the right to retain keys to the
Premises and to unlock all doors at the Premises, and in the case of emergency
to enter the Premises by any reasonably appropriate means, and any such entry
shall not be deemed a forcible or unlawful entry or detainer of the Premises or
an eviction. Tenant waives any claims for damages or injuries or interference
with Tenant's property or business in connection therewith. Tenant shall provide
Landlord with one key for each lock in the Premises.
32. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Project, and Landlord shall have no liability
to Tenant due to its failure to provide such services. Tenant assumes all
responsibility for the protection of Tenant, its agents, employees, contractors
and invitees and the property of Tenant and of Tenant's agents, employees,
contractors and invitees from acts of third parties. Nothing herein contained
shall prevent Landlord, at Landlord's sole option, from implementing security
measures for the Project or any part thereof, in which event Tenant shall
participate in such security measures and the cost thereof shall be included
within the definition of Operating Expenses. Landlord shall have the right, but
not the obligation, to require all persons entering or leaving the Project to
identify themselves to a security guard and to reasonably establish that such
person should be permitted access to the Project.
33. EASEMENTS. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not materially
and adversely interfere with the use of the Premises by Tenant. Tenant shall
sign any of the aforementioned documents within ten (10) days after Landlord's
request and Tenant's failure to do so shall, after expiration of the notice and
cure periods set forth in Section 13.1, constitute a material default by Tenant.
The obstruction of Tenant's view, air, or light by any structure erected in the
vicinity of the Project, whether by Landlord or third parties, shall in no way
affect this Lease or impose any liability upon Landlord.
34. TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all present or
future programs implemented or required by any governmental or
quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Project or the metropolitan area in
which the Project is located.
35. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
36. TIME OF ESSENCE. Time is of the essence with respect to each of the
obligations to be performed by Tenant under this Lease.
37. DEFINITION OF ADDITIONAL RENT. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, but not limited to, Base
Rent, Tenant's Share of Operating Expenses, parking charges and charges for
after hours HVAC shall be deemed to be rent.
38. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attachments listed in
Section 1.16 contain all agreements of the parties with respect to the lease of
the Premises and any other matter mentioned herein. No prior or contemporaneous
agreement or understanding pertaining to any such matter shall be effective.
Except as otherwise stated in this Lease, Tenant
15
<PAGE> 20
hereby acknowledges that no real estate broker nor Landlord or any employee or
agents of any of said persons has made any oral or written warranties or
representations to Tenant concerning the condition or use by Tenant of the
Premises or the Project or concerning any other matter addressed by this Lease.
39. AMENDMENTS. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.
40. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by certified mail, return receipt requested, personal
delivery, Federal Express or other delivery service. If notice is given by
certified mail, return receipt requested, notice shall be deemed given three
(3) business days after the notice is deposited with the U.S. Mail, postage
prepaid, addressed to Tenant or to Landlord at the address set forth in Section
1.17. If notice is given by personal delivery, Federal Express or other delivery
service, notice shall be deemed given on the date the notice is actually
received by Landlord or Tenant. Either party may by notice to the other specify
a different address for notice purposes. Notwithstanding the address set forth
in Section 1.17 for Tenant, upon Tenant's taking possession of the Premises, the
Premises shall constitute Tenant's address for notice purposes. A copy of all
notices required or permitted to be given to Landlord hereunder shall be
concurrently transmitted to such party or parties at such addresses as Landlord
may from time to time designate by notice to Tenant.
41. WAIVERS. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. No acceptance by Landlord of partial payment of
any sum due from Tenant shall be deemed a waiver by Landlord of its right to
receive the full amount due, nor shall any endorsement or statement on any check
or accompanying letter from Tenant be deemed an accord and satisfaction. Tenant
hereby waives for Tenant and all those claiming under Tenant all rights now or
hereafter existing to redeem by order or judgment of any court or by legal
process or writ, Tenant's right of occupancy of the Premises after any
termination of this Lease.
42. COVENANTS. This Lease shall be construed as though the covenants contained
herein are independent and not dependent and Tenant hereby waives the benefit of
any statute to the contrary.
43. BINDING EFFECT; CHOICE OF LAW. Subject to any provision hereof restricting
assignment or subletting by Tenant, this Lease shall bind the parties, their
heirs, personal representatives, successors and assigns. This Lease shall be
governed by the laws of the state in which the Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Project is located.
44. ATTORNEYS' FEES. If Landlord or Tenant brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, or appeal thereon, shall be entitled to its reasonable attorneys' fees
and court costs to be paid by the losing party as fixed by the court in the same
or separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
and court costs reasonably incurred in good faith. Landlord shall be entitled to
reasonable attorneys' fees and all other costs and expenses incurred in the
preparation and service of notices of default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such default.
45. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas.
The holding of any auction on the Premises or Common Areas in violation of this
Section 45 shall constitute a material default hereunder.
46. SIGNS. Tenant shall not place any sign upon the Premises (including on the
inside or the outside of the doors or windows of the Premises) or the Project
without Landlord's prior written consent, which may be given or withheld in
Landlord's sole discretion. Landlord shall have the right to place any sign it
deems appropriate on any portion of the Project except the interior of the
Premises.
SEE ADDENDUM PARAGRAPH 26
47. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
48. QUIET POSSESSION. Provided Tenant is not in default after expiration of the
notice and cure periods set forth in Section 13.1 hereunder, Tenant shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
49. AUTHORITY. If Tenant or Landlord is a corporation, trust, or general or
limited partnership, Tenant and Landlord, and each individual executing this
Lease on behalf of such entity, represents and warrants to the other that such
individual is duly authorized to execute and deliver this Lease on behalf of
said entity, that said entity is duly authorized to enter into this Lease, and
that this Lease is enforceable against said entity in accordance with its terms.
If Tenant or Landlord is a corporation, trust or partnership, Tenant and
Landlord shall deliver to the other upon demand evidence of such authority
satisfactory to Landlord and Tenant.
50. CONFLICT. Except as otherwise provided herein to the contrary, any conflict
between the printed provisions, Exhibits, Addenda or Riders of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
51. MULTIPLE PARTIES. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with Section 40 on one Tenant shall be deemed service of notice on
all Tenants.
52. INTERPRETATION. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender.
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<PAGE> 21
53. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord.
54. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant.
55. RULES AND REGULATIONS. Tenant agrees to abide by and conform to the Rules
and to cause its employees, suppliers, customers and invitees to so abide and
conform. Landlord shall have the right, from time to time, to modify, amend and
enforce the Rules. Landlord shall not be responsible to Tenant for the failure
of other persons including, but not limited to, other tenants, their agents,
employees and invitees to comply with the Rules.
SEE ADDENDUM PARAGRAPH 27
56. RIGHT TO LEASE. Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord in its sole discretion shall determine, and
Tenant is not relying on any representation that any specific tenant or number
of tenants will occupy the Project.
57. SECURITY INTEREST. In consideration of the covenants and agreements
contained herein, and as a material consideration to Landlord for entering into
this Lease, Tenant hereby unconditionally grants to Landlord a continuing
security interest in and to all property of any kind or description,
including, without limitation, any personal property left by Tenant at the
Premises, the security deposit, if any, and any advance rent payment or other
deposit, now in or hereafter delivered to or coming into the possession, custody
or control of Landlord, by or for the account of Tenant, in any manner and for
any purpose, together with any increase in profits or proceeds from such
property. The security interest granted to Landlord hereunder secures payment
and performance of all obligations of Tenant under this Lease now or hereafter
arising or existing, whether direct or indirect, absolute or contingent, or due
or to become due. In the event of a default under this Lease which is not cured
within the applicable grace period, if any, Landlord is and shall be entitled to
all the rights, powers and remedies granted a secured party under the
Commonwealth of Virginia Commercial Code and otherwise available at law or in
equity, including, but not limited to, the right to retain as damages the
personal property, security deposit and other funds held by Landlord, without
additional notice or demand regarding this security interest. Tenant agrees that
it will execute such other documents or instruments as may be reasonably
necessary to carry out and effectuate the purpose and terms of this Section, or
as otherwise reasonably requested by Landlord, including without limitation,
execution of a UCC-1 financing statement. Landlord's rights under this Section
are in addition to Landlord's rights under Sections 5 and 13. Notwithstanding
anything to the contrary contained in Section 57 of the Lease, the security
interest granted by Tenant to Landlord shall be subordinate to the security
interest, if any, granted to Tenant's lenders in the ordinary course of Tenant's
business. At Tenant's request, Landlord shall execute a lien waiver, the form of
which shall be reasonably satisfactory to Landlord, waiving Landlord's security
interest in the collateral described in any such lien waiver.
58. SECURITY FOR PERFORMANCE OF TENANT'S OBLIGATIONS. Notwithstanding any
security deposit held by Landlord pursuant to Section 5 and any security
interest held by Landlord pursuant to Section 57, Tenant hereby agrees that in
the event of a default by Tenant, Landlord shall be entitled to seek a writ of
attachment and/or a temporary protective order.
59. FINANCIAL STATEMENTS. From time to time, at Landlord's request, Tenant
shall cause the following financial information to be delivered to Landlord, at
Tenant's sole cost and expense, upon not less than ten (10) days' advance
written notice from Landlord: (a) a current financial statement for Tenant and
Tenant's financial statements for the previous two accounting years, (b) a
current financial statement for any guarantor(s) of this Lease and the
guarantor's financial statements for the previous two accounting years and (c)
such other financial information pertaining to Tenant or any guarantor as
Landlord or any lender or purchaser of Landlord may reasonably request. All
financial statements shall be prepared in accordance with generally accepted
accounting principals consistently applied and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant.
60. ATTACHMENTS. The items listed in Section 1.16 are a part of this Lease and
are incorporated herein by this reference.
SEE ADDENDUM PARAGRAPH 28
61. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR
CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER
LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER
ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF
INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR
REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
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<PAGE> 22
LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND
SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE
THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE
PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD AND TENANT ONLY WHEN
FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED
ORIGINAL OF THIS LEASE TO TENANT.
LANDLORD TENANT
ADVENT REALTY LIMITED PARTNERSHIP II, JAYCOR,
a Delaware limited partnership a California corporation
By:Advent Realty G.P. II Limited Partnership,
General Partner
By:Advent Realty, Inc.,
General Partner
By: /s/ By: /s/ Eric P. Wenaas
---------------------------------- ----------------------------
Eric P. Wenaas
---------------------------------- ----------------------------
(print name) (print name)
Its: Its:President & CEO
--------------------------------- ----------------------------
(print title) (print title)
<PAGE> 23
ADDENDUM
THIS ADDENDUM (the "Addendum") is attached to the Lease dated as of
December 6, 1995, by and between ADVENT REALTY LIMITED PARTNERSHIP II, a
Delaware limited partnership ("Landlord") and JAYCOR, a California corporation
("Tenant") and incorporated herein by reference thereto. To the extent that
there are any conflicts between the provisions of the Lease and the provisions
of this Addendum, the provisions of this Addendum shall supersede the
conflicting provisions of the Lease.
1. TERM AND COMMENCEMENT DATE. Section 3.1 of the Lease is hereby
modified by adding the following at the end of such Section 3.1: "Landlord shall
provide Tenant with thirty days (30) prior notice of the anticipated
Commencement Date."
2. OPERATING EXPENSES EXCLUSIONS. Notwithstanding anything to the
contrary in the definition of Operating Expenses set forth in Section 4.2 (c) of
the Lease, Operating Expenses shall be defined so as to exclude the following:
(a) Legal expenses incurred in the enforcement of leases;
(b) Costs and expenses which are attributable to repairs or
replacements to the extent such expenses are reimbursed to Landlord by virtue of
(i) warranties from contractors or suppliers, (ii) insurance proceeds (except
with respect to any deductibles which shall be included in Operating Expenses),
or (iii) reimbursement from third parties;
(c) Costs of repairs or replacements incurred by reason of the gross
negligence or willful misconduct of Landlord or its agents;
(d) Costs in connection with correcting defects in the initial design
or construction of the Building;
(e) Advertising, legal and space planning expenses incurred in
procuring tenants for the Building including, but not limited to, tenant
allowances, promotional expenses, legal fees for preparation of leases, rent
abatements and lease takeover expenses;
(f) Charges specifically charged to other tenants or occupants of the
Building;
(g) Costs incurred to correct violations by Landlord of any law,
rule, order or regulation which was in effect as of the Commencement Date;
(h) Fines or penalties resulting from violations of laws or
governmental rules, regulations or agreements if Landlord intentionally violated
the law, rule or regulation;
(i) Late charges for property taxes or other items incurred as a
result of Landlord's failure to pay bills in a timely manner;
(j) Depreciation of the Building;
(k) Legal fees and leasing commissions;
(l) Painting, redecorating or other work which Landlord performs for
specific tenants within the tenant's premises;
(m) Interest and amortization of funds borrowed by Landlord, whether
secured or unsecured (except as specifically provided in Section 4.2(e) of the
Lease);
(n) Costs or expenses incurred by Landlord in financing, refinancing,
selling or otherwise transferring or encumbering ownership rights in the
Building, land, or Property;
(o) Costs relating to maintaining Landlord's existence, either as a
corporation, partnership or other entity, such as trustee's fees, annual fees,
partnership, organization or administration expenses, deed recordation expenses,
legal and accounting fees (other than with respect to Building operations);
(p) Costs incurred to contain, abate, remove or otherwise clean up
the Building or Project required as a result of the presence of any hazardous
substances on or about the Building or Project caused by the Landlord or another
tenant;
(q) Costs incurred for capital improvements unless made with the
reasonable expectation to reduce Operating Expenses or as required by law;
(r) Reserves for replacements or repairs; and
(s) Salaries, wages or other compensation paid to officers or
executives of Landlord in their capacities as officers and executives or to
employees of Landlord who are not involved in the operation, management,
maintenance or repair of the Building.
3. RIGHT TO AUDIT. Section 4.2(f) of the Lease is hereby modified by
adding the following at the end of such Section 4.2(f):
"Tenant, at its expense, shall have the right at all reasonable times upon
prior notice to Landlord, to inspect Landlord's books and records which directly
relate to the Operating Expenses; provided, however, that Tenant's right to
inspect shall be limited to the ninety (90) day period following the date that
Landlord gives Tenant written notice of the detailed statement of actual
expenses and such audit shall take place in Landlord's offices. If Tenant
disputes Landlord's calculations or determination (Tenant's notice must be given
within ten (10) days after the ninety (90) day period referred to herein), such
dispute shall be resolved by a public accountant firm reasonably acceptable to
each party. If such audit determines that an error has been made in Landlord's
determination and calculation which results in an adjustment to the amounts
determined and calculated by Landlord in the amount of seven percent (7%) or
more, Landlord shall pay for the fees and expenses of such firm, but if such
adjustment is less than seven percent (7%), Tenant shall pay for such fees and
expenses.
Add-1
<PAGE> 24
4. OPERATING EXPENSES INCREASES. Section 4.2 of the Lease is hereby
further modified by adding the following new subsection (h) therein:
"(h) Notwithstanding anything to the contrary in this Section 4.2, Tenant
shall not be obligated to pay to Landlord its share of increases in Operating
Expenses to the extent that such increases exceed seven percent (7%) of the
previous calendar year's Operating Expenses provided, however, that there shall
be no limitation on the payment by Tenant of increases in Operating Expenses
that cannot be controlled by Landlord (which for purposes of this paragraph
shall include utility costs, insurance costs, real property tax increases and
Force Majeure Events). The foregoing limitations shall be applied separately
during each year of the Lease Term."
5. SECURITY DEPOSIT. Notwithstanding anything to the contrary in Section
5 of the Lease, in the event that Tenant is not in default beyond any applicable
cure period as defined in Section 13 of the Lease at any time during the term of
this Lease and provided further that Tenant has not exercised its option to
terminate as provided for in Paragraph 23 of this Addendum, Landlord shall
return the Security Deposit to Tenant upon the expiration of the forty-eighth
(48th) month of the term of the Lease.
6. COMPLIANCE WITH LAW. Section 6.2 of the Lease is hereby modified by
inserting the following at the end of Section 6.2:
"Landlord warrants to Tenant that, to the best of Landlord's
knowledge, the Building, in the state existing on the date this Lease is
executed by Landlord and Tenant, but without regard to alterations or
improvements to be made by Tenant or the use for which Tenant will occupy
the Premises, does not violate any covenants or restrictions of record, or
any applicable building code, regulation or ordinance in effect on such
date. To the extent that the Landlord receives any notice from a
governmental entity that the common areas of the Building are in violation
of any requirement of the Americans with Disabilities Act ("ADA") and the
Landlord is obligated to undertake action in order to comply with ADA, then
in such event Landlord agrees to undertake such remedial action. If such
requirement was in effect as of the date hereof and such violation existed
as of the date hereof, Landlord shall be responsible for the cost of curing
such violation. If such requirement was not in effect as of the date hereof
or such violation did not exist as of the date hereof, then the cost of
curing such violation shall be included in Operating Expenses, except to
the extent such costs would otherwise be excluded from Operating Expenses
pursuant to the terms of Section 4.2 hereof. To the extent that such notice
requires action with regard to Tenant's particular use of the Premises,
Tenant shall be obligated to undertake such action at Tenant's sole cost
and expense."
To the best of Landlord's knowledge, the Building, in the state existing on
the date this Lease is executed by Landlord and Tenant, but without regard to
alterations or improvements to be made by Tenant or the use for which Tenant
will occupy the Premises, complies with all existing fire and life safety
requirements of Fairfax County, Virginia."
7. ALTERATIONS AND ADDITIONS. Notwithstanding anything to the contrary in
the Lease, Tenant shall have the right to make non-structural, cosmetic
Alterations to the Premises (e.g., paint and carpet) that do not require a
building permit or other governmental permit or authorization; provided that
Tenant gives Landlord ten (10) days advance written notice of its intention to
make the Alterations (said written notice shall include a brief description of
the Alteration) and the cost of the Alterations does not exceed $15,000 in any
one instance. In addition, to the extent Landlord's consent is required pursuant
to the Lease, Landlord agrees to notify Tenant concurrently with Landlord's
consent of any such Alterations whether Landlord will require Tenant to remove
such Alterations at the end of the Lease Term. For purposes of the Lease, it
shall be deemed reasonable for Landlord to require Tenant to perform Alterations
during non-business hours if such Alterations will create unreasonable noise,
noxious fumes or otherwise interfere with the quiet enjoyment of the other
tenants in the Building.
8. FAILURE OF TENANT TO REMOVE PROPERTY. Notwithstanding anything to the
contrary in Section 7.4 or Section 57 of the Lease in no event, however, shall
Landlord have a security interest or lien or right of any nature in, nor may
Landlord sell, any of Tenant's files, computer disks, books, records, or any
confidential, privileged or protected information, property or material, or
information, property or material subject to governmental requirements or
regulations or security clearances.
9. INSURANCE. Landlord hereby acknowledges that the use of the Premises
by Tenant for the purposes permitted by Section 1.5 hereof, if conducted in
accordance with all applicable governmental laws and regulations and in
accordance with the requirements of this Lease, shall not be considered a basis
for increase in insurance premiums pursuant to this Section 8.2.
10. DAMAGE OR DESTRUCTION. Section 9.1 of the Lease is hereby modified by
inserting the following at the end of Section 9.1:
"Notwithstanding the foregoing sentence, in the event Landlord elects
to restore but is unable to completely restore the Premises such that the
Premises are available for use by Tenant in the ordinary course, within two
hundred seventy (270) days after the date of the occurrence of the damage,
Tenant shall have the right to terminate the Lease, provided any such
termination by Tenant occurs prior to delivery of the Premises to Tenant. "
11. REAL PROPERTY TAXES. Section 10.2 of the Lease is hereby modified by
inserting the following at the end of Section 10.2:
"From time to time Landlord may challenge the assessed value of the Project
as determined by applicable taxing authorities and/or Landlord may attempt
to cause the real property taxes to be reduced on other grounds. If
Landlord is successful in causing the real property taxes to be reduced or
in obtaining a refund, rebate, credit or similar benefit (hereinafter
collectively referred to as a "reduction") Landlord shall, to the extent
practicable, credit the reductions to real property taxes for the calendar
year to which the reduction applies and to recalculate the real property
taxes owed by Tenant for the years after the year in which the reduction
applies based on the reduced real property taxes (if a reduction applies to
Tenant's Base Year, the Base Year real property taxes shall be reduced by
the amount of the reduction and Tenant's Share of real property tax
increases shall be recalculated for all comparison years following the year
of the reduction based on the lower Base Year amount). All reasonable costs
incurred by Landlord in obtaining the real property tax reductions shall be
considered an Operating Expense and Landlord shall determine, in its sole
discretion, to which years any reductions will be applied. In addition, all
accounting and related costs incurred by Landlord in calculating new Base
Years for tenants and in making all other adjustments shall be an Operating
Expense. Further, to the extent Tenant is required to pay any assessment of
real property taxes, each assessment shall be deemed to be payable in as
many installments as is lawful and only the installments that become due
during the term of this Lease and before any fine, penalty, further
interest or cost may be added to them shall be paid by Tenant."
12. INTERRUPTION IN SERVICES. Notwithstanding anything contained in
Section 11 of the Lease to the contrary, if any interruption of utilities or
services shall continue for more than five (5) consecutive business days and
shall render any portion of the Premises unusable for the normal conduct of
Tenant's business, and if Tenant does not in fact use or occupy such portion of
the Premises, then all Base Rent and Additional Rent payable hereunder with
respect to such portion of the Premises
Add-2
<PAGE> 25
which Tenant does not occupy shall be abated retroactively to the first business
day of such interruption, and such abatement shall continue until full use of
such portion of the Premises is restored to Tenant. Except in the case of an
emergency, the Landlord will give Tenant at least one (1) business day prior
notice if Landlord intends to interrupt any services required to be furnished by
the Landlord.
13. ASSIGNMENT AND SUBLEASING TO AFFILIATED ENTITY. Notwithstanding
anything to the contrary contained in Section 12 of the Lease, Tenant shall have
the right, without Landlord's consent, upon advance written notice to Landlord,
to assign the Lease or sublet the whole or any part of the Premises (a) to any
entity or entities which are owned by Tenant, or which owns Tenant, (b) in
connection with the sale or transfer of substantially all of the assets of the
Tenant or the sale or transfer of substantially all of the outstanding ownership
interests in Tenant, or (c) in connection with a merger, consolidation or other
corporate reorganization of Tenant (each of the above subparagraphs (a), (b) and
(c) are hereinafter referred to as a "Permitted Transfer"); provided, that such
assignment or sublease is subject to the following conditions:
(a) Tenant shall remain fully liable under the terms and conditions
of the Lease;
(b) Any such assignment, sublease or transfer shall be subject to all
of the terms, covenants and conditions of the Lease;
(c) In the event of an assignment of the Lease, the assignee shall
expressly assume the obligations of Tenant under the Lease by a document
reasonably satisfactory to Landlord; and
(d) If a Permitted Transfer (other than a sublet) occurs under
subsections (a), (b) or (c) above, any new tenant under the Lease shall have a
net worth at least equal to the net worth of Tenant as of the date of the Lease.
Notwithstanding the foregoing, each transfer of an interest in Tenant pursuant
to Tenant's employee stock option plan shall not constitute a Transfer herein
provided there is no material adverse change to the net worth of Tenant as a
result of such transfers.
14. ASSIGNMENT AND SUBLETTING - CALCULATION OF TRANSFER PREMIUM. For
purposes of calculating the Transfer Premium pursuant to Section 12.5 of the
Lease, the Transfer Premium shall be reduced by the reasonable documented
third-party expenses incurred by Tenant for (a) any out-of-pocket monetary
concessions reasonably provided in connection with the assignment or sublease;
(b) any brokerage commissions in connection with the assignment or sublease (not
to exceed the amount of a commission customarily paid in connection with similar
transactions consummated in the vicinity of the Building); (c) reasonable legal
fees incurred in connection with the assignment or sublease; and (d) documented
marketing costs. Landlord shall not be entitled to a Transfer Premium in the
event of a Permitted Transfer.
15. LANDLORD'S OPTION TO RECAPTURE SPACE. Notwithstanding anything to the
contrary in Section 12.6 of the Lease, in the event Landlord elects to recapture
the Premises following a request from Tenant to assign this Lease or to sublease
space in the Premises, Tenant shall be given three (3) business days within
which to send written notice to Landlord withdrawing its request to assign or to
sublease such space in the Premises. Additionally, the terms and conditions of
Section 12.6 of the Lease shall not apply in the case of Permitted Transfers.
16. LATE CHARGES. Notwithstanding anything to the contrary in Section 13.4
of the Lease, Landlord agrees to waive imposition of such late charge on up to
one occasion in any twelve (12) month period provided the overdue payment is
made within five (5) business days after Landlord gives Tenant written notice
that the payment was not made when due.
17. PARKING. Notwithstanding anything to the contrary contained in Section
16 of the Lease, during the initial term of this Lease, Tenant shall have the
right to one (1) reserved parking space for the use of Tenant's service vehicle
at no charge. On or before the Commencement Date, the location of the reserved
parking space shall be mutually agreed upon by both Tenant and Landlord. Tenant
hereby agrees that within thirty (30) days of execution of this Lease, Tenant
will notify Landlord in writing of the number of parking spaces it wishes to
designate as "reserved" spaces which such number shall in no event exceed twenty
(20) and provided further that the location of any such reserved space shall be
determined in accordance with Section 16.1 of the Lease.
18. HAZARDOUS MATERIAL. Landlord acknowledges that to the best of its
actual knowledge, without independent investigation, Landlord has no reason to
believe that the environmental site assessment update prepared by ECS, Ltd.
dated November 30, 1993 (the "Environmental Report") delivered to Tenant under
separate cover is inaccurate.
19. TENANT IMPROVEMENTS. Landlord shall provide Tenant with an Improvement
Allowance equal to thirteen Dollars ($13.00) per rentable square foot of the
Premises (i.e., 27,219 square feet times $13.00 = $353,847.00) for construction
of Improvements to the Premises in accordance with the Work Letter Agreement
attached hereto and incorporated herein as Schedule 1. Notwithstanding the
foregoing, Tenant may use up to twenty percent (20%) of the Improvement
Allowance (i.e., actually spent (the "Fixture Allowance") for documented third
party costs related to Tenant's cost of occupancy of the Premises, including the
purchase of the existing systems furniture currently located in the Premises,
the purchase of similar systems furniture, the purchase and installation of
Tenant's telecommunications cabling and wiring, and other related items approved
by Landlord. If any of the Fixture Allowance is used to purchase furniture, then
there shall be a lien placed on the furniture in favor of Landlord. Any
improvements other than the Improvements shall be subject to Landlord's prior
written approval and shall be at Tenant's sole expense. Tenant's initial
occupancy of the Premises shall be deemed an acknowledgment that (except with
respect to latent defects for which Tenant shall have one hundred eighty (180)
days from occupancy to notify Landlord in writing of such defect) the Premises
are in good and tenantable order and that Landlord has provided or constructed
all Improvements to be provided or constructed by Landlord except those items,
if any, specified on a punch list delivered by Tenant pursuant to Schedule 1.
20. NON-DISTURBANCE AGREEMENT. Notwithstanding anything to the contrary
contained in the Lease, Tenant's subordination to any future mortgage, deed of
trust, ground lease or other security shall be conditioned upon the delivery by
Landlord to Tenant of a commercially reasonable non-disturbance agreement from
the third party in question signed by the Landlord and such third party. For
purposes herein, a "commercially reasonable" non-disturbance agreement shall
include an agreement substantially similar to the subordination and
non-disturbance agreement executed concurrently with execution of this Lease
between Tenant and Fleet Bank.
21. OPTION TO RENEW.
(a) Subject to the provisions of Section 26 of the Lease, and
provided that Tenant is not in default at the time of Tenant's exercise of the
Option and at the commencement of the extended term after expiration of the
notice and cure periods provided in Section 13.1, Tenant shall have one (1) five
(5) year Option to renew this Lease (the "Extended Term"). Tenant shall provide
to Landlord on a date which is prior to the date that the option period would
commence (if exercised) by at least one hundred eighty (180) days and not more
than two hundred seventy (270) days, a written notice of the exercise of the
option to extend the Lease for the Extended Term, time being of the essence.
Such notice shall be given in accordance with Section 40 of the Lease. If
notification of the exercise of this Option is not so given and received, the
option granted hereunder shall
Add-3
<PAGE> 26
automatically expire. Base Rent applicable to the Premises for the Extended Term
shall be equal to the fair market rental, taking into account all market
concessions, for the like buildings in the Northern Virginia market. The Base
Year during the Extended Term shall be the calendar year 2003. All other terms
and conditions of the Lease shall remain the same.
(b) If the Tenant exercises the Option, the Landlord shall determine
the fair market rental by using its good faith judgment. Landlord shall provide
Tenant with written notice of such amount within fifteen (15) days after Tenant
exercises its Option. Tenant shall have fifteen (15) days ("Tenant's Review
Period") after receipt of Landlord's notice of the new base rent within which to
accept such rental. In the event Tenant fails to accept in writing such rental
proposal by Landlord, then such proposal shall be deemed rejected and Landlord
and Tenant shall attempt to agree upon such fair market rental, using their best
good faith efforts. If Landlord and Tenant fail to reach agreement within
fifteen (15) days following Tenant's Review Period ("Outside Agreement Date")
then the parties shall each within ten (10) days following the Outside Agreement
Date appoint a real estate broker who shall be licensed in the Commonwealth of
Virginia and who specializes in the field of commercial office space leasing in
the Northern Virginia market, has at least five (5) years of experience and is
recognized within the field as being reputable and ethical. If one party does
not timely appoint a broker, then the broker appointed by the other party shall
promptly appoint a broker for such party. Such two individuals shall each
determine within ten (10) days after their appointment such base rent. If such
individuals do not agree on base rent, then unless each determination is within
five percent (5%) of the other determination in which event the parties shall
take the average of their two determinations, the two individuals shall, within
five (5) days, render separate written reports of their determinations and
together appoint a third similarly qualified individual having the
qualifications described above. If the two brokers are unable to agree upon a
third broker, the third broker shall be appointed by the President of the
Northern Virginia Board of Realtors. In the event the Northern Virginia Board of
Realtors is no longer in existence, the third broker shall be appointed by the
President of its successor organization. If no successor organization is in
existence, the third broker shall be appointed by the Chief Judge of the Circuit
Court of Fairfax County, Virginia. The third individual shall within ten (10)
days after his or her appointment make a determination of such base rent. The
third individual shall determine which of the determinations of the first two
individuals is closest to his own and the determination that is closest shall be
final and binding upon the parties, and such determination may be enforced in
any court of competent jurisdiction. Landlord and Tenant shall each bear the
cost of its broker and shall share equally the cost of the third broker. Upon
determination of the base rent payable pursuant to this Section, the parties
shall promptly execute an amendment to this Lease stating the rent so
determined.
22. RIGHT OF FIRST OFFER. Subject to the provisions of Section 26 of this
Lease, and provided that Tenant is not in default after expiration of the notice
and cure periods set forth in Section 13.1 hereunder at the time of Tenant's
exercise of the Option, and subject to all other options held on or before the
date this Lease is executed by existing tenants of the Building, Tenant shall
have a right of first offer at any time after the space which Landlord is
currently marketing in the Building (namely the entire second, third and fifth
floors of the Building plus an additional 3,992 square feet on the first floor)
is ninety-five percent (95%) leased, on any space that becomes available on the
fourth floor of the Building (the "Option Space"). Prior to leasing the Option
Space, Landlord shall give Tenant written notice of its intent to lease the
Option Space. Tenant may exercise such right only as to all of the Option Space
described in the Landlord's notice, and not to merely a part of such Option
Space. Tenant shall have five (5) business days in which to provide Landlord
with written notice of its election to exercise such right. Terms and conditions
pertaining to the lease of the Option Space shall be negotiated between Landlord
and Tenant within thirty (30) days of Landlord receiving written notice of
Tenant's intention to exercise this right. The Base Rent payable for the Option
Space shall be at the "fair market rent" of the Option Space. If Tenant does not
give Landlord written notice of its election to lease such Option Space within
the aforesaid five (5) business day period or terms and conditions are not
agreed upon within the aforesaid thirty (30) day period, Landlord shall
thereafter be free to lease such Option Space to a third party on any terms and
conditions that Landlord shall select, with no further obligation to Tenant. In
the event that Landlord offers any space to Tenant pursuant to this right of
first offer, and Tenant elects not to lease the space, the space so offered
shall no longer be subject to this right of first offer, and thereafter Landlord
shall not be obligated to offer said space to Tenant.
23. TENANT'S OPTION TO TERMINATE. The following section is hereby inserted
at the end of Section 26 of the Lease:
"26.6 TENANT'S OPTION TO TERMINATE. Subject to the provisions of
Section 26 of the Lease, Tenant shall have the option to terminate this
Lease effective on the last day of the Sixtieth (60th) month of the initial
Term of the Lease, or if not exercised, on the last day of the
Seventy-Second (72nd) month of the initial Term of the Lease, or if not
exercised, on the last day of the Seventy-Eighth (78th) month of the
initial Term of the Lease. Tenant shall provide to Landlord on a date which
is prior to the applicable aforesaid termination dates by at least three
hundred sixty-five (365) days (i.e., the last day of the Forty-Eighth
(48th) month of the initial Term of the Lease, the last day of the Sixtieth
(60th) month of the initial Term of the Lease, and the last day of the
Sixty-Sixth (66th) month of the initial Term of the Lease, respectively) a
written notice of the exercise of the Option to terminate the Lease, time
being of the essence. Such notice shall be given in accordance with Section
40 of the Lease. If notification of the exercise of any of the Options to
terminate is not so given and received, that Option shall automatically
expire. As a condition to the effectiveness of the Option, Tenant shall pay
to Landlord no later than sixty (60) days prior to the applicable early
termination date of the Lease an amount equal to one hundred percent (100%)
of the unamortized portion of the following itemized costs (the
"Termination Payment") (as amortized on a straight-line basis over the
initial Term of the Lease): construction costs, engineering expenses, legal
fees and brokerage fees incurred by Landlord in connection with the Lease,
which total cost as of the date of execution of this Lease is deemed to be
Five Hundred Fifty-Nine Thousand Eight and 83/100 Dollars ($559,008.83).
The Termination Payment is in addition to payment by the Tenant of all
other amounts payable by Tenant to Landlord pursuant to the Lease prior to
the early termination date of the Lease."
24. OPTIONS. Section 26.2 of this Lease is hereby modified to provide that
so long as in excess of fifteen percent (15%) of the Premises is not sublet at
any one time, Tenant shall not lose the options granted hereunder.
25. RESTRICTED AREAS. Notwithstanding anything in the Lease, including
without limitation the provisions of Section 31 thereof to the contrary,
Landlord, and Landlord's agents and employees, shall not enter, and shall not
retain keys to unlock doors to any portion of the Premises designated to
Landlord as a restricted area containing any confidential, privileged or
protected information or property or material or information subject to
governmental requirements or regulations or security clearances (collectively
the "Restricted Areas"). In the event of an emergency involving the immediate
threat of material injury to person or substantial damage to property, however,
Landlord, and Landlord's agents and employees, may enter the affected Restricted
Areas only if (a) Landlord has promptly contacted a Tenant's Representative (as
hereinafter defined) and a Tenant's Representative promptly accompanies
Landlord, and Landlord's agents and employees, in the affected Restricted Area,
or (b) Landlord has promptly, but unsuccessfully, sought to contact the Tenant's
Representatives or Landlord has promptly contacted a Tenant's Representative but
the Tenant's Representative fails to promptly meet the Landlord at the Premises.
In all instances that Landlord, or Landlord's agents or employees, enter any
Restricted Areas, such parties shall not disturb or examine any of the
information, property or materials located therein. The term "Tenant's
Representative" is hereby defined as such person(s), as may be designated, at
any time and from time to time, in a writing delivered by Tenant to Landlord. On
the date hereof, each of the following shall be a Tenant's Representative: Ms.
Becky Miller (home telephone: (703) 255-3382) (office telephone: (703)
847-4000); and Bruce DePietrantio (home telephone: (301) 384-4482) (office
telephone (703) 847-4000).
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<PAGE> 27
26. SIGNS. Section 46 of the Lease is hereby modified by adding the
following sentence to the end of Section 46. "Landlord will provide, at its sole
cost and expense, suite entry signage and building directory signage. The
design, size, location and materials of such signage shall be in accordance with
Landlord's standard building signage package. In addition, provided Tenant is
the single largest tenant in the Building at the time the Building reaches
ninety-five percent (95%) occupancy, and Tenant is not subleasing more than
fifteen percent (15%) of the Premises, then Tenant shall have the right, at
Tenant's sole cost and expense, to erect an illuminated sign on the Building,
the size, location, design and installation of which shall be mutually agreed
upon by Landlord and Tenant and which shall meet all applicable codes and
regulations. Tenant shall be responsible for obtaining all applicable
governmental approvals and permits."
27. RULES AND REGULATIONS. Landlord agrees that the rules and regulations
shall not be changed or revised or enforced in any way by Landlord that (a) is
inconsistent with the terms of the Lease, (b) reduces Landlord's obligations
under the Lease, or (c) increases Tenant's monetary obligations or materially
increases nonmonetary obligations. In the event of any inconsistency between any
provision of this Lease and the rules, the applicable Lease provision shall
control. Landlord shall enforce the rules in a consistent and uniform fashion.
28. ROOF-TOP ACCESS. Landlord hereby agrees that Tenant shall have,
subject to the rights of other tenants in the Building, non-exclusive access to
and use of a portion of the Building roof for Tenant's communication equipment,
the location of which shall be determined by Landlord, in Landlord's sole
discretion. In the event Tenant wishes to place communication equipment on the
roof, Tenant shall execute a license agreement substantially in the form
attached to this Lease as Exhibit F. There shall be no cost to Tenant during the
initial Term of the Lease and any extensions thereof for the use of the roof-top
for the installation of one (1) antenna.
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<PAGE> 28
EXHIBIT A
FLOOR PLAN
A-1
<PAGE> 29
EXHIBIT B
VERIFICATION LETTER
JAYCOR, a California corporation, ("Tenant") hereby certifies that it has
entered into a lease with ADVENT REALTY LIMITED PARTNERSHIP II, a Delaware
Limited Partnership ("Landlord") and verifies the following information as of
the _____ day of ___________, 19__:
Number of Rentable Square Feet in Premises:
------------------------------
Commencement Date:
------------------------------
Lease Termination Date:
------------------------------
Tenant's Share:
------------------------------
Initial Base Rent:
------------------------------
Billing Address for Tenant:
------------------------------
------------------------------
------------------------------
Attention:
------------------------------
Telephone Number:
------------------------------
Federal Tax I.D. No.:
------------------------------
Tenant acknowledges and agrees that all tenant improvements Landlord is
obligated to make to the Premises, if any, have been completed and that Tenant
has accepted possession of the Premises (except with respect to latent defects
for which Tenant shall have one hundred eighty (180) days from occupancy to
notify Landlord in writing of such defect) and that as of the date hereof, there
exist no offsets or defenses to the obligations of Tenant under the Lease.
Tenant acknowledges that it has inspected the Premises and found them suitable
for Tenant's intended commercial purposes.
TENANT
JAYCOR
By:
-------------------------------------------
-------------------------------------------
(print name)
Its:
------------------------------------------
------------------------------------------
(print title)
B-1
<PAGE> 30
EXHIBIT C
RULES AND REGULATIONS
GENERAL RULES
Tenant shall faithfully observe and comply with the following Rules and
Regulations.
1. EXCEPT AS OTHERWISE PERMITTED IN THE LEASE, Tenant shall not alter any locks
or install any new or additional locks or bolts on any doors or windows of the
Premises without obtaining Landlord's prior written consent. Tenant shall bear
the cost of any lock changes or repairs required by Tenant. Keys required by
Tenant must be obtained from Landlord at a reasonable cost to be established by
Landlord.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises. Tenant shall assume any
and all responsibility for protecting the Premises from theft, robbery and
pilferage, which includes keeping doors locked and other means of entry to the
Premises closed.
3. Landlord reserves the right to close and keep locked all entrance and exit
doors of the Project except during the Project's normal hours of business as
defined in Section 11.3 of the Lease. Tenant, its employees and agents must be
sure that the doors to the Project are securely closed and locked when leaving
the Premises if it is after the normal hours of business of the Project. Tenant,
its employees, agents or any other persons entering or leaving the Project at
any time when it is so locked, or any time when it is considered to be after
normal business hours for the Project, may be required to sign the Project
register. Access to the Project may be refused unless the person seeking access
has proper identification or has a previously received authorization for access
to the Project. Landlord and its agents shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the Project of
any person. In case of invasion, mob, riot, public excitement, or other
commotion, Landlord reserves the right to prevent access to the Project during
the continuance thereof by any means it deems appropriate for the safety and
protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought into the
Project without Landlord's prior authorization. All moving activity into or out
of the Project shall be scheduled with Landlord and done only at such time and
in such manner as Landlord designates. Landlord shall have the right to
prescribe the weight, size and position of all safes and other heavy property
brought into the Project and also the times and manner of moving the same in and
out of the Project. Safes and other heavy objects shall, if considered necessary
by Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight, and Tenant shall be solely responsible for the cost of
installing all supports. Landlord will not be responsible for loss of or damage
to any such safe or property in any case. Any damage to any part of the Project,
its contents, occupants or visitors by moving or maintaining any such safe or
other property shall be the sole responsibility and expense of Tenant.
5. The requirements of Tenant will be attended to only upon application at the
management office for the Project or at such office location designated by
Landlord. Tenant shall not ask employees of Landlord to do anything outside
their regular duties without special authorization from Landlord.
6. Tenant shall not disturb, solicit, or canvass any occupant of the Project and
shall cooperate with Landlord and its agents to prevent the same. Tenant, its
employees and agents shall not loiter in or on the entrances, corridors,
sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the
purpose of smoking tobacco products or for any other purpose, nor in any way
obstruct such areas, and shall use them only as a means of ingress and egress
for the Premises. Smoking shall not be permitted in the Common Areas.
7. The toilet rooms, urinals and wash bowls shall not be used for any purpose
other than that for which they were constructed, and no foreign substance of any
kind whatsoever shall be thrown therein. The expense of any breakage, stoppage
or damage resulting from the violation of this rule shall be borne by the tenant
who, or whose employees or agents, shall have caused it.
8. Except for vending machines intended for the sole use of Tenant's employees
and invitees, no vending machine or machines other than fractional horsepower
office machines shall be installed, maintained or operated upon the Premises
without the written consent of Landlord.
9. Tenant shall not use or keep in or on the Premises or the Project any
kerosene, gasoline or other inflammable or combustible fluid or material. Tenant
shall not bring into or keep within the Premises or the Project any animals,
birds, bicycles or other vehicles.
10. Tenant shall not use, keep or permit to be used or kept, any foul or noxious
gas or substance in or on the Premises, or permit or allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Project by reason of noise, odors, or vibrations, or to
otherwise interfere in any way with the use of the Project by other tenants.
11. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for loading or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' Laboratory approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors of Tenant, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations; and provided further that such cooking does not result in
odors escaping from the Premises.
12. Landlord shall have the right to approve where and how telephone wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord. Tenant shall not mark, drive nails or screws, or drill
into the partitions, woodwork or plaster contained in the Premises or in any way
deface the Premises or any part thereof without Landlord's prior written
consent. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Project.
Tenant shall not interfere with broadcasting or reception from or in the Project
or elsewhere.
13. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
14. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to ensure the most effective operation of the
Project's heating and air conditioning system, and shall refrain from attempting
to adjust any controls.
C-1
<PAGE> 31
Tenant shall not without the prior written consent of Landlord use any method of
heating or air conditioning other than that supplied by Landlord.
15. Tenant shall store all its trash and garbage within the interior of the
Premises. No material shall be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash in the vicinity of the
Project without violation of any law or ordinance governing such disposal. All
trash, garbage and refuse disposal shall be made only through entry-ways and
elevators provided for such purposes at such times as Landlord shall designate.
16. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
17. No awnings or other projection shall be attached to the outside walls or
windows of the Project by Tenant. No curtains, blinds, shades or screens shall
be attached to or hung in any window or door of the Premises without the prior
written consent of Landlord. All electrical ceiling fixtures hung in the
Premises must be fluorescent and/or of a quality, type, design and bulb color
approved by Landlord. Tenant shall abide by Landlord's regulations concerning
the opening and closing of window coverings which are attached to the windows in
the Premises. The skylights, windows, and doors that reflect or admit light and
air into the halls, passageways or other public places in the Project shall not
be covered or obstructed by Tenant, nor shall any bottles, parcels or other
articles be placed on the windowsills.
18. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises unless otherwise agreed to in
writing by Landlord. Except with the prior written consent of Landlord, no
person or persons other than those approved by Landlord shall be permitted to
enter the Project for the purpose of cleaning same. Landlord shall in no way be
responsible to Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of Tenant or any of its
employees or other persons by the janitor of Landlord. Janitor service shall
include ordinary dusting and cleaning by the janitor assigned to such work and
shall not include cleaning of carpets or rugs, except normal vacuuming, or
moving of furniture and other special services. Window cleaning shall be done
only by Landlord at reasonable intervals and as Landlord deems necessary.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles".
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Landlord for such activities. Users of the parking area will obey all posted
signs and park only in the areas designated for vehicle parking.
3. Parking stickers or identification devices shall be the property of Landlord
and shall be returned to Landlord by the holder thereof upon termination of the
holder's parking privileges. Tenant will pay such replacement charges as is
reasonably established by Landlord for the loss of such devices. Loss or theft
of parking identification stickers or devices from automobiles must be reported
to the parking operator immediately. Any parking identification stickers or
devices reported lost or stolen found on any unauthorized car will be
confiscated and the illegal holder will be subject to prosecution.
4. Landlord reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent off site
locations(s), and to allocate them between compact and standard size and tandem
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
5. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Landlord will not be responsible for any
damage to vehicles, injury to persons or loss of property, all of which risks
are assumed by the party using the parking area.
6. Validation of visitor parking, if established, will be permissible only by
such method or methods as Landlord may establish at rates determined by
Landlord, in Landlord's sole discretion.
7. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
8. Tenant shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations, laws and
agreements. Garage managers or attendants are not authorized to make or allow
any exceptions to these Parking Rules and Regulations. Landlord reserves the
right to terminate parking rights for any person or entity that willfully
refuses to comply with these rules and regulations.
9. Every driver is required to park his own car. Where there are tandem spaces,
the first car shall pull all the way to the front of the space leaving room for
a second car to park behind the first car. The driver parking behind the first
car must leave his key with the parking attendant. Failure to do so shall
subject the driver of the second car to a Fifty Dollar ($50.00) fine. Refusal of
the driver to leave his key when parking in a tandem space shall be cause for
termination of the right to park in the parking facilities. The parking
operator, or his employees or agents, shall be authorized to move cars that are
parked in tandem should it be necessary for the operation of the garage. Tenant
agrees that all responsibility for damage to cars or the theft of or from cars
is assumed by the driver, and further agrees that Tenant will hold Landlord
harmless for any such damages or theft.
10. No vehicles shall be parked in the parking garage overnight. The parking
garage shall only be used for daily parking and no vehicle or other property
shall be stored in a parking space.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Project,
and for the preservation of good order therein, as well as for the convenience
of other occupants and tenants therein. Landlord may waive any one or more of
these Rules and Regulations for the benefit of any particular tenant, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant, nor prevent Landlord from thereafter
enforcing any such Rules or Regulations against any or all tenants of the
Project. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition of its occupancy of the Premises.
C-2
<PAGE> 32
EXHIBIT E
CLEANING SPECIFICATIONS
DAILY SERVICES
RESTROOMS AND LOCKER AREAS
Restrooms will receive complete cleaning and sanitation each night according to
the specification listed below:
Commodes and Urinals: Commodes will be inside and outside including
under the lips of each bowl. This work will be performed using an
approved disinfectant cleanser. All bright metal will be cleaned and
dry polished. Deodorant blocks will not be used in the urinals.
Washbasins: Washbasins will be washed inside and outside using an
approved disinfectant cleanser. All bright metal fixture units and
plumbing will be dry polished.
Stall Partitions: All stall partitions will be damp cleaned using an
approved disinfectant cleanser. Special attention will be given to
urinal partitions.
Entrance door: All entrance doors, including stops, jambs, and frames
will be cleaned. Stainless steel kickplates will be polished nightly.
Mirrors and Lights: All mirrors and lights immediately above mirrors
will be cleaned. Burned out lights will be reported to the maintenance
department.
Couches and Chairs: Leather or vinyl couches and chairs will be damp
cleaned. All vanity chairs, stools and other furniture will be treated
in a like manner. Any cloth chairs or couches will be vacuumed not less
than weekly.
Sanitary Napkin Disposal Containers: All sanitary napkin containers
will be emptied, damp cleaned with an approved disinfectant cleanser
and provided with a new paper bag liner daily.
Installation of Supplies: All supplies such as toilet tissue, paper
towels, liquid hand soap and bar soap will be restocked. Insure that
proper liquid soap is used in dispenser to avoid malfunctions.
Mosaic Floors:
- Pick up all loose paper and trash.
- Sweep all floors.
- Wet mop floors, using an approved disinfectant cleanser.
Walls: Wash/clean walls around soap dispenser, towel containers, and
light switches as required to maintain clean/bright appearance.
Traps and Floor Drains: Must be maintained free from odor at all times.
Periodically, water will be poured down through these traps/floor
drains to insure vapor seal.
Showers and Locker Rooms: Showers will washed inside and outside
including door, frame and wall using an approved disinfectant cleanser.
All bright metal will be cleaned and dry polished. All lockers will be
dusted and damp cleaned.
NOTE: No harsh or abrasive cleanser will be used without consulting the
Property Manager.
OFFICE CLEANING
Executive Offices, Private Offices, Semi-Private Offices, Reception Area,
Conference Rooms, and General Offices.
The areas stated above will receive complete general cleaning daily according to
the specifications listed below.
Wastepaper and Trash Containers: All trash containers will be emptied
and returned to original locations. Plastic liners will be used in
trash containers and changed as necessary for appearance and
sanitation. Trash containers will be periodically washed, for
appearance and sanitation. All trash collected will be deposited in the
exterior bulk trash containers provided by the Property Manager. Doors
on these containers will be kept closed when not in use. Any spills
occurring during emptying of trash will be cleaned up immediately
(inside or outside), and related stains will be washed/shampooed as
required.
Entrances to Executive Offices and Entrances of Office Areas on Various
Floors: All glass doors, plate glass and jambs will be cleaned as
necessary.
Ash Tray: All ash trays will be emptied. Ash trays will then be wiped
with a damp cloth to remove stains and odors.
Desks and Chairs: Wood desks will be thoroughly dusted with a treated
dust cloth and oiled/waxed as required. Metal desks will be damp wiped
as necessary to remove spots and stains, including front and side
vertical surfaces. All glass desk tops will be damp cleaned. Paper on
desks will not be disturbed. All chairs will be dusted as required (see
weekly services).
File and Storage Cabinets: All file and storage cabinets will be dusted
thoroughly, using a treated dust cloth. Cabinets lined in a row will be
dusted along the horizontal and vertical surface of each cabinet. Spill
stains will be damp cleaned when required.
Tables and Lamps: Tables will be treated in like manner as desks. Lamps
will be dusted thoroughly, using a treated dust cloth.
Hand Dust/Clean the following using a treated dust cloth:
- Window sills
- Pictures and Frames
- Counter
- Radiator and Fan Coil Unit enclosures (damp clean as
required)
- Ledges and Shelves under six feet
E-1
<PAGE> 33
- Doors, Jambs and Stops (particularly along top/horizontal
surface)
- Pushplates and Kickplates
- Coat racks and trees
- Telephones, all type including office and pay phones
- Panel boxes, Fire extinguishers and cabinets, and fire
hose cabinets/enclosures
Vinyl (Resilient) Tile Floors: All resilient tile floors will be dusted
with a treated dust mop. All spillage will be removed, including damp
mop cleaning when required. Spray buff floor, using a commercial floor
polishing machine, synthetic fiber pad and an approved high gloss, slip
resistant floor finish as needed.
Carpets: All carpets will be thoroughly vacuumed (with edges vacuumed
monthly). Special attention will be paid to all spills, spots and
adherents for removal. Spot clean carpeting as required.
Glass Partitions: All glass partitions will be washed to remove finger
marks and smudges.
OTHER CLEANABLE AREAS
Main Entrance Lobby, Elevators, Corridors, Snack Bars, Stairways, Landings,
Loading Platforms, and Receiving Rooms
The areas listed above will receive complete daily cleaning as prescribed in
paragraphs A 1 and 2 above and specialty cleaning according to the
specifications listed below:
Main Entrance Lobby: All hard surface floors will be thoroughly cleaned
and non-slip floor finish applied as necessary. Will spray buff floor,
using a commercial floor polishing machine, synthetic fiber pad and an
approved high gloss, slip resistant floor finish as needed. All
entrance door glass will be cleaned. Area mats will be thoroughly
vacuumed and returned to their original location.
Carpeted areas will be vacuumed and stains removed as needed.
Corridors/Snack Bars: Carpeted areas will be vacuumed and all stains
removed. Resilient flooring will be swept and damp mopped to remove
spillage. Will spray buff floor, using a commercial floor polishing
machine, synthetic fiber pad and an approved high gloss, slip resistant
floor finish as needed.
All refuse, trash and garbage from snack bars and vending machine areas
will be collected and remove from the building. Cans used for
collection of food remnants will be periodically washed, sanitized and
polished.
Water Fountains: The dispensing area will be washed, sanitized and
polished.
Stairways: Stair landings and steps will be checked. Spills will be
wiped up daily. Will spray buff resilient flooring as required to
maintain gloss. Carpeted stairwells will be vacuumed nightly. All hard
floor stairwells will be swept twice weekly and mopped not less than
twice monthly.
Outside Entrances: Landings and steps will be swept. Both sides of
entrance glass will be cleaned. Kick plates and push bars will be
cleaned and polished.
Assembly Area/Loading Platforms/Receiving Rooms: Assembly area, loading
dock, platforms and receiving rooms will be swept daily and damp mopped
as required.
WEEKLY SERVICES
OFFICE CLEANING
Vertical Surfaces:
Wood wall paneling in Executive Offices will be dusted using a treated
dust cloth.
Will dust vertical surfaces of file cabinets, etc.
All woodwork, doors, walls (including stairwells) will be spot cleaned
to remove smudges/spills, etc.
Other:
Air conditioning return air grilles will be cleaned (vacuumed if
necessary).
MONTHLY SERVICES
RESTROOM CLEANING
Will damp clean walls and dry polish tile areas.
Will machine scrub floor using a disinfectant cleaner.
Will dust all high areas and vacuum exhaust grilles.
OFFICE CLEANING
Vertical surfaces and under surfaces (knee wells, chair rungs, table
legs, etc.) will be thoroughly dusted and all glass in doors,
partitions, pictures, and bookcases will be damp-wiped. Dust walls and
horizontal surfaces over six feet high.
Venetian Blinds: Venetian blinds will be dusted in place with a treated
dust cloth or venetian blind tool.
OTHER CLEANABLE AREAS
Flooring: All resilient/vinyl floor tiles throughout the building will
be thoroughly cleaned (scrub) and recoat using a high gloss, slip
resistant floor finish to restore gloss.
E-2
<PAGE> 34
EXHIBIT F
LICENSE AGREEMENT FOR SATELLITE DISH
THIS LICENSE AGREEMENT FOR SATELLITE DISH (the "Agreement") is made as
of this ______ day of _________________________, 19__, by and between
_____________________________________ ____________________ limited partnership
(the "Licensor"), and _________________________________________ (the
"Licensee"), a ______________.
RECITALS
A. This Agreement is attached to and made a part of that certain Lease
Agreement dated _____________________________ ("Lease") by and between
Licensee, as tenant, and Licensor, as landlord, for the lease by
Licensee of approximately __________________ rentable square feet of
office space (the "demised premises") in the building located at
______________________________ (the "Building"), all as more
particularly described in the Lease.
B. Under the terms of the Lease, Licensor has the exclusive right to use
or permit the use of all or any portion of the roof of the Building for
any purpose; Licensee desires to use a portion of the roof space to
maintain and operate thereon a satellite dish and/or related microwave
facilities, antennas and related equipment, all as more particularly
described in Exhibit A and Exhibit B attached hereto and incorporated
herein by this reference (the "Equipment Location and Specifications").
C. Licensor and Licensee desire to provide the terms and conditions for
Licensee's use of the roof space as a location for an antenna and the
equipment required for the operation thereof.
NOW, THEREFORE, in consideration of the foregoing, the sum of Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Licensor and Licensee, intending
legally to be bound, hereby agree as follows:
1. The foregoing recitals are hereby incorporated herein and made
a part hereof by this reference.
2. Satellite Dish Equipment: Permitted Uses. Provided Licensee is
not in default under the terms and conditions of the Lease, Licensee's agent, as
approved by Licensor, in Licensor's sole discretion, will install and maintain,
at the sole cost of Licensee and Licensee may, at its own expense, operate on
the roof of the Building, a satellite dish and/or related microwave facilities
and an antenna as specified in Exhibit A attached hereto, to be located as
designated on Exhibit B attached hereto (said equipment is collectively referred
to hereinafter as the "Satellite Dish"). The Satellite Dish shall be deemed to
be the Licensee's Personal Property (as defined in the Lease) and to the extent
not inconsistent with this Agreement, the ownership, installation, use and
removal thereof shall be governed by the terms of the Lease applicable to
Licensee's Personal Property.
3. Licensor's Prior Approval. Licensor may approve or reject the
installation and operation of the Satellite Dish within a reasonable time after
Licensee submits (i) plans and specifications for the Satellite Dish (including
size, location, height, weight and color); (ii) copies of all required
governmental and quasi-governmental permits, licenses, special zoning variances,
and authorizations, all of which Licensee shall obtain at its own cost and
expense; and (iii) a policy or certificate of insurance evidencing such
insurance coverage as may reasonably be required by Licensor for the
installation, operation and maintenance of the Satellite Dish and sufficient to
cover, among other things, the indemnities from Licensee to Licensor as
hereinafter provided. Licensor may withhold approval if the installation,
operation or removal of the Satellite Dish may (a) damage the structural
integrity of the Building; (b) unreasonably interfere with any service provided
by Licensor; (c) interfere with any zoning ordinances or other governmental
regulation applicable to the Building; or (d) reduce the amount of leasable
space in the Building. Licensee shall not be entitled to rely on any such
approval as being a representation by Licensor that such installation and
operation is permitted by or in accordance with any governmental or
quasi-governmental entity, authority or regulation.
4. Installation.
(a) Installation and maintenance of the Satellite Dish
shall be performed solely by Licensee's agent or its contractors, as approved by
Licensor, in Licensor's reasonable discretion. The Satellite Dish shall not be
located on top of any existing structure on the roof of the building.
(b) Licensee shall bear all costs and expenses incurred
in connection with the installation, operation and maintenance of the Satellite
Dish. If operation of the Satellite Dish shall require electrical power Licensor
may, at its sole option, install a separate meter, at Licensee's sole expense.
Licensee shall pay the actual cost of all electricity used in the operation of
the Satellite Dish, all as determined by Licensor.
5. Rental Payments. Licensee shall pay, as additional rent, a fee
to Licensor for the use of the rooftop space. Such fee shall be _____ per month
____________ per year) due in advance, on or before the first of each month.
Such fee shall commence ________________________, 19__. In addition, if
Licensor's insurance premium or real estate tax assessment increases as a result
of the Satellite Dish, or if any governmental or quasi-governmental authority
shall levy, assess or impose any tax, license fee, use fee or other sum against
Licensor, as owner of the Building, as a result of the Satellite Dish, Licensee
shall pay all such amounts as additional rent (as defined in the Lease),
promptly upon receipt of a bill from Licensor for any such amount. Licensee will
have no right to an abatement or reduction in the amount of basic monthly rent,
additional rent or any other sums due and payable under the Lease if for any
reason Licensee is unable to obtain any required approval for installation of
the Satellite Dish, or is thereafter unable to use the Satellite Dish for any
reason, but Licensee shall not be obligated to pay the fee specified in this
Section 5 during any month or portion thereof during which Licensee is unable to
use the Satellite Dish.
6. Indemnification. Licensee covenants and agrees that the
installation, operation, maintenance and removal of the Satellite Dish, or the
demised premises with respect thereto, shall be solely at its own risk. Licensee
covenants and agrees absolutely and unconditionally to indemnify, defend and
hold Licensor harmless against all claims, actions, damages, judgments,
settlements, liability, costs and expenses (including reasonable attorneys' fees
and expenses) in connection with death, bodily or personal injury, damage to
property or business or any other loss or injury arising out of or related to
the installation, operation, maintenance or removal of the Satellite Dish.
7. Termination Rights. Licensor may require Licensee, at any time
prior to the expiration of the Lease, to terminate the operation of the
Satellite Dish if it is causing physical damage to the structural integrity of
the Building, unreasonably interfering with any other service provided by the
Building, unreasonably interfering with any prior licensee of the roof, or
causing the violation of any condition or provision of the lease or any law,
regulation or ordinance promulgated by any governmental or quasi-governmental
authority now or hereafter permitted to continue any similar use or operation.
If, however, Licensee can correct the damage or prevent said interference caused
by the
F-1
<PAGE> 35
Satellite Dish to Licensor's satisfaction within thirty (30) days, Licensee may
restore its operation so long as Licensee promptly commences to cure such damage
and diligently pursues such cure to completion. If the Satellite Dish is not
completely corrected and restored to operation within thirty (30) days,
Licensor, at its sole option, may require that the Satellite Dish be removed at
Licensee's expense. If Licensor shall require that the Satellite Dish be moved
to another location on the roof, Licensor shall have the right, at its sole
expense, to relocate the Satellite Dish to another place on the roof.
8. Removal of the Satellite Dish. At the expiration or earlier
termination of the Lease or upon termination of the operation of the Satellite
Dish as provided hereinabove in Section 7, the Satellite Dish and all cabling
and other equipment relating thereto shall be removed from the Building at
Licensee's sole cost. Licensee hereby authorizes Licensor to remove and dispose
of the Satellite Dish and charge Licensee for all costs and expenses incurred.
Licensee agrees that Licensor shall not be liable for any property disposed of
or removed by Licensor. Licensee's obligation to perform and observe this
covenant shall survive the expiration or earlier termination of the Term of this
Agreement.
9. Time of the Essence. Time shall be of the essence of the
Licensee's obligations hereunder.
10. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and neither Licensor nor any agent or representative of
Licensor has made or is making, and Licensee, in executing and delivering this
Agreement, is not relying upon any warranties, representations, promises or
statements whatsoever. No waiver or modification of any provision of this
Agreement shall be effective unless expressed in writing and signed by all
parties hereto.
11. Successors and Assigns. The obligations of this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12. Notices. All notices hereunder shall be given by hand delivery
or by certified mail, return receipt requested, and shall be deemed delivered
upon receipt or refusal to accept delivery, if addressed as noted in the Lease.
13. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, Licensor and Licensee have duly executed this
Agreement under seal as of the day and year first above written.
LICENSOR:
---------------------------------------
By:
------------------------------------
Date:
----------------------------------
LICENSEE:
WITNESS/ATTEST:
---------------------------------------
By:
- ----------------------- ------------------------------------
Seal Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
F-2
<PAGE> 36
SCHEDULE 1
WORK LETTER AGREEMENT
(Improvement Allowance)
1. BASE BUILDING WORK. Landlord and Tenant understand and acknowledge that
this Agreement relates only to "non-base building" work in the Premises. The
"base building work" has been or will be performed by Landlord at Landlord's
sole cost and expense. The term "base building work" means and refers to the
following elements of the Premises: concrete floors (without floor covering);
unfinished perimeter walls; unfinished ceilings (without acoustical ceilings,
ceiling tiles, suspension system, insulation or light fixtures); closets for
telephone and electrical systems (but not the systems themselves); building
systems within the building core only as follows: mechanical (including heating,
ventilating and air conditioning systems), electrical and plumbing systems; and
primary fire sprinkler distribution loop connected to core (secondary branch
distribution to the Premises to accommodate Tenant's specific tenant
improvements shall not be considered base building work).
2. PLANS AND SPECIFICATIONS.
2.1. SPACE PLAN. Within five (5) business days after the execution
of the Lease, Landlord shall submit to Tenant for approval a detailed space plan
("Space Plan") for the Premises prepared by Landlord's architects and
consultants, which shall include without limitation, the location of doors,
partitions, electrical and telephone outlets, plumbing fixtures, heavy floor
loads and other special requirements. If applicable, Landlord reserves the right
to approve Tenant's architect and/or space planner. Tenant agrees to cooperate
with Landlord and its design representatives in connection with the preparation
of the Space Plan. Within five (5) business days after receipt by Tenant of the
Space Plan, Tenant (i) shall give its written approval with respect thereto, or
(ii) shall notify Landlord in writing of its disapproval and state with
specificity the grounds for such disapproval and the revisions or modifications
necessary in order for Tenant to give its approval. Within three (3) business
days following Landlord's receipt of Tenant's disapproval, Landlord shall submit
to Tenant for approval the requested revisions or modifications. Within three
(3) business days following receipt by Tenant of such revisions or
modifications, Tenant shall give its written approval with respect thereto or
shall request other revisions or modifications therein, and any time delay
incurred in the approval of the Space Plan from the date of this second notice
of disapproval shall constitute Tenant Delay (as that term is defined in Section
7 hereof).
2.2. PLANS. Based on the approved Space Plan, Landlord shall cause
its architects and engineers to prepare and submit to Tenant for approval
detailed plans, specifications and working drawings ("Plans") for the
construction of Tenant's leasehold improvements to the Premises
("Improvements"). Landlord reserves the right to approve any space planner,
architect or engineer if employed by Tenant. As used herein, the term
"Improvements" shall include all non-base building work to be done in the
Premises pursuant to the Plans, including, but not limited to: demolition work,
partitioning, doors, ceiling, floor coverings, wall finishes (including paint
and wall coverings), window coverings, electrical (including lighting,
switching, telephones, outlets, computer and special electrical equipment,
etc.), plumbing, heating, ventilating and air conditioning, fire protection,
cabinets and other millwork. If Tenant has leased an entire floor, the
Improvements shall include finished toilet rooms, corridors and elevator
vestibules. Landlord shall submit the Plans to Tenant for approval within ten
(10) business days following Tenant's approval of the Space Plan. Within three
(3) business days after receipt by Tenant of the Plans, Tenant (i) shall give
its written approval with respect thereto, or (ii) shall notify Landlord in
writing of its disapproval and state with specificity the grounds for such
disapproval and the revisions or modifications necessary in order for Tenant to
give its approval. Within five (5) business days following Landlord's receipt of
Tenant's disapproval, Landlord shall submit to Tenant for approval the requested
revisions or modifications. Within three (3) business days following receipt by
Tenant of such revisions or modifications, Tenant shall give its written
approval with respect thereto or shall request other revisions or modifications
therein, and any time delay incurred in the approval of the Plans from the date
of this second notice of disapproval shall constitute Tenant Delay. After
approval of the Plans by Tenant, no further changes to the Plans shall be made
without the prior written approval of Landlord and only after Tenant agreeing
that any delays in design and/or construction resulting from such change shall
constitute a Tenant Delay.
3. SPECIFICATIONS FOR BUILDING STANDARD IMPROVEMENTS. Specifications and
details for building standard improvements ("Standards") are available in the
office of the Building. Except as specified in Section 4 below, the Space Plan
and Plans shall be consistent with the Standards, and no deviations shall be
permitted from the Standards without Landlord's consent as set forth in Section
4 below.
4. GROUNDS FOR DISAPPROVAL. Tenant may request deviations from the
Standards for Improvements provided that the deviations ("Non-Standards") shall
not be of lesser quality than the Standards. Landlord shall not be required to
approve any item of the Space Plan, the Plans or the Non-Standards that (a) does
not conform to applicable governmental regulations or is disapproved by any
governmental agency; (b) requires building service (including electrical power)
beyond the level normally provided to other tenants in the Building; or (c)
overloads the floors.
5. IMPROVEMENT COST AND ALLOWANCE.
5.1. COST BREAKDOWN. Within a reasonable period following approval
of the Plans, Landlord shall provide Tenant with a breakdown of the estimated
total cost of the Improvements ("Cost Breakdown"), including, without
limitation: construction cost of the Improvements; architectural and engineering
fees relating to the preparation and review of the Space Plan and the Plans
(inclusive of all design work above and below the ceiling); governmental agency
plan check, permit and other fees; sales and use taxes; testing and inspection
costs; and construction fees (including general contractor's overhead and
supervision fees and the construction supervisory fee referred to in Section 6.3
hereof). Within five (5) business days after receipt by Tenant of the Cost
Breakdown, Tenant shall either approve the same in writing or shall provide
Landlord with a detailed list of revisions to the approved Plans, and any time
delay incurred in the approval of the Cost Breakdown from the date of Landlord's
receipt of Tenant's list of revisions to the approved Plans shall constitute
Tenant Delay. Upon approval of the Plans by Tenant, Landlord shall obtain bids
from at least three (3) qualified general contractors (one of whom shall be
selected by Tenant). Further, Landlord shall provide Tenant with copies of all
bid estimates and final bids, including the final bid and contract of the
selected general contractor. Landlord and Tenant shall mutually approve the
final construction contract. Tenant and its consultants shall have the right to
review and approve the complete set of construction documents, including
architectural, mechanical, electrical, plumbing and structural drawings,
provided Tenant's approval shall not be unreasonably withheld and shall be
deemed given if Tenant does not respond to Landlord within three (3) business
days from receipt of such documents.
Sch 1-1
<PAGE> 37
5.2. IMPROVEMENT ALLOWANCE. Landlord hereby grants to Tenant an
"Improvement Allowance", of Thirteen and 00/100 Dollars ($13.00) per square foot
(i.e., 27,219 square feet times $13.00 = $353,847.00) which Improvement
Allowance shall be used only for the items specified in the Cost Breakdown. In
the event that the Cost Breakdown exceeds the Improvement Allowance, Tenant
shall pay to Landlord the sum in excess of the Improvement Allowance by
cashier's check, which payment shall be made within five (5) days of Landlord's
notice to Tenant that Landlord is prepared to commence construction.
5.3. COST INCREASES. In the event that the cost of the Improvements
increases subsequent to Tenant's approval of the Cost Breakdown due to the
requirements of any governmental agency imposed with respect to the construction
of the Improvements or due to any other unforeseeable circumstances, Tenant
shall pay to Landlord the amount of such increase within five (5) days of
Landlord's written notice; provided, however, that Landlord shall first apply
toward such increase any remaining balance in the Improvement Allowance.
5.4. CHANGE IN PLANS. In the event that Tenant requests a change in
the Plans subsequent to approval of the Cost Breakdown, Landlord shall advise
Tenant as to any increases in the cost of the Improvements and as to any delay
such change would cause in the construction of the Improvements, which delay
would constitute a Tenant Delay. Tenant shall approve or disapprove such change
within five (5) business days of written notice. In the event that Tenant
approves such change, Tenant shall accompany its approval with payment in the
amount of the increase; provided, however, that Landlord shall first apply
toward such increase any remaining balance in the Improvement Allowance.
Landlord shall have the right to decline Tenant's request for a change in the
approved Plans if the change is inconsistent with Sections 2, 3 or 4 above, or
if the change would, in Landlord's sole opinion, unreasonably delay construction
of the Improvements.
5.5. NO REFUND. If the actual cost of the Improvements does not
exceed the Improvement Allowance, the unused portion of the Improvement
Allowance shall be amortized over the initial Term of the Lease and credited
against installments of Base Rent as follows: one-eighty-fourth (1/84th) of the
unused portion of the improvement allowance shall be credited each month against
installments of Base Rent next coming due under the Lease. For example, assume
that the unused portion of the Improvement Allowance is $84,000. In such event,
each monthly installment of Base Rent coming due during the initial Term of the
Lease would be credited by $1,000.00.
6. CONSTRUCTION OF IMPROVEMENTS.
6.1. CONSTRUCTION. Within a reasonable period following approval of
the Cost Breakdown by Tenant, and upon payment of any sum required under Section
5.2 above, Landlord shall instruct its contractor to secure a building permit
and commence construction. Tenant shall have the right to monitor the
construction progress provided Tenant does not unreasonably interfere with such
construction.
6.2. COMPLETION. Landlord shall endeavor to cause the contractor to
substantially complete construction of the Improvements in a diligent manner,
but Landlord shall not be liable for any loss or damage as a result of delays in
construction or delivery of possession of the Premises.
6.3. CONSTRUCTION SUPERVISORY FEE. The cost of the Improvements
shall include a construction supervisory fee for the supervision of the
construction of the Improvements by Landlord. Said construction supervisory fee
shall not exceed three percent (3%) of the actual "hard costs" incurred in
completing the Improvements.
7. COMMENCEMENT DATE. The Commencement Date and Tenant's obligation to pay
rent under the Lease shall be governed by Section 3 of the Lease. However, if
there shall be a delay ("Tenant Delay") beyond the scheduled Commencement Date
in the substantial completion of the Improvements as a result of:
7.1. Tenant's failure to submit or revise the Space Plan within the
time limits provided herein;
7.2. Tenant's failure to submit or revise the Plans within the time
limits provided herein;
7.3. Tenant's failure to approve the Cost Breakdown or to pay the
sum specified in Section 5.2 above within the time limits provided herein;
7.4. Tenant's request for Non-Standards, whether as to materials or
installation, that extend the time it takes to obtain necessary building permits
or other governmental authorizations or extends the time for the construction
period;
7.5. Insufficiency of the Plans that extends the time it takes to
obtain necessary building permits or other governmental authorizations or
changes in the Plans required by the applicable governmental regulatory agencies
reviewing the Plans;
7.6. Tenant's changes in the Plans after the approval by Landlord;
or
7.7. Any other act or omission of Tenant constituting a Tenant
Delay under the terms of this Agreement; then the Commencement Date of the Lease
shall be accelerated one day for each day of Tenant Delay that delays the
commencement date, calculated as follows: Upon substantial completion of the
Improvements, Landlord shall notify Tenant of the accelerated Commencement Date,
which date shall represent the date upon which the substantial completion of the
Improvements (as defined in Section 3.4 of the Lease) would have occurred but
for Tenant Delays.
8. INCORPORATION. This Agreement is and shall be incorporated by reference
in the Lease, and all of the terms and conditions of the Lease are and
shall be incorporated herein by this reference.
Sch 1-2
<PAGE> 38
[MANAGEMENT SERVICES, LLC LETTERHEAD]
October 3, 1996
Ms. Carol McHenry
JAYCOR
Corporate Office #9775
Towne Centre Drive
San Diego, CA 92121
Re: Tenant Improvement Allowance - Tysons Dulles Plaza III
Dear Ms. McHenry:
Pursuant to the Lease dated December 6, 1995, by and between Advent Realty
Limited Partnership II ("Landlord") and JAYCOR ("Tenant"), if the actual cost
of the Improvement does not exceed the Improvement Allowance, the unused
portion of the Improvement Allowance shall be credited toward the monthly
installments of Base Rent.
The total Improvement Allowance per the Work Letter Agreement totals
$353,847.00 and the total construction improvement cost was $239,991.65.
Therefore, $113,855.35 remains to be disbursed in the manner stated above.
Since there are seventy six (76) months remaining in the term, Tenant shall
receive a monthly credit of $1,498.10 for the period November 1, 1996 through
February 28, 2003. The calculation is as follows:
$353,847.00 Improvement Allowance
- $239,991.65 Improvement Cost
-----------
$113,855.35 Remaining Allowance
divided by 76 Monthly Remaining
-----------
$ 1,498.10/month Reimbursement
Please feel free to call me with any questions.
Sincerely
/s/ KRISTA E. MEISEL
- --------------------
Krista E. Meisel
Lease Administrator
cc: Debbie Lee
<PAGE> 1
EXHIBIT 10.17
JAYCOR, INC.
RETIREMENT AGREEMENT
This Retirement Agreement (the "Agreement) is made and entered into by
and between Robert P. Sullivan ("Sullivan") and Jaycor, Inc. (the "Company") as
of January 31, 1997.
RECITALS
A. Other than any agreement(s) related to the protection of the
Company's confidential information or the assignment of inventions to the
Company, Sullivan has never entered into a written employment agreement with
the Company, but instead has operated under an oral agreement with the Company
for at-will employment.
B. Effective as of January 31, 1997, Sullivan desires to retire and
terminate his full-time employment with the Company, but is willing to
thereafter provide part-time assistance to the Company pursuant to the terms
of this Agreement.
C. The parties have been negotiating the principal terms of this
Agreement since December 20, 1996.
D. It is the intent of the parties in entering this Agreement to
set forth all oral and written understandings and agreements between the
parties as of the Effective Date, to resolve all pending matters between the
parties and, except as specifically provided herein, to have this Agreement
supersede all prior understandings and agreements between the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter set forth, it is hereby agreed by and among the parties as follows:
1. Employment.
1.1 Full-Time Employment Terms. Sullivan's status as a full
time employee of the Company shall terminate effective midnight on January 31,
1997 (the "Retirement Date").
1.1.1 Duties. Until the Retirement Date, Sullivan
agrees to use his best efforts to devote substantially all of his time,
attention, skill and efforts to render services related to his current
position as Executive Vice President of the Company.
1.1.2 Salary. Until the Retirement Date, Sullivan's
salary for his full time efforts on behalf of the Company shall remain
$12,993.15 per bi-weekly period paid in accordance with the Company's standard
payroll procedures.
1.1.3 Benefits. Until the Retirement Date, Sullivan
shall continue to receive his current executive medical, dental and life
insurance benefits and to accrue vacation and sick leave benefits.
1.2 Part-Time Employment Terms. Beginning on February 1,
1997, Sullivan shall be rehired as a temporary employee and shall remain a
temporary employee of the
-1-
<PAGE> 2
Company until the earlier to occur of (i) one year after the Company's initial
public offering, and (ii) June 30, 1998 (the "Termination Date").
1.2.1 Duties. Until the Termination Date, Sullivan
shall be available on an as-needed basis for consulting services as and when
directed by the President or board of directors of the Company.
1.2.2 Compensation. Sullivan's exclusive
compensation for his services as a temporary employee shall be One Hundred
Dollars ($100.00) for each full hour he provides consulting services pursuant
to Section 1.2.1 hereof and shall be payable bi-weekly in arrears in accordance
with the Company's standard payroll procedures based on Company timesheets
delivered to the Company detailing hours spent on a daily basis for the prior
pay period.
1.2.3 Medical Benefits. Until July 16, 1998,
Sullivan shall continue to receive the executive medical and dental benefits he
currently receives with all such premiums paid for by the Company. Thereafter,
Sullivan can obtain extended medical coverage under COBRA for a period of
eighteen (18) months beyond the Termination Date (as defined below) by making
premium payments directly to the Company as prescribed under COBRA.
1.2.4 No Vacation/Sick Leave/Paid Holidays. Except
as otherwise expressly provided in this Agreement, after the Retirement Date,
Sullivan will not accrue any employee benefits which are not generally provided
to other temporary employees of the Company; including, but not limited to,
vacation benefits, sick leave and paid holidays.
1.2.5 Stock Options. Sullivan will retain his rights
to exercise any or all of his current stock options set forth on Schedule 1
attached hereto (the "Stock Options") pursuant to the terms set forth in the
written stock option agreements related thereto. It is the intent of the
parties hereto that, until the Termination Date, Sullivan shall remain an
employee of the Company for the purposes of the stock option agreements
related to the Stock Options. However, Sullivan shall bear the risk that any of
the Stock Options which are currently incentive stock options may become
non-qualified stock options and taxable upon exercise.
2. Existing Obligations. All of the Company's payment obligations
to Sullivan are set forth on Schedule 2 attached hereto (the "Existing
Obligations"). Sullivan hereby acknowledges and agrees that the Existing
Obligations represent all payment obligations to Sullivan through the
Retirement Date; including, but not limited to, any bonus, severance, deferred
salary, accrued vacation, or any other oral or written obligations of the
Company to Sullivan which exist as of the Effective Date. Sullivan hereby
acknowledges that, in accordance with the Company's policy, no payment will be
made to Sullivan for accrued and unused sick days. The Company agrees to pay
to Sullivan all of the Existing Obligations amounts listed on Schedule 2
attached hereto in three separate payments on the Retirement Date. Other than
as set forth in this Agreement or in a writing signed by the President of the
Company, the Company will not incur any new obligations to Sullivan after the
Effective Date of this Agreement.
3. Stock Repurchase Obligations. Subject to any statutory
prohibitions, the Company and Sullivan hereby agree to the following
repurchases by the Company of the Company's common stock currently held by
Sullivan:
3.1 On the Retirement Date, the Company will repurchase from
Sullivan and Sullivan will sell to the Company thirty-eight thousand nine
hundred eighty-seven (38,987)
-2-
<PAGE> 3
shares of the Company's common stock currently held by Sullivan at a purchase
price of three dollars and eighty-nine cents ($3.89) per share for an aggregate
payment in cash to Sullivan of $151,659.43.
3.2 If an initial public offering by the Company or its
affiliate ("IPO") occurs:
3.2.1 during calendar year 1997, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining two hundred thousand (200,000) shares of common stock then held by
Sullivan at a price equal to five dollars ($5.00) per share;
3.2.2 during calendar year 1998, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining one hundred thirty-three thousand three hundred thirty-three
(133,333) shares of common stock then held by Sullivan at a per share price
equal to one hundred twenty-eight and one-half percent (128.5%) of the ESOP
valuation price in effect at the time of the IPO; or
3.2.3 during calendar year 1999, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining sixty-six thousand six hundred sixty-six (66,666) shares of common
stock held by Sullivan at a per share price equal to one hundred twenty-eight
and one-half percent (128.5%) of the ESOP valuation price in effect at the time
of the IPO.
For the purposes of this Section 3.2, any Company payment
obligation shall be payable in cash to Sullivan within thirty (30) days after
the Company's receipt of the net proceeds of the IPO.
3.3 If an initial public offering by the Company or its
affiliate ("IPO") does not occur:
3.3.1 during calendar year 1997, then the Company
shall have the right to exercise a call option to repurchase from Sullivan and
Sullivan shall have the right to exercise a put option to sell to the Company
sixty-six thousand six hundred sixty-seven (66,667) shares of common stock
held by Sullivan at a per share price equal to eighty-five percent (85%) of the
ESOP valuation price in effect at the time of either the call or put option is
exercised; and
3.3.2 during calendar year 1998 and has not occurred
by December 31, 1998, then the Company shall have the right to exercise a call
option to repurchase from Sullivan and Sullivan shall have the right to
exercise a put option to sell to the Company sixty-six thousand six hundred
sixty-seven (66,667) shares of common stock held by Sullivan at a per share
price equal to eighty-five percent (85%) of the ESOP valuation price in effect
at the time of either the call or put option is exercised; and
3.3.3 during calendar year 1999 and has not occurred
by December 31, 1999, then the Company shall have the right to exercise a call
option to repurchase from Sullivan and Sullivan shall have the right to
exercise a put option to sell to the Company sixty-six thousand six hundred
sixty-six (66,666) shares of common stock held by Sullivan at a per share price
equal to eighty-five percent (85%) of the ESOP valuation price in effect at the
time of either the call or put option is exercised.
For the purposes of this Section 3.3, the time for either party
to exercise a put or call option shall be by written notice to the other party
pursuant to the terms of Section 6.3
-3-
<PAGE> 4
hereof within fifteen (15) days of the date the put or call option first
accrued and any Company payment obligation shall be payable in cash to Sullivan
within thirty (30) days of the Company's receipt of a put notice or the
Company's delivery of a call notice.
Notwithstanding anything to the contrary in this Agreement, any
and all repurchases of stock pursuant to Section 3.3 hereof shall be
conditioned upon obtaining the prior approval of the Company's lender(s) if
such approval is required. The Company will, in good faith, use reasonable
efforts to secure any such approval(s).
4. Restrictions on Sullivan's Stock. Sullivan hereby agrees not to
sell, encumber, hypothecate or transfer any of the 238,987 shares of the
Company's common stock which he currently holds (the "Restricted Shares") and
agrees to allow the Company to place a legend on the certificates representing
the Restricted Shares and to have the Company hold the certificates
representing the Restricted Shares in trust. Sullivan also agrees to execute
an irrevocable proxy in favor of the Company to allow the Company to attend
all shareholder meetings and to vote all of the Restricted Shares on any
matter submitted to the shareholders of the Company for approval or consent
until the Company has failed to cure any default on any of the terms of this
Agreement within thirty (30) days of its receipt of Sullivan's written notice
alleging with specificity any such default(s).
5. Transfer of Ownership of Company Automobile. On the Retirement
Date, the Company will transfer ownership of the Company-owned automobile
currently driven by Sullivan (Registration Number ______________________) (the
"Automobile") at no direct cash cost to Sullivan; provided, however, that
Sullivan shall be liable for the tax consequences of the transfer of ownership
of the Automobile to Sullivan. The parties acknowledge that the current fair
market value of the Automobile is $16,000. After the Retirement Date, Sullivan
shall be the registered owner of the Automobile and shall be fully liable for
all costs incident to such ownership; including, but not limited to,
registration fees, operating expenses and insurance costs.
6. Pension Plan; No Tax Advice. The Company will notify Fidelity
Investments of Sullivan's termination as a full-time employee as of the
Retirement Date and will instruct Fidelity to process a pension plan payout to
Sullivan in accordance with Fidelity procedures and plan documents. Sullivan
acknowledges the existence of a loan against his pension plan funds, the
balance of which will represent taxable income to him upon payout.
Notwithstanding the foregoing, Sullivan acknowledges that he is not relying on
any tax advice from the Company and that the Company has encouraged Sullivan to
seek tax advice from his accountant or tax advisor related to the terms of this
Agreement; including, but not limited to, the forthcoming pension plan payout.
7. Resignations. Sullivan hereby agrees to resign from any and all
officer and director positions held with the Company effective as of the
Retirement Date.
8. No Severance Benefit; Tax Liability. Sullivan agrees that the
new obligations incurred by the Company in this Agreement including the
obligations set forth in Sections 1.2.3, 1.2.5, 3, and 5 hereof are in lieu of
any and all severance pay and any other amounts or benefits to which Sullivan
might otherwise be entitled. Sullivan shall be liable for payment of any and
all taxes, levies or assessments on the amounts paid to him or benefits
received by him under this Agreement and Sullivan agrees to hold the Company
harmless from such tax liability.
-4-
<PAGE> 5
9. Confidential Information. Sullivan acknowledges that when he
commenced employment with the Company he signed an "Employee Proprietary
Information and Intellectual Property Agreement," a copy of which is attached
hereto. Sullivan covenants, represents and warrants that he has complied with,
and will continue to comply with, all terms and conditions of that agreement.
Furthermore, Sullivan acknowledges that as an employee of the Company, he has
acquired certain information (the "Confidential Information") concerning
business plans, existing and proposed new products, customers, suppliers and
related information which is confidential to the Company. Sullivan covenants,
represents and warrants that he has returned all tangible representations of
such information to the Company and that he will not disclose any such
Confidential Information to any third party, or make any use of such
Confidential Information without the prior written consent of the Company,
unless and until such Confidential Information has become generally known by
the public without any fault or act of Sullivan or anyone acting with him on
their behalf. Sullivan further acknowledges that Sullivan's obligations extend
to Confidential Information of the Company's customers, suppliers and
affiliates.
10. Exit Interview. On the Retirement Date, Sullivan agrees to
participate in an exit interview. The purpose of this interview is anticipated
to be (but is not limited to): (i) accounting for and receiving copies of all
notes, writings, files, reports, correspondence, tapes, cards, maps, machines,
technical data, or any other tangible product or document which Sullivan
produced or received in connection with his employment with the Company which
incorporate any Confidential Information and which he has in his possession;
(ii) accounting for any classified documents provided to Sullivan under this
Agreement; (iii) debriefing Sullivan on any appropriate security matters;
(iv) discussions of any appropriate trade secret or confidential information
restrictions and appropriate technical debriefings; and (v) other equipment,
software or other property of the Company, including but not limited to, all
security cards and keys.
11. General Provisions.
11.1 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
11.2 Successors and Assigns. Sullivan may not subcontract or
otherwise delegate its obligations under this Agreement without the Company's
prior written consent. Subject to the foregoing, this Agreement will be for the
benefit of the Company's successors and assigns, and will be binding on
Sullivan's assignees.
11.3 Notices. Any notice required or permitted by this
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally;
(ii) by overnight courier upon written verification of receipt; (iii) by
telecopy or facsimile transmission upon acknowledgement of receipt of
electronic transmission; or (iv) by certified or registered mail, return
receipt requested, upon verification of receipt. Notice shall be sent to the
addresses set forth below or such other address as either party may specify in
writing pursuant to the terms of this Section.
11.4 Acknowledgement. This Agreement has been reviewed by
the parties hereto and their respective attorneys, and the parties have had a
full opportunity to negotiate the contents hereof. The parties hereto
expressly waive any common law or statutory rule of construction that ambiguity
shall be construed against the drafter of this Agreement, and acknowledge that
both parties contributed equally to the drafting of this Agreement.
-5-
<PAGE> 6
11.5 Expenses. All parties to this Agreement agree that they
will bear their own attorneys' fees, costs and all other expenses related to
the negotiation and execution of this Agreement.
11.6 Waiver. No waiver by any party hereto of any breach of
this Agreement by any other party shall operate or be construed as a waiver of
any other or subsequent breach. No waiver by any party hereto of any breach of
this Agreement by any other party hereto shall be effective unless it is in
writing and signed by the party claimed to have waived such breach.
11.7 Binding Nature. The agreements and releases contained
in this Agreement bind and inure to the benefit of the principals, agents,
representatives, heirs, successors and assigns of Sullivan and the Company.
11.8 Further Assurances. All parties agree to cooperate
fully and to execute any and all supplementary documents and to take all
additional actions that may be necessary or appropriate to give full force to
the basic terms and intent of this Agreement and which are not inconsistent
with its terms.
11.9 Governing Law. This Agreement shall be governed in all
respects by the laws of the United States of America and by the laws of the
State of California, as such laws are applied to agreements entered into and to
be performed entirely within California between California residents
irrespective of its conflict of laws provisions.
11.10 Severability. Should any provisions of this Agreement
be held by a court of law to be illegal, invalid or unenforceable, the
legality, validity and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby. It is the express intent
of the parties that any such illegal, invalid or unenforceable provision be
modified to the minimum possible extent so that the modified provision continues
to reflect the intent of the parties and is a legal, valid and enforceable
provision. However, if such a modification is not possible, then such illegal,
invalid or unenforceable provision shall be severed and the remainder of the
terms of this Agreement shall remain in full force and effect.
11.11 Injunctive Relief for Breach. Sullivan's obligations
under Section 9 of this Agreement are of a unique character that gives them
particular value and breach of any of such obligations will result in
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law. In the event of such breach, the Company will be
entitled to injunctive relief and/or a decree for specific performance, and
such other and further relief as may be proper (including monetary damages if
appropriate).
11.12 Choice of Forum. Each of the parties to this Agreement
irrevocably agrees that any litigation, arbitration or other proceeding arising
under or related to this Agreement shall be resolved in, and waives any venue
objections against, the United States District Court for the Southern District
of California or the Superior and Municipal Courts of the State of California,
San Diego County.
11.13 Dispute Resolution. Any dispute or difference arising
out of this Agreement or involving a question of fact which is not settled by
mutual agreement and the settlement of which is not otherwise provided for
herein within thirty (30) days of the date either party provides written notice
of a dispute to the other party, the dispute shall be settled and finally
determined by arbitration in the City of San Diego, in the following manner:
-6-
<PAGE> 7
11.13.1 Each party to this Agreement shall
appoint an arbitrator. The two arbitrators so appointed shall then select a
third arbitrator. The arbitrators shall meet and give each party an opportunity
to present its case and witnesses (if any) in the presence of the other party,
and shall then make their determination. The written decision of the three
arbitrators, or any two of them, shall be final and binding upon the parties
thereto, and judgment may be entered therein in any court having jurisdiction.
Such decision shall include the fixing of the expenses of the arbitration and
the assessment of the same against either or both parties. If either party
shall fail to appoint its arbitrator within thirty (30) days after receipt of
notice in writing requiring it to do so, the arbitrator appointed by the other
party shall act for both, and his decision in writing shall be final and binding
on both parties, as if he had been appointed by the consent of each party.
Pending final decision of a dispute hereunder and, if performance has not been
completed, Consultant shall proceed diligently with the performance of the
Services in accordance with the Company's instructions.
11.13.2 If, in an appropriate case, the
arbitrators appointed by the parties shall fail to select a third arbitrator
within two weeks of their appointment, a third arbitrator shall be selected in
accordance with the then current rules and regulations of the American
Arbitration Association.
11.14 Survival. The rights and obligations which are intended by the parties
to survive the termination or expiration of this Agreement shall survive any
such termination or expiration; including, but not limited to, Sections 2, 3, 4,
5, 7, 8, 9, 10 and 11 hereof.
11.15 Counterparts. This Agreement 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. Facsimile signatures
shall be deemed to be original signatures.
11.16 Entire Agreement. This Agreement together with [the
Invention Assignment and Confidentiality Agreement(s)] contain and represent the
entire agreement and understanding between the parties concerning the subject
matter herein and supersedes and replaces any prior negotiations or agreements
between the parties hereto, whether written or oral, except as expressly
provided herein; including, but not limited to, the terms of retirement letter.
Each of the parties acknowledges that neither party nor any agent or attorney of
either party has made any promise, representation or warranty, express or
implied, not contained in this Agreement to induce the other party to execute
this Agreement in reliance upon any such promise, representation or warranty not
contained herein. This Agreement may only be amended by a written instrument
executed by the parties hereof.
[Signature page follows]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Interim Retirement
Agreement effective as of the date first set forth above.
SULLIVAN: COMPANY:
JAYCOR, INC.,
a California corporation
/s/ ROBERT P. SULLIVAN By: /s/ ERIC P. WENAAS
- ----------------------------- ----------------------
Robert P. Sullivan Name: Eric P. Wenaas
----------------------
Title: President/CEO
----------------------
Address: 4202 Maple Tree Ct Address: _________________
---------------------
Alexandria, VA 22304 _________________________
---------------------
<PAGE> 9
SCHEDULE 1
LIST OF SULLIVAN'S EXISTING STOCK OPTIONS
As of January 31, 1997
<TABLE>
<CAPTION>
OPTION DATE OF NUMBER OF EXERCISE OPTION
CATEGORY GRANT SHARES PRICE % VESTED EXPIRATION
- -------- ----- ------ ----- -------- ----------
<S> <C> <C> <C> <C> <C>
ISO 2/20/91 105,000 $2.417 100% 90 days from
(35,000 pre-split) ($7.25 pre-split) termination
Non-qualified 6/14/91 198,000 $2.843 100% 1 year from
(66,000 pre-split) ($8.53 pre-split) termination
Non-qualified 3/05/96 18,000 $3.34 Vests fully on immediately
3/05/97 upon
termination
</TABLE>
<PAGE> 10
Schedule 2
JAYCOR
Payments to R. P. Sullivan
To be made on January 31, 1997
<TABLE>
<S> <C> <C> <C>
DEFERRED COMPENSATION
-------- ------------
Gross Amount $ 155,225.21
less:
FICA 0.00%
Federal Inc Tax 18.00% 27,941.00
State Inc Tax 2.50% 3,881.00
---------
31,822.00 (31,822.00)
-------------
Net Payment $ 123,403.21
=============
ACCRUED VACATION
----------------
Gross Amount $ 38,321.71
less:
FICA 2,193.73
Federal Inc Tax 18.00% 6,898.00
State Inc Tax 2.50% 958.00
---------
10,049.73 (10,049.73)
-------------
Net Payment $ 28,271.98
=============
REGULAR PAYCHECK (80 HRS. THRU 1/31/97)
---------------------------------------
Gross Amount $ 12,993.16
less:
FICA 7.65% 1,007.21
Federal Inc Tax 16.28% 2,115.91
State Inc Tax 2.31% 300.00
Other Deductions 600.71
----------
4,023.83 (4,023.83)
-------------
Net Payment $ 8,969.33
=============
Stock Repurchase
----------------
Shares @ price 38,987 $ 3.89 $ 151,659.43
=============
GRAND TOTAL $ 312,303.95
=============
</TABLE>
<PAGE> 11
FIRST AMENDMENT TO
THE RETIREMENT AGREEMENT BETWEEN
JAYCOR, INC. AND ROBERT P. SULLIVAN
This First Amendment (the "First Amendment") to the Retirement
Agreement between JAYCOR, Inc. and Robert P. Sullivan (the "Agreement") is made
and entered into effective as of the 31st day of January, 1997 (the
"Effective Date") by and between JAYCOR, Inc. (the "Company") and
Robert P. Sullivan ("Sullivan").
A. The Company and Sullivan desire to amend the Agreement
pursuant to this First Amendment to reflect a condition to the Company's
obligation to purchase certain of Sullivan's shares of the Company's common
stock which he currently holds upon an initial public offering of the Company
as set forth in Section 3.2 of the Agreement.
B. All defined terms set forth in this First Amendment which are
not otherwise defined herein shall have the meaning set forth in the Agreement.
AGREEMENT
In consideration of the terms and conditions set forth herein, the
Company and Sullivan each hereby agree that the Agreement is hereby amended as
of the Effective Date as follows:
1. Amendment. Section 3.2 of the Agreement is hereby replaced in
its entirety with the following:
3.2 If an initial public offering by the Company or its
affiliate (an "IPO") which allows the common stock of the Company or its
affiliate to be listed on the NASDAQ National Market System ("NMS") and the
Company's payment of its obligations under this Section 3.2 can be made without
causing the common stock of the Company or its affiliate to fail to meet the
criteria to remain listed on the NMS occurs:
3.2.1 during calendar year 1997, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining two hundred thousand (200,000) shares of common stock then held by
Sullivan at a price equal to five dollars ($5.00) per share;
3.2.2 during calendar year 1998, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining one hundred thirty-three thousand three hundred thirty-three
(133,333) shares of common stock then held by Sullivan at a per share price
equal to one hundred twenty-eight and one-half percent (128.5%) of the ESOP
valuation price in effect at the time of the IPO; or
3.2.3 during calendar year 1999, then the Company
shall repurchase from Sullivan and Sullivan shall sell to the Company the
remaining sixty-six thousand six hundred sixty-six (66,666) shares of common
stock held by Sullivan at a per share price equal to one hundred twenty-eight
and one-half percent (128.5%) of the ESOP valuation price in effect at the time
of the IPO.
<PAGE> 12
For the purposes of this Section 3.2, any Company payment
obligation shall be payable in cash to Sullivan within thirty (30) days after
the Company's receipt of the net proceeds of the IPO.
If an IPO has occurred during the term of this agreement and
the Company has not repurchased Sullivan's shares pursuant to this Section 3.2
in order to meet listing criteria for the NMS, then the Company will, within 60
days of the end of each fiscal quarter, review its operating results and
financial statements with regard to the maintenance standards for remaining on
NMS and will repurchase from Sullivan at $5.00 per share (pre-split price) the
maximum number of shares of Class B common stock then held by Sullivan which
can be repurchased to allow the Company to remain listed on the NMS. The
Company will continue to make such repurchases, to the extent possible as
described herein, on a quarterly basis until 100% of Sullivan's outstanding
Class B shares have been repurchased by the Company or otherwise converted to
shares of Class A common stock."
2. Effect on Agreement. Except as amended by this First
Amendment, all provisions of the Agreement shall remain in full force and
effect.
3. Counterparts. This First Amendment may be executed in one or
more counterparts all of which shall constitute one original agreement.
4. Entire Agreement. This First Amendment together with the
Agreement, the Acknowledgment and the Irrevocable Proxy constitute the entire
agreement between the parties with respect to the subject matter hereof and
neither party shall be bound by any representation, promise, warranty or
statement whether oral or written which is not contained herein or therein.
In Witness Whereof, the undersigned hereby execute this First
Amendment as of the date first set forth above.
COMPANY:
JAYCOR, INC.,
a California corporation
By:
Name: /s/ ERIC P. WENAAS
----------------------
Title: President/CEO
----------------------
SULLIVAN:
/s/ ROBERT P. SULLIVAN
---------------------------
Robert P. Sullivan
<PAGE> 13
[JAYCOR LETTERHEAD]
AGREEMENT
In accordance with the Retirement Agreement dated January 31, 1997, between
Robert P. Sullivan and JAYCOR, Sullivan agrees as a condition to the sale of
shares pursuant to paragraph 3.2 of the Agreement to execute and deliver to
JAYCOR the ACKNOWLEDGMENT attached as Exhibit 1.
/s/ ROBERT P. SULLIVAN
- -------------------------------
Robert P. Sullivan
JAYCOR
By: /s/ ERIC P. WENAAS
----------------------------
<PAGE> 14
Exhibit 1
ACKNOWLEDGMENT
I, Robert P. Sullivan, acknowledge that JAYCOR's purchase of 200,000 shares of
JAYCOR Common Stock at a price of $5.00 per share pursuant to the Retirement
Agreement dated January 31, 1997, is at my request and as a senior officer and
member of the board of directors of the Company as of the effective date of the
Retirement Agreement, I have been provided with full and complete information
and access to information related to the Company and its prospects that I would
consider necessary or appropriate in deciding to sell my shares to the Company.
I further acknowledge that I understand the risk that, within thirty days, the
per share value of the shares may be several times greater than the price per
share that the Company has agreed to pay for the shares pursuant to Section 3
of the Retirement Agreement, and that, notwithstanding such increase in price
risk, I am willing to sell the shares to the Company pursuant to the terms of
the Retirement Agreement.
/s/ ROBERT P. SULLIVAN
- ----------------------
Robert P. Sullivan
28 January 1997
- ---------------
Date
<PAGE> 15
[JAYCOR LETTERHEAD]
IRREVOCABLE PROXY
TO VOTE STOCK OF
JAYCOR, INC.
Robert P. Sullivan ("Sullivan"), a shareholder of JAYCOR, INC., a
California corporation ("JAYCOR"), hereby irrevocably (to the full extent
permitted by Section 705 of the California General Corporation Law (the "CGCL")
appoints JAYCOR's President and Secretary to each be the sole and exclusive
attorney and proxy of Sullivan, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that Sullivan is entitled to do so) with respect to all of the shares of
capital stock of JAYCOR beneficially owned by Sullivan listed below and any and
all replacement or successor shares or securities of JAYCOR or any successor
entity issued or issuable in respect thereof on or after the date hereof
whether by stock dividend, reorganization, merger or otherwise (collectively,
the "Shares") in accordance with the terms of this Proxy. Upon Sullivan's
execution of this Proxy, any and all prior proxies given by Sullivan with
respect to any of the Shares are hereby expressly revoked and Sullivan agrees
not to grant any subsequent proxies with respect to the Shares.
This Proxy is granted pursuant to an obligation by JAYCOR to
repurchase and Sullivan to sell to the Company all of the Shares set forth in
Section 3 of that certain Retirement Agreement dated of even date hereof. This
Proxy is coupled with an interest and is irrevocable.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by Sullivan, at any time prior to the Expiration Date,
to act as Sullivan's attorney and proxy to vote the Shares, and to exercise all
voting and other rights of Sullivan with respect to the Shares (including
without limitation, the power to execute and deliver written consents pursuant
to Section 603 of the CGCL) at every annual, special or adjourned meeting to
the shareholders of JAYCOR and in every written consent in lieu of any
shareholders' meeting.
All authority herein conferred shall survive the death or incapacity
of Sullivan and any obligation of Sullivan hereunder shall be binding upon the
heirs, personal representatives, successors and assigns of Sullivan.
<TABLE>
<CAPTION>
Certificate Number
Number of Shares Class Shareholder
------------ --------- -------- --------------
<S> <C> <C> <C>
822 200,000 Common Robert P. Sullivan
</TABLE>
Date: 28 January 1997 /s/ ROBERT P. SULLIVAN
--------------- ------------------------
Robert P. Sullivan
<PAGE> 1
EXHIBIT 10.18
DRAFT
WARRANT AGREEMENT
By and Between
JAYMARK, INC.
and
BREAN MURRAY & CO., INC.
Dated as of __________ __, 1997
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ________ __, 1997 by and between
JAYMARK, INC., a Delaware corporation (the "Company"), and BREAN MURRAY & CO.,
INC. (the "Representative") (the Company and the Representative are referred to
collectively herein as the "Parties").
The Company proposes to issue to the Representative warrants
as hereinafter described (the "Warrants") to purchase up to an aggregate of
130,000 shares of the Company's Class A Common Stock, $0.01 par value per share
(the "Class A Common Stock"), subject to adjustment as provided in Section 8
hereof (such 130,000 shares, as adjusted, being hereinafter referred to as the
"Shares"), each Warrant entitling the holder ("Holder") thereof to purchase one
share of Class A Common Stock. All capitalized terms used herein and not
otherwise defined herein shall have the same meanings as in that certain
underwriting agreement, of even date herewith, by and between the Company and
the several underwriters named therein (the "Underwriting Agreement").
NOW, THEREFORE, in consideration of the following promises and
mutual agreements and for other good and valuable consideration, the Parties
agree as follows:
1. Issuance of Warrants; Form of Warrant. On the Closing Date
the Company will issue, sell and deliver the Warrants to the Representative or
its bona fide officers for an aggregate price of $100. The Warrants shall be
issued to the Representative or such designees in the amounts set forth on
Schedule I attached hereto. The form of the Warrant and of the form of election
to purchase Shares to be attached thereto shall be substantially as set forth on
Exhibit A attached hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
President or any Vice President of the Company, under its corporate seal,
affixed or in facsimile, and attested by the manual or facsimile signature of
the present or any future Secretary or Assistant Secretary of the Company.
2. Registration. The Warrants shall be numbered and shall be
registered in a Warrant register (the "Warrant Register"). The Company shall be
entitled to treat the registered holder of any Warrant on the Warrant Register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or are to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a
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fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with such knowledge of such facts that its
participation therein amounts to bad faith. The Warrants shall be registered
initially in the name of the Representative in such denominations as the
Representative may request in writing from the Company; provided, however, that
the Representative may designate that all or a portion of the Warrants be issued
in varying amounts directly to its bona fide officers and not to the
Representative. Such designation will only be made by the Representative if it
determines that such issuances would not violate the interpretation of the Board
of Governors of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the review of corporate financing arrangements.
3. Transfer of Warrants. The Warrants will not be sold,
transferred, assigned or hypothecated, in part or in whole, prior to the first
anniversary of the effective date of the Registration Statement, and thereafter
only to bona fide officers, directors, shareholders, employees or registered
representatives of the Representative upon written request to the Company
delivered in accordance with Section 12 and upon delivery of the Warrant
Certificate duly endorsed by the Holder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or an official copy thereof, duly certified,
shall be deposited with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited with the Company in its discretion. Upon any registration of transfer,
the Company shall deliver a new Warrant or Warrants to the persons entitled
thereto. Any of the Warrants may be exchanged at the option of its Holder for
other Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of shares of Class A Common Stock
upon surrender to the Company or its duly authorized agent. The Company may
require payment of a sum sufficient to cover all taxes and other governmental
charges that may be imposed in connection with any voluntary transfer, exchange
or other disposition of the Warrants. However, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person, if
such transfer would violate the Securities Act of 1933, as amended (the "Act"),
or applicable state securities laws.
4. Term of Warrants; Exercise of Warrants.
(a) Term of Warrants. Each Warrant entitles the
registered owner thereof to purchase one Share at a purchase price of
$____ per Share (as adjusted from time to time
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pursuant to the provisions hereof, the "Exercise Price") at any time
from the first anniversary of the effective date of the Registration
Statement until 5:00 p.m., New York City time, on ________ __, 2002
(the "Warrant Expiration Date").
(b) Exercise of Warrants. The Exercise Price and the
Shares issuable upon exercise of Warrants are subject to adjustment
upon the occurrence of certain events, pursuant to the provisions of
Section 8 of this Agreement. Subject to the provisions of this
Agreement, and in addition to the right to surrender warrants without
any cash payment as set forth in subsection (c) below, each Holder
shall have the right, which may be exercised as set forth in such
Warrants, to purchase from the Company (and the Company shall issue and
sell to such Holder) the number of fully paid and nonassessable Shares
specified in such Warrants, upon surrender to the Company, or its duly
authorized agent, of such Warrants, with the form of election to
purchase attached thereto duly completed and signed, with signatures
guaranteed by a member firm of a national securities exchange, a
commercial bank (not a savings bank or savings and loan association) or
trust company located in the United States or a member of the NASD and
upon payment to the Company of the Exercise Price, as adjusted in
accordance with the provisions of Section 8 of this Agreement, for the
number of Shares in respect of which such Warrants are then exercised.
No adjustment shall be made for any dividends on any Shares issuable
upon exercise of a Warrant. Upon each surrender of Warrants and payment
of the Exercise Price, the Company shall issue and cause to be
delivered with all reasonable dispatch, but in no event later than
three trading days following such surrender, to or upon the written
order of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the number of
full Shares so purchased upon the exercise of such Warrants, together
with cash, as provided in Section 9 of this Agreement, in respect of
any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become
a holder of record of such Shares as of the date of the surrender of
Warrants and payment of the Exercise Price as aforesaid; provided,
however, that if, at the date of surrender of such Warrants, the
transfer books for the Common Stock or other class of securities
issuable upon the exercise of such Warrants shall be closed, the
certificates for the Shares shall be issuable as of the date on which
such books shall next be opened (whether before, on or after the
Warrant Expiration Date) and until such date the Company shall be under
no duty to deliver any certificate for such Shares; provided, further,
however, that the transfer books of record, unless otherwise
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required by law, shall not be closed at any one time for a period
longer than twenty (20) days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the Holder(s)
thereof, either in full or from time to time in part and, in the event
that any Warrant is exercised in respect of less than all of the Shares
issuable upon such exercise at any time prior to the Warrant Expiration
Date, a new Warrant or Warrants will be issued for the remaining number
of Shares specified in the Warrant so surrendered.
(c) Payment of Exercise Price. Payment of the
Exercise Price may be made in cash or by certified check or official
bank check payable to the order of the Company. In addition and in lieu
of any cash payment, the Holder of the Warrants shall have the right at
any time and from time to time to exercise the Warrants in full or in
part by surrendering the Warrant in exchange for the number of Shares
equal to the product of (x) the number of shares as to which the
Warrants are being exercised multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined below) of the Shares
less the Exercise Price and the denominator of which is such Market
Price. Solely for the purposes of this paragraph, "Market Price" shall
be the average last reported sale price of the Common Stock as
calculated over the five (5) trading day period preceding the date on
which the Election to Purchase is sent to the Company.
5. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance of Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
taxes payable in respect of any transfer involved in the issue or delivery of
any certificates for Shares in a name other than that of the Holder of Warrants
in respect of which such Shares are issued.
6. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably satisfactory to the
Company of such mutilation, loss, theft or destruction of such Warrant and
indemnity, if requested, reasonably satisfactory to the Company. An applicant
for such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges and expenses as the Company
may prescribe.
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7. Reservation of Shares, etc. The Company has reserved, and
shall at all times keep reserved, out of the authorized and unissued Class A
Common Stock, a number of shares of Class A Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the outstanding
Warrants. U.S. Stock Transfer Corporation, transfer agent for the Class A Common
Stock (the "Transfer Agent"), and any subsequent transfer agent for the
Company's securities issuable upon the exercise of the Warrants will be
irrevocably authorized and directed at all times until the Warrant Expiration
Date to reserve such number of authorized and unissued shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Transfer Agent and with every subsequent transfer agent for any
shares of the Company's securities issuable upon the exercise of the Warrants.
The Company will supply the Transfer Agent or any subsequent transfer agent with
duly executed certificates for such purpose and will itself provide or make
available any cash distributable as provided in Section 9 of this Agreement. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled, and such cancelled Warrants shall constitute sufficient evidence of
the number of Shares that have been issued upon the exercise of such Warrants.
No shares of Class A Common Stock shall be subject to reservation in respect of
unexercised Warrants after the Warrant Expiration Date.
8. Adjustments of Exercise Price and Number of Shares. The
Exercise Price and the number and kind of securities issuable upon exercise of
each Warrant shall be subject to adjustment from time to time upon the happening
of certain events, as follows:
(a) If the Company (i) declares a dividend on its
Class A Common Stock in shares of Class A Common Stock or makes a
distribution in shares of Class A Common Stock, (ii) subdivides its
outstanding shares of Class A Common Stock, (iii) combines its
outstanding shares of Class A Common Stock into a smaller number of
shares of Class A Common Stock or (iv) issues by reclassification of
its shares of Class A Common Stock other securities of the Company
(including any such reclassification in connection with a consolidation
or merger in which the Company is the surviving entity), the number of
Shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder of each Warrant shall be
entitled to receive the kind and number of Shares or other securities
of the Company which he would have owned or have been entitled to
receive after the happening of any of the events described above, had
such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately after
the effective date of such event
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retroactive to immediately after the record date, if any, for such
event.
(b) If the Company issues rights, options or warrants
to all holders of its shares of Class A Common Stock, without any
charge to such holders, entitling them (for a period expiring within 45
days after the record date mentioned below in this paragraph (b)) to
subscribe for or to purchase shares of Class A Common Stock at a price
per share lower than the then current market price per share of Class A
Common Stock at the record date mentioned below (as defined in
paragraph (d) below), the number of Shares thereafter purchasable upon
exercise of each Warrant shall be determined by multiplying the number
of Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of Class
A Common Stock outstanding on such record date plus the number of
additional shares of Class A Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of
shares which the aggregate offering price of the total number of shares
of Class A Common Stock so offered would purchase at the then current
market price per share of Class A Common Stock. Such adjustment shall
be made whenever such rights, options or warrants are issued, and shall
become effective retroactively to immediately after the record date for
the determination of shareholders entitled to receive such rights,
options or warrants.
(c) If the Company distributes to all holders of its
shares of Class A Common Stock shares of stock other than Class A
Common Stock or evidences of its indebtedness or assets (excluding cash
dividends payable out of consolidated earnings or retained earnings and
dividends or distributions referred to in paragraph (a) above) or
rights, options or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Class A
Common Stock (excluding those referred to in paragraph (b) above), then
in each case the number of Shares thereafter issuable upon the exercise
of each Warrant shall be determined by multiplying the number of Shares
theretofore issuable upon the exercise of each Warrant, by a fraction,
of which the numerator shall be the current market price per share of
Class A Common Stock (as defined in paragraph (d) below) on the record
date mentioned below in this paragraph (c), and of which the
denominator shall be the current market price per share of Class A
Common Stock on such record date, less the then fair value (as
determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the shares
of stock other than Class A Common Stock or
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assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Class A Common
Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution
retroactive to immediately after the record date for the determination
of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under
paragraphs (b) and (c) of this Section 8, the current market price per
share of Class A Common Stock at any date shall be the average of the
daily closing prices for fifteen (15) consecutive trading days
commencing twenty (20) trading days before the date of such
computation. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on
such day, the average of the closing bid and asked prices regular way
for such day, in either case on the principal national securities
exchange on which the shares are listed or admitted to trading, or if
they are not listed or admitted to trading on any national securities
exchange, but are traded in the over-the-counter market, the closing
sale price of the Class A Common Stock or, in case no sale is publicly
reported, the average of the representative closing bid and asked
quotations for the Class A Common Stock, on the NASDAQ system or any
comparable system, or if the Class A Common Stock is not listed on the
NASDAQ system or a comparable system, the closing sale price of the
Class A Common Stock or, in case no sale is publicly reported, the
average of the closing bid and asked prices as furnished by two members
of the NASD selected from time to time by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Shares purchasable upon the exercise of each Warrant; provided,
however, that any adjustments which by reason of this paragraph (e) are
not required to be made shall be carried forward and taken into account
in any subsequent adjustment but not later than three years after the
happening of the specified event or events. All calculations shall be
made to the nearest one thousandth of a share.
(f) Whenever the number of Shares purchasable upon
exercise of each Warrant is adjusted, as herein provided, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise
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of each Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Shares so purchasable immediately
thereafter.
(g) For the purpose of this Section 8, the term
"shares of Class A Common Stock" shall mean (i) the class of stock
designated as the Class A Common Stock of the Company at the date of
this Agreement or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares consisting
solely of changes in par value, or from no par value to par value, or
from par value to no par value. If at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Holders become
entitled to purchase any shares of capital stock of the Company other
than shares of Class A Common Stock, thereafter the number of such
other shares so purchasable upon exercise of each Warrant and the
Exercise Price of such shares shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Shares contained in paragraphs (a)
through (f), inclusive, and paragraphs (h) through (m), inclusive, of
this Section 8, and the provisions of Sections 4, 5, 7 and 10, with
respect to the Shares, shall apply on like terms to any such other
shares.
(h) Upon the expiration of any rights, options,
warrants or conversion rights or exchange privileges, if any thereof
have not been exercised, the Exercise Price and the number of shares
of Class A Common Stock purchasable upon the exercise of each Warrant
shall, upon such expiration, be readjusted and shall thereafter be
such as it would have been had it originally been adjusted (or had the
original adjustment not been required, as the case may be) as if (i)
the only shares of Class A Common Stock so issued were the shares of
Class A Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion rights or
exchange privileges and (ii) such shares of Class A Common Stock, if
any, were issued or sold for the consideration actually received
by the Company upon such exercise plus the aggregate consideration,
if any, actually received by the Company for the issuance, sale or
grant of all of such rights, options, warrants or conversion rights
or exchange privileges whether or not exercised; provided, however,
that no such readjustment shall have the effect of decreasing the
number of shares issuable upon the exercise of each Warrant or
increasing the Exercise Price by an amount in excess of the amount of
the adjustment initially made in respect of the issuance, sale or
grant of such rights, options, warrants or conversion rights or
exchange privileges.
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(i) The Company may, at its option at any time during
the term of the Warrants, reduce the then current Exercise Price to any
amount deemed appropriate by the Board of Directors of the Company.
(j) Whenever the number of Shares issuable upon the
exercise of each Warrant or the Exercise Price of such Shares is
adjusted, as herein provided, the Company shall promptly mail by first
class mail, postage prepaid, to each Holder notice of such adjustment
or adjustments. The Company shall retain a firm of independent public
accountants (who may be the regular accountants employed by the
Company) to make any computation required by this Section 8 and shall
cause such accountants to prepare a certificate setting forth the
number of Shares issuable upon the exercise of each Warrant and the
Exercise Price of such Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting
forth the computation by which such adjustment was made. Such
certificate shall be conclusive as to the correctness of such
adjustment and each Holder shall have the right to inspect such
certificate during reasonable business hours.
(k) Except as provided in this Section 8, no
adjustment in respect of any dividends shall be made during the term of
a Warrant or upon the exercise of a Warrant.
(l) If the Company consolidates with or merges into
another corporation or if the Company sells or conveys all or
substantially all its property to another corporation, the Company or
such successor or purchasing corporation (or an affiliate of such
successor or purchasing corporation), as the case may be, agrees that
each Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase
upon exercise of each Warrant the kind and amount of shares and other
securities and property (including cash) which such Holder would have
owned or been entitled to receive after the happening of the
consolidation, merger, sale or conveyance had such Warrant been
exercised immediately prior to such action. The provisions of this
paragraph (l) shall apply to successive consolidations, mergers, sales
or conveyances.
(m) Notwithstanding any adjustment in the Exercise
Price or the number or kind of shares purchasable upon the exercise of
the Warrants pursuant to this Agreement, certificates for Warrants
issued prior or subsequent to such adjustment may continue to express
the same price and number and kind of Shares as are initially issuable
pursuant to this Agreement.
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9. Fractional Interests. The Company shall not be required to
issue fractions of Shares on the exercise of Warrants. If more than one Warrant
is presented for exercise in full at the same time by the same Holder, the
number of Shares issuable upon the exercise thereof shall be computed on the
basis of the aggregate number of Shares issuable on exercise of the Warrants so
presented. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the current market price per share of Class A Common
Stock (determined as provided in Section 8(d) of this Agreement) on the date of
exercise.
10. Registration Rights.
(a) Demand Registration Rights. The Company covenants and
agrees with the Representative and any other or subsequent Holders of the
Registrable Securities (as defined in paragraph (f) of this Section 10) that,
subject to the availability of audited financial statements complying with
Regulation S-X under the Act, upon written request of the then Holder(s) of at
least a majority of the Warrants or the Registrable Securities, or both, which
were originally issued to the Representative or its designees, made at any time
within the period commencing one year and ending five years after the Effective
Date, the Company will file as promptly as practicable and, in any event, within
60 days after receipt of such written request, at its expense (other than the
fees of counsel and sales commissions for such Holders), no more than once, a
post-effective amendment (the "Amendment") to the Registration Statement, or a
new registration statement under the Act, registering or qualifying the
Registrable Securities for sale. Within fifteen (15) days after receiving any
such notice, the Company shall give notice to the other Holders of the
Registrable Securities advising that the Company is proceeding with such
Amendment, registration statement and offering to include the Registrable
Securities of such Holders. The Company shall not be obligated to any other such
Holder unless that other Holder accepts such offer by notice in writing to the
Company within ten (10) days thereafter. The Company will use its best efforts,
through its officers, directors, auditors and counsel in all matters necessary
or advisable, to file and cause such Amendment or registration statement to
become effective as promptly as practicable (but in no event within 90 days of
the initial filing of such Amendment or registration statement) and for a period
of 24 months thereafter to reflect in the Amendment or registration statement
financial statements which are prepared in accordance with Section 10(a)(3) of
the Act and any facts or events arising that, individually, or in the aggregate,
represent a fundamental or material change in the information set forth in the
Amendment or registration statement to enable any Holders of the Warrants
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to either sell such Warrants or to exercise such Warrants and sell Shares, or to
enable any holders of Shares to sell such Shares, during that nine-month period.
The Holders may sell the Registrable Securities pursuant to the Amendment or
registration statement without exercising the Warrants. If any registration
pursuant to this paragraph (a) is an underwritten offering, the Holders of a
majority of the Registrable Securities to be included in such registration shall
be entitled to select the underwriter or managing underwriter (in the case of a
syndicated offering) of such offering, subject to the Company's approval which
shall not be unreasonably withheld.
(b) Piggyback Registration Rights. The Company covenants and
agrees with the Representative and any other Holders or subsequent Holders of
the Registrable Securities that if, at any time within the period commencing one
year and ending five years after the Effective Date, it proposes to file a
registration statement with respect to any class of equity or equity-related
security (other than in connection with an offering to the Company's employees
or in connection with an acquisition, merger or similar transaction) under the
Act in a primary registration on behalf of the Company and/or in a secondary
registration on behalf of holders of such securities and the registration form
to be used may be used for registration of the Registrable Securities, the
Company will give prompt written notice (which, in the case of a registration
statement or notification pursuant to the exercise of demand registration rights
other than those provided in Section 10(a) of this Agreement, shall be within
ten (10) business days after the Company's receipt of notice of such exercise
and, in any event, at least 30 days prior to such filing) to the Holders of
Registrable Securities (regardless of whether some of the Holders have
theretofore availed themselves of the right provided in Section 10(a) of this
Agreement) at the addresses appearing on the records of the Company of its
intention to file a registration statement and will offer to include in such
registration statement any of the Registrable Securities subject to paragraphs
(i) and (ii) of this paragraph (b), such number of Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within ten (10) days after the giving of notice by the Company. All
registrations requested pursuant to this paragraph (b) are referred to herein as
"Piggyback Registrations". All Piggyback Registrations pursuant to this
paragraph (b) will be made solely at the Company's expense. This paragraph is
not applicable to a registration statement filed by the Company with the
Commission on Forms S-4 or S-8 or any successor forms.
(i) Priority on Primary Registrations. If a Piggyback
Registration includes an underwritten primary registration for the
Company, and the underwriter(s) for such offering determine in good
faith and advise the Company
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in writing that in their opinion the number of Registrable Securities
requested to be included in such registration exceeds the number that
can be sold in such offering without materially adversely affecting the
distribution of such securities by the Company, the Company will
include in such registration (A) first, the securities that the Company
proposes to sell and (B) second, the Registrable Securities requested
to be included in such registration, apportioned pro rata among the
Holders of Registrable Securities, provided, however, the Company will
use its best efforts to include not less than 20% of the Registrable
Securities, and (C) third, securities of the holders of other
securities requesting registration.
(ii) Priority on Secondary Registrations. If a
Piggyback Registration consists only of an underwritten secondary
registration for holders of securities of the Company (other than
pursuant to Section 10(a)), and the underwriter(s) for such offering
advise the Company in writing that in their opinion the number of
Registrable Securities requested to be included in such registration
exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities by
the Company, the Company will include in such registration (A) first,
the securities requested to be included therein by the holders
requesting such registration and the Registrable Securities requested
to be included in such registration, pro rata among all such holders on
the basis of the number of shares requested to be included by each such
holder, provided, however, the Company will use its best efforts to
include not less than 20% of the Registrable Securities, and (B)
second, other securities requested to be included in such registration.
Notwithstanding the foregoing, if any such underwriter
determines in good faith and advises the Company in writing that the
distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company, then the Holders of such Registrable Securities shall delay their
offering and sale for such period ending on the earliest of (1) 90 days
following the effective date of the Company's registration statement, (2) the
day upon which the underwriting syndicate, if any, for such offering has been
disbanded or, (3) such date as the Company, managing underwriter and Holders of
Registrable Securities otherwise agree. If such a delay occurs, the Company
shall file such supplements, post-effective amendments and take any other steps
necessary to permit such Holders to make their proposed offering and sale for a
period of 180 days immediately following the end of such delay. If any party
disapproves of the terms of any such underwriting, it may elect to withdraw
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therefrom by written notice to the Company, the underwriter, and the
Underwriters. However, the Company shall not be required to file a registration
statement to include Shares pursuant to this Section 10(b) if independent
counsel, reasonably satisfactory to counsel for the Company and counsel for the
Underwriters, renders an opinion to the Company that the Shares proposed to be
disposed of may be transferred pursuant to the provisions of Rule 144 under the
Act or otherwise without registration under the Act.
(c) Other Registration Rights. In addition to the rights above
provided, the Company will cooperate with the then Holders of the Registrable
Securities in preparing and signing any registration statement, in addition to
the registration statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information required
therefor, but such additional registration statement, shall be at the then
Holders' cost and expense; provided, however, that if the Company elects to
register or qualify additional shares of Class A Common Stock, the cost and
expense of such registration statement will be pro rated between the Company and
the Holders of the Registrable Securities according to the aggregate sales price
of the securities being issued. However, the Company will not be required to
file a registration statement pursuant to this paragraph (c), (i) at a time when
the audited financial statements required to be included therein are not
available, which time shall be limited to the period commencing 45 days after
the end of the Company's last fiscal year and ending 90 days after the end of
such fiscal year, or (ii) within 90 days after completion of a public offering
by the Company of any of its Class A Common Stock or equity-related securities
or (iii) if it would adversely impact the Company in its capital raising plans
or otherwise (in which latter case filing may be delayed no longer than 120
days).
(d) Action to be Taken by the Company. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company agrees to:
(i) Bear the expenses of any registration or
qualification under paragraphs (a) or (b) of this Section 10,
including, but not limited to, legal, accounting and printing fees;
provided, however, that in no event shall the Company be obligated to
pay (A) any fees and disbursements of special counsel for Holders of
Registrable Securities, or (B) any underwriters' discount or commission
in respect of such Registrable Securities, (C) any stock transfer taxes
attributable to the sale of the Registrable Securities, or (D) upon the
exercise of any demand registration right provided for in paragraph (a)
of this Section 10, the cost of any liability or similar insurance
required by an underwriter, to the extent that such costs
13
<PAGE> 15
are attributable solely to the offering of such Registrable Securities,
payment of which shall, in each case, be the sole responsibility of the
Holders of the Registrable Securities; and
(ii) Use its best efforts to register or qualify the
Registrable Securities for offer or sale under state securities or Blue
Sky laws of such jurisdictions in which the Underwriters or such
Holders shall reasonably request, provided, however, that no
qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or
to taxation as a foreign corporation doing business in such
jurisdiction to which it is not then subject, and to do all other acts
necessary or advisable to enable the holders to consummate the proposed
sale, transfer or other disposition of such securities in any
jurisdiction.
(e) Action to be Taken by the Holders. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company's obligation shall be conditioned as to each
such public offering upon a timely receipt by the Company in writing of:
(i) Information as to the terms of such public
offering furnished by or on behalf of each Holder intending to make a
public offering of his or its Registrable Securities; and
(ii) Such other information as the Company may
reasonably require from such Holders, or any underwriter for any of
them, for inclusion in such Registration Statement.
(f) For purposes of this Section 10, (i) the term "Holder"
shall include holders of Shares, and (ii) the term "Registrable Securities"
shall mean the Shares, if issued.
11. Notices to Holders.
(a) Nothing in this Agreement or in any Warrants shall be
construed as conferring upon the Holders the right to vote or to receive
dividends or to consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company; provided,
however, that in the event that a meeting of shareholders shall be called to
consider and take action on a proposal for the voluntary dissolution of the
Company, other than in connection with a consolidation, merger or sale of all,
or substantially all, of its property, assets, business and good will as an
entirety, the Company shall cause a notice thereof to be sent by first-class
mail, postage prepaid, at least twenty (20) days
14
<PAGE> 16
prior to the date fixed as a record date or the date of closing the transfer
books in relation to such meeting, to each registered Holder of Warrants at such
Holder's address appearing on the Warrant Register; but failure to mail or to
receive such notice or any defect therein or in the mailing thereof shall not
affect the validity of any action taken in connection with such voluntary
dissolution.
(b) If the Company intends to make any distribution on its
Class A Common Stock (or other securities which may be issuable in lieu thereof
upon the exercise of Warrants), including, without limitation, any such
distribution to be made in connection with a consolidation or merger in which
the Company is the surviving entity, or to issue subscription rights or warrants
to holders of its Class A Common Stock, the Company shall cause a notice of its
intention to make such distribution to be sent by first-class mail, postage
prepaid, at least twenty (20) days prior to the date fixed as a record date or
the date of closing the transfer books in relation to such distribution, to each
registered Holder of Warrants at such Holder's address appearing on the Warrant
Register, but failure to mail or to receive such notice or any defect therein or
in the mailing thereof shall not affect the validity of any action taken in
connection with such distribution.
12. Notices. Any notice pursuant to this Agreement to be given
by the Holder of any Warrant or the holder of any Share to the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows or to such other address as the Company may designate by
notice given in accordance with this Section 12, to the Holders of Warrants or
the holders of Shares:
Jaymark, Inc.
9775 Towne Centre Drive
San Diego, California 92121
Attention: President
Notices or demands authorized by this Agreement to be given or
made by the Company to or on the Holder of any Warrant or the holder of any
Share shall be sufficiently given or made (except as otherwise provided in this
Agreement) if sent by first-class mail, postage prepaid, addressed to such
Holder or such holder of Shares at the address of such Holder or such holder of
Shares as shown on the Warrant Register or the books of the Company, as the case
may be.
13. Governing Law. This Agreement and each Warrant issued
hereunder shall be governed by and construed in accordance with the substantive
laws of the State of New York. The Company hereby agrees to accept service of
process by notice given to it pursuant to the provisions of Section 12.
15
<PAGE> 17
14. Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts together shall constitute one and the same instrument.
16
<PAGE> 18
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be duly executed as of the day, month and year first above written.
JAYMARK, INC.
By:_____________________________
Its: ________________________
BREAN MURRAY & CO., INC.
By:_____________________________
Its:_________________________
17
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
Name of Number of
Underwriter Warrants
- ----------- --------
<S> <C>
Brean Murray & Co., Inc.
Total 130,000
</TABLE>
<PAGE> 1
EXHIBIT 10.19
DEFERRED COMPENSATION AGREEMENT
This DEFERRED COMPENSATION AGREEMENT ("Agreement") is made and entered
into as of the 25th day of February, 1997, by and between Jaycor, a California
corporation ("Jaycor"), and Eric P. Wenaas ("Wenaas"), President and Chief
Executive Officer of Jaycor, and shall be effective upon the closing of the
initial public offering of securities of Jaycor, or of any successor
corporation, pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended.
Recitals
WHEREAS, Wenaas has previously relinquished his rights in certain stock
options;
WHEREAS, Wenaas is serving as President and Chief Executive Officer of
Jaycor and performs key duties for Jaycor;
WHEREAS, Jaycor acknowledges the hardship that would result from
Wenaas' resignation from his duties at Jaycor; and
WHEREAS, Jaycor desires to provide an incentive to Wenaas to continue
the performance of such key duties.
Agreement
NOW, THEREFORE, in consideration of the covenants and conditions
contained in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties to
this Agreement agree as follows:
1. Deferred Compensation. Jaycor shall credit Forty Thousand Dollars
($40,000) into an account on behalf of Wenaas designated as non-funded deferred
compensation ("Account") on each of January 15, 1998, January 15, 1999,
January 15, 2000 and January 15, 2001; provided that, on such date, Wenaas is
employed by Jaycor or any of its subsidiaries. The balance of the Account shall
accrue interest on January 31, April 30, July 31 and October 31 of each year at
the prime rate published by Wells Fargo Bank on such date. In the event that
Jaycor chooses not to maintain such Account, Jaycor shall be obligated to
provide compensation in an amount equal to that which the Account balance would
have been as described in this Section 1.
<PAGE> 2
1.1 Termination Other than for Cause. In the event that Wenaas is
terminated from employment by Jaycor other than for Cause, or in the event of
Wenaas' death or disability, the amounts to be credited to the Account will be
accelerated and the full One Hundred Sixty Thousand Dollars ($160,000) will
become immediately due and payable to Wenaas or his heirs. For purposes of the
Agreement, the following shall constitute Cause: (a) the willful and repeated
failure of Wenaas to perform any material duties or the gross negligence of
Wenaas in the performance of such duties; (b) unexplained, willful and regular
absences of Wenaas from Jaycor unrelated to Jaycor's business; (c) excessive use
of alcohol or illegal drugs interfering with the performance of Wenaas' duties;
(d) theft, embezzlement, fraud, misappropriation of funds or other acts of
dishonesty; or (e) the conviction of a felony or other crime involving moral
turpitude by Wenaas.
1.2 Termination for Cause. In the event that the employment of
Wenaas is terminated with Cause, the balance of the Account as of the last day
of employment shall become due and payable to Wenaas within thirty (30) days of
the termination of such employment.
2. Jaycor's Duties. Jaycor has no obligations pursuant to this Agreement
to retain Wenaas as an employee or otherwise, other than as expressly set forth
herein.
3. Rights to Account. Wenaas shall have no rights against Jaycor, other
than the right of unsecured general creditor, with respect to the compensation
due Wenaas under this Agreement. Weenas has no other interest in the Account
nor in any asset of Jaycor. Nothing in this Agreement shall be construed as the
creation of an escrow account, trust fund, or any other form of segregation of
assets. Wenaas shall not have any right to assign, transfer, pledge, alienate
or encumber the amounts credited to the Account, and any such attempt shall be
null and void; nor shall such Account be subject to the debts, contracts,
liabilities or torts of Wenaas.
4. Entire Agreement. This Agreement is intended to be the final, complete
and exclusive agreement between the parties concerning the deferred
compensation for Wenaas' relinquishment of stock option rights and continued
employment with Jaycor. The parties agree that this Agreement supersedes any
and all other agreements pertaining in any manner to the deferred compensation,
and any and all such agreements, including the Bonus Agreement dated June 14,
1991, shall have no further force or effect.
5. Amendments. This Agreement may not be modified or amended, except by a
writing signed by each of the parties. Failure to exercise any right under this
Agreement shall not constitute a waiver of such right.
6. Attorney's Fees. If any legal action or arbitration or other proceeding
is brought for the enforcement or interpretation of this Agreement, or because
of an alleged dispute, breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled.
<PAGE> 3
7. Severability. If a court or arbitrator holds any provision of
this agreement to be invalid, unenforceable, or void, the remainder of this
Agreement shall remain in full force and effect.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
9. Further Acts. Each party to this Agreement agrees to perform
any further acts and execute and deliver any further documents that may be
reasonably necessary to carry out the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
JAYCOR
Jaycor, a California corporation
By: /s/ P. Randy Johnson
-------------------------------
Name: P. Randy Johnson
Title: Vice President, Finance
WENAAS:
/s/ Eric P. Wenaas
-----------------------------------
Eric P. Wenaas
-3-
<PAGE> 1
EXHIBIT 10.20
DEFERRED COMPENSATION PLAN AGREEMENT
JAYCOR provides a retirement program to all eligible employees. Additionally,
the Company believes it is important for employees to augment their retirement
monies through personal savings. Accordingly, the Company wishes to encourage
certain key employees to more adequately prepare for retirement and has
therefore developed this Deferred Compensation Plan which will pay a guaranteed
rate of interest of 8% per annum on amounts deferred or contributed into the
Plan.
Amounts deferred into the plan reduce the income base of individuals. This
reduction in salary, in turn, causes a reduction of Company contributions into
employees' Money Purchase Pension Plan (MPPP) accounts because MPPP
contributions are based upon W-2 earnings. To counter this reduction in MPPP
contributions, for the year in which salary is deferred into this plan, the
Company will make a contribution into the deferring employee's MPPP account,
equivalent to the amount that would have been made had salary not been deferred
into this plan. This contribution will be made before March 31st of the year
subsequent to the year in which salary is deferred into this plan.
This Deferred Compensation Agreement ("Agreement") is made on ________________
between JAYCOR ("Company"), a California corporation, and
___________________________ ("Employee") and is made with reference to the
following facts:
Employee is and will be rendering valuable services to the Company and
it is the desire of the Company to have benefit of his/her continued
loyalty, service, and counsel and also to assist the Employee in
providing for the contingencies of death, disability, and old age
dependency.
Therefore, the parties agree as follows:
SECTION 1: DEFERRED COMPENSATION ACCOUNT
1.1 AMOUNT OF DEFERRAL
<PAGE> 2
1.1.1 As of the effective date of this Agreement,
the Company will commence to compensate the Employee for his/her
services in the form of both current and deferred compensation.
1.1.2 The amount of current compensation may be
adjusted by the parties hereto from time to time without altering the
terms of the Agreement. The deferred portion of the total
compensation will be controlled by the terms of this Agreement and as
of the effective date and until amended will be $ ____________ per
2-week pay period. This amount will be credited each month in
accordance with Section 1.2.
1.1.3 The deferred portion of the total compensation
can be amended upon written notice. The Employee must notify the
Company at least 30 days before the effective date of change. The
deferred portion cannot be changed more frequently than once every 6
months.
1.1.4 Compensation in the form of cash bonus
payments may be deferred in its entirety into this deferral plan.
Cash bonus payments may be entered into this plan provided the check
is returned uncashed along with written authorization received not
longer than 5 working days after issuance of the bonus payment.
1.2 ACCOUNT AND CREDITS
1.2.1 Effective ________________, the Company will
set up an account on its books in the name of the Employee to which
will be accrued deferred compensation in the amount of $ ___________
per 2-week pay period. This amount will be accrued to this account
each biweekly period thereafter, provided sufficient hours are
submitted by the Employee during the time the Employee continues
employment with the Company. This account will earn interest at the
guaranteed rate of 8% per annum, compounded monthly. Interest will be
credited to the account based on the account balance as of the first
day of each calendar month.
SECTION 2: TERMINATION BENEFITS
<PAGE> 3
2.1 VALUATION OF ACCOUNT
The account referenced in 1.2.1 will be valued as of the end
of the month prior to the day the first installment is paid under the
provisions of this Section 2.
2.2 TERMINATION BEFORE DEATH
2.2.1 INSTALLMENT PERIOD: At retirement or in the
event the Employee's employment with the Company terminates for any
reason other than the death of the Employee, then beginning on a date
to be determined by the Company but within 3 months from the date of
such termination, the Company will commence to pay the Employee
termination benefits in equal installments. If the number of whole
years for which income was actually deferred between the effective
date of this Agreement and the date of termination ("Service Period")
is 10 or less years, such installments will be paid for a period of
years equal to such Service Period. If, on the other hand, the
Service Period is 11 or more years, such installments will be paid for
any number of whole years which the Company, in its sole discretion
and either with or without consultation with the Employee, may select
within the range of years specified in the following schedule,
depending upon the Service Period of the Employee:
<PAGE> 4
<TABLE>
<CAPTION>
Period of Whole Years Company
Service Period May Select for Installments
-------------- -----------------------------
<S> <C>
11 years 10 thru 11 inclusive
12 years 10 thru 12 inclusive
13 years 10 thru 13 inclusive
14 years 10 thru 14 inclusive
15 years 10 thru 15 inclusive
16 years 10 thru 16 inclusive
17 years 10 thru 17 inclusive
18 years 10 thru 18 inclusive
19 years 10 thru 19 inclusive
20 years or more 10 thru 20 inclusive
</TABLE>
2.2.2 SIZE OF INSTALLMENT: The basic installments
will be equal and will be of such a size that the present value of all
such installments, on the date the first installment is paid by the
Company, will equal the value of the Account on such date after all
adjustments have been made in accordance with Section 2.1 of the
Agreement, based on the annual compound interest factor of seven
percent (7%).
2.2.3 FREQUENCY OF INSTALLMENT: The basic
installment will be paid annually, or at the written request of the
Employee, the basic installments can be paid monthly. Additionally,
the Company will consider the Employee's written request for payment
in the form of a single lump sum. In either case, the written request
must be received within 2 months from the date of such termination.
The Company cannot guarantee that a lump sum request will be honored,
such determination is based upon Management's assessment of the
Company's overall financial obligations.
2.2.4 DEATH AFTER TERMINATION: In the event the
Employee dies after becoming entitled to receive the above specified
installments, but before any or all of such installments have been
paid, the Company will pay or will continue to pay said unpaid amounts
or the unpaid balance of said amounts to the Employee's beneficiaries
in the same manner as they would have been paid to the Employee.
2.3 TERMINATION BECAUSE OF DEATH
<PAGE> 5
2.3.1 INSTALLMENT PERIOD: In the event the
Employee's employment with the Company terminated because of the
Employee's death, then, beginning on a date to be determined by the
Company but no sooner than the day after and no later than 2 months
following such termination, the Company will commence to pay the
designated beneficiaries, termination benefits, in monthly
installments, for a period as determined by Subparagraph 2.2.1.
2.3.2 SIZE OF INSTALLMENT: The size of such
installments will be determined in accordance with the rules set forth
in Subparagraph 2.2.2 of this Agreement.
2.3.3 FREQUENCY OF INSTALLMENT: The basic
installment will be paid monthly. Additionally, the Company will
consider the beneficiaries' written request for payment in the form of
a single lump sum, provided it is received within 2 months of the
employee's death. The Company cannot guarantee such a request will be
honored, such determination is based upon Management's assessment of
the Company's overall financial obligations.
2.4 CHANGE OF BENEFICIARY
The designated beneficiaries may be changed by the Employee,
by submitting a Beneficiary Designation/Change form. Any previous
beneficiary designation or change of beneficiary designation will be
revoked upon receipt of the Change form.
<PAGE> 6
2.5 WITHHOLDING OF TAXES
There shall be deducted from any payment due an Employee or
beneficiaries under this plan, payroll and/or withholding taxes, as
required by law.
SECTION 3: BENEFITS NON-ASSIGNABLE
It is the intent of the Company that the benefits provided by
this Agreement will be available for the support and maintenance of
the Employee and his/her beneficiaries and payees in the event of the
Employee's termination. Therefore, the Company desires to limit the
rights of the Employee, his/her beneficiaries and payees in a manner
which will assure that such benefits will always be of a size and
duration sufficient to provide for the support and maintenance of the
Employee and his/her beneficiaries and payees. Therefore, the
benefits provided by Section 2 of the Agreement will not be subject to
garnishment, attachment, or other legal process by creditors of the
Employee or of any person or persons designated as beneficiaries of
the Agreement or of any other payee of the benefits provided herein.
SECTION 4: EMPLOYMENT AND OTHER RIGHTS
4.1 This Agreement creates no rights in the Employee to
continue in his/her employment with the Company for any length of
time, nor does it create any rights in the Employee or his/her
beneficiaries or any obligation on the part of the Company, other than
those set forth herein.
4.2 This Agreement is solely between the Company and the
Employee. The Employee and his/her beneficiaries and payees will have
recourse only against the Company for enforcement, and this Agreement
will be binding upon the beneficiaries, heirs, and personal
representatives of the Employee and upon the successors and assigns of
the Company.
4.3 The Agreement does not constitute a trust for the benefit
of the Employee, and Employee's rights are, other than contained in
the Agreement, that of general creditor.
<PAGE> 7
EXECUTED by the undersigned on the date first above written.
EMPLOYEE: JAYCOR:
By: __________________________________
______________________________________
Eric P. Wenaas
President and CEO
<PAGE> 8
LONG TERM DEFERRAL PROGRAM
This program is designed to allow select employees to defer current income into
long term savings, on a tax-deferred basis. Listed below are the major
features of this program.
BENEFITS
o the delay of income tax payments (state/federal taxes are not withheld,
social security taxes are)
o the accumulation of funds for retirement
o a competitive return on investment
o salary bonus payments may also be deferred into your plan.
POLICIES/INFORMATION
o Minimum deferral is $150.00 per pay period.
o May change deferral amount every 6 months.
o Funds are available only when you retire or when your
employment with JAYCOR terminates.
o Currently the plan is offered at an interest rate of 8% per
annum compounded monthly; this is lowered to 7% in pay-out period. This
rate is subject to change in advance of a signed agreement between the
Employee and the Company.
o To satisfy IRS regulations, funds cannot be placed in
trusteeship. Deferrals will be used by JAYCOR as operating funds with
corresponding reductions in cash borrowing. Under this arrangement, funds
are not secured and will be available as a general credit obligation.
o Company contributions to your Money Purchase Pension Plan are
reduced as a result of participation in this plan since your W-2 earnings
are less. This reduction will be offset through an annual increase to your
deferral account of exactly the amount lost in the Pension Plan.
- -----------------------------------------------------------------------------
If you are interested in participating in this plan, complete the attached
Agreement and the Beneficiary Designation form and return both to your Human
Resources Department. If you have any further questions, contact the Corporate
or Tysons Human Resources Department.
12/2/91
<PAGE> 9
DEFERRED COMPENSATION PLAN AGREEMENT
JAYCOR provides a retirement program to all eligible employees.
Additionally, the Company believes it is important for employees to
augment their retirement monies through personal savings.
Accordingly, the Company wishes to incentivize certain key
employees to more adequately prepare for retirement and has
therefore developed this Deferred Compensation Plan which will pay
a guaranteed rate of interest of 9% per annum on amounts deferred
or contributed into the Plan. Amounts deferred into the plan
reduce the income base of individuals thereby delaying income
taxation until funds are paid out.
This Deferred Compensation Agreement ("Agreement") is made on
____________ between JAYCOR ("Company"), a California corporation,
and _____________ ("Employee") and is made with reference to the
following facts:
Employee is and will be rendering valuable services to
the Company and it is the desire of the Company to have
benefit of his continued loyalty, service, and counsel and
also to assist the Employee in providing for the
contingencies of death, disability, and old age dependency.
<PAGE> 10
Therefore, the parties agree as follows:
Section 1: Deferred Compensation Account
1.1 Amount of Deferral
1.1.1 As of the effective date of this
Agreement, the Company will commence to compensate the Employee for
his services in the form of both current and deferred compensation.
1.1.2 The deferred portion of the
total compensation will be controlled by the terms of this
Agreement and will be $ ___________ per two week pay period. This
amount will be credited each month in accordance with Section 1.2.
1.2 Account and Credits
1.2.1 Effective _____________, the
Company will set up an account on its books in the name of
_________________(Employee) to which will be accrued deferred
compensation in the amount of $ ____________ per two week pay
period. This amount will be accrued to this account each biweekly
period thereafter during the time __________________(Employee)
shall continue his employment with the Company. This account will
earn
<PAGE> 11
interest at the guaranteed rate of 9% per annum, compounded
monthly. Interest will be credited to the account based on the
account balance as of the first day of each calendar month.
Section 2. Termination Benefits
2.1 Valuation of Account
2.1.1 The account referenced in
1.2.1 will be valued as of the end of the month prior to the day
the first installment is paid under the provisions of this section
2.
2.2 Termination before Death
2.2.1 Installment Period
At Retirement or in the event the Employee's
employment with the Company terminates for any reason other than
the death of the Employee, then, beginning on a date to be
determined by the Company but within three months from the date of
such termination, the Company will commence to pay the Employee
termination benefits in monthly installments. If the number of
whole years for which income was actually deferred between the
effective date of this Agreement and the date of termination
("Service Period") is ten (10) or less years, such installments
will be paid for a period of years equal to such Service Period.
If, on the other hand, the Service Period is eleven (11) or more
years, such installment will be paid for any number of whole years
which the Company, in its
<PAGE> 12
sole discretion and either with or without consultation with the
Employee may select within the range of years specified in the
following schedule, depending upon the Service Period of the
Employee:
<TABLE>
<CAPTION>
Period of Whole Years
Which Company May Select
Service Period for Installments
-------------- ------------------------
<S> <C> <C>
11 years 10 through 11 inclusive
12 years 10 through 12 inclusive
13 years 10 through 13 inclusive
14 years 10 through 14 inclusive
15 years 10 through 15 inclusive
16 years 10 through 16 inclusive
17 years 10 through 17 inclusive
18 years 10 through 18 inclusive
19 years 10 through 19 inclusive
20 years or more 10 through 20 inclusive
</TABLE>
2.2.2 Size of Installment
The basic installments will be equal and will be of such
a size that the present value of all such installments on the date
the first installment is paid by the Company will equal the value
of the Account on such date after all adjustments have been made in
accordance with Section 2.1 of this Agreement, based on the annual
compound interest factor of 8%.
2.2.3 Death after Termination
In the event the Employee dies after becoming entitled to
receive the above specified installments but before any or all of
such installments and gains realized have been paid, the Company
<PAGE> 13
will pay or will continue to pay said unpaid amounts or the unpaid
balance of said amounts to the Employee's beneficiaries in the same
manner as they would have been paid to the Employee.
2.3 Termination Because of Death
2.3.1 In the event the Employee's
employment with the Company terminated because of the Employee's
death, then, beginning on a date to be determined by the Company
but no sooner than the day after and no later than two (2) months
following such termination, the Company will commence to pay the
beneficiaries designated below termination benefits in monthly
installments for a period as determined by Subparagraph 2.2.1.
2.3.2 The size of such installments
will be determined in accordance with the rules set forth in
Subparagraph 2.2.2 of this Agreement.
2.3.3 The beneficiaries named herein may
be changed by the Employee, with the agreement of the Company, by
written amendment to this Agreement. However, the Company will not
unreasonably withhold its agreement to change the beneficiary
designation, but a change in beneficiaries shall not be effective
until there is a written amendment to the Agreement signed by both
the Company and the Employee.
<PAGE> 14
2.3.4 There shall be deducted from any
payment due an Employee or beneficiaries under this plan, payroll
and/or withholding taxes, as required by law.
Section 3. Benefits Non-assignable
3.1 It is the intent of the Company that
the benefits provided by this Agreement will be available for the
support and maintenance of the Employee and his beneficiaries and
payees in the event of the Employee termination. Therefore, the
company desires to limit the rights of the Employee and his
beneficiaries and payees in a manner which will assure that such
benefits will always be of a size and duration sufficient to
provide for the support and maintenance of the Employee and his
beneficiaries and payees. Therefore, the benefits provided by
Section 2 of this Agreement will not be subject to garnishment,
attachment or other legal process by creditors of the Employee or
any person or persons designated as beneficiaries of this
Agreement or any other payee of the benefits provided herein.
Section 4. Employment and Other Rights
4.1 This Agreement creates no rights in the
Employee to continue in his employment with the Company for any
length of time, nor does it create any rights in the Employee or
his beneficiaries or any obligation on the part of the Company,
other than those set forth herein.
<PAGE> 15
4.2 This Agreement is solely between the
Company and the Employee. The Employee and his beneficiaries and
payees will have recourse only against the Company for enforcement,
and this Agreement will be binding upon the beneficiaries, heirs,
and personal representatives of the Employee and upon the
successors and assigns of the Company.
4.3 The Agreement does not constitute a
trust for the benefit Employees, and Employee's rights are, other
than contained in this Agreement, that of general creditor.
EXECUTED by the undersigned on the date first above
written.
<TABLE>
<S> <C>
EMPLOYEE: JAYCOR:
By:______________________ ________________________
E. Linneman
Director, Human Resources
</TABLE>
<PAGE> 16
AMENDMENT NO. 1 TO DEFERRED COMPENSATION PLAN AGREEMENT.
This Amendment is made on _________________ to amend the Deferred
Compensation Plan Agreement (the "Agreement") between JAYCOR, a
California corporation ("Company") and _________________________
("Employee") dated __________________, as follows:
1. Section 1 of the Agreement is amended by the insertion of
a new subsection 1.3 to read as follows:
1.3 For calendar 1994 only, the Company no later than
December 31, 1994, shall credit Employee's account with additional
accrued deferred compensation in the amount of $____________.
2. Except as so amended, the Agreement is ratified and
confirmed.
JAYCOR, a California corporation
by: ____________________________
________________________________
Employee
<PAGE> 17
AMENDMENT NO. 2 TO DEFERRED COMPENSATION PLAN AGREEMENT
This Amendment is made on December 29, 1995 to amend the Deferred
Compensation Plan Agreement (the "Agreement") between JAYCOR, a
California corporation ("Company") and __________________________
("Employee") dated September 15, 1990, as follows:
1. Section 1 of the Agreement is amended by the insertion of
a new subsection 1.3 to read as follows:
1.3 For calendar 1995 only, the Company no later
than December 31, 1995, shall credit Employee's account with
additional accrued deferred compensation in the amount of
$___________.
2. Except as so amended, the Agreement is ratified and
confirmed.
JAYCOR, A CALIFORNIA CORPORATION
by: _______________________________
Randy Johnson, VP-Finance & CFO
EMPLOYEE: _________________________
<PAGE> 18
AMENDMENT NO.3 TO DEFERRED COMPENSATION PLAN AGREEMENT
This Amendment is made on December 16, 1996 to amend the Deferred
Compensation Plan Agreement (the "Agreement") between JAYCOR, a
California corporation ("Company") and _________________________
("Employee") dated September 15, 1990, as follows:
1. Section 1 of the Agreement is amended by the insertion of
a new subsection 1.3 to read as follows:
1.3 For calendar 1996 only, the Company no later
than December 31, 1996, shall credit Employee's account with
additional accrued deferred compensation in the amount of
$____________.
2. Except as so amended, the Agreement is ratified and
confirmed.
JAYCOR, A CALIFORNIA CORPORATION
by: ________________________________
Randy Johnson, VP-Finance & CFO
EMPLOYEE: __________________________
<PAGE> 1
Exhibit 11.1
JAYMARK, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Nine months ended
October 31, Year ended January 31,
1996 1995 1996 1995 1994
------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Income before cumulative effect of change in
acounting principle $436 $162 $336 $322 $489
Reduction of interest expense, net of income
tax expense on assumed retirement
of short-term debt(1) - - - - 71
--------- --------- --------- --------- ---------
436 162 336 322 560
Cumulative effect of change in method of
accounting for income taxes - - - - 231
--------- --------- --------- --------- ---------
Net income $436 $162 $336 $322 $791
========= ========= ========= ========= =========
Weighted average number of common shares outstanding 1,897,433 1,935,515 1,924,461 1,980,048 2,039,524
Common stock equivalent shares(2) 151,391 151,391 151,391 151,391 151,391
Dilutive common stock options(1)(3) - - - - 487,520
--------- --------- --------- --------- ---------
Total number of shares for computing primary and
fully diluted earnings per share 2,048,824 2,086,906 2,075,852 2,131,439 2,678,435
========= ========= ========= ========= =========
Primary net earnings per share:
Income before cumulative effect of change
in accounting principle $0.21 $0.08 $0.16 $0.15 $0.21
Cumulative effect of change in method of
accounting for income taxes - - - - 0.09
--------- --------- --------- --------- ---------
Primary net earnings per share $0.21 $0.08 $0.16 $0.15 $0.30
========= ========= ========= ========= =========
Fully diluted net earnings per share(4):
Income before cumulative effect of change
in accounting principle $0.21 $0.08 $0.16 $0.15 $0.21
Cumulative effect of change in method of
accounting for income taxes - - - - 0.09
--------- --------- --------- --------- ---------
Fully diluted net earnings per share $0.21 $0.08 $0.16 $0.15 $0.30
========= ========= ========= ========= =========
</TABLE>
- -----------
(1) Based on the modified treasury stock method pursuant to paragraph 38 of
Accounting Principles Board Opinion No. 15. No amounts are presented for
the nine month periods ended October 31, 1996 and 1995 or the fiscal years
ended January 31, 1996 and 1995 as the net effect is antidilutive for both
the primary and fully diluted computations.
(2) Represents common stock equivalent shares for stock granted since
March 6, 1996 using the treasury stock method and the $13.00 estimated
initial public offering price per share pursuant to Staff Accounting
Bulletin No. 83.
(3) There is no difference between the number of weighted average shares used
in the fiscal year 1994 primary and fully diluted computations as the
average fair value of the Company's Common Stock exceeded its fair value at
the end of the fiscal year.
(4) This computation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by Accounting Principles Board Opinion
No. 15 because it results in dilution of less than 3%.
<PAGE> 1
Exhibit 21.1
Subsidiaries of Jaymark, Inc.
Jaycor, Inc., a California corporation (formerly known as JAYCOR)
Jaycor Networks, Inc., a Delaware corporation
Jaycor Technical Services, Inc., a California corporation
Jaycor Multimedia Services, Inc., a Delaware corporation
Howell Intelligence Services, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-START> FEB-01-1996 FEB-01-1995
<PERIOD-END> OCT-31-1996 JAN-31-1996
<CASH> 47 53
<SECURITIES> 0 0
<RECEIVABLES> 10,921 13,008
<ALLOWANCES> 0 0
<INVENTORY> 255 131
<CURRENT-ASSETS> 11,803 13,876
<PP&E> 32,574 33,400
<DEPRECIATION> 13,026 13,526
<TOTAL-ASSETS> 32,715 34,779
<CURRENT-LIABILITIES> 11,446 13,635
<BONDS> 13,846 14,457
3,159 2,579
0 0
<COMMON> 1 1
<OTHER-SE> 2,876 2,812
<TOTAL-LIABILITY-AND-EQUITY> 32,715 34,779
<SALES> 0 0
<TOTAL-REVENUES> 41,452 52,928
<CGS> 0 0
<TOTAL-COSTS> 39,340 50,340
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,427 2,018
<INCOME-PRETAX> 685 570
<INCOME-TAX> 249 234
<INCOME-CONTINUING> 436 336
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 436 336
<EPS-PRIMARY> 0.21 0.16
<EPS-DILUTED> 0.21 0.16
</TABLE>
